Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining FINCANTIERI First Half 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. Bono, Chief Executive Officer. Please go ahead, sir.
Good morning, dear all. Welcome to our conference call. Mr. Gallia and Mr. Dado will show you that our first half 2021 results display a true positive turnaround of the group performance. Before that, I will just underline a few aspects that, in my opinion, stand out.
During this time, deeply influenced by the pandemic and other difficulties, we proved beyond any doubt our skills in adapting our operations, even in adverse conditions with scarcity of qualified workforce and the availability of components and raw materials. We can claim our business is robust and sustainable. Two elements that are essential to be competitive in the current global economic scenario. As so, we can say that we have already laid the foundation for what FINCANTIERI will become 10 years from now.
In fact, thanks to this order acquired in the defense business, in which we established our leadership, we are positive and we will achieve higher marginality and strong cash generation, while keeping the highest production standard on the market. I want also to underline that those orders are just an example of what we can achieve, thanks to our competencies and capabilities. As well, we stood by our long-term vision, expanding our competencies in non-maritime sector.
With satisfaction, we are starting to see very good results. The commitment and the determination of our people and of our suppliers have never been so high, even during the darkest hours of the last 18 months. For that, I want to thank each and every single one for the dedication. This is also why I feel we can reach outstanding economic and financial performances in the next future.
I am personally proud to see that our efforts allowed FINCANTIERI to grow and become such a strong and global group. I wish this gloomy period will soon come to an end, letting us all come back to a normal life. Now, I leave the floor to Mr. Gallia. Please.
Thank you. Good morning to everybody. We're here to present what we consider a very healthy set of results. Key messages are we're back to profitability, revenues up 28%, excluding pass-through activities. EBITDA is roughly EUR 220 million, with a margin which is in excess of 7%, compared to the 5% recorded in first half of last year. Adjusted net income is around EUR 50 million, with EUR 42 million extraordinary costs. Net debt is in line with the first quarter results.
It reached EUR 1.6 billion. As you may know, we had three ships delivered in July, so that net debt and construction loans are now back to a very low level. We can confirm our guidance for 2021. Revenue expected to grow by more than 25%, and with EBITDA margin around 7%, notwithstanding increasing commodity prices.
Total backlog is very solid, with a number of EUR 37 billion, which is about 7 x 2020 revenues, 111 units. Backlog with 93 units and soft backlog with EUR 9.4 billion. Production volumes are at historic highs. We've been working 8.4 million production hours in Italian sites, with a growth of 50%. That was instrumental to deliver on the backlog we have been building over the years. We can say that we are in line with the delivery schedule.
Corporate vaccination program has been successfully launched and has been very well received by both our colleagues and all the subcontractors. In terms of delivery, seven ships has been delivered from six different shipyards and six cruise ships to be handed over in the second half. Actually, three have already been delivered in the month of July.
In terms of new orders, as you may know that U.S. Navy has assigned the second option for the future frigate. That is a very important part of the progress we are building in U.S., with the role of prime contractor for the six frigates in the Indonesian Navy. We also reached an agreement with MSC to build a new cruise terminal in Miami. 85% of our revenue base in this first half of 2021 is being represented by international clients, and 80% of the productions is being carried out here in Italy.
If we go to page six, we have a brief business update. Five cruise have been delivered in this period, out of which three in July. What is important to note is that we have a very broadly diversified client base, which is certified also in this first month of 2021.
You can see we've been delivering both for Viking, Hapag-Lloyd, Virgin, MSC, Holland America yesterday. In terms of defense, we already mentioned the Indonesian contract and the second Constellation-class frigate for U.S. Navy is really important to see how the success in U.S. last year allowed us to go with this very prestigious, very important reference every time we have to deal with new clients. In terms of offshore and specialized vessels, VARD, our Norwegian subsidiaries, have been providing North Star Renewables three operating vessels to be deployed in one of the largest European wind farms, which is Dogger Bank, East of England. VARD also is about to supply cable repair vessels to Orange Marine.
In terms of Equipment, Systems & Services, we partner with MSC for the construction of Port Miami, a very important project, which is about to be delivered the next two and a half years, while Fincantieri NexTech has been finally launching the operational execution of the agreement reached with Autostrade and IBM. If we turn page and look at key strategic initiatives, we continue to be totally committed on environmental transition. We are collaborating with Enel X particularly, to build a next generation port infrastructure, which is key for a new way of cruising. We've been partnering with a company, Faist Electronics, to build lithium-ion batteries. That is about the production is expected to be launched early next year.
In terms of building hydrogen-propelled vessels, we partner with both MSC, one of our most important clients, and Snam, for a feasibility study to design and build the first hydrogen-powered cruise ships. In terms of sustainable mobility with our subsidiary, Fincantieri NexTech , we partner with AlmavivA to deliver program to support digitalization process in transportation and logistics. Last but not least, we partnered with Comau from the Exor Group to develop prototypes, robotize steel welding solutions in our yards.
We've been investing a lot to provide our shipyards with the state-of-the-art technology, taking also the opportunity to be in a position to invest for best technology, more competitiveness in our yards, also in light of our competitive position versus other players. A brief update on ESG activity. In terms of environment, clearly, tackling climate change is one of our key priorities.
100% of electricity needed in Italian, Romanian yards have been purchased from renewable sources. It's also important to highlight how two-third of our R&D budget is devoted to clean tech. In terms of social, clearly, protecting the safety of our people, of our suppliers, of our communities has been a paramount importance. We also implemented five ships in order to ensure productive production activity, efficient one, but also enabling safety and social distancing.
We already mentioned the corporate vaccination program in our yards. In terms of governance, we approved a group tax strategy, which is fully in compliance with the GRI standards. Rating agencies are being appreciating our progresses. Gaïa Rating, which is a French rating agency, awarded us a very high score, 85 out of 100. In this ranking, we are the second one in a sample of 500+ industrial companies worldwide.
Green Star 2021 seal from the German Institute for Quality and Finance and the Excellence in Safety and Improvement in Safety award by the FMM. That testifies our commitment, clearly our commitment is about to stay for the years to come. Next page, we can have a look at new orders. Shipbuilding, we had, as we said, the frigates for U.S. Navy, and then this Somnio superyacht project, maybe some of you already read about it. It's an innovative project, and we are really happy to collaborate with this entrepreneur to launch this innovative solution. In terms of offshore and specialized vessel, three services operation vessels for North Star and deliveries, we already elaborated about that. Again, we would like to highlight diversification of our client base, but also diversification of our industrial footprint.
You can see that not just Italian yards, but also Romanian, Vietnamese, are working and allowed us to have a unique industrial footprint. Next page, about backlog. You see all the numbers. Again, it's important to highlight the visibility that is provided by this backlog. Indonesian projects included in the soft ones. You can see that both in cruise and navals the visibility is guaranteed 2025, 2026 and beyond. While on the offshore specialized vessels, we have ships and vessels of totally different dimensions, but we are pretty much encouraged by what we see in the markets. I will hand it over to Giuseppe for the analysis of the financial results. Thank you.
Thank you, Fabio. Thank you, Mr. Bono. Good morning to everybody. I move now to page 12 on order intake and backlog. The order intake for the first half of the year came in at roughly EUR 1.8 billion. Despite the hold stance that the cruise sector has taken in signing new contracts, during the period, we had approximately EUR 1 billion in orders in the shipbuilding segment, out of which we can pinpoint the award of the second Constellation-class frigate, as we said before, and, as Mr. Gallia mentioned, the first residential yacht for Somnio. This is an important order that might signal the opening of a new market for us.
In the Equipment, Systems & Services segment, the order intake more than doubled compared to last year. This is thanks to a new order in the infrastructure business to build the new cruise terminal for MSC in Miami. We had an order intake related to the construction of complete accommodation and cabins in the captive business. The backlog, it's as we mentioned before, EUR 37 billion, including a hefty soft backlog, EUR 9.4 billion.
That includes as well the Indonesian contract that was recently announced. Regarding revenues, we had in the first half of this year record high production volumes. This, let me underline, this is a true rebound compared to last year. We have proven in the first six months of the year that the intention and the strategy that we envisaged last year to fight the pandemic was right. Here we are.
Revenues grew almost 28%. I have to pinpoint the growth in shipbuilding. In the naval business, revenues grew of almost 50%. In cruise, we had a growth of roughly 26%. We basically recovered all the hours and the revenues that we lost last year during the first six months of the year. Also, in the offshore specialized vessels, revenues were broadly in line with 2020 levels. We partially recovered the volumes lost in the first quarter of this year.
Revenues increased as well in the Equipment, Systems & Services, 23% almost, mainly thanks to the recovery in the complete accommodation business to supply our cruise business for cabins and public areas. 88% of the total revenues were generated from international clients. This gives you the true global footprint of the company. On page 14, EBITDA.
Of course, the recovery in production volumes and revenues has had a very positive effect on our profitability levels. We reached almost EUR 220 million. This comes with a margin of 7.2%, excluding pass-through activities. This is slightly higher than the guidance that we gave for the year 2021. This is mainly driven by the shipbuilding segment, up EUR 91 million year-over-year with an EBITDA margin of 7.7%.
Also in VARD Offshore, we have a positive EBITDA of EUR 5 million, for a total growth of +84% compared to the EBITDA levels of last year. We move to page 15. We have tried to explain where the growth comes from. Basically, out of the EUR 100 million in growth, almost half, more than half actually, came from the growth in production volumes, the recovery in production volumes, and the other half came from the improved operating margin.
Thanks also to a mix in revenues that's more balanced. The growth has been higher in the naval business than in the cruise business. You see the benefits also in the EBITDA margin. Of course, this boils down to a positive net result before extraordinary items, EUR 49 million of adjusted profit against a loss of EUR 29 last year. Of course, to EUR 7 million profit after almost EUR 50 million of extraordinary items, EUR 29 of which related to asbestos claims. Page 17. The CapEx program still continues. The investments for the first six months of the year are mostly related to the completion of the upgrade program of the Marghera shipyard, where we are today. Today, we delivered also a ship out of Marghera.
The revamping of the U.S. shipyards before the start of the construction phase of the first-in-class frigate for the U.S. Navy, which is envisaged to start end of this year, end of 2021. Net working capital and net financial position. Net working capital increased in the first six months of the year of almost EUR 470 million net. Of course, this is related to the production plan.
The increase of net working capital was mirrored also by the increase in the net financial position. You see it's almost symmetrical, if you look at the numbers, and include, of course, the CapEx. Of course, as we said, we had a quite intense delivery schedule, mostly concentrated in the month of July. Today we can say that we completed the delivery program for the month of July.
We delivered four cruise ships in total, three out of Italy and one out of Norway. As you very well know, with the completion and delivery of the cruise vessels, we cash in the delivery payment, that's roughly 80% of the contract value. We can say and state that the figures that you see for the end of June are stale in a way. Because as of today, net financial position and net working capital, net financial position and construction loans improved a lot.
As of today, net financial position went down from EUR 1.6 billion to EUR 1.2 billion, and the construction loans went down as well from roughly EUR 1.3 billion to EUR 300 million. This more reflects the real situation of the company as of today, of the group as of today. I leave the word to Mr. Gallia for the outlook for the remaining part of the year now.
Thank you. We're about to close. We would like to give you a brief update regarding cruise markets. All the major operators are listed, therefore, we know you're familiar with what's going on. We can say that the worst is over. That is true also when reading their statements. They are, in the end, positive about the prospects for a second part of the year in which cruising will resume everywhere around the world, clearly with different intensities.
What is very important is to read what they've been stating about 2022 prospects. They are solid ones, both in terms of booking and in terms of prices. Some of the owners are saying that prices in 2022 are expected to be higher than 2019, which bodes well also for what is the resilience of this industry.
We recently physically met again with our clients, and what has been a really positive surprise is the fact that we've been talking about future. We've been talking about new project, we've been talking about new clean technology to be put on board, and it's about the future, which is very encouraging. When we have to talk about the last page about the business outlook, we can confirm our guidance, notwithstanding prices in commodities which are being moving up.
If we just compare where we stand today in the summer of 2021 to where we used to stand one year ago, the world was paralyzed at the time. Yards have been facing hard difficulties. We had a safety issue, safety priority for everybody, and the businesses was really with huge question marks.
One year after, we can say that our positioning is very solid, is very healthy, both when looking at FINCANTIERI per se, but particularly when we look and compare to our other players. We can say that this competitive position is strong because of the diversification of its client base. It is unparalleled. The diversification of the industrial footprint. We can tap skilled labor forces in other countries where other players cannot, and that allows us also to have industrial flexibility.
We have a diversified business portfolio. We have defense, which is clearly benefiting from the work done and the extraordinary success in U.S. last year. We've been investing. We've been investing a lot, as you've been seeing before. Investing is about having more efficient yards, is about instilling, inserting in yards state-of-the-art technology sooner than others. It's about technology for healthier shipping, for more respectful shipping in the future.
It is about also clean tech, and that will be clearly looked through different areas of applications. That allows us to be very committed on sustainability. Before we look at the future with trust, confidence, and ready to take the opportunities we have ahead of us. Thank you, and we are ready for questions.
The first question is from Monica Bosio with Intesa Sanpaolo. Please go ahead, madam.
Good morning, everyone. I have three questions. The first is on the net debt evolution. Can you give us a rough indication of the expected CapEx by year end? If I'm not wrong, your net debt guidance is not including the finalization of the Indonesian contract yet. Do you expect the finalization might occur by the end of the year?
If yes, can we expect a positive impact on the net debt compared to your guidance? The second question is on the future business opportunities in the naval segment. When is it expected an outcome for the Greek FREMM tender? Very last is on raw materials. I understand that cost inflation is not impacting your margins and not very much so far, what about 2022 and beyond? Do you expect that this could be an issue for the future? Thank you very much.
Good morning, Monica. Giuseppe speaking.
Good morning.
On your first question, net debt evolution. First of all, Indonesia, we keep the guidance for year-end for net debt levels broadly in line with last year's. Indonesia, of course, is not included any effect coming from Indonesia. We do expect the contract to become effective by year-end. Of course, they have to complete some steps, including the finalization of the financing. This month of July offers a crystal clear evidence of this. We have a very intense delivery schedule also next year. First cruise vessel will be delivered end of January next year.
It is a sizable cruise vessel with a sizable cash inflow. Therefore, all in, we see the net financial position as healthy and very positive. Again, the numbers you're looking at as of the end of June are stale. Situation is completely different. On the raw materials, and of course there is volatility and there are price increases going on, but we have proven also with the results as of the end of June that we have the opportunities t he scope to offset and recover the potential price increases. For 2022, as we look at it right now, we are pretty confident. On Greece, do you want to comment?
Thank you. Just a follow-up.
Yes, on the Greek project, we're still in the contest, of course. There are many, many competitors. We are very well positioned because we have proven to gain leadership in the surface vessels, notably in the FREMM frigate product. We'd rather not comment, and we wait cautiously. Okay?
Okay.
Let me elaborate a little bit more regarding this. Clearly, the company is concentrating in having the naval business grow, and we can definitely leverage the success of our FREMM, our multi-mission frigate. We know that the market is a growth one that is expected to grow for the world. It will be growing more in Asia, less so in Europe and the U.S. Frigate is expected to grow a multiple of the growth rate represented by defense expenses and expenditures. We're leader in this field. Normally when we have a dialogue with our clients, which is major, the Ministry of Defense in other countries, this is a very respected product. Clearly, we know that all these negotiations are not easy ones, but we're well-positioned.
It's important for you to know that the market for frigates is expected to grow in excess of 6% compound annual rate for the next at least 10 years. That is according to studies and researches of anybody. We're clearly keen to exploit the competencies we've been building over the years, and clearly capture part of this growth. As far as the defense business growth, we know that those businesses are not equal. Profitability is different, and interestingly, the working capital cycle is different.
The more we grow on the defense, the less we'll be indebted. By the way, also on the cruise business, profitability today stands at different level versus where it used to be. Because on investments, our yards are more efficient than before. Our production methods, processes, has been improved by our own people. Just compare FINCANTIERI positioning versus the ones of our competitors.
That tells you we are probably the only one who can continue to invest for the future to exploit this opportunity in a complicated, uncertain environment to improve even further our ability to perform. You can see also how that will be reflected in the composition of our both P&L and balance sheet with respect to the question you posed regarding non-performing loans. On raw material, Giuseppe has already elaborated. We don't control them. We cannot hedge steel.
We can do something on copper. Clearly, we have a duty, which is continue to be committed, focused, and being more efficient, and being ready to improve our profitability, which allows us also to compensate for some unexpected hurdles, which can materialize down the road, like the ones which just materialize on raw materials. We're there.
Okay. Thank you very much. Can I ask just a short follow-up? Do you have a rough indication of the total CapEx spending for this year?
Well, the investment plan is an important one, because in the last few years, we've been invested to in our Monfalcone yards, in our Marghera, but that is true, I would say, almost everywhere else. Very importantly, this year, next year, we will be ramping up investments in U.S. for the production of our U.S. frigates. Last year, we invested more than EUR 300 million. This year is going to be around EUR 400 million. Next year is going to be probably lower.
It's important to expect that this is the curve, and we're expecting to reach the zenith, hopefully this year. Then it should go down to definitely lower levels, even because these investment cycles takes year, but also luckily last years. When you look out the plan, also the target that Mr. Bono has been providing you a few months ago, you can count on a Ceteris paribus, that investment curve will definitely move south.
Okay, very clear. Thank you very much. Thank you.
The next question is from Emanuele Gallazzi with EQUITA. Please go ahead, sir.
Yes. Good morning, everybody. Three questions from my side. The first one is on the cruise business. Can you comment more on the dialogue and negotiation that you have with cruise operator, just to understand the general mood now, and if you still expect orders to resume beyond 2023? The second one is on the ES&S division. It ended with a margin of 7.7% in the first semester. Can you comment on it? What do you expect for the full year, and what could be a reasonable profitability in the medium term for ES&S division? My last one is a very quick one on the business plan. If you can just give us an update on when you expect to disclose the new business plan. Thank you.
Okay. Let's start with the first one. Thank you for the question. Cruising. You mentioned the name, a mood. The mood is a positive one. All our clients, the three major Americans and the Swiss ones, are thinking about future projects, because this industry is considered to be in a secular growth phase. Penetration of cruising holidays is still low, and it's considered to be growing in the years to come. You have different penetration rates from U.S., which is around 4%. You have 6% in Australia. Europe is lower. It's more between 2%, 3%, 4%. We have a big question mark on China, which is less than 0.5%.
These holidays are now considered to be among the safest way to spend time with your families and friends, because the protocols which have been inaugurated by MSCs, particularly the strictest one a few months ago, are basically allowing tourists to live in a kind of a bubble. The fact that bookings are resuming to a very sustained rate is very encouraging.
Tourists today are spending much more than they used to spend two years ago. This is a pattern which happens, if you talk to hotel operators, if you talk entertainment operators, they will tell you the same thing. Clients want to enjoy after a very dark period. What about the future? We're not expecting any new orders this year on cruising, even though we captured the Somnio project. We're not expecting any orders next year. Who knows?
If things resume, we know that new ships are more efficient in commercial terms, and therefore, in terms of profitability for owners. Above all, everybody is talking about how can we build ships? How can we operate ships which impact, to a lesser degree, on the environment? This is about technology. This is about how you project, how you team up with your clients in order to provide incredible products like the ones we've been delivering in the last few days. The last one was last night. It's amazing products. Our clients was really enthused by the product, and we have to say that we've been delivering that through the pandemic. It also tells you how the FINCANTIERI is strongly motivated, how it's cohesive in order to capture this moment.
We've been through hell, but we think that with all the uncertainties we have, and we know the Delta variants, and we know this uncertain world, we're definitely well-positioned. Therefore, this is a secular growth sector. We have roughly 40%+ market share. We are the technology leader.
We are the environmental technology leader, and so we think we can continue to work well and partner with our clients to build beautiful vessels, capitalizing on improved industrial processes, new technology, and progressively, totally revamped shipyards. In terms of the other segments, you know that they are made up by a number of other different activities. Some of them are basically working for captive clients, for profitability is less meaningful, but clearly everything is being regulated at market standard prices.
I would like to mention that the technology division, NexTech, is still a small one, but to us, it's very meaningful because it boasts great technologies in certain fields. We're small, roughly EUR 200 million revenues, but growing nicely with a lot of respect being conquered on the market. Margins here are clearly higher. If we manage to grow, as we are expecting to, that will give a boost to overall profitability. In terms of infrastructures, we continue to stick to very selective approach.
We're going to stick to what you already know, make it better. We've been putting on board new competencies, new skills, which allowed us to strike good deals as the ones for the terminal, or the work we've been doing. There are other projects we're about to participate, but it will be a very selective approach.
We have all the design and furniture, which is basically a captive business. We have good opportunities also outside of captive business, but that has to be developed. We'll be talking about it maybe one year out, or a couple of years out. It's important to note this division is smaller, but it will contribute to the growth of the company. Regarding business plan, so far we're working with the guidance we gave you, and we'll keep you up to speed.
Okay. Thank you very much.
The next question is from Gabriele Gambarova with Banca Akros. Please go ahead, sir.
Yes, good morning. Thanks for taking my questions. The first one regards, again, Indonesia. I was wondering if you could share with us a few more details about the value of the contract or the delivery cadence of the ships or the vessels. The second one was on CapEx. I understand that there is this peak of investments this year and next year, especially in the U.S., and I was wondering what could be, let's say, in the medium term, a normalized level of investments for you.
The third one was about the cruise market. Your clients scrapped tens and tens of ships, even 20 years old. I was wondering if you have an idea of how much capacity in terms of berth was lifted from the market through this scrappage campaign. If the market, assuming that the market comes back to a normal level, I'm wondering if there may be somehow a capacity constraint at this point.
Thank you for the question. Indonesia, we cannot disclose, I think you can gauge the order of magnitude when comparing to other public information. I believe, and we all believe, that this is a very important project that we're going to pursue and deliver in the next few years. Regarding investments, already being elaborated about investment curve, investment cycle, the purpose of these investments. Let me be very clear.
Cash flow will more than compensate for all the investment plan that we are about to put in place. We said very clear that 2021, 2022 will be very intense and very cumbersome in terms of investment plan and curve, we're expecting that this will go down. By the way, even in this intense period, our cash flow will cover it, and that is very important.
I will not go back to what I said before, having more efficient yards allows us to have higher EBITDA, I put it very bluntly. Okay? Allows you to be more competitive, more flexible, when we have to cope with very distinguished competitors. That is really important, and cash flows will cover investments.
Regarding scrap, there are some public figure, I will go by heart because I don't know all the exact statistics, but the largest operator, which is Carnival, have been reducing the fleet by roughly 19%, more or less, 10 have been sold, nine have been scrapped. That means overall reduced capacity. There are some minor operators which have been buying the ships. Also hope to refurbish one of them with our service division. You know that the last year, they had to survive.
Capital market provided the cash in terms of both equity and loans and bonds to go through hell. Today, they are refinancing themselves. You can see that almost every month you have the Carnival, the Caribbean, the Norwegian, the other ones, who are announcing new terms and conditions for their loans. Every time they save from EUR 90 million to EUR 120, EUR 130 million in terms of the cost of this debt.
Therefore, if next year situation stabilizes in terms of pandemic and the scenario becomes clearer, we cannot exclude that this positive thinking we have been physically recording when having discussions with them in the last few weeks, can bring to new projects. Our scenario that orders will resume in 2023. We'll see if things will be faster and better. Maybe there can be some positive surprises. Otherwise, we stick to our scenario, which is a very conservative one, of new orders in 2023. No sooner.
Okay. Thank you very much.
Once again, if you wish to ask a question, please press star and one on your telephone. Gentlemen, there are no more questions registered at this time.
If there are no other questions, we thank you. On behalf of Mr. Bono and Mr. Dado, we thank you for the attention, and look forward for the next set of results. Thank you. Bye-bye.
Bye.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.