Good morning, ladies and gentlemen. This is the Chorus Call conference operator. Thank you, and welcome for joining Fincantieri half year 2023 results conference call. As a reminder, all participants are in 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. Folgiero, Chief Executive Officer and Managing Director. Please go ahead, sir.
Good morning. Good morning, everyone. Thank you for joining us, and welcome to Fincantieri half year financial result conference call. This set of results shows once again a solid top line with revenues up by 4.5% to EUR 3.7 billion. This is line with expectations and with development of the backlog. EBITDA margin stands at 5%, in line with 2023 target and improved when compared with H1 2022 results, 2.6%, and fiscally at 2022 results, 3%. 2022 was in fact impacted by the inflationary pressures, one-off items, and the lower marginality, especially in the infrastructure business. In the H1 of 2023, we recorded a positive adjusted net income at EUR 3 million before extraordinary or non-recurring asbestos-related litigation costs. Net loss ends up at EUR 22 million.
Order intake came in at EUR 2.1 billion, with a positive contribution from Wind Offshore. During this period, the US Navy exercised the option for the fourth frigate, while just few days ago, we received confirmation regarding the construction of the third new generation submarine for the Italian Navy. We have now a total backlog of almost EUR 33 million, securing 4.4 years of work when compared with 2022 revenues. Net financial position landed at EUR 2.8 billion, in line with cruise delivery schedule, with a total of 4 units expected for the H2. Just 3 for the rest of the year, since just a week ago, we delivered the first of 4 luxury ships for the new MSC brand, Explora Journeys, EXPLORA One. Giuseppe will give you further details on the main financial and operating performances of the period later on.
Let's now move to slide 7 for some business updates. Our operating performance has been consistently positive throughout the first 6 months of the year. The group's shipyards are running at full speed with 11 vessels delivered from eight shipyards, highlighting the global reach of our operations with local capabilities. Offshore business area accounts for seven units delivered out of these 11. 11 units were ordered, resulting in a total of 88 vessels in the period. Noteworthy mentioning that just last Friday, the order for the third Near Future Submarine became fully effective. We confirm our tireless effort to become a model of excellence in the sector, already well recognised at international level. During the first semester, Fincantieri has signed some agreements with Crédit Agricole Eurofactor, Ifitalia, SACE Fct, and UniCredit, in order to promote awareness and improve the ESG profile of its Italian suppliers.
As a result, suppliers with better ESG performance will be able to benefit from a better rating, accessing more advantageous financing terms. Brand Finance assigned a rating of AA to Fincantieri, now among the 50 strongest Italian brands. We also received the Top Employers Italy 2023 certification from the Top Employers Institute. All ratings are confirmed. Just a few comments on our order book. As you can see, we are loaded with deliveries for the medium to long term, hence our visibility over revenues is very, very high. As we speak, cruise accounts for 24 vessels in portfolio. The construction of 31 defence units is expected up to 2029, and 33 further vessels in the fast-moving offshore business, for a total of 88 ships in backlog. Backlog coverage stands at 3.0. Commercial opportunities are up and running in all businesses.
Now, I will hand over to Giuseppe, who will discuss our financial results. Please, Giuseppe.
Yes, good morning, I continue starting from slide number 10 on order intake and total backlog. Well, the order intake, it's worth to note the very important increase in the offshore business, which recorded 84% more order intake with respect to last year, this is falls within, you know, the growth strategy in the wind offshore sector. The H1 of the year at over EUR 2.1 billion in terms of order acquisition. In the shipbuilding business, we have 1 cruise ship and the 4th frigate for the Constellation program in the United States. As Pierroberto said before, the commercial pipeline is up and running across all businesses.
It's worth to note, with reference to what the CEO said before on the submarine, for the 3rd submarine for the Italian Navy, we expect to sign the contract pretty soon, as it has been approved by the Italian Parliament. We also have on top of this, another EUR 700 million orders coming, roughly EUR 700 million, coming from the defence business in the very near future. Going to revenues on slide 11. Total revenues were up as expected by 4.5% compared to the H1 of 2022. Shipbuilding is broadly in line with the same period of last year, with cruise accounting for 49% of group revenues and defence for 24%.
Revenues in the offshore and specialised vessel business increased by 28% or roughly 28%. This underlines the positive trajectory in growth that reflects the effective repositioning of Vard towards the offshore wind sector. You know, it's a growth that we expect to continue as the order acquisition is flowing in very well. Equipment systems and infrastructure business recorded an increase of 45.8%. This is mainly due to the infrastructure business as the project in Miami is going at full speed. Net of eliminations, shipbuilding accounts for 74% of group's revenues, offshore and specialised vessels for 12%, and 14% is related to equipment systems and infrastructure.
Moving on to EBITDA, EUR 185 million, this is, of course, I would say, a substantial solid improvement, to say the least, compared to the EBITDA margin of last or the first six months of last year. Of course, the first six months of last year was affected by many one-offs. Still, our EBITDA levels reflect, high inflation costs and high pressure on raw materials and in the cost of labor, we haven't seen yet, let me say, a weakening of the inflation pressure. Shipbuilding closed at 6.1%, this is an improvement with respect to the H2 of last year, to actually to the total of last year, 4.6%, lower than the H1.
The first, the margin of this half was still affected by the impacts, as I said, occurred in the H2 of last year, and this is largely due to the geopolitical context fueled by the Russo-Ukrainian War, with a consequent further increase in raw materials prices, and also affected by the inflation cost, notably in the U.S. labor market and supply chain. Offshore closed at EUR 19 million of EBITDA, with an EBITDA margin of 4.4%, was 2.5% at June 30th, 2022. This is broadly in line with the business plan targets. Higher margin for offshore, and this is driven by the increase in demand in the offshore market.
Vard, as a company, closed the first semester of 2023 at breakeven, which is remarkable result compared to the history of Vard. Equipment systems and infrastructure, the EBITDA is positive for EUR 7 million. It was negative by EUR 90 million, as of the H1 of last year. The margin is 1.2%. Of course, these EBITDA levels are still negatively affected by the EBITDA margin recorded in the infrastructure business, even though the electronics and mechatronics businesses registered a positive margin of respective 1.8% and 7.3% in line with 2025. Moving on to the net results. We recorded a very small adjusted net profit, EUR 3 million, and that is before the unfortunate asbestos-related extraordinary items, which came at EUR 33 million for the H1 of this year.
We have a net loss at minus EUR 22 million. It was negative EUR 234 million at H1 of last year. Net financial position and net working capital on slide 14. Net debt at EUR 2.8 billion. We have a net debt situation that is consistent with the progress of the production volumes, and as we're working full speed in the cruise business, as you know very well, net working capital absorption there is pretty high. It's worth to note that we delivered two cruise vessels in the month of July, the EXPLORA. Well, we delivered 1 cruise vessel, sorry, in the month of July. We expect to deliver a cruise, a very big cruise vessel for Norwegian Cruise Line next week in our Marghera shipyard.
Of course, these debt levels are still affected by a portion of the deferrals we granted to clients after COVID-19 pandemic, roughly EUR 92 million at this point in time. Net working capital is positive at almost EUR 900 million, the main changes are related to the increasing work in progress and client advances related to the production volumes of the period.
You know, going to the current debt levels and the EBITDA, when we look at the EBITDA and net debt over EBITDA ratio as of the end of 2022, which was in excess of 11 times, right now, if we, of course, sum EBITDA of the H1 of 2023, plus the EBITDA of the H2 of 2022, and we do the net debt over EBITDA ratio, we stand roughly in the low nine times ratio, which is a slight improvement, but this is the path on which we are walking, and we'll keep walking on it. Now it's back to Pierroberto.
Thank you, Giuseppe. Turning to markets, in particular here at the cruise industry, starting from the Q3 of 2022, almost the entire fleet was back in operations, with 93% of the global fleet capacity calculated in lower berth, sailing as of December 31, 2022, and occupancy rate in line with pre-pandemic values. Bookings for 2023 are likely to get back to historical levels or even to reach new peaks. Such promising signals, along with the resumptions in order intake already in 2022, are backing expectations for the acquisition of new orders, taking also into consideration the necessary financial support provided by institutions to clients, as per industry practice. We are best positioned to seize further opportunities from the near comeback and the green transition of the whole cruise market.
Let me remind you that we are fully aligned with the emissions reduction roadmap for cruise ships. As a matter of fact, the first dual-fuel ship, propelled mainly with liquefied natural gas and featuring a lubrication system for reduced friction resistance, is scheduled to be delivered in the H1 of 2024. For the naval, global defense spending is expected to further accelerate in the upcoming years. In such business, we are second to none in the construction of high-tech surface vessels, like frigates, and now increasing our role also in the underwater domain. The commercial pipeline with the Italian Navy encompassing EUR 1.2 billion orders, either in the process of finalisation, the European Patrol Corvette and the Mid-Life MLU of the Horizon frigates, or already effective, U212NFS submarine.
Turning to offshore, as of today, worldwide wind farms are delivering a normal power of around 59 gigawatts, that is expected to rise to a total global capacity of around 270 gigawatts by 2030. We are market leader with a share of over 30% in the construction of service operation vessels and construction service operation vessels in terms of order book and expect the market to rapidly grow. Commercial opportunities will also come from the subsea installation of, for the offshore wind, in particular in the specialised niche market of cable layers. In addition, let me remind you that we have a strong track record in the development of cutting-edge offshore units, featuring green propulsion and remote control solutions. Let's turn now to the last slides of the presentation.
Execution is key. These half results are proof of the management full commitment to reach our targets presented back in May. A solid top line with group margin already in line with the target for 2023, and adjusted net income already positive, net of asbestos-related litigation costs. We have a unique business model. Our shipyards are running at full speed, the backlog is robust, and the commercial pipeline constantly increasing for all the businesses. We are best positioned to be a front runner towards the next industrial cycle, strong in our financial discipline, while improving production efficiency and cost discipline with a core attention on cash flow generation.
In the H1 of 2023, Fincantieri launched the higher priority strategic initiative to pursue the 2023 to 20 27 business plan targets, and evolve the operational system in order to support the competitiveness of the long-term value creation. Actions will continue in the H2 of the year to further increase operational efficiency, modernise shipyards, and contain procurement costs of material and services, as well as production costs. Net of further deterioration of the geopolitical and macroeconomic instability and potential operational and financial impacts, we confirm 2023 operations in full swing, the consolidation of revenues and margins foreseen at around 5%. 2023 net financial position is expected to be substantially in line with end 2022. Let's open the stage to Q&As.
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 one on their touchtone telephone. To remove yourself from the question queue, please press star and two. We kindly ask to use handsets when asking questions. Anyone who has a question may press star and one at this time. That's star and one. We will pause for a moment while questioners join the queue. The first question is from Monica Bosio with Intesa Sanpaolo. Please go ahead.
Good morning, and thanks for taking my questions. I have three. The first is regarding the naval business. In the H1, revenues were down in comparison to the H1 of 2022. I was just wondering if you are going to confirm your revenue guidance in the naval business at EUR 2.2 billion by year end? Looking at the EBITDA of the shipbuilding division, the margins were above 6%, beating my estimates. I was wondering if you can give us some color about the cruise business EBITDA margin trend and the naval one. I'm just wondering if this beat is mainly due to the improvement of the cruise or maybe to the naval. The very last is on the infrastructure business.
If you can give us some color on the state of the art in the deployment of the backlog, in the H1, if I'm not wrong, the EBITDA of the infrastructure was at minus EUR 10 million. What do you expect by year end, if you can give us some indication? Thank you.
Good morning. Thank you for the question. Let me give just an introduction. Then I will willingly leave the floor to Giuseppe. Let me make always the same warning. Looking at movement QoQ on the business of the biorhythm of the shipbuilding, it's a complicated exercise.
Mm-hmm.
That's the, that's the, you know, the most obvious answer. Whenever you see a movement QoQ on revenues, it has to do with the normal deployment and rollout of the backlog, which is not, which curves are, by definition, not, you know, as fluid as you would like to, because it has to do with deliveries. Our business is made of blocks. It's not made of smooth curves, and this is a matter of fact. I don't see any meaning in certain quarterly differences.
Thank you.
I believe that we have to assess the picture with a time frame that is as coherent as possible with the biorhythm of the business. The good point is that, all in all, we are working on costs. When you work on costs, you generate benefits everywhere because you generate benefits on the jobs margin, because a portion of your G&A are calculated in the tariff, which tariff is used in order to allocate costs to jobs. When you manage costs, you create improvement in every part of the company, and you can, you improve also your G&As that are not allocated to projects.
All in all, this enhancement, in the, marginality has to do with the initial positive signals of the, strong commitment and strong focus on governance of costs. I would like, Giuseppe to give you a more precise answer. Thank you.
Thank you.
Good morning, Monica. naval business revenues, the outlook is really in line with our forecast.
Okay.
We were expecting a decrease in revenues in 2023 over 2022, as the programs we are executing, you know, are from time to time completed. In our business plan, the increase in naval revenues is expected from 2024 and 2025 onwards. Cruise is working at full speed, so we do not have any change compared to our budget and business plan. As with EBITDA, of course, shipbuilding total is substantially flat with respect to last year.
What we see is an improvement, of course, I can also describe from a qualitative perspective here. We see an improvement in cruise because H1 of last year had some one-offs related, you know, to the, to the positions, and we had with some clients, which is like, you know, their stand, their credit standing. These one-offs were related to the H1, whilst this year we don't have them, of course, they are already accrued. We can say that shipbuilding, cruise shipbuilding has improved, whilst naval, the contribution of naval has decreased because revenues have decreased as expected. This is, in general, the qualitative comment on EBITDA.
On the state of the art of the infrastructure business, of the backlog, as I said before, the major project that we have on the execution right now, the major project, and unfortunately, the project that's making us suffer, and the project that we clearly said we're not gonna do any other projects like this one, is the Miami terminal, which is progressing and progressing well. Although, you know, there are several criticalities and several things that require us to be very cautious when formulating a guidance and an outlook there. We hope to finish it as soon as possible. That's the message I can give you. I don't know if Pierroberto wants to add something there.
No, just to complement what you are saying, on the naval, you know that there are programs like Qatar that are in an advanced delivery stage. There are new programs with Italian Navy that are kicking in.
Mm-hmm.
We gave today, you an additional information on the fact that on top of the overall order intake of the first six months, we have in these days, basically secured additional EUR 1.2 billion from the Italian Navy for a number of new investments that are kicking in. I don't see any disruption apart from the natural sequences of things. On naval, we are truly in good shape. Again, we are very focused and very positive on a number of international opportunities in the naval business. This additional EUR 1.2 billion, which again, is not already recorded in the H1 total order intake, but this additional EUR 1.2 billion is national, is Italian. We are not.
Yes
... yet, you know, disclosing any possible touch wood, less touch wood, possible developments in the international market. The tailwinds behind the naval is so powerful that I see no issue while analysing the trajectory of the revenues. On the infrastructure business, as Dario clarified, the name of the game is Miami, and 2024 is the year of the finalisation of the job there. I would say there are no particular surprises at the origins, and at the end of the day, 2024 will be the year of delivery of the terminal. We don't need to bet on the future. We need just to work hard, fulfil our obligations, deliver impeccably in 2024, finish, and get back to Italy.
Okay, I fully agree. Thank you for the callout. If I may, just a final question. I've seen that notwithstanding the rising interest rates, the financial charges in the H1 were a bit lower, my expectation. Can you just give us a rough indication of the financial charges expected by year end?
Yes, there was an improvement also with respect to our initial forecast on financial charges in the Q1 . By this improvement, we maintain our forecast of financial charges in the low EUR 200 million at this point in time.
Okay, the low EUR 200. Okay. Thank you very much.
Thank you.
The next question is from Matteo Bonizzoni with Kepler Cheuvreux. Please go ahead.
Thank you. Good morning. I have three question, I would say. The first one regarding the margin. We have already seen in the H1 of the year, 5% in the margin, which is fully in line with your guidance for the year. You commented before, Giuseppe, that you have not felt any particular benefit from the low down of the inflationary trend. You commented about labor cost and other input costs.
I just want to have maybe some color on what you expect going forward as regards, particularly, I would say, the evolution of the raw material cost, in particular, steel, in the next months or quarters, considering that you have a certain time lag, as we know, from the moment when the steel price goes down or up, and the moment when you feel the impact on your PNL due to the normal turnover of your inventory. The question is basically if we should expect to see some initial benefit already in the H2 of this year or maybe more next year?
In relation also to the question of Monica before, not only we've had more benign than expected financial charges in the H1, but you have now commented that in the full year, we should go back to, let's say, EUR 200 million, which is more or less what we thought. Also we had, I think, two other items which benefited your bottom line in the PNL. The first one is depreciation, because the guidance which you have provided for CapEx say that, you are going to invest EUR 300 million, which is 1.2x depreciation. So I would infer that the depreciation in the full year should be more or less EUR 140 million-EUR 150 million, while in the H1 we saw only EUR 113 million.
I just want, it's a technicality, we know, but just to understand a little bit, the dynamic of this trend of the depreciation. The second item, which benefits a little bit your bottom line, is taxes. In taxes, we know there are a lot of moving parts, let's say. The taxes were a positive item instead of being a negative item. Can you also comment also for this item, H1, and also the rapid expectation for the PNL tax charge for the full year? Thanks.
Matteo, I didn't get your third question. What item do you want to?
My third question regards the tax.
No, the third one. No, the third one.
Sorry.
Tax.
Sorry, sorry. Okay. The first question, steel, very quickly. We haven't changed our, let me say, our position vis-a-vis steel costs. We still maintain a very cautious approach vis-a-vis the forecast on steel prices. As we clearly said, when we presented the business plan, you know, our assumptions are based both on current price levels and volatility. Now we stand in the fact that we are experiencing somehow lower price pressures. We still are in a very volatile environment. My expectations is the same as we had last year, well, end of last year and when we presented the business plan, period.
On depreciation, yes, we close it at lower levels compared to the forecast, if you, of course, do the total yearly depreciations divided by 2. We maintain the total, the current guidance for the H2 of the year is consistent with the total depreciation that we are forecasting in our budget. Therefore, we forecast it in the business plan. On tax, there is some tax benefits related to the fact that we do have an agreement with our main shareholder on, you know, the, we consolidate our tax charges together with our shareholder. Therefore, this is a benefit related to that.
We will see whether at the end of the year this is confirmed or not. That depends on our tax capacity, on the tax capacity of our shareholder and all the other companies that fall within this agreement on tax charges. All in all, no, we stand in the benefit we had in the H1. We keep our tax forecast on tax and our forecast on bottom line at the same levels as we had two months ago. All in all, on these three items, situation is slightly better or not worse than we expected. We keep our forecast for year-end.
Thank you.
You're welcome.
As a reminder, if you wish to register for a question, please press star and one on your telephone. The next question is from Gabriele Gambarova with Banca Akros. Please go ahead.
Good morning, thanks for taking my questions. The first one is on the Greek Corvette contest.
... It's something going on that has been going on for a while. I wonder if you have any update on, on this particular selection process in terms of timing, of course, not not else. If possible, any comment on the ThyssenKrupp Marine Systems statements you made a few days ago? I mean, you said you are willing to improve, to increase the partnership with them. I was wondering if this, I mean, if you can give more color even on this. In the past, I think, I think Antonio spoke about surface vessels and not submarine. I mean, any information on this on this aspect would be interesting. Thank you very much.
Thank you. Thank you for your question. On Greece, the tender is very opened. I believe we are very well positioned. I've been saying it from the very beginning because we couple a very advantageous economic offer with a execution strategy that is heavily involving the local content, heavily involving the local shipyard. The alliance we made with the best Greek shipyard is projecting on us a local content, I would say, plus, which associated with a very advantageous economic offer and with our impeccable products puts us in very good position. That's, that's what I think. Where is the process? The process is technically finished. Now it's time for the decision of the ultimate decision makers.
To our understanding, this decision has been postponed after political elections, which resulted into a very clear confirmation of the existing government and the existing leadership, who get out of these elections much stronger than before. I believe that very, very soon, we will listen and hear from the decision makers, the results, but I remain very, very positive, and I believe that the timing is this one. Moving to your second question on TKMS, ThyssenKrupp Marine Systems, it is official that the company is evaluating a process of spin-off from the big conglomerate, ThyssenKrupp AG.
I believe it is essential for the company to be independent in order to pursue with maximum entrepreneurship, all the opportunities that are outside in the submarine domain. That's my understanding of the strategy. Our position was to enhance the commercial collaboration, first of all, because we believe that if we create together strong fundamentals, there is value creation, whatever is the future of TKMS. The ultimate meaning of my interview was exactly this. We know each other. We are actively collaborating in the commercial space. We are willing to be helpful, first of all, commercially, because I believe that whatever is whatever are the future shareholding developments of the company, it's always good to have stronger fundamentals.
It's always good to have a stronger partnership, in particular, when you want to increase your throughput capacity, because the market is demanding a lot. In particular, if you want to increase your geographical footprint, because the market is global. No more than that, no less than that.
Thank you very much. Very clear.
Once again, if you wish to ask a question, please press star and one on your telephone. For any further questions, please press star and one on your telephone. The next question is from Giuseppe Grimaldi with BNP Paribas. Please go ahead.
Good morning, everybody. I have a question around the development of the infrastructure business. First off is, are you still gaining intake so far in the year in the infrastructure? The second one is on the run rate of the profitability of the business. If we shall expect in the H2 of the year, still loss-making development in the infrastructure related to, let's say, the difficult execution of the Miami contract that you suggested us before?
Your comment on the order intake, if your comment on your order intake is the fact that you are noticing that the order intake is increasing, this is part of our strategy. Part of our strategy, once again, is de-risking and partnering. We want to strengthen the company as we are doing from a management perspective, from a process, processes perspective, from the risk management perspective. The strengthening of the management is there, and the strategy of de-risking and partnering means that we have a company, and we need to fuel the order intake. We need to somehow nurture this creature. We need to feed this creature.
We want it more disciplined, we want it fitting very well, we want this creature to be handsome, and educated, and polite, but we need to feed the creature. The quality of the order intake is the quality we would like to have. It's small size, is in partnership with a leading partner. It is focused on the niche in which we believe we have distinctive competencies. Specific projects, for example, in the hospital business, which is, you know, a good niche in this business, where if you are disciplined and if you have a product, you can find your corridor of comfort. Let me use this image. It is not that necessarily we don't have to take orders in the infrastructure.
To me, it is that we have to have a stronger management, a stronger set of processes, and at the same time, filter jobs that are coherent with the new strategy, which is a strategy of valorizing what we have, also, obviously, feeding with healthy backlog this story. Moving to your second question on Miami is the other way around. Miami is a business in which we took the 100% of the risk in a geography we don't know, with a execution strategy, which was not, I would say, very knowledgeable about how to deliver in the Miami construction environment.
We have extensively, during Investor Day, we have extensively explained that that business model is no more with us. We don't want to go far from home being entrepreneurs and pioneer in a business which is a very well-known business, which is a business of construction. Miami is a different story with the backlog we are incurring in these days. As I told before, Miami is under control. Under control with the client, under control in terms of Estimation to Complete. It's not finished until it's not finished. It is under control, we have no surprises, we are on top of it, but most importantly, in 2024, it is going to finish.
When we, Miami will be finished, will be very good news because we are in a way that is clear and I would say, definitely addressing the matter and getting back to our beloved country.
Thanks, very, very clear. Maybe just a quick follow-up on the naval business. Maybe you have explained this before, but is it fair to say that basically the trend of the naval business for the rest of the year is quite similar to the one we saw in the H1, so a bit of slowdown, and then a pickup in 2024 and 2025?
Yes.
Thanks a lot.
Welcome.
Gentlemen, there are no more questions.