Welcome and thank you for joining the Fincantieri nine months 2026 results conference call. As a reminder, all participants are in listen-only mode, and 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 afternoon, everyone. Welcome to the presentation. We are pleased to report another strong set of results marked by double-digit EBITDA growth, further margin expansion, and sustained cash generation, supporting continued deleveraging and an improvement in our 2026 guidance. Profitability further accelerated during the period, with EBITDA growing 10.9% to EUR 511 million and margin expanding to 7.7% compared to 6.9% in the first nine months of 2025. This improvement was mainly driven by higher profitability in shipbuilding, particularly in cruise, supported by favorable pricing dynamics and efficiency measures, alongside the growing contribution of our underwater business. Revenue stood at EUR 6.6 billion, marginally below the first nine months of 2025, mainly reflecting the one-off contribution from the Indonesian contract recorded last year, as well as the reshaping of certain contracts in 2026. This was partially offset by the solid growth in all other segments.
Our commercial performance remains impressive, with backlog growth supported by strong demand across our core markets. In defense, we reached another important commercial milestone with the signing of a new contract for two next-generation DDX destroyers for the Italian Navy, worth approximately EUR 1.8 billion, including options, with contributions to group revenues expected from 2027. Our growth continues to be supported by strong financial discipline and sustained cash generation, also in cruise, with adjusted net debt declining to EUR 730 million and our leverage ratio improving to 1.0x, compared to the 1.9x at year-end 2025. Even excluding the benefit of the February capital increase, leverage improved significantly to 1.7x. Looking ahead, the acceleration in profitability and cash generation allows us to upgrade our 2026 guidance for EBITDA and leverage, as I will explain shortly. Let's turn now to page four.
Our commercial performance remains robust, supported by strong demand across our core markets. Order intake reached EUR 9.7 billion in the first nine months of 2026, with a book-to-bill ratio of 1.5 x. This order intake represents 90% of the full-year 2026 target we indicated at our Capital Markets Day last February. It is also important to note that the figure does not include other important contracts signed in the first nine months of the year, for a total of EUR 12.3 billion, which are not yet effective and are included in the soft backlog. Backlog reached a record of EUR 44.7 billion, equivalent to approximately 4.9 x 2025 revenues, while total backlog increased 14.9% compared to the year-end 2025, reaching EUR 72.6 billion. This provides us with deep revenue visibility while we continue to pursue additional commercial opportunities. Let's move to page five.
In the first nine months of 2026, we delivered 19 units from 10 different shipyards across the group, demonstrating the strength of our industrial execution capabilities. In particular, this year, we expect to deliver an impressive eight cruise vessels, with six already delivered in the first nine months. At the same time, our order book continues to provide exceptional long-term visibility, with 90 units currently in portfolio and deliveries scheduled up to 2036. Taking into account the cruise order signed with Princess Cruises in recent months, which is not yet effective, delivery visibility extends through 2039. Last but not least, as you can see, for the defense, we secured the order for two DDXs, with the first expected to be delivered in 2033 and the second unit in 2035.
Let's now move to page six, and let me briefly walk you through some of the most significant commercial achievements announced during the first nine months of the year. We signed major contracts across all our core segments, demonstrating the continued strength of demand across our key markets. A number of these contracts, particularly in cruise, are not yet effective and therefore not included in the order intake, as they remain subject to financing and other customary conditions. We secured orders for 11 vessels for NCLH, Viking Cruises, Princess Cruises, and Four Seasons Yachts, further strengthening our leadership in the sector and extending our long-term visibility. The timing of their conversion into hard backlog depends on the finalization of the related financing agreements. Once effective, these contracts will enter the order book and progressively translate into production and revenues.
Given the very high historical conversion rate from soft to hard backlog in cruise, these orders reinforce the visibility on future revenues and deliveries. In offshore and specialized vessels, we continued to demonstrate the benefits of our diversification strategy beyond the energy offshore market. Alongside the largest single vessel order ever secured by VARD for a next-generation deep-sea research vessel for Inkfish, we signed additional contracts for an advanced stern trawler for Rosund Drift AS, two multi-mission buoy and lighthouse maintenance vessels for Trinity House, and the commissioning service operation vessel for Dong Fang Offshore. Lastly, in underwater, WASS Submarine Systems secured the largest contract in its history with the Royal Saudi Naval Force for lightweight torpedoes.
We also signed an amendment with OCCAR worth approximately EUR 317 million, covering logistic support activities and WASS countermeasure systems for the U212 NFS submarine program. Moving to the defense segment on the next slide.
The new orders and strategic agreements announced during the third quarter bring us significantly closer to the approximately EUR 5 billion new order target set out at our Capital Markets Day last February. A key milestone was reached with the agreement signed with OCCAR for two new-generation DDX destroyers for the Italian Navy, with a total value for Fincantieri of approximately EUR 1.8 billion, including around EUR 800 million in options related to the second vessel. The first DDX has already entered our order intake, with a contribution to revenue starting from 2027. Additional major contracts are expected to be finalized with several foreign navies for the supply of surface vessels, including FREMM EVO frigates. In this context, on 20 July 2026, the governments of Italy and Portugal announced the signing of an agreement for the acquisition of three FREMM EVO frigates for the Portuguese Navy.
An agreement was also signed during the period for the transfer of two Italian Navy FREMM frigates to the Hellenic Navy. Fincantieri will play a leading role in the transfer and provide support throughout the lifecycle. Importantly, the transfer will lead to a subsequent order for two new FREMM EVO frigates for the Italian Navy. In Indonesia, we signed an MOU with PT PAL, establishing a framework for cooperation on the future modernization of the former Garibaldi aircraft-carrying cruiser, now part of the Indonesian Navy. In the United States, Fincantieri Marine Group secured the first U.S. Navy contract under the Medium Landing Ship program, with an initial value of approximately $30 million, preceding the future award of construction contracts for the first four vessels.
Finally, in Italy, we further strengthened our role in the PPA program with an upgrade of the vessel to the full combat system configuration, including advanced cyber defense capabilities. Looking ahead, our pipeline includes additional opportunities for the Italian Navy, including the Logistic Support Ship and the J3MS program, a lifecycle management program in the Middle East, as well as further programs for the U.S. Navy. Moving to page eight, the strong results delivered in the first nine months of the year enable Fincantieri to improve its 2026 guidance for EBITDA and leverage, following the upward target revisions announced with the first quarter 2026 results, compared to those announced at the CMD in February.
We confirm our 2026 revenue guidance at EUR 9.3 billion-EUR 9.4 billion, with revenues expected at the lower- end of the range, mainly reflecting the reshaping and timing of the U.S. Navy programs, for which we expect new orders in the coming months. Considering our huge record backlog, revenues are not an issue, also considering the increasing quality and profitability of these revenues. Backlog and soft backlog continue to grow, and the very high historical conversion rate from soft backlog into backlog, particularly in cruise, provides strong visibility. We raise our full-year EBITDA guidance to EUR 715 million-EUR 725 million from the previous EUR 700 million-EUR 710 million range. Net profit is confirmed in the range of EUR 140 million-EUR 180 million.
Finally, we improve our guidance on leverage for 2026, which is now expected at around 1.71x, including the capital increase completed in February 2026, improving on the guidance provided at the Capital Markets Day in February 2026. We are not only focusing on our growth and performance, we are also anticipating and shaping the future of our industry. As you know, yesterday we announced a very important partnership between Fincantieri, Poste Italiane, and TIM to build Italy's national Physical AI value chain, which seeks to rethink, with the application of the latest technologies, the shipbuilding paradigm. This strategic collaboration will establish the first national end-to-end Physical AI value chain, aimed at embedding industrial artificial intelligence into production processes and accelerating the large-scale adoption of automation and robotics.
The partnership also addresses four key industrial, economic, and social priorities for Italy: strengthening industrial and economic leadership, overcoming production constraints and acceleration automation, developing human capital, and making manufacturing careers more attractive, as well as safeguarding technical know-how to help redefine the competitive advantage of made in Italy. The initiative marks a major milestone of the Fincantieri Ontology Project, an operational pillar of the 2026-2030 industrial plan, and will bring together the expertise and technological infrastructures of the three partners to support ship design and construction, develop 4D models, and optimize workflows through AI within a secure and sovereign digital ecosystem. The vision unfolds along two parallel paths that are now converting into a single digital continuum.
Navis Sapiens, a project dedicated to the digital management of the entire ship lifecycle, designed to support the asset through its full robotic integration at sea, transforming every vessel into an intelligent digital asset. Fincantieri Ontology, the ecosystem focused on the digitalization and advanced automation of design and construction processes across the group's shipyards. Let's now return to an in-depth discussion of our key results, which will be covered by Giuseppe.
Thank you, Pierroberto, and good afternoon, everybody. I'm on page 11 for those who look at our orders in the first nine months of the year. We reached a healthy order intake at EUR 9.7 billion, and this is approximately 90% of the total annual target of orders of around EUR 11 billion envisaged in February during the Capital Markets Day, and this is in our business plan, of course. The order intake, as always, reflects only the contracts that became effective during nine months of 2026, and therefore excludes the contracts for approximately EUR 12.3 billion signed during the first months of 2026 that are still not effective. Book-to-bill ratio stands at 1.5 x, confirming strong demand across all the businesses and providing deep revenue visibility for the years ahead.
The backlog on page 12, our total backlog reached EUR 72.6 billion, up almost 15% compared to year-end 2025, and roughly equivalent to 7.9 x 2025 revenues. Within the total backlog, our backlog representing contracts that are already effective reached a new record of EUR 44.7 billion, up almost 9% compared to year-end 2025, and a soft backlog of roughly EUR 28 billion from EUR 22.1 billion in 2025. As we said earlier, the transition from soft backlog to backlog takes place once the customary conditions, including financing, are fulfilled, and the contracts become therefore effective. On this, the very high historical conversion rate in cruise, and I would say across all the businesses, provides a very strong visibility on the progressive conversion of these contracts into the backlog and ultimately into future production and revenues and margins, of course. Our backlog alone represents roughly 4.9x 2025 revenues.
We have 90 vessels in the order book, deliveries extending through 2036, while contracts signed in 2026 further extend visibility through 2039. Very importantly, the quality of this backlog is also supported by an increasing number of sister ships. In cruise, 30 of the 36 vessels in our order book are sister ships, supporting execution efficiencies, cost optimization, margin expansion, and de-risking of the backlog. During the first nine months of the year, we delivered 19 vessels from 10 shipyards, six in cruise, one in defense, 11 in offshore and specialized vessels, and one in underwater. On page 13, Financials. Revenues, we printed EUR 6.6 billion in revenues in the first nine months of this year, with the execution of our backlog continuing to support revenue trajectory across our businesses.
In cruise, revenues grew by 9.1% year-on-year, driven by positive price evolution and the seamless and continuous improvement of our operating leverage. In defense, as we said earlier, the year-on-year comparison is affected by the one-off contribution from the two PPAs sold to the Indonesian Navy recorded in 2025, as well as by the ongoing reshaping of the U.S. Navy programs, for which, as Pierroberto said before, we expect orders to arrive in the coming months. In offshore, revenues continues to grow, with they're up 8% compared to the first nine months of last year at roughly EUR 1.1 billion. Underwater delivered a very strong growth, the strongest growth, I would say, with revenues up 36.7% to EUR 531 million, and its contribution to total revenues is increasing to 7.3% from 5.3% of the same period of last year.
This performance reflects acceleration of the U212 NFS submarine program, together with a strong contribution from both WASS and Remazel, and waiting for the consolidation of the targets that we have, or the companies that we have acquired this summer. Finally, equipment systems and infrastructure revenues increased almost 12% to EUR 1,037,000,000 , mainly supported by mechatronics and infrastructure, up by 19.7% and 10%, respectively. On page 14, margin, EBITDA margin. The continued margin expansion across the group confirms the increasing quality of our earnings, supported by improved execution, favorable pricing dynamics, and the growing contribution from underwater. Overall, we printed EUR 511 million in EBITDA, up 10.9% year-on-year, with an EBITDA margin expanding to 7.7%, 6.9% in the first nine months of 2025, so up 0.8 percentage points. Shipbuilding EBITDA increased by 5.9% to EUR 335 million.
Despite the unfavorable year-on-year comparison in defense mentioned earlier, EBITDA margin expanded significantly to 7.3%, mainly reflecting higher profitability in cruise, supported again by good prices and good execution, as well as the contribution from higher margin defense programs. Offshore and specialized vessels EBITDA increased by 8% to EUR 61 million, with an EBITDA margin of 5.4%. Underwater continues to deliver a particularly strong performance, with an EBITDA growth of 40.1% to EUR 93 million, and EBITDA margin improved further to 17.6% from 17.3%, and this confirms the premium profitability of this segment. Finally, equipment systems and infrastructure EBITDA increased by 1.8% to EUR 70 million, with an EBITDA margin of 6.7%. Performance was particularly strong in electronics and digital products, with EBITDA up 34.1%. On page 15, the continuous improvement in profitability pushes further cash generation and further deleveraging.
Adjusted net debt stood at EUR 730 million at the end of September, better than the EUR 756 million recorded in June 2026, and significantly below EUR 1.3 billion recorded at year-end 2025. This was supported by cash generation during the period, and of course, the proceeds of the capital increase completed in February, that you know very well those proceeds will be used soon once we close the acquisitions that we announced this summer. As a result of this, our leverage ratio improved to 1.0x EBITDA from 1.9 x at year-end 2025. Excluding the benefit of the capital increase, which is fully dedicated, as I said, to fund the M&A acquisitions, adjusted net debt would have improved to EUR 1.2 billion, with the leverage at 1.7 x EBITDA. Working capital is negative at EUR 711 million, compared with the EUR 634 million at year-end 2025.
This evolution mainly reflects lower construction contracts and client advances, partially offset by higher trade receivables, reflecting cruise ships deliveries during the period, higher advance payments received on new cruise contracts, and proceeds from the reshaping of the programs with the U.S. Navy. We also recorded an increase in inventories and advances, mainly due to higher advance payments for suppliers related to the cruise business, as well as an increase in other current assets and liabilities. With that, I will now give the word back to Pierroberto for his concluding remarks.
Thank you, Giuseppe. Let me now summarize on key takeaways on page 17. We delivered another strong performance in the first nine months of 2026, allowing us to improve our full-year EBITDA and leverage guidance. EBITDA grew double digit, with the margin expanding to 7.7%, further confirming the structural improvement in the group's profitability. At the same time, sustained cash generation continues to drive deleveraging, with adjusted net debt significantly improving since year-end 2025, and our leverage ratio declining to 1.0x. Looking ahead, we have strong visibility on future revenue deployments, with total backlog equivalent to approximately 8x 2025 revenues, providing a solid foundation for the growth envisaged in our 2026-2030 business plan. In defense, growth is beginning to kick in. We have secured the DDX contract with a contribution to revenue starting from 2027, while a number of other significant near-term opportunities are progressing towards finalization.
We will keep you posted on these. Finally, we continue to move forward with the creation of a fully integrated international underwater champion. The acquisitions announced in July are expected to be highly accretive, with an estimated EPS uplift of approximately 30% in 2028 and 20% in 2030, and a contribution of approximately EUR 130 million to group net profit in 2030 on a pro forma basis. Importantly, the proceeds from the capital increase completed in February are fully dedicated to fund these acquisitions. Their completion will have no impact on our 2026 adjusted net debt- to- EBITDA guidance, while it is expected to improve the leverage targets set out in our business plan for 2028 and 2030.
In terms of timing for the completion of the Next Geo acquisition, which is the largest of the M&A deals announced, we are awaiting European antitrust approval, following which we will proceed with the finalization of the purchase process. With that, we are now open to take your questions.
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 touch-tone telephone. To remove yourself from the question queue, please press star and two. We kindly ask to use the handset when asking questions. First question is from Antonio Gianfrancesco Intermonte.
Yeah, good afternoon and congratulations for the very good results. Two questions from my side. The first one is on the Fincantieri Ontology Project. That is quite interesting in my opinion, and also, Poste Italiane management in this morning nine months results conference call presented the project as a very strategic one. But they also described it as a pilot project that will be an opportunity also for other companies. Now, from Fincantieri side, I am trying to understand which production processes you are targeting first and when you expect to see measurable benefits in terms of shipyard productivity or, let's say, construction times. I am also interested in understanding if this could be considered as a recurring project or it is more a one-off technology project. The second question is on the underwater.
The performance there was very strong in the last quarter, but I want to come back to your partnership with TKMS because the group has recently been selected as a preferred supplier for a very big international submarine program. So, I was wondering how the collaboration with these guys progressing, whether you are still on track to formalize the partnership you announced at the beginning of September by the year end, and more importantly, whether you see an opportunity for Fincantieri to benefit from this program through the underwater division. Thank you very much.
Thank you. Thank you, Antonio, for your questions and for your compliments. On Ontology Project, the project is along the lines of the new IT/OT platform that was envisaged in our new business plan. It is the, in a sense, the culmination of an exercise that we have been pursuing since the last couple of years. The piece of news is that our internal exercise is very close to the launch of the first deliverables. This new system is expected to start module by module to be online already at the beginning of 2027, in the first quarter of 2027, and will continue module by module throughout 2027. It is not the beginning of a project, it is the culmination of a project.
Where the culmination means that we will collaborate with Poste Italiane on the layers of the, I would say, computation power infrastructure and collaboration on the agentic layer. So, on the computation power and expanded and utilized by an orchestration layer made by agentic AI, which is something that Poste Italiane is already very familiar with. The piece of news is that we will join forces in order to secure that our ontology, i.e., our industrial process conceptual map, is secured and embedded in the right infrastructure and is also enhanced by the agentic orchestration layer of Poste Italiane. Your point about it is a one-off technology or it is a recurring technology. As soon as the several releases of IT/OT models will take place, it will be progressively our new operational model.
Once it is finalized, which starts in 2027 already, once it is finalized, then all the operations will be progressively migrated into this new approach and this new way of managing the complexity. On your question about which is the operational process, which is, in a sense, the core and the heart of the story, it is what we call 4D model. Quickly and shortly, the 4D model is a way to somehow drill down the 3D model into, it is called Level 4 kind of planning package, which means the ability to produce in a high computation power mode working packages to subcontractors. The core is how to drill down a 3D model into a 4D model, where the fourth dimension is the time and the construction sequences of activities.
It is a kind of superpower that will achieve a kind of de-complexity of the operational throughput capacity of the shipyard. It will start in Monfalcone, which is the biggest shipyard in Europe. It is expected to break the ice in 2027, and then once it is adopted by the most complicated and complex shipyard in our portfolio, it will be then expanded in parallel to the rest of the footprint. It is one-off in the sense that we have to release it, but once we release it will start to be deployed and then be somehow expanded to the 100% of the operational platform. On your second question on underwater and TKMS relationship, TKMS is going through a very, I would say, powerful expansion in term of commercial successes. We have a very good relationship with them.
We have a level of familiarity that dates back to 20- 25 years ago. We are at their disposal at the moment of increasing the throughput capacity, but most importantly, we are exchanging ideas with them on how to also co-develop innovative ideas. I do not want to somehow anticipate any further detail. We are working side by side. It is not something, we are not shooting to the moon. We are discussing with them, and we will keep you updated in due time in order for you to understand which is the tenor and which is the extension of this potential collaboration.
Okay. Very interesting and very clear. Thank you.
Thank you.
Next question is from Tommaso Castello, Jefferies.
Good afternoon. Thank you very much for the time and for taking my questions. I have three. The first one is on your 2027 outlook, because beyond the growth expected from the underwater acquisitions, I wanted to ask how we should think about the revenue and margin trajectory across the group. In particular, given that the improvement in capacity utilization has been quite remarkable so far, how much room is there for further operating leverage? If you could remind us if that growth is tied to CapEx, remind us what the CapEx required to achieve further profitability going forward. That's the number one. The second one would be on your defense order intake beyond 2026, given that the EUR 5 billion are part has been already recorded and part is about to be, it's in the pipeline, so will be announced shortly.
How should we think about the order intake from 2027 and beyond, and if you have already got visibility on the next major opportunities? Linked to this one, my final question is actually on the U.S. You have secured the initial $30 million award, but the question would be to ask you for some color on the expected timing and potential value of these construction awards. Obviously, the 35 vessels seems quite appealing, but realistically, what's the timeline there and the potential value and the opportunity for Fincantieri? Thank you very much.
Thank you very much for your question also. Your point on profitability and the kind of saturation of the tube capacity and connection with the execution of the CapEx plan. In term of profitability, basically what we are experiencing is that cruise is behaving well. The first engine is that our continuous and long-lasting discipline approach on either the side of cost management and on the side of revenue management, i.e. pricing, for example. The combination of the two, obviously associated with the favorable market condition in term of scarcity effect, all those factors are kicking in, and in particular, our efforts to strengthen the execution platform and kind of collecting fruits from procurement optimization and in general, risk management. The first piece of news is that cruise is behaving well.
The second piece of news is that underwater is equally behaving very well, either in term of volumes and in term of quality of earnings, which are proving to be highly at premium vis-à-vis our standard profitability. This is another very important factor. The factor number three is that now, with the order intake in defense, yes, it's a matter of deploying revenues, but in term of having kind of stable and concrete visibility on the years in front, all this expectation of order intake is there. Also, with respect to defense, we need to collect signatures, we need to finalize a number of things, but our beginning of the year expectation is materializing, which means that also revenues, I would say deployments and rollout in defense is there.
Good news in terms of profitability and good news in terms of visibility on revenues in defense, which is a very valuable contributor to the, I would say, blended margin and profitability. Association of this phenomena with the CapEx expenditure, with capital expenditure. In this respect, we have finalized very successfully the finalization of the new big gigantic cranes in Monfalcone. This is probably the most important CapEx, according to our schedule, that was expected to be successfully completed and finalized. It is good, it happened. Whoever is passing through either Venice, because they are so big that you can see even from the airplane, and/or close to Trieste, you will see a new phase of the shipyard. This is very important because Monfalcone shipyard has already secured orders for, I would say, jumbo ships. The most important CapEx is there.
That is my short answer to your question. Obviously, there are other CapEx that are on their way. As you know, we have envisaged a reinforcement of our Muggiano shipyard, which is the defense shipyard. The reinforcement of Muggiano and Riva Trigoso is divided into two kind of natures. One nature is expansion of tube capacity at parity of infrastructure. Simply increasing the production lines, increasing the number of shifts, implementing a number of construction techniques and methodologies that are typical of the civilian shipbuilding into the military shipbuilding. This kind of, I would say, expansion is already there, is on track. There is a second phase, which is not increasing the tube capacity at parity of infrastructure, but also expanding the infrastructure. In this respect, the most important year will be the second part of 2027 and the beginning of 2028.
We are preparing all the paperwork in order for it to happen, meaning all the relevant authorizations and all the relevant, let me say, preconditions. This is the second, I would say, very important part of the story for defense capacity expansion. The rest has to do with reinforcement of Romania and reinforcement of, I would say, minor investments in other Italian shipyards. You know that there is a big project for Castellammare di Stabia, which is the shipyard that as of now is hybrid, i.e., is working either for naval and for civilian. It is expected to be 100% dedicated to naval. The, I would say, regional government and the Italian institutions are in the process of expanding the infrastructure, I would say, strengthening the infrastructure pertaining to the local authorities.
This process is on its way, but our short-term goals for Castellammare di Stabia are starting in parallel, and the value of this expansion in Castellammare will paving the way for additional productivity, which is, I would say, outside of 2030 business plan. We do not need those investments to deploy the production we are thinking to deploy in Castellammare. We are working hard. We are working in the design of this expansion of infrastructure. Funds are in the process of being secured by the local government and by the central government. But again, this is parallel. We are fully fledged to deliver the production that is expected to take place also there. Same is for Palermo. Palermo is going through, since many years, a set of, I would say, infrastructure investments in association with the local authorities.
But again, we are reinforcing the equipment of the shipyard, a parity of infrastructure, in order to be ready in these times, in the current, I would say, time horizon and business plan. It is okay. Basically, to cut the long story short, the most important target was Monfalcone, and Monfalcone is okay.
Thank you very much for the color.
Sure. Then you had another last question on timing of the LSM program in U.S.. We have been constantly in discussion with the end user, with the U.S. Navy. I think that those discussions are truly at the final stage. We are finalizing the negotiations, and we strongly believe that in the short term, they will materialize. The program has started. The program has started already with the award of the long lead items, which again, is not large in term of order size, because it is in the region of $30 million, but it is the tangible side that the program is financed and it is started and already awarded. It is a matter of clarifying all the details, analyze the remaining negotiations, and then translate this already there order into a construction order.
I appreciate the color. Thank you very much.
Thank you indeed.
Next question is from Marco Vitale, Mediobanca.
Good afternoon. Thank you for taking my question. The first one is a follow-up on the U.S. market. We read some press that for the LSM program, the U.S. government also awarded a contract to Hanwha. The question is, are you afraid that competition is mounting from foreign shipyards to build U.S. programs in the country? If you can add some color on other programs we are pursuing in the market. The second one, just a clarification on your guidance on leverage, when do you expect the cash out related to the new acquisition to happen? Is it something that should be in 2026 or maybe shift into 2027, and whether this is factoring into current guidance? Thank you.
On your first point, the Hanwha award, it was awarded one ship to them. Again, this is the tangible evidence that the program started. Everything is okay. It is a ship that is very repetitive. It is a ship that is expected to be in several, more than, I would say, tens, in the region of tens of ships, considering the mission of those ships. In term of competition in U.S., I think the U.S. market is truly looking for capacity. I think the more, the better for the U.S. Navy. There is business for everyone to the extent you are in the condition to deliver. They are asking everyone to be involved. They are attracting interest from everyone, being probably the largest market to be today in term of naval assets. I would say unattended demand.
You know how much U.S. wants to scale up the production. You know their, call it, good competition with China in terms of size of the naval fleet. But again, it is not a matter of attracting interest. It is a matter then to deliver accordingly. So in this huge demand, in this call for action to all the possible shipbuilders, I think that Fincantieri has a privileged position simply because we don't need to learn what does it mean to manage engineering standards in U.S.. We don't need to learn what does it mean to manage supply chains in U.S., how to debottleneck supply chain in U.S., how to manage the workforce. I'm not envy of anyone. I, on the contrary, am very happy that other very knowledgeable world-class shipbuilders are betting on U.S..
I think it's an encouraging signal that we are in the right place in the right time. I think we are in a privileged position because we have 20 years of familiarity, 20 years of lesson learns, 20 years of, I would say, learning curve that is a goodwill, is a goodwill for us. On the cash out, I would rather leave the floor to my fellow colleague.
Yes. Hi. On leverage guidance, we are, let me say, targeting deleveraging, assuming the closing of the main acquisition that we announced in July early next year. Okay. We also said, when we announced the acquisitions, we also said that the acquisitions, considering also the proceeds of the ABB done in February, will not alter the deleveraging path, and therefore will not alter the guidance. Of course, those acquisitions are deemed to be, let me say, accretive from a cash generation standpoint. Once we finalize the closing, we will, of course, update and upgrade the guidance on cash flow generation.
As Giuseppe, the fact that we gave the guidance with and without the capital increase is the, I would say, the most transparent way for you to isolate and somehow clean up possible misunderstanding on the contribution of this available cash.
Yes. The target we look at is, of course, the target without the capital increase in order to be consistent with the deleveraging path that we started back in 2022.
Understood. Thank you.
Welcome.
Next question is from Emanuele Gallazzi, Equita.
Yes. Good afternoon, everybody. Thank you for taking my questions. I have three questions, two follow-ups. One is on the new guidance for the leverage. Could you elaborate a little bit more on the main drivers of this improvement? If I am not wrong, during the initial speech, you were mentioning higher advance payment in the cruise sector. Can you just elaborate a little bit more on this? The second one is a follow-up on Next Geo acquisition. You mentioned the fact that you are waiting for the EU antitrust approval. I think there is a sort of, let us say, soft deadline for mid-December for the EU antitrust approval. Is it a reasonable timeline? And the very last one is on Orizzonte Sistemi Navali. You signed an LOI with clearly Leonardo to strengthen the partnership.
Can you just provide a little bit more color on the strategy that you are seeking with Leonardo, with Orizzonte Sistemi Navali?
Last, I will leave the first question as last to Giuseppe. Let me tell you about the next real question, what is the timeline? The timeline is going according to expectations, so we are not experiencing any kind of roadblock. I think our fulfillments that are due by law, as you may appreciate, this kind of transaction intuitively is not giving a kind of signal of concerns in term of antitrust judgment. It is a matter of fulfilling a process. So, the timeline you are depicting is not impossible, is not long at all. It is our expectation. But again, it is beyond our control. What we can comment now is that we do not foresee, we are not having signals, which intuitively is clear, we are not having any kind of signal that there are roadblocks.
On the OSN story, I think the purpose of the letter of intent is very clear and very powerful. The Italian Navy has a very well-proven set of ships. It is a very well-proven platforms already at sea, which is so important when you are in the era of needing defense assets. So, you want to go for something that is well-proven, because this is the kind of assurance that the asset is reliable, because it is well-proven, but you know also that you are not prototyping. You know, prototyping is the risk whenever you go for complex platforms. So, the commercial proposition of selling abroad existing Italian Navy ships in term of existing well-proven concept, engineering, procurement, and production is something that is, I would say, quite unique.
This stability and reliability of product combined with Fincantieri attitude to shorten the construction length, the construction time, so the combination of the quality of the product and the ability and capability of Fincantieri to guarantee clear and reliable time horizons for the delivery. So, this attitude of Fincantieri is a kind of additional source of attractiveness to the joint offering of Fincantieri and Leonardo. So basically, we wanted to announce to the market in Euronaval, which is the right, I would say, setup, that products are there, capacity is there, and the product is ready to be, I would say, promoted with a very reliable product and a very reliable schedule to other navies. So, I think Portugal preference, quote-unquote, is in itself a kind of testament of the interest of the market and of the credibility of the offering, the relationship with Greece, the relationship with Indonesia.
I would like also to put the accent of the creation of an entity enabled to deliver to the Indonesian Navy not only the ships already in the Italian-Indonesian geopolitical cooperation, i.e. PPAs and the Garibaldi aircraft carrier, but also this entity is super well-positioned for the forthcoming requirements of the Indonesian Navy. Indonesia is a key player in the Southeast Asia quadrant. There are 300 million of Muslims living on 17 islands in front of China. They have to manage this huge set of islands considering smuggling, piracy, and at large, I would say, naval projections in a kind of overrated, I would say, quadrant. This is just a short list of the hot dossier we are dealing with.
I would like also to add what we are doing with Albania, which is so important for the Adriatic Sea, which is a kind of, I would say, set of neighborhoods, navies that want to collaborate. In Albania, as you may remember, we are working in order to localize the production of small ships. Let's say 50 m, 60 m, 80 m, which are ships that are more and more demanded, requested by younger navies all over the world. I don't know if you had the chance to look into our new offering, which is called MMMV, which is a ship of 50 m, with a containerized set of payloads, able to be reconfigurated and able to be also delivered in modules, in a modularized way, and is able to change several missions having a single platform.
You can change the containers and pay a different requirement and fulfill a different mission. This is a kind of new product. Albania, for example, is the place for this kind of smaller ships, and the market for this kind of ship is simply worldwide. Because there are navies that are asking for frigates, there are navies that are asking for corvettes, there are navies that are asking for OPV, so patrol vessels, but there are also many navies that are asking for low-cost kind of super technological ships, and we are working in order to start up and kick in also in this adjacent segment.
I think our naval business is gaining pace, starting from the visibility on the backlog, which is the famous EUR 5 billion, all the way to following and taking care of what is happening in Middle East and what is happening in Southeast Asia, with traditional platform, with the alliance with Leonardo, and with new ideas in the direction of technology-driven ships and technology-driven platforms able to deploy drones, which is the product of the future. Moving to your first question, Giuseppe is here.
Yes. On improved guidance in leverage, we mentioned better payment terms from the cruise business, but this is something that we have been talking about for months. Consider also that we, as we said also in June, but here in the third quarter financial results, we have EUR 12.5 billion of signed contracts that are waiting to become effective. A part of it, let me put it this way, will become effective sooner than expected, and that is one of the drivers of the improved guidance. We also had some improvement in the forecast for cash inflows also related to the defense business. This, in a nutshell, is, let me say, those are the drivers that allow us to improve the targets for 2026 year-end.
Thank you very much, [Enrico].
Next question is from Gabriele Gambarova, Intesa Sanpaolo.
Yes. Good afternoon, Pierroberto and Giuseppe. Thanks for taking my questions. I have got three, actually. The first one is on Indonesia. A follow-up on what you said, Pierroberto. What could loom in this market in terms of naval requirements? Years ago, there was an agreement for FREMM frigates, then you sold a couple of PPAs, so I was wondering what could be around the corner and possibly when. The second question is on Norway. There is this project, P118 Standardized Vessel Program for 28 ships. I was wondering if you could elaborate a bit on this, because it seems a very big opportunity, and I think you are well-positioned there. The final question, again on naval, is on the U.S., because there was an interesting interview with the CEO of Fincantieri Marinette at the end of September.
Basically, what I understood was that he was calling for the U.S. Navy to think about the FREMM EVO. I was wondering if you deem realistic that the U.S. Navy comes back to the FREMM, and if so, if you have the available capacity to serve this opportunity. Thank you.
Thank you very much for your question. Indonesia, they have their naval expansion program, which is, I would say, also public. Basically, they have the intention to strengthen either traditional platforms, underwater platforms, a little bit larger and little bit smaller submarines. They have a very ambitious program. That is why they want to create a setup that is ready and enabled to, I would say, develop and deploy accordingly. I think there is everything. There is everything. On the when, defense and in general public administration procurement is always difficult to handle in term of schedule. There are nominal schedules that are obviously short term. Then, it is a matter of allocating the financing, and once the financing is allocated, then all the acquisition programs, all the kind of procurement machine starts.
Our understanding is that this allocation of funds is in the process of being finalized. I do not want to expose myself to timing because it is not advisable in an ecosystem like the public administration procurement. But let me say there is a good alignment of planets, so we will get back to you as soon as we have something written in the stone. Second question on Norway. Norway is definitely in the process of getting into the phase two of the naval capacity expansion. The phase one was related to the big platforms that went in a geopolitical deal to U.K. And as a result of that geopolitical deal, a real kind of one-to-one defense support alliance was set up with U.K..
Now, the phase two, it is a phase two in which, as far as we understand, Norway is expected to involve local shipyards for the development of the Vanguard design, and the name of the ship is standardized ship, which means kind of the new concept, similar to the concept I was highlighting before. A set of ships that are smaller, let us say 50 m- 60 m, and a second set of ships that is less than 100 m, let us say 90 m, something like that. They have been selecting the design, so the design is selected. Now they are in the process of selecting the electronics, quote unquote, so the combat management system. Then soon, it is expected to be awarded also the shipbuilding part of this larger program.
The opportunity is there for us because VARD is perfectly equipped and set up to be the shipbuilding partner of this program. Again, it is definitely an opportunity which is there, and we are focused on that as we are focused on Denmark, as we are focused on Croatia, as we are focused on a number of opportunities that are popping up. We are very happy with the order intake. We are in the process of crystallizing, but there are a lot of opportunities, let me say, localized, like the Indonesian opportunity or like the Norwegian opportunity. The market is truly giving very encouraging signals. On your last point, U.S.A., it is no secret that the U.S. Navy is still reviewing its strategy for frigates.
It is a matter of fact that if you have a strong and, I would say, best-in-class kind of combatant fleet, you have to have frigates. They are evaluating all options, and really evaluating all options, because they know that if they want to have the ship at sea in the short term, they need to take decisions. They are investigating, again, all options, including potential options to build outside of U.S.. Obviously, it means that they are envisaging kind of flexibility on the Jones Act rule, which is the rule according to which what is navigating there has to be built there. There is already the precedent of the icebreakers that they are dealing with Finland. It is called the kind of Finland model, which means that you build the first out of U.S. because then you will build the others in U.S..
This is something that is being envisaged for icebreakers, which is another, I would say, very key unattended demand of U.S.. So let me say the situation is very fluid. Obviously, we are intrinsic, I would say embedded in this kind of reasoning because we know U.S., we have a large shipyard in U.S., we know frigates, we have capacity and engineering experience. I do not have any specific additional information to highlight apart from being very prudent because everything is very fluid, but all options are there.
Okay. Thank you. Thank you so much.
Next question is from Lorenzo Di Patrizi, Bank of America.
Hi, good afternoon. Thank you for taking my question. I have firstly a question on the drivers of the EBITDA guidance increase. Of course, you mentioned cruise a lot, and I guess that's an important part of that. But you also mentioned that you have defense programs under constructions where you have higher margins. Could you elaborate also this driver and how these two are factored into your guidance? Then on naval, of course, you talked about the pipeline, all the opportunities in Europe, like Albania, Norway, and also Indonesia. But could you quantify more this opportunity? What could be the magnitude of orders that we could expect there next year, for example? You also mentioned in your release that the integration of new technology into existing naval platforms is a driver of demand in naval.
Could you elaborate a bit more on this and how significant this driver could be for naval growth?
Oh, thank you, Lorenzo, for your questions. I think that the qualitative analysis of what is driving our EBITDA growth, either in absolute value and in term of percentage, is already there. The first message is that we want to kill the thinking that Fincantieri is a business model. It's a business model whereby cruise business is subsidized by the naval business. The reason why we are putting the accent on cruise profitability, it is because we want our cruise business to have all the dignity, quote-unquote, dignity of a profitable and strong business line, despite the prejudices of the past, despite thinking that if you work in the civilian business, it is a poor business. We are here to demonstrate that this is not the case.
Secondly, the growth in absolute value and in percentage of the EBITDA is the expansion of WASS, and I think this is, I would say, widely disclosed. On the naval, the fact that the naval is a premium is a matter of fact in the, I would say, history of Fincantieri. The issue with naval is not on the quality of earning. The issue with naval is that you need to deploy revenues, and again, you need to secure order before you deploy revenues. So we are very happy that this visibility in term of order intake is defenses is there. Again, I think these three rationales are already sufficient for the dynamic to be explained. Then obviously, this is just the beginning. The order intake we secured, and we are used to secure, this order intake is just the beginning.
The opportunities, size of opportunities, if we are looking into the program in Croatia, the program in Denmark, the program in Albania, the program in Indonesia. So, when we gave a kind of hot pipeline of something like EUR 25 billion, if I don't go wrong, in our previous presentations, it is a kind of alignment of stars, considering all those targets to be there. So we are not thinking that in 2027 we will be so successful. Again, to me, what is very important in defense is that we have to be very clear that the momentum is there, that the demand is there. That everything is there, but timing is the timing of public administration procurement. So, it is a business whereby you can be very close and very hot, but then in order to have it signed, time is always a little bit longer.
That's why it's so important to be in multiple leads, multiple prospects, and having advanced negotiation with multiple parties in order for you to manage this fluidity, in a sense, which is intrinsic to this business. So, to answer your question, all the opportunities I was listing, we can somehow specify. Probably Stefano can, in a kind of follow-up, give you more color, because what Denmark is putting on the table, what Norway, what Albania, what Croatia, what is on the table can be easily identified. But what is very important is that the market is booming, but it's booming with the biorhythm of the public administration.
Okay. Thank you.
On your question, sorry, I do not want to escape from answering.
Yeah, go ahead. Of course, go ahead.
Very interesting questions on what is the role of new technologies, how much new technologies and new, I would say, systems, new generation solutions, quote unquote, can accelerate and can amplify the market trends. The answer is absolutely yes. You have to be ready and capable to integrate on traditional platforms all the best available technologies and solutions. So, for example, our FREMM EVO is as solid and as well proven as a legacy frigate, but is equally fully fledged and fully equipped with the best available technologies. So, that is the way you can market traditional platforms today. So, our FREMM EVO, even our destroyer, is conceived integrating new radar bands, new launcher recovery systems for drones, new tracking systems, new telecom systems on the ship, and most importantly, the ability to deploy and control underwater drones and surface drones.
This is the reason why we have included in our offering also drones that we are already producing for our navy with Defcomm, and underwater drones we are already selling with Graal Tech. Because again, this is the way you market even traditional platforms. Then there is a new world, which is not giving superpowers to traditional platforms, but thinking of new concepts, which means mother ships, modularized, reconfigurable, multi-mission, that are not only the testament of your knowledge of drones, but it is also your vision of smaller ships that can be adopted to traditional navies, to younger navies, and to all the possible clients. So, this offering is very important. Last but not least, you have to be fast. So, technology is important, but exactly because you are selling technology, you have to be fast track. So, the ultimate marketing tool is the lead time for construction.
The faster you are, the more you are attractive to clients, on traditional and even more on new technology. That's why I believe that Fincantieri, being a large shipbuilder, a very large shipbuilder, one of the first in the world, and for sure the biggest in Europe, is super well positioned in a market in which velocity and technological know-how associated with velocity is the name of the game.
Okay. Thanks a lot.
Gentlemen, we have no more questions registered at this time.
Thank you very much to everyone.
Thank you. Good evening. Bye-bye.
Thank you. Thank you.
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