Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining Fincantieri nine months 2021 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. Gallia, General Manager. Please go ahead, sir.
Thank you, and good morning to everybody. I'm here with Giuseppe Dado, our CFO, and team to present to you our third quarter results. We can start on page five of the presentation deck with the executive summary. Let me just say that these represent a very solid set of results. Revenues are up by 28%. We're about EUR 4.5 billion, better than I would say, in line with expectations, with EBITDA going up by 65% with a margin of 7.3%. Net debt, as indicated in previous presentation, is in line again with our forecast, which is slightly north of EUR 1 billion. Backlog, and therefore visibility, long-term visibility is EUR 36 billion, represented by 110 units. We can confirm our 2021 guidance.
I would also like to take the opportunity to say that the company has been managing, I would say effectively this pandemic, and even in current circumstances, behavior in our yards has been very cautious. Therefore, I would like also to say that this set of results highlight what is the resilience of our business in being able to do in the face of the pandemic. We can move to the next chart regarding business update. It is, as a chart will somehow highlight our performance as being resilient and positive across all of our segments. We've been delivering four units in the third quarter in the cruise sector. As we speak, there is a delivery of Silver Dawn in our shipyard in Ancona.
You can also see from this page how diversified has been our delivery platform. In defense, we've been running up to speed with all our major commitments. Qatari Ministry of Defence has been the launch of the third corvette and the delivery a few weeks ago, the first corvette of the Al Zubarah class. PPA program for Italian Navy is progressing according to plan, while also in the U.S. Navy, we already commented about the second award, which was awarded a few months ago and has been an MOU in Europe with Navantia. In offshore and specialized vessels, again, as somehow was evident in the last few months, the offshore wind sector is going in the right direction with eight SOVs in our portfolio.
According to official statistics, we've been becoming a market leader in this specific area. While on equipment systems and services, we already commented about the initiative in Miami for MSC Cruise Terminal and the progress by our tech subsidiary, Fincantieri NexTech with the acquisition of IDS Group. We've been also continuing our investment plan in our Italian yards and in our American U.S.-based yards and investing in technology. The group evolution recorded in the past years has been quite significant. We diversified both in terms of products, in terms of clients, creating synergies across different geographies and business units. Investment plans allowed us to be more competitive, and the increase in technology investments is becoming more and more a feature of our group.
We try to extend our skills, our competencies, and try always to get synergies for what we do, trying to serve our clients better and focusing more and more in higher margin solutions, while keeping a strong focus in best in class execution, operations, integration capabilities, and adding to this, technology in order to become what our CEO called a tech platform. Page seven, we have a sustainable strategy page. It is important to highlight that there is a tireless effort to become a model in our industrial work. We've been believing in this responsibility for many years. We can say that sustainability is somehow embedded in our culture. Somehow this is also certified by the ratings we have been given.
For example, by Vigeo we are in advanced range, and we rank first among our peers this year. You can also read the other ratings received by CDP and from others. We want to extend the number of key rating firms in order to be able to communicate in a more effective way with investors and all stakeholders. Clearly, sustainability is about culture, behaviors. It's also about actions and investments. We continue to invest because part of this path for our companies, I would say for the whole economy and society, it's about also investing in technology and innovation. This is really a key part of our DNA, that we continue to use that directly and also through different partnerships. You can see that we have agreement with major players for hydrogen, for green hydrogen, decarbonization.
It's also important to highlight that we have a day-to-day dialogue with our key suppliers, particularly with reference to propulsion. You know that this is a key part of our business. We have a number of initiatives. We have the opportunity to comment in the months to come, but it's important to highlight how deeply committed the company is. We can flip to page eight and see new orders and deliveries. Let me just highlight the fact that the new orders reached EUR 2.3 billion. You can see what is displayed between shipbuilding, offshore, and specialized vessels. We've been delivering 13 ships this year. These are coming from 10 different yards in three different continents.
It's important again. I'd like to highlight diversification and the fact that all of our components of our industrial footprint are efficient and delivering according to schedule. At page nine, we have the backlog development. Again, we can confirm the long-term visibility, the diversification of both client and product base, which is really essential for a lower and safer risk profile of the company. We recorded no cancellations, and you know how important that is also for our financial profile. It's also, closing my initial remarks, important to highlight that after the pandemic, our clients, particularly in the cruising segment, are in much better shape. The conversation regarding new projects resumed. Therefore, no orders, but conversation regarding new projects which amount justify a different environment.
I will hand over to Giuseppe for financial results.
Okay. Thank you, Fabio. Good morning, everybody. We can go to page 11 and start commenting on the intake and backlog. In general, the numbers really signify the full recovery of the business of the whole group. We had no order cancellation, which is a significant achievement. On the back of the COVID-19 pandemic, we were able to fully preserve the backlog despite the challenges of the pandemic. In the first nine months of 2021, the order intake came at EUR 2.3 billion, up 25% year-over-year, with a very positive impact, as we mentioned before, from the offshore and specialized vessels, the equipment systems and services and also the shipbuilding as well.
In this segment, while we did not have any new orders for cruise ships, we keep maintaining a good order intake coming from the defense business. Our U.S. operations were awarded the second FFG-62 class frigate and we had further orders. Total backlog is approximately EUR 36 billion, including EUR 9.4 billion soft backlog. This is thanks to the recent achievements in defense, as we said before. Long-term visibility, again, we got the opportunity to shape a medium-term investment plan to create production efficiencies. Whose results are starting to materialize, and we'll see this in the following numbers. As we go to revenues, first nine months of 2021 has seen a strong revenue performance driven by exceptionally high production volumes.
We had roughly 12 million, in excess of 12 million production hours in the shipyards. This is despite safety protocols in place. This comes on the back of the 3 million hours that we lost, as you remember, in 2020 due to the pandemic. Given these production volumes, revenues closed at EUR 4.5 billion, excluding pass-through activities, which were EUR 235 million. Revenues excluding pass-through activities grew in excess of 28%, with shipbuilding contributing to most of the growth. Within shipbuilding, we had the cruise business growing almost 26% and defense 36%. Cruise still accounts for more than 60% of the total revenues, while in the defense business we moved from 21%-23%. This also has a good although slight impact on margins.
The reduction in offshore and specialized vessels, compared to the same period of 2020, we grew 15.3%. We are recovering the volumes lost in the first part of the year. Also in Equipment, Systems and Services, we grew almost 30% for all the operations aimed at supporting the OEM business in shipbuilding. Going to EBITDA, EUR 330 million, that's an exceptional growth with respect to last year, 65%. EUR 330 million at 7.3%. We improved from 5.7%- 7.3%, and this is higher than the guidance of around 7% EBITDA margin that we provided for year-end. In this respect, the Q4 marginality is expected to be in line with the previous two quarters.
Therefore, we are confident that we can reach over 7% EBITDA margin at year-end. This very positive operating result is mainly driven by the shipbuilding segment, with an EBITDA margin of 7.6%, especially thanks to the very positive performance in cruise deliveries. I remind you that we delivered three vessels in a month, in July. Also, we had a positive contribution from offshore and ESS. In offshore, in particular, EUR 6 million of positive EBITDA, we are reaping the benefits of the turnaround strategy that we have implemented, starting from 2019, and that sees VARD repositioning in more promising markets on which we have already a leadership position.
Well, slide 14 shows you better than my words, how the recovery came from and the EUR 130 million more that we did comes. We can split it exactly in two. In part, roughly 50% of it, EUR 67 million comes from the full recovery in production volumes, with most of the contribution coming from shipbuilding. For the other half in improvement in operating margin, this comes from the fact that, as we already said, in our 2018-2022 business plan. Right now, we are working on ships that were acquired at very good prices first.
Thanks also to all the technological development and the investments that we did in the past years, we were able to perform better than expected in the construction activity. This is notwithstanding the pandemic, and this clearly shows in our growth in EBITDA. Let's move on to page 15 on the CapEx. EUR 158 million, up 50% year-over-year. This comes mainly from the scaling up of the U.S. and the tail of the scaling up of our European shipyards, notably the two main cruise shipyards, Marghera and Monfalcone, in order to compress lead times and improve efficiency. This first nine months of 2021 show that investments from this perspective are paying off.
Net working capital and net financial position. Net working capital is negative at EUR 398 million, going down with respect to the beginning of the year. This is mainly driven by the deliveries that we did in the third quarter. Net debt is stable with respect to the end of last year and improving with respect to the levels we had in June. Remember that, for first quarter and June of this year, we said that net debt levels would have reached a peak, and from there on, we're going to see an improvement. The improvement is already ongoing. Net debt is roughly at the levels we see for year-end.
We also had an improvement in construction loans, which were at EUR 976 million. We reimbursed roughly EUR 350 million of construction loans. We see these debt levels going to year-end with a growth in construction loans, though, because we need to finance the numerous delivery plan that we have for the first six months of 2022. Notably, we have the first delivery at the end of January of 2022. As with the outlook, I leave the floor to Fabio for some final words on how we see the end of 2021.
All right, thank you. Page 18, we have the usual updates on cruise being a large contribution to our business. More than 200 ocean ships are back into operations as of the end of October. It represents roughly 60% of the global fleet. Pent-up demand is reflected in very solid bookings for 2022, and occupancy level even this month is constantly improving. Some numbers can be captured also by the results of our clients, for example, like Carnival, Norwegian, Royal Caribbean. Interestingly, they all point to increasing activity for the Christmas season, and particularly positive outlook for 2022 in terms of booking, in terms of price. One of this company publicly stated that 2022 pricing is gonna be better than 2019.
This somehow is reflected also in the capital markets valuation, both for equity or their cost of financing and their CDS. We're still probably not really out of the woods with this pandemic, but clearly the outlook is totally different. Therefore, we have a positive attitude towards the future. Page 19, our final page. As we already said, we confirm our 2021 guidance. That is due to the strong effort and commitment done by the whole company, which allowed us to capture efficiency improvements. This is also due to the investments we've been putting in place.
We're expecting revenues for 2021 with a growth in the range of 25%-30%, with an EBITDA margin north of 7%, and with a debt in line with 2020 levels. We believe that the backlog reservation is a strong feature of our company, I would say quite unique. We can also say that commodity pricing is gonna be mitigated by the positive effect of planning and designing processes, purchase activities and strategy, and by important CapEx plan we've been putting in place, with addition of an increased focus on technology. Regarding ESG, we'll be more detailed in the year-end presentation in a few months.
We strongly believe that technology will be an enabler of both less impactful ships and a differentiating factors when having a dialogue with our clients, keeping a focus on reducing emission while raising energy efficiencies. We're working on specific initiatives. We will continue to promote growth, enhancement and training of our people, with particular focus on inclusion and diversity. Clearly, our tireless effort to reduce CO2 and other pollutant emissions will continue to characterize our actions. I will stop here, and we are happy to take your questions. Thank you.
Excuse me, 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. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Alessandro Pozzi with Mediobanca. Please go ahead, sir.
Good morning all. Thank you for taking my questions. I have a few, but I'll try to limit to maybe two or three. First of all, good set of results. You maintain the guidance for 2021. As we look at the 2022, I think the main uncertainty, I guess, is raw material cost inflation. Can you give us a sense or whether there could be any impact on margins in 2022? Or, maybe can you give us a little more color on the timing of steel purchases and whether you have already started purchases raw materials, whether you're going to do it in one batch or it's going to be deferred throughout the year.
Any color around procurement that would be great. Also on net debt. I believe you mentioned deferrals will likely to be repaid in Q4 and also throughout 2022. Maybe, can you give us a bit more color on the timing of those, and
I'm sorry.
Potentially how the net debt could avoid [inaudible]
Can you repeat? Can you repeat, we didn't get you, sorry.
Okay. From the beginning?
No. Just, the last part regarding the net-
Yeah. About the financials and the evolution of net debt in the next few quarters into 2022. We know it's gonna be a step in 2021. It's gonna be in line with 2020, but I was wondering in 2022, if you can give us a bit more color on how net debt is likely to evolve throughout the year.
Okay. Regarding the first questions, the comments we have to make about that is that, as of today, with the information that we have, we're confident that we can offset the decrease in raw materials, so let's call it this kind of inflation, with the actions we already put in place. We can confirm that. This is according to the estimates we have regarding pricing evolution. Steel for us is very important, copper, while we are less impacted by energy pricing. By the way, we have purchasing policies which allowed us to absorb part of the increase in raw materials.
As I said before, the number of other actions we put in place, and we regularly put in place, and clearly we increase the intensity of these programs in order to be more and more competitive, working on processes, organizations, and technology. Clearly, we also reap the fruits by what has been done in previous years. I will stop here, and Giuseppe, you can-
Yes.
Go on.
Second, Sandro, net debt. Gave you some hints before during the presentation, but we confirm that, well, the levels we saw end of the year and the first six months of the year are peak levels. We are directionally pointing towards deleveraging. There is a tail of the recovery of the deferrals we gave to our clients in order to support them during the pandemic. We put on the table an effort of EUR 900 million, as you remember, but the residual part is roughly EUR 300 million right now. On that matter, we are again directionally going towards the full recovery of these values. You can see already what we mean when we say deleveraging.
Deleveraging is already ongoing right now because peak levels were reached first half of the year. We're going to close the year with roughly the same debt levels we had as of the end of 2020, but with a much higher EBITDA, and as I said, with a very intense delivery program ongoing next year, in particular in the first six months of 2022, with the first ship in January. The average size of the ships we are going to deliver next year, we are going to deliver 1 ship more than this year, but also the average size is higher in terms of gross tonnage, therefore in terms of price, therefore in terms of delivery installment, therefore in terms of the effort that we have to put right now to finance them.
Okay?
Should we expect the working capital to improve further next year?
Well, with the improvement of net debt, with the leveraging, yes, net working capital should improve. Of course, the things I'm saying do not factor in the advanced payment that will come when the contract with Indonesia will become effective.
Okay.
Eh?
Just one point on the previous question on steel purchases. Have you already started making those purchases for next year? Are they gonna be staggered throughout the year?
Yes. We are already looking at the market. We need to buy steel. Point is that, as Mr. Gallia said very clearly before, we don't see the cost inflation denting our trajectory for the next years. We are very confident that we can offset these cost increases first. We also do not see any major disruption in the supply chain when it comes to timing of the supplies and so on and so forth. On this matter, we are protected from a contractual standpoint. Of course, we monitor very carefully the situation, but there are no major concerns at this point in time.
Okay.
That really let me stress this once again. Operationally, we are working full steam very well, very efficiently with good results.
Thank you. If I have time, just last one. There was no order from cruise in this quarter, I guess it was well expected. As we look at next year, you have conversation with our cruise operators. Is there any chance we could see orders in cruise in 2022?
I don't know. On orders in the cruise segment, we maintain a cautious stance here. We're going to see. You know, there are some clients that are talking about new projects, b ut it's really too early to say.
Okay. Thank you very much.
The next question is from Monica Bosio with Intesa Sanpaolo. Please, please go ahead.
Yes, good morning, everyone, and thanks for taking my questions. The first one is on the third quarter. Did you release any provision in the third quarter? And if yes, can you please quantify it? The second question is a follow-up on 2022 profitability. Given that you are confident to offset the raw materials and considering that there are no major disruption, and considering the better pricing, I know that it's premature, but do you believe that there's room to improve your margins by 100 basis points to 8%, or would you be more prudent on the back of the cost inflation scenario? A very last question is on CapEx. CapEx has increased for this year. What about 2022? Thank you very much.
Monica, you're posing too many budget questions.
I know. Sorry.
Budgeting process is ongoing, but it's premature to comment. For the moment you have to live with our recent confidence on next year. Therefore, I leave it for other conversations and for the next conversations, let me say. On Q4 of 2021, we see a good quarter coming in. We maintain the guidance even though we are clearly saying that EBITDA margin will be slightly above 7% for year- end. On provisions coming from the delivery of cruise vessels, of course, there were some provisions that were released given the very good operating performance that we have had and we are having right now, but we do not specifically give the numbers that we have released.
Delivery of three big size cruise vessels with a very good performance means very good results, so and very good releases, let me say.
Okay. Thank you very much. Guys, I will skip the budget question over the next month. As for the naval segment, can you give us some any flavor as for your MOU with Navantia? Does it mean a more, let's say, proactive approach toward the consolidation of the naval segment in Europe? Or is there some project on which the two companies can cooperate and get new awards?
Well, the agreement comes on the back of, you know, the two companies, ourselves and Navantia are reference shipyards for the respective countries and also European level. The target of the agreement is to assess any future opportunity for the national navies, but also in the framework of the development of the European programs like the European Patrol Corvette and that's the rationale of this agreement.
Okay. The European Corvette could be the focus for the players in the sector over the next months.
Among other initiatives, this is the first, of course we mentioned it because it has been already formalized and launched at European level. This is the first in line of many others that could come in the future. Again, for the national navies and at European level.
Okay. Many thanks. Thank you.
You're welcome.
The next question is from Matteo Bonizzoni with Kepler. Please go ahead, sir.
Thank you. Good morning. I have two questions. The first one is related to the slide on page 12 of the presentation in which you show that clearly the weight of the naval business in the nine months of the year increased compared to last year to 26%. Last year it was 21%. The question is if you can provide a rough indication of how much the naval business could weigh in three years as a percentage of total. I guess this percentage is going to further increase, thanks to various contracts with you have taken, including the last one in Indonesia.
You have never disclosed in your account EBITDA margin delta between naval and cruise, but I remember that in the past you commented that naval is around low double digits while the cruise business is not more than mid-single digits. Is it still true despite the reshuffle of your portfolio in naval with the addition of large non-capital contracts like U.S., let's say U.S., Indonesia, then you have taken Qatar in the past. The question is just to understand if the margin delta between naval and cruise is confirmed at several percentage points. The last question is also related to naval timelines for the closing of the contract with Indonesia. I think it's more likely first half next year than by year-end at this point.
If you can confirm that the advanced payment related to this contract will be at least 10% of the nominal value? Thanks.
Matteo, are you still there?
Yeah, yeah, I'm here.
Okay. Sorry, we had some connection problems. Actually, I answered your question, but I was not aware that our line was down. In any case.
No, I think nobody heard at least me, so I think, yeah.
Going back to your questions. We do expect the share of the revenues in naval business to increase. This is embedded already in our backlog. Of course, I mean, I reiterate the message that the margins are somehow higher in the naval business, as we shared in the past, in the high double digits. While at the same time, margins, EBITDA margins in cruise show a very good pickup, thanks to the improvements that we are realizing right now, and also thanks to the fact that, as we said many times also in the past years, the ships that were acquired, you know, starting from 2015 onwards, were acquired at very good prices and therefore a very good potential margin.
The good news is that these potential margins are becoming actual margins as we are delivering those ships. These were the questions on EBITDA. I'm sorry, but can you repeat the second question that you asked?
Yeah. Just an update on the finalization of the contract with Indonesia, where we are.
Yes. As of yet, we can only say that, while we, you know, target at end of the year, probably will be most likely in 2022 as we are quickly reaching the end of 2021. The Fincantieri team and the Indonesian Navy team are already working together. Our people are in Indonesia right now, but we can't expect it to be closed by year-end. Let me just add another comment. When we look at Fincantieri, we see design manufacturing company, which is somehow showing a unique positioning. We mentioned several times the word diversification. Diversification is very important in this business. We're not depending on just one engine.
By the way, cruise, which has been tough the last few years has been recording very positive performance in absolute terms, but even more stunning when compared to competition. Our naval business is a second and growing part of our business. Clearly, all the work which has been done for years for our national navy has been even strengthened in a very visible, significant way, thanks to the awards of the U.S. Navy contract, which allowed us to have a different positioning versus the past, clearly in competitive terms. We're also exposed to a growing part of this shipbuilding business, which is represented by the trend in offshore wind farms. As you all know, renewables will be a key part of this net zero emission global target for all of us, and we are there in a leading position.
Therefore, we've somehow reinvented our company, which is hard, shifting its production from oil and gas to wind. By the way, probably oil will be needed for quite some times yet. Therefore, we still have capabilities with that respect, plus fishery, plus aqua farms. If you look at these sectors or specific sectors, you can see that the growth characteristics are quite positive. Therefore, Fincantieri can boast diversification, scale, financial resources to invest, to innovate, to invest in technology, and to have a first-class network of partners with whom we can sit down and talk and be at the very edge of innovation for this very complicated business, in which, by the way, we can boast a global leadership.
Therefore, we are exposed to some growth sectors like tourism, which has showed its resiliency once again, 9/11 crisis, different crisis, and now the pandemic. You know that, like any researchers, you can see that tourism is there and that this kind of tourism, cruising, is performing, is expected to perform better than average.
Defense, by the way, I'd like to highlight again that we're leader in the frigate segment, which is probably the highest growth part of defense investments. Again, we talk about wind and renewables. Therefore, when we talk about our different pillars of the business, plus the extension of our skills, which are all deriving from what we do in our core business, that's nothing strange. It's just extension of what we do in our ships. We think that this competitive position will allow us to be competitive also in the future.
Thank you.
The next question is from Gabriele Gambarova with Banca Akros. Please go ahead, sir.
Yes, thank you for taking my questions, and good morning. The first one is on offshore and specialized vessels. We touched on this point a few minutes ago. I was wondering if you have any visibility on the possible, let's say, margin evolution for this business, which now is at zero margin, basically. If, basically, if the offshore offers better opportunities in terms of margins. The second one, the second question is on naval. We saw that Greece chose Naval Group for its big frigate program. After a few weeks, you showed a certain interest in rescuing the Greek Elefsis yard. I was wondering what's behind if you see other opportunities on this market.
Basically, what is the rationale of this move of this possible rescue of the Greek yard? The third one is a little bit more strategic. If you want, I saw that around one week ago, the Chinese GSI yard delivered a very big ferry boat, 70,000 tons, 550 berths to an Italian client. It's almost a cruise ship, a small one, let's say. I was wondering if you see any, let's say, threat or any evolution in the competitive landscape in the cruise ship market, and specifically from China. Thanks.
Okay. On offshore and specialized vessels, of course, we're not happy with the EBITDA levels that we have right now. Still, we are let me say, starting to enter this market. We acquired 7 + 8 vessels this year. Of course, the benefits of these other acquisitions in terms of margins are going to start to flow in from 2023 onwards. We do not have a specific guidance on this, but the target is to improve and to reach possibly the current EBITDA levels that we have in shipbuilding. Okay. This is long-term strategic target.
On Greece, of course, the fact that Greece has awarded the contract for the frigates to Naval Group does not stop us to discuss with the Hellenic Navy and with the Greek government of any other further opportunity. You know, the agreement that was announced falls within this attitude and this process. Let me say, we're going to see if there are other things. Greece does not need or does not want only the frigates, let me to put it this way. The ferry boats and the competitive landscape. We do not see any evolution as of now in the competitive landscape when it comes to cruise shipbuilding. We have a joint venture in China that's forming well and almost according to schedule, notwithstanding the COVID-19 pandemic.
As of now, we don't see any change. The ferry you saw, the ferry was delivered. Yes, it was a big ferry, but size does not close the gap between ferries and cruise vessels. Still, there is, and I'm not a naval engineer, but I can tell you, and you should come and visit our yard in Monfalcone, where you will be able to show how complicated is the production process and how, you know, complicated is the product in itself. Okay?
Okay, thank you very much. If I can, very short follow-up. Given that, let's say, the COVID issue is almost, let's say, a thing of the past and that, your, let's say, perspectives are, somehow improving, do you plan to have a, I don't know, a capital market day or, let's say, an occasion, an event to, let's say, to speak about the company, the perspective, the plans, long-term plans or something similar?
We do plan this, but you know, circumstances have not been, let me say, beneficial for such a plan at this point in time. Like now, you said it right. We are moving out of the crisis, notwithstanding the recent increase in daily cases. We keep our fingers crossed, but things are working very well. In due time, we will organize and set up an effective way to communicate our direction and our strategy and the future of the company.
Okay, thank you very much.
Gentlemen, there are no more questions registered at this time.
Well, thank you very much.
Thank you.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.