Good morning. This is the Quarter Call Conference Operator. Welcome. Thank you for joining the Avio First Quarter 2023 Results Conference Call. As a reminder, all participants are on listen only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Giulio Ranzo, CEO. Please go ahead, sir.
Good morning. Good morning to you all, thank you for joining the first quarter results for Avio. I hope you all have the presentation in front of you. I would give you, as always, an overview of the highlights of the first quarter. Alessandro Agosti, our CFO, will talk about the financials. As a general remark, as you know, the first quarter is generally soft. There are a number of important things that are worth reviewing. If we go to page three, what we can report that we think is noteworthy is a record high order backlog, an improvement in profitability. In essence, our work to return to flight with Vega is expected.
The launch of our Vega rocket is planned by August, and then we will have a Vega C by year-end, following Zefiro 40, our second stage firing test in June that we will perform to clear the way for the Vega C flight by year-end. In the meantime, as I anticipated, we have accumulated in the first quarter a record high order backlog. This is the highest net order backlog company in its history. It's almost EUR 1.3 billion, and so that provides a huge visibility for the future. This is thanks to two main contributions. One is due to the new development contracts, all of which are related to liquid propulsion technology development, and the other one to defense products. As you know, for propulsion systems for tactical missiles.
In the meantime, we have seen some improved profitability thanks to the lower level of energy prices that we have had this quarter compared to last year. The situation seems to be a little bit more stable than it has been across 2022, and this has definitely provided some relief on the generation of profit. Knowing, as I said, that the first quarter is typically very, very low in contribution to profit relative to the full year. The cash position continues to be robust. It's a bit lower than it was at the end of the year, but already in April, it's going back up. You know, some advances were paid a few days after the end of the quarter, so they don't show up.
What we can report to you is a continuously robust cash position. As a result of that, we can confirm the 2023 guidance we gave a couple of months ago at the occasion of the reporting of the 2022 results. On Page 4, a recap of flight activity. The flight activity for Ariane 5, as you know, is nearing completion. By the summer, I would say in the next couple of months, Ariane 5 will perform its last flight, VA261, and the program will actually end. ArianeGroup will prepare for the maiden flight of Ariane 6, the date of which is not yet finalized by ArianeGroup and the European Space Agency.
We will see if it's by the end of the year, we will wait for their announcements. All is being prepared for that event. Regarding Vega, as you know, the schedule is as follows. By June, we will perform Zefiro 40 firing test with a new carbon-carbon insert to demonstrate that the new configuration using a different material is satisfactory. In the meantime, we will prepare a Vega flight which does not use Zefiro 40, so it's not affected by this type of applications. We will perform a Vega flight in August, we will go for a Vega C flight by year-end. This is essentially as it was planned, we will see more details.
In the meantime, on Page 5, we can report additional commercial success of Arianespace in selling Vega on the market. We presented this slide also at the occasion of year-end results. We showed in green what is the backlog of launches that have been already sold for the next few years. The green ones that are already sold is growing substantially. Yesterday, Arianespace announced the sale of another launch for ClearSpace. That's interesting because it will be the very first mission to embark a space debris deorbiting mission to essentially take away some space debris from space.
Very interesting mission, and that is further filling the backlog for the years to come. Some of the other flights for 2026 and 2027 are not yet contracted, but they are in sight. Some will be coming from the European Space Agency. We, we know they're coming, but not contracted yet. This is an extraordinary visibility on the future, and you can see an opportunity for growth in the average flight rate. We will see how things will go, because obviously, satellites sometimes slip in time in terms of their readiness to launch. We also have our challenges to meet an increasing flight rate. I would say it's a phenomenal motivation here to have so much backlog ahead of us to work on.
We are eager to come back to flight in August and prepare for a substantial increase in our rate for the years to come. On Page 6, as we commented, during the first quarter, we accumulated a number of orders for new technology developments, all of which relate to next-generation launcher technology, all of which revolve around liquid propulsion systems at the end. Left to right, you recall, we contracted to develop a new space transportation system, so called with, de facto, an in-flight demonstrator of a Liquid Oxygen Methane to stage to orbit, small launcher. This we will perform by executing a couple of experimental launches to demonstrate the feasibility in flight of our Liquid Oxygen, Liquid Oxygen-Liquid Methane technology.
We have the development of a larger class Liquid Oxygen Methane Engine with a 60-ton thrust class. We have contracted with the Italian Space Agency to develop a different system with storable liquid propellant, which is a Multi-Purpose Green Engine using entirely green type of propellants to perform sophisticated orbital operations. This will be fueling even more the versatility and the flexibility of the Vega to deliver more satellites to space and to perform more orbital operations within one launch.
In addition to that, the Italian Space Agency has announced that we have been selected among other players together with Thales, Leonardo, Telespazio, and D-Orbit, as a group of companies to develop an in-orbit service system to be launched for a number of different applications and activities in space, including debris removal, but not only that, also servicing existing satellites for refueling operations and so on. This is quite a massive effort within which we will be responsible for providing propulsion technologies and also power generation technologies. We are very happy about this because this last piece completes a little bit the picture of what we need to have a product range that fully meets the customer requirements for the next decade or even more.
On page seven, very quickly, what is the status on our return to flight path? This is the Zefiro 40 motor that we have now integrated with a new carbon-carbon nozzle insert procured from a different source. We have integrated that according to a new reinforced acceptance specification, so with much more controls around the suitability of the part relative to the specifications. The motor is ready, as you can see from the picture. Now it's undergoing final acceptance activities, and these are on track. In the next few weeks, we plan to ship the motor to the test range in our Sardinia test range to execute a firing test in June.
The result of this firing test shall demonstrate that once we change the part that has not performed successfully during the last flight, that we have solved that problem, and then that Zefiro 40 can go back to flight safely with a reliable material for the nozzle throat insert. We are on track. We will report to you between now and end of June, how we are, how we do with respect to this very important test. This will clear the way, essentially, for the Vega C flight by the year-end. In the meantime, on page 8, as you know, we have had quite some activities in the last 6 months around propulsion systems for tactical missiles. Demand for these type of products is steadily growing, and we are very, very happy about that.
We reported that we signed nearly EUR 90 million of orders for the delivery of Aster 30 propulsion systems. As of today, we have an aggregate of around EUR 200 million of orders for defense propulsion systems, which means that on the defense side, now we are covered at least for the next five years with a substantial revenue growth with respect to what we used to do just a year or two ago. This is very important because it also diversifies the risk, you know, within the portfolio of our revenues. In parallel, we are very happy to report what MBDA has announced last week, that the CAMM-ER system missile system has been fully qualified in flight.
I remind everyone that this is a missile system that has been developed with our propulsion booster. It will be delivered first to the Italian Army and then potentially to other customers. We are very happy that this product now it's entering essentially the production phase. This fact is important because with fuel in the future additional orders on the production side that will go over and above those already accumulated for us there.
All in all, you can see lots of different things, but I'm glad to report that we are going in the direction we had expected and with a faster than expected accumulation of orders, that is on the safe side, also strengthens the cash position and provides therefore much better visibility on how to handle the rest of the year. I will now hand it over to Alessandro for the financials.
Thank you, Giulio. Good morning, everybody. Let's move to page 10. We reported the key, mmg, performance indicator for the quarters, in particular for first quarter 2023 compared to first quarter 2022, except for net total backlog and cash position, which are compared to end of December. First of all, backlog has grown principally for the new liquid propulsion technology development contracts, and also for tactical propulsion system contributed with additional Aster orders from MBDA. As Giulio commented before, backlog has reached an historical record for Avio in this quarter. In terms of net revenue, are slightly lower than corresponding period of last year, mainly for the slowdown in P120C production for the new Ariane 6 launcher, which have been partially compensated by the increase in tactical propulsion activities.
EBITDA is higher than first quarter 2022, mainly for lower energy cost and new development activity on LOX/methane technologies. EBIT shows a better performance than EBITDA for completion of certain amortization or certain capitalized intangible assets last year. The net cash position is higher than typical first quarter, mainly for certain advances that we receive on bigger production batches. Shall we move to page 11? We reported a chart for energy cost. Energy cost has an impact in our accounts, basically for the cost of gas that is used to produce steam, which is then used in the industrial production processes, particularly for casting activities. We have electricity costs for large-sized business. The slides show the gas price trend in 2022 compared to 2023.
Gas price in Q1 2023 is remarkably lower than in Q1 2022, is also now expected to be stable for the rest of the year 2023 compared to previous year. In particular, when we experienced, as you remember, a peak during the summer 2022. The average price of gas is expected 48, around EUR 50 per megawatt hour in 2023, compared to higher than EUR 120 in the corresponding year 2022. Action that we have already implemented to mitigate energy cost in the short and mid-term include a partnership with Enel X that we discussed last year, aim to invest in a thermoelectric steam generation plant and also to assess investment in the mid-term in photovoltaic and solar plant.
In the near term, we expect also to consider certain hedging on the price of gas to be to block the certainty of the cost for the rest of the 2023 year. In the next chart, we reported as usually the quarterly partner of EBITDA and cash generation, which confirm also in 2023, as it was in the past, concentration of contribution of both EBITDA and cash generation in the last quarter of the year, as you can see here comparing the last years. I give you back to the floor, Giulio, for the last comment on the guidance going forward.
On page 13, I would say nothing much in that we confirm the guidance we had provided at the beginning of the year. Maybe on the order backlog is worth mentioning that we are already beyond the maximum expected, but still we have revenues to crunch between now and year-end. There will be the need to accumulate more orders to maintain this high order backlog. We are confident that we can reach the expected targets and similarly for revenues. Regarding EBITDA and net income in general, today the situation looks marginally better than what it was at the beginning of the year.
Therefore, all the difference you have seen between the energy costs of last year and the energy cost of this year, all else being equal, is incremental profit at the end of the day. We believe we should be comfortable within the present guidance. Obviously, it's only the first quarter, so I would be cautious in driving too many conclusions too early. Of course, the trend is encouraging for the time being. Regarding cash, you know we do not report cash targets because as you have seen, sometimes payments are such that, you know, a swing by one or two days will make the target completely unreliable.
What I can say is that we expect stability in cash, and therefore maintaining a robust position, notwithstanding all the things we're doing in terms of investment and engagement with the supply for the new contracts. That's pretty much the wrap up of the first quarter, and we are open to your questions. Thank you.
This is the Chorus Call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their telephone. To remove yourself from the question queue, please press star and 2. Please pick up the receiver when asking questions. Anyone who has a question may press star and 1 at this time. The first question is from Martino De Ambroggi of EQUITA. Please go ahead.
Thank you. Good morning, everybody. The first question is on the energy cost. Sorry if I missed it, but in Q1, could you quantify the change in energy cost? Second part of the question, if you could remind us what is implied in your full year guidance in terms of energy cost? Because I remember in the previous call you mentioned that it was lower than in 2022, but now probably visibility is a bit better. The second question is on the recent interview. Giulio, you stated that the military business will go up from 15% to 25% of sales in four or five years. Could you elaborate on this?
I understand that there is the tactical business, that is, going up, but there is also the part of the satellites, defined as military. If you could elaborate on this, it would be useful. Just a follow-up on this, the profitability of the military business, is it correct to assume, it is higher than the average of the business?
Let me start from the last question. We do not report the profitability of the business as such, and we do not comment because, as you know, this is also a concentrated customer base. We cannot report what is the profitability by business line for this very reason. But I would say generally speaking is good, especially if we go to higher production levels because as we have higher volumes, we, you know, better absorb the fixed costs, and so the profitability grows with higher volumes. Now regarding my interview, as you know, the journalists are not.
Giulio, sorry to interrupt you. The operating leverage of the military business, if it's possible because you are talking about growing volumes?
I don't know. I cannot quantify on top of my head. We can let you know offline. If we can share something, we will. What I wanted to share with you is the following. In the military business, we can manufacture as many as 300-400 models per year, something like that. In the last few years, we hardly manufactured 40 of them. It is clear that if you utilize your production capacity at 10%, you don't have much of an operating leverage. With the orders we are accumulating, we will be using the majority of our production capacity in the current asset configuration. For the years to come, with some of the orders that are coming, we will also slightly upgrade the production capacity.
Which means that we expect to run for the next five, six, seven years, probably more, at a pretty good saturation of our production capacity. At that point, the profitability reaches the maximum we can possibly afford. Now, if we want to be a bit more analytical than the journalists, I believe last year in tactical propulsion, last year and the year before, we did less than 20 million EUR. Okay? Less than 20 million EUR on something like 340 million revenue average is like 6% of the revenues. Okay? As you remember, you know, we've always been in this range, 5%, 6% over the total.
I don't know if we will go as high as 25% of the share of revenues, considering also what you said, that also the liquid propulsion activity is growing fast. We will realistically, at a minimum, triple that with the orders we have in hand. I believe this is important. More because it provides an opportunity to optimize profitability than, you know, changing really the mix. Even if we were to get to, let's say, 20% of within the overall revenue mix, it's still not huge. Okay? However, at that point, the profitability, it's pretty good just because you are saturating your capacity. That's pretty much our consideration so far.
On the energy cost, maybe Martino can, we, as you know, as we discussed when we published the guidance for 2023, we already incorporated in our guidance, the reduction of energy costs compared to the peak of 20 to 2022. In this quarter, actual figures show an energy cost around 30% lower than the first quarter 2022, and we expect, on average, the same reduction in a range of 30% also for the entire 2023 year. This effect is substantially incorporated in our guidance. Should the energy costs be even lower than expected, which is the analyst expectation in the rest of the, for the year, we can have some further benefit, towards the end.
As you know, the price has showed over the last year high volatility. For the time being, we confirm the guidance that we publish mid-March.
Thank you.
The next question is from Virginia Montorsi of Bank of America. Please go ahead.
Hi. Good morning, everyone, and thanks for taking my question. Just a quick one. How should we think about the seasoning of revenues for this year? I know you've talked about the slowdown from, related to the Ariane 6 program, how should we think about this quarter?
Just we will look a little bit what the evolution.
Perfect.
Alessandro had that to possibly put our, you know, nature of our business is such that we tend to accumulate very much on the fourth quarter, we came from this general trend. Now I see if Alessandro can be a bit more precise, please. You have seen, by the way, from our presentation, the evolution of EBITDA and is generally on the fourth quarter. Similarly for revenues. Revenues probably goes a little bit faster in the first quarter.
Yeah. A little, yeah. We actually have a trend in revenue that is similar to those of 2022, with a concentration, as we discussed before in the chart for EBITDA, similarly in the revenue. Basically, we do not have a significant change compared to the last couple of years in the progress of quarterly patterns of revenue.
Thank you very much. Very clear.
The next question is from Bruno Permutti of Intesa Sanpaolo. Please go ahead.
Good morning, everyone. I have 2 questions. The first one, concerning the time lag between the firing test and the timing expected for the Vega C return to flight. I'd like to understand if the firing test will be the key event for Vega C return to flight and in the timeframe between June and December, what are the other key activities on which we have to focus to understand how things are going? The second question concern the Capital expenditure.
I would like to know if you confirm this year you will have probably a peak around EUR 40 million and how was the first quarter if possible, what do you expect for the next 2, 3 years? It is confirmed the declining trend after 2023 considering the order backlog, which is quite rich.
Thanks first of all for your question. It gives me the opportunity to clarify a little bit how the return to flight program was put in place in agreement with the European Space Agency. The Vega flight in August does not require to do any particular test. However, on the Vega flight for August, we are implement whole set of reinforced acceptance activities that we normally don't do. We have been reviewing one by one the adequacy of the products of all of our suppliers with the European Space Agency and Arianespace. We've been performing supplier audits and things like that. And this is burning a lot of time. This is why Vega is flying only in August and no earlier, okay?
The second aspect is that we will be flying on Vega in August, a couple of satellites that were supposed to be on Vega-C. We had to refeed satellites on a smaller rocket. Not exactly an easy task. Regarding the preparation of Vega-C instead, what do we have to do? We have built a new Zefiro 40 with a different nozzle insert in a new carbon-carbon type, and we need to fire it at the end of June. After the firing test, we need to analyze the data coming from the firing test and verify that with this new carbon-carbon insert, the performance is exactly as expected.
This is very instrumental to know whether or not you can do the mission, because you will measure what is the thrust that actually the motor delivers, what is the base you can lift, et cetera, et cetera. This analysis will take, at a minimum, the month of July and the month of August. If everything goes well, we will perform a checkpoint also with the European Space Agency and de facto issue what is called a delta qualification, a modification of the motor with this new carbon-carbon insert. At which point we will be in the position to integrate the Zefiro 40 that will then fly in December. It means that we start to integrate the motor for the flight in December, we start to integrate it in September.
Maybe October the motor is ready, then it goes to the launch pad, and there you are. That's pretty much the thing. What we're doing is two activities in parallel. On one side, we are working for the flight of Vega in August, which is unaffected by the story of Zefiro 40, but it's affected by a number of other checks we're doing, in particular in terms of auditing the supply chain and auditing even our own product activities by the European Space Agency. On the other side for Vega C return to flight, we need to see what is the result of the firing test and apply those learnings to the mission profile of the next Vega C flight. I hope I clarified this to you.
Maybe I will leave it to Alessandro talk about CapEx and order backlog.
Thank you, Giulio.
Thank you.
Good morning. Good morning, Bruno. In first quarter 2023, we had CapEx in a range of about EUR 5 million compared to EUR 3 million in last quarter to first quarter 2022. The increase is basically related to higher CapEx in Vega-C cadence in view of the increasing backlog that Giulio commented before in the chart 5 of our presentation. On a full year basis, we are substantially in line in terms of CapEx as it in 2022. In order of magnitude of between EUR 35 million and EUR 40 million.
Okay, thank you. Do you expect that to be a level for the coming years? Or, something could change or something has changed considering the dynamic of the defense business or, and the dynamic of the orders for?
Uh, we, we-
Going forward.
Bruno, we are trying, we are trying to smooth any peak in CapEx in the next few years. We travel EUR 40 million. The reality of things is that, as you know, as you are seeing, there is incremental opportunity everywhere. More flights coming for Vega C, we had, because we had the four C. We are funded already to capacity and upgrade. We're fine. We cannot say there might be some additional CapEx. On the story of tactical missile production also we had to upgrade production capacity. Yet we cannot exclude that we may have additional CapEx. What we will do is we will try to limit this below the EUR 40 million, hopefully max 35 to come and maybe distribute that differently over time.
I think you also had on backlog, correct?
It was above related to the CapEx, considering that the order backlog is was expanded perhaps at a faster pace than that perhaps originally estimated. Yes, it was much related to that. Thank you.
No, Bruno, for the time being, we do not expect, increase significant CapEx to match the increase in order backlog. This is substantially.
Okay. Thank you.
I'm sorry, Paolo. If you wish to raise your question, please. Paolo from Banca Akros, go ahead.
Yeah, just a question on the order backlog. You just give us that Q1 backlog with the full year. Is it just a matter of the board is a potential upside for the current year?
This is hard to say right now because it is true the timing went in a way that we got these orders a little bit earlier than we had anticipated. Between now and year-end, we still need to do some EUR 280 million of revenue. If we were not to accumulate any new order, we would then go dramatically down with order backlog. To keep this level, it means we have to accumulate additional EUR 280 million worth of orders. That is definitely possible because, you know, we have all of the wake of the orders coming from the European Space Agency Ministerial Council that is way higher than that. It's more than EUR 700 million. Still, we need to crunch, you know, proposals. We need to negotiate the contracts with the European Space Agency.
I'm not quite sure, at this point what timing we can do. It's early to say that we can exceed the expectation on order backlog. I would say that we should comfortably be within the guidance.
Okay. Thank you, Giulio.
For any further questions, please press star and one on your telephone. Gentlemen, there are no more questions registered time. Back to you for any closing remarks.
Thank you very much. We look forward to update you on whatever happens. I think one point we forgot to mention is that we are continuing and hopefully closing some of the activities we mentioned we wanted to do in terms of M&A in minority participation in technology companies. These are just a handful of millions of investment that will be made, but they are strategic in particular to execute against those new technology contracts that we hope to execute in the next few weeks and to be able to report. By June, we will definitely and immediately report to you on the result of the firing test. Thank you.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.