Avio S.p.A. (AVIO) Earnings Call Transcript & Summary

Good morning, this is the Chorus Call Conference operator. Welcome and thank you for joining the Avio 9 Months 2023 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Giulio Ranzo, CEO of Avio. Please go ahead, sir.

Hello, good morning to you all and thank you for joining the 9 months results call. As always, I'm here with Alessandro Agosti, our CFO and I will drive you through the presentation we have posted on the website. So on Page 2, we have the agenda. I will cover the highlights and the focus of the main facts of the first 9 months and then Alessandro will follow with the financials and then we'll open to questions and answers. So on Page 3, what are the key highlights of the first 9 months of this year? First of all, on October 2, we announced the conclusion of the investigation for the Vegas C anomaly we suffered in June over our second-stage solid rocket motor and we defined with ESA a return-to-flight path over the next few months to safely come back to flight after fixing the issues with the second-stage motor. Then, most importantly, on October 8, we concluded the Vega mission VV23 successfully and now we have a plan for the next mission to occur before the end of the first half of 2024. So as you know, we are adapting our schedule still to make sure we continue to serve our customers while we fix our issues on Vegas C. So we have some of the satellites that were originally planned to be flown with Vega C that we have reverted to fly with Vega, with some challenges, but still our effort to stay resilient in securing the launch plan. Then some very important decisions that we'll talk about today have been taken at the European Space Agency Ministerial Council on November 6. Important decisions regarding Ariane 6, Vega C and Vega E, a substantial evolution of the European Space Launcher Sector that I will talk about and be happy to answer any questions because these are intricate, complex issues that I'd love to be able to debate with you as long as you deem this important. Then one other important point is we maintain the order backlog extremely high compared to last year, which we had anticipated because we had lots of orders this year, lots of order intake and in spite of the revenue progression, we still continue to accumulate orders providing more visibility for the future. In particular, the order backlog was kept very high through the new development projects and a very rapid surge of the defense business, so the tactical propulsion business for missiles. In the meantime, we improved profitability thanks to the new projects and the surge of the defense business, but also the partial relief for the energy costs. The energy costs have dropped down to some extent and so that has allowed for some stabilization on the profits. Out of all of this, we expect to stay within the guidance announced for the fiscal year '23. So jumping on Page 5, the Vega 23rd mission was a success. We completed it on October 8. I can tell you this for us was a very remarkable success. We flew 2 earth observation satellites, one for Thailand, THEOS-2 and one for Taiwan, FORMOSAT 7R/TRITON, in addition to a number of auxiliary payloads. Now why was this a very relevant success in my -- from my point of view? First of all, because we had, as I said before, to adapt these satellites to fly on a much smaller rocket with a much smaller bearing, so I think a good demonstration of our ability to stay resilient, to adapt ourselves to whatever has happened, unfortunately, with Vega C. And I can tell you that this was not exactly a walk in the park, a difficult exercise because adapting these satellites to fly on a much smaller rocket was quite an engineering challenge. And keep in mind that we are the sole entity in Europe capable of launching multiple satellites at the same time to multiple destinations. So it was quite a remarkable demonstration of flexibility and ability to serve. And by the way, out of this success, we now score back into 87% success rate after 23 launches. Not optimal, but obviously improving. And this is encouraging from my point of view. Now the next Vega launch is expected to be in the second quarter of '24. It will be another challenge for a number of reasons. First, because it's likely going to be a payload that was not envisioned to be launched with Vega. And once again, we'll try to adapt to this scenario. And second, because it will be the last flight of Vega. So as a matter of fact, it's also somewhat emotional. It's the end of an era, then we will turn into Vega C and we will have to place quite some effort to do this right. On Page 6, I wanted to cover with you, sorry for a lot of text here, but I wanted to be precise and echoing a little bit the communication already done by the European Space Agency. I wanted to give you a little bit of visibility as to what is happening on Ariane 6 and Vega C in particular. As you know, you expect us to be able to tell you what we will be doing on the P120 activities and so on, which very much depends on when the first launch of Ariane 6 is happening. So I wanted to cover this ground a little bit. Now getting to the maiden launch, as the European Space Agency has explained, depends on conducting successfully a number of tests before such maiden flight. So the European Space Agency has reported now that very recently between July and September, hot firing tests of the main stage and the upper stage of Ariane 6 took place successfully, which means that they are in good shape. Now they were planning beginning of October for a so-called long duration hot firing of the main stage directly on the launch pad, which is, let's say, the last important test before you can set a date for a maiden flight. Unfortunately, they had a side issue on the hydraulic systems. And so they were forced to push back the date to end of November for such a long duration of firing test. This is essentially you fire up the main engine, you stay there for 8 minutes, you check that nothing happens and everything performs nominally. So they will do this by the end of November. Now again, this is what the European Space Agency announced. So the European Space Agency said that the date of the maiden flight will be announced only after these tests have taken place. They want to make sure that everything works. And then in the month of December, they'll do some further hot firing of the upper stage to test all of the possible conditions, even in degraded cases. Once these things are done at the end of the year, I think the European Space Agency, together with Ariane Group, will shed more light into when is exactly the launch period for the maiden flight and what will follow. Realistically, what will follow in terms of what are the subsequent launches will be announced by Arianespace, but it will also be dependent on how well the maiden flight goes, as you may understand. And as far as we can tell you now, this is the plan. Now relative to Vega C. So first of all, as I said, in October, we announced what were the reasons of the anomaly we suffered in the past. A little bit of recap, as you know, we suffered an anomaly in December on the second stage of Vega C. The reason for this anomaly back then was attributed to, let's say, a non-optimal manufacturing of one of the parts of the nozzles, the carbon-carbon insert. And therefore, what we -- and most importantly, I have to recall to everyone that this component was supplied by a Ukrainian supplier. So now what happened, unfortunately, following such event is that the effect of the war made this supplier unavailable. Because unfortunately, the factory where they were manufacturing this part was bombed and so is no longer available as a supply source. So we were forced to switch the supply source and therefore to fit a new component into an existing nozzle. So what happened is we performed the nozzle with the new material, but what happened is we found an anomaly because the new characteristics, the new mechanical properties of this component caused some damage on the adjacent parts, okay? So at the end, what we agreed with ESA is to implement therefore some design changes to adapt the design of the nozzle of this motor to the new material properties. And the European Space Agency asked us as design authority, not only to do a design optimization, but also to calibrate our numerical predictive models such that we could get to know much better in advance what the performance would be and to conduct 2 more hot firing tests to verify the optimal performance. Essentially, one test would be needed to understand the behavior of the new design and the second one would just be a verification one. And this is the typical activity we do to reduce the risk of having any failure in flight, particularly in the case where you have to modify a component on an existing design and this is an unexpected change that we were forced to do, quite frankly, due to the consequences of the war. So we have put in place a task force, a joint task force by ESA and Avio to carry out the design and prepare for this program. And we have involved also a pool of independent experts to really make sure that the new design we come up with is robust. Then what is important from a financial standpoint is that the European Space Agency has voiced very clearly that they consider the return to flight of Vega C a priority for Europe to maintain access to space. And as a consequence, they plan to support financially these additional efforts through available financial resources that they have. So the impact from a financial standpoint should be neutral to us. And this is important for especially for the analysts to make their own expectations. So we plan, therefore, to have a flight of Vega C in '24 and to resume, let's say, expected launch cadence by 2025, which would be in the range of 4 launches per year. And that's pretty much as far as we can tell right now, okay? The plan is very clear. It has precise milestones. So we will perform 2 hot firing tests of Zefiro 40, one before the summer, one immediately after between Q2 and Q3. So you can follow and track these milestones to see if we are doing well along this path or not. And similarly, for Ariane 6 these are pretty much the dates that I invite you to follow on the news floor so that you can get to know what's happening in the future. So on Page 7, we basically reported this graphically. This is what we plan to see in 2024. Behind us in '23, we have 2 flights of Ariane 5 and one of Vega. In '24, as far as Vega is concerned, we'll have 2 firing tests of the second-stage motor Zefiro 40, one flight of Vega and one of Vega C, okay? Now why did it take so much time to prepare for return to flight for Vega C? Exactly for the reason I told you, because first of all, we decided to stay resilient and to put in the middle some Vega flights to fulfill customer expectations in the meantime by switching satellites that were actually designed to fly with Vega C to be flown on Vega, which is not exactly a trivial exercise, as I said. Plus, we have an intense engineering activity and experimental activity to prove the effectiveness of the new design of Zefiro 40. So it will be a busy year for Vega, but still with 2 flights. Regarding Ariane 6, we shall see, we'll probably get to know before the end of the year after the long duration hot firing test. The plan is to have in 2024 a maiden flight, as announced by the European Space Agency. And then following that, Arianespace will announce when following flights will occur. All I can tell you is that the flight dates, as always, do not matter too much relative to our revenues, because as you know, our revenues are very much linked to production activities rather than to the flight event. But this is still to provide to you some visibility. Now switching to Page 8, I want to spend quite some time on this page. And again, sorry if this page is busy, but it does echo pretty much what the European Space Agency press releases that were done in the last few weeks. So this is the main outcome of the recent European Space Agency Ministerial Council with the relevant, very relevant news for -- on the different subjects. I will tell you, first of all, all of these news are overwhelmingly positive from our standpoint and I will try to explain to you why. So first of all, Ariane 6. In Ariane 6, the European member states recognize that incremental production costs emerge, particularly over the last 2 to 3 years due to the high inflationary situation that developed in Europe as a result of the war. The energy costs increased not only for us, but for anyone in Europe and industrial costs grew very rapidly. So it became clear that the cost of the product grew. And so the European Space Agency member states decided to provide an additional support to cover unexpected unit costs increased for Ariane 6 with a package, financial package that will cover up to the 42nd launch of Ariane 6. And so this will help in this period to basically amortize, offset a little bit these unexpected surging costs. At the same time, the European Space Agency reiterated the commitment to secure purchases for 4 launches per year for European institutional customers for Ariane 6, which is important because that will continue over an extended period of time, let's say more or less until 2028 for the time being, to secure a portion of the backlog. We know very well that Ariane 6 already enjoys a backlog of almost 30 launches, but knowing that maybe 40% of your annual backlog is somewhat coming automatically for European institutional customers is important because that provides visibility and security over future business. The package is financially relevant. It was already published on several different websites that the package for Ariane 6 will be for this period of time, EUR 340 million per year. So it should be sufficient really to cover for all these extra costs. Regarding Vega C, lots of important news. Similarly to Ariane 6, the European Space Agency member states agreed to have an extra support to cover this cost increase, which for Vega C, we cover up to flight number 42, which is basically the 20th Vega C launch, okay, now we have done 2 Vega C launches. It will cover up to the 20th for the time being. This may be renewed in the future, but that's the current visibility. So give or take it should be up to 2028 with a package of about EUR 21 million every year, up to EUR 21 million every year. And in parallel as for Ariane 6, ESA granted a commitment to secure purchases of 3 launches every year for European institutional customers. So now this is a change, because with respect to past commitments, the European Space Agency moved from 2 to 3 purchases per year in terms of security. This is important, we know well that many of the Vega customers are typically European institutional customers. And this is by the nature of the business, because Vega launches primarily earth observation satellites, which are in nature 90% of the time institutional customers. They have institutional customers behind. But this is again important because now we know that for an extended period of time, we can count on a portion of backlog somewhat guaranteed by European institutional parties. Then one very important piece of news that we were pursuing now for quite a long time, many of you have asked us why do we not increase the launch rate? Also, to quite frankly cope with this huge demand for launches. Now in this section, the European Space Agency assigned to us to Vega C, the building, so-called BIL, which is an integration building for launches, which is very close to our launch pad. And this will be used to pre-integrate the building before it goes to the launch pad. So this means practically that we can start to integrate the next launcher while one is launching on the launch pad. So it will essentially increase the capacity for launches by a rate of about 50%. So if we can perform today maybe 4 launches every year, this will move the needle to about 6 a year. Okay? Then of course the whole supply chain will have to follow. But this was the main bottleneck in the system, which is now removed. And this is crucially important. It's the most important piece of news. I believe that this market is very much supply-driven, not so much demand-driven. So the one provider who has more capacity available and reliable will win the customers, no doubt, at least for the next foreseeable future, I would say. So this is a very important task. You may recall that at the Ministerial Conference of 2022, we were assigned also some financial resources to invest in such a building. So now we will have to obviously adapt this building. This was a former Arianespace building. We will adapt it and make it available for Vega C. But it's very important. Then another very relevant piece of news is that Avio will become the launch service provider and launch operator for Vega C, which are 2 responsibilities that were formerly and presently held by Arianespace. Now we will come to the reasons why for this, but in practice, what does it mean? The launch service provider role means the responsibility for marketing, sales and customer support, okay? And the launch operator means the responsibility for in-flight activity in compliance with the French Space Operations Act. Now in reality, Avio was already involved in both of these activities quite heavily, because, as you may recall, the sales activities are somewhat shared today between Avio and Arianespace through a joint committee that reviews all of the offers to the customers and so on. But managing this directly will provide an opportunity, first of all, to better understand the customer requirements and also provide some cost optimization. Why that? Because obviously some of these activities require competencies that are also present in Avio and therefore, we will exploit synergies from an organizational point of view, which will be important to optimize the margins. The launch operator role is more of a formal responsibility vis-a-vis French authorities, such that we demonstrate to respect the regulatory requirements to ensure safety during flight. This is once again an activity in which Avio was already heavily involved. Avio puts together the software that lets the rocket fly. So of course, much of this information was already under the control of Avio. But of course, this will imply an important responsibility directly vis-a-vis the French authorities. So we believe to be equipped to this. We will strengthen the organization to make sure we do this thoroughly. And by the way, we will continue cooperation with Arianespace, with which we will have to agree to implement, let's say, a transition between the current condition and the to be condition. Okay? Now we have lots of contracts that were already sold. So the European Space Agency indicated that we should agree with Arianespace on a transition and such way forward should become effective by the first half of 2024. I believe this is an important change which goes very much into the direction of liberalization of the market where every operator is responsible in full of all of its costs and all of its revenues. And I think that if you want to manage a business being capable of managing all of your costs and all of your revenues is the better condition you can think of to achieve your targets. Now a couple of other important news. Vega E you know is the successor of Vega C, is an improvement of Vega C with a new, more capable upper stage. Vega E is a program that is running quite well. We have reported recently the success of our upper stage testing. Also very recently, through the completion of the second model, performing very well. Vega E will be a slight upgrade to Vega C with a little bit more performance with this new upper stage and hopefully a reduction in cost, which is what is of our concern primarily. Now what we were missing on this program was the flexibility to have a second launch pad, because working on Vega C and Vega E simultaneously on the very same launch pad proves complex. We have seen that when we switched from Vega to Vega C, adapting the launch pad to Vega C while we were running Vega was quite a challenge. So now having the possibility, even on a non-exclusive and time-limited basis to use the ex-launch pad of Ariane 5 is very, very good news because the launch pad is already fully equipped. It was being used for Ariane 5 until not so long ago, until a few months ago. So this means that the launch pad is already equipped. And most importantly, this launch pad is also very closely connected with the integration building. So this means that the complex now that we will be operating is extremely efficient because all these assets are interconnected and close to each other. Last point, the European Space Agency agreed to prepare a so-called European Launcher Challenge. So by 2025, they would like to run a competition among European companies to demonstrate the ability to develop new launch service solution, new rockets, new solutions. And the approach they have, they call it an incremental and stepwise approach, meaning that they will target maybe at first smaller launches and then maybe larger in a second time, but without, let's say, a performance limitation. So this call for new launch system could be of any of any size in practice. They will provide to the winners of such competition a funding of about EUR 150 million and potentially a number of missions to be launched by this new solution. So what is the implication of this? What does it mean? That practically the European system has realized they need to open to internal competition in a way, so to new solutions, potentially. Now whether this will exist or not, we will see, because we will see if the new rockets that are announced in Europe will actually make it to the finish line or not, or when they will make it, this we don't know. But then you see that the responsibility as a launch service provider and launch operator, it's a fundamental step in a market that is de facto becoming competitive rather than administered more from an institutional side. So obviously we will do the best to compete. Okay? We have quite a track record of experience and a long backlog. We will adapt to this change. And I think it is in general a positive because it stimulates all of us to be more efficient, faster and more up to date with technology and most importantly, with costs. So let me switch to complete my presentation to Page 9, which is dedicated to the defense business. On this I want to emphasize a number of things. The order backlog here is growing steadily and very rapidly. You see we have now accumulated backlog for over EUR 100 million, which we never had and you've seen in the past few years was only a few million. In particular, in these 9 months, we signed another EUR 90 million for additional Aster 30 deliveries. This is our legacy product we have had for years. And so there is a lot of opportunity also for the future on top of what we have already. In particular, on the right side of the page, we mentioned one important point. You know that over the last few years we have been developing a second product for MBDA, the main booster for the CAMM-ER missile, the new product of MBDA. This was selected recently by the Italian Armed Forces with a very small initial contract. But now MBDA has announced just a few days ago to have signed with Poland an agreement for the supply of 1,000 CAMM-ER missiles for a long-term period, so called NAREW project. So Avio will supply the CAMM-ER motors for MBDA with a backlog that will materialize in 2024 while essentially MBDA flows down this order to us. Now this is very relevant, very important, both size-wise, because it will be sizable, but also because now we have not 1, but 2 products fully into the production phase, which means that in the upcoming years, revenues from defense propulsion systems will grow probably 2 to threefold with respect to what was over the last 3 to 4 years. And so it will change the ratio within the mix of the revenues. So, so far, defense propulsion activities accounted for less than 10% of the total revenue mix. So if you go back to the year '19, '20, '21, '22, it was less than 10% of our revenues. In the next 3, 4, 5 years, this number will tend to go towards 20% to 25% of our revenues. So maybe 2.5x to 3x what it was. Which means that it will provide a completely different contribution to the mix. And this is important because it will spread the risk of our business across different types of businesses. And I believe it's very relevant, important, encouraging and it's definitely a positive and an opportunity for upside. So that's pretty much what has happened in the first 9 months, I would say, a lot. Decisions of the European Space Agency and this evolution of the defense business are very relevant issues, very relevant news relative to the expectations in particular for the years up to 2026, 2027, 2028. So provide us a very bright visibility for the future. So my section is concluded. I would hand it over to Alessandro to cover the financials.

Thank you, Giulio. And good morning, everyone. Let's move to Page 11. In this chart, we present the results for the first 9 months, 2023, compared to the corresponding period of '22, with improved results driven by development and defense activities with decreasing energy costs. Backlog is the highest in the company's history for the third consecutive quarter. This result has been reached thanks to the [indiscernible] of development in price demonstrator for a 2-stage light launcher propelled by LOX-Methane engine with reduced environmental impact. Development of new high-performance LOX-Methane engine with reduced environmental impact. Development of multipurpose engine for new technologies of services space logistics. And as Giulio said before, the increase in tactical propulsion system for Aster and CAMM-ER, as commented before. In the 9 months, we recorded an increase in development revenues from technology development project and production revenue from defense activities. This increase has been offset by lower contribution for Ariane, considering the phase-out of Ariane 5, whose last launch was made in last July and the postponement of Ariane 6, whose maiden flight is currently expected in mid-'24, as commented before. As a result, in the 9 months, the shares of development revenues reached more or less 40% of total revenues. In the 9 months of '23, a clear improvement in results came out, as you can see in the chart. The pronounced increase in EBITDA compared to the corresponding period of '22 is mainly attributable to the contribution of higher revenues from technology development project to defense activities, as commented before as well as a relief in energy costs. As you can see, nonrecurring in the 9 months increase mainly due to the provision for charges related to the Zefiro 40 anomaly. In the first 9 months of '23 however -- '22, however, there was a positive one-off effect related to the cancellation of 2 management incentive plans, with consequent release of the amount accrued up to that date. Net of this effect, nonrecurring costs in 9 months of '22 would have been EUR 5.1 million compared to the EUR 5.4 million in '23. So on a like-for-like basis, we are on track with the previous year. In '22, the nonrecurring costs were mainly affected by the maiden flight of Vega C, which happened in July '22 and in '23, from the Zefiro 40 anomaly. On EBIT, you can see that EBIT is better than EBITDA trend for lower depreciation, reflecting the life cycle of certain assets and different mix of development and production activities during the 9 months of '23. On net cash position, higher than typical seasonality trend in '22 was EUR 21 million at the end of 9 months, for timing effect of advances from development contracts. Shall we move on Page 22 -- 12, sorry. We have reported the gross -- the energy cost, the impact on Avio in particular for the cost of gas that is used to produce the steam, which is used in the industrial production process for casting activity and the cost of electricity for large-size business. This slide shows the actual gas price trend in full year [ 2019 ], in full year '22 and the actual gas price trend in the first 9 months of '23 and expected for the Q4 of '23, based on energy market authority data. Gas price in the first 9 months of '23 was lower than in the first 9 months of '22, when we experienced a peak during the summer and Q3 '23 is also expected to be lower compared to Q4 '22. However, this gas price still remains higher than the 2019 levels before COVID pandemic, implying an energy cost on annual base higher by EUR 3 million, more or less EUR 3 million, compared to per year on an annual basis compared to pre-pandemic period. On Page 13, we reported the full year '23 guidance that is substantially confirmed, as anticipated by Giulio before. Net order backlog are in the range between EUR 1.150 billion and EUR 1.250 billion. Revenue between EUR 330 million and EUR 350 million. EBITDA between EUR 19 million and EUR 25 million, implying energy charges between EUR 25 million and EUR 31 million. And net income between EUR 2 million and EUR 6 million. Finally, on Page 14, we reported the quarterly pattern of EBITDA and gas generation, which confirmed also in '23, as it was in the past the concentration of contribution in the last quarter of the year of both EBITDA and gas generation. I'll give back to the floor for -- if you have any questions on this 9-months presentation.

[Operator Instructions] The first question is from Martino De Ambroggi with Equita.

My first questions are on the service operator and service providers, because you are going to become to get these responsibilities. So number one, probably you need to hire people, or maybe on the commercial side, probably not so much because you are already involved in this activity, but just to understand what is the impact in terms of costs. Number 2, if I understand correctly, you become responsible for the failure risk. So how do you want to manage the insurance coverage? Because I remember there was also the extra guarantee from the French government. I don't know if it remains or not, but every -- whatever you can provide us on this subject could be useful. The third is what is the potential impact of margin? Obviously, I do not expect a precise figure, but just to have an idea of the magnitude it could be? And 4, when will it be effective? So just to have also a time span.

So let me try to answer your question, Martino. First of all, these 2 roles, as I said, operator and provider, to some extent already have Avio people involved, okay? Yes, for sure, we will have to hire some people. The type of these people, as you correctly say, there are not many on the commercial side, just really a few. Also, because the customer base is relatively concentrated. Many of the customers are European, European Space Agency, European Commission, France, Italy, Spain, maybe and a few international. So not so many commercial people. Lots of the people involved are essentially program managers. These are the people who follow the customer with their satellite to make sure that while they develop the satellite, the integration with the launcher is properly managed and engineered. So we have people with this background. So we can hire some more people, yes, but we will also exploit synergies with the activities we do. Just to make you -- a couple of examples to make you understand. So in Arianespace, there is activity to conduct mission analysis to prepare the customer to see if the satellite can fly with a rocket or not. But we similarly have people who do the same thing, because at the end of the day, they have to build the software for the launcher to fly. So in this, we can exploit quite a bit of synergy. And similarly, for program management, of course, we have program managers who follow that the rocket is -- follows the planning and the costing to arrive on the launch pad on the exact date. So there, we will exploit quite some synergy. It is true that we will have more costs, but we will also have more revenues, because the portion of revenues that was attributed to Arianespace to cover for this cost shall be in the future our own revenue. What we change is primarily the cost is what we count on by exploiting the synergies. I don't want to give you a precise figure, first of all, because we need to investigate this thoroughly. And second, because it's a matter of commercial sensitiveness. Relative to the coverage of the failure, the risk of failure in flight. So the risk of failure in flight is the risk that you cause damage to third parties, okay, with a cap up to EUR 60 million. Such condition is defined directly by the French law. So this risk is typically insured. So Arianespace is insured against this risk. And we will do most realistically the same thing. We will insure such risk. But we are not new to this level activity, because imagine, you may recall a few years back, we took the responsibility of the launch pad, which was former of Arianespace. On the launch [ pad ], we ran a substantial risk of causing third party damage, for example, to the workers, because should an accident occur while the launcher is on ground with 200 tonnes of propellant, of course, you can cause a lot of damage to the party. So we are not new to the management of this type of risk and to the associated insurance policies related to this risk. Of course, it's a new part that we will have to account for. So when will this become effective? Well, we shall see. Of course, we are not in a terrible rush to make this happen. 2024, as discussed, will be dedicated primarily, the main focus will be to return to flight successfully and to make sure we operate well. Then we have a backlog of Arianespace now of 17 launches, probably more. 2 other launches are to be sold shortly. They are in pipeline. So we can set a transition time. We will see how long this shall be. And we will have to find the right point of equilibrium between the expectation to improve the margins, yes, of course, but also, most importantly, to make sure that we provide the best service to the customer, okay? I believe the margin improvement can be material, okay, but I will not rush into that at the expense of safety or relationship with Arianespace, which we want to maintain as good as it possibly is, recognizing that we need to work together to better serve the customers. We have been a team for a long time. We continue to be. Arianespace continues to be a key factor in selling Ariane 6. So we want to have a cooperative approach because the most important thing is to better serve the customers. But there is no doubt that any one manufacturer like us will benefit from a closer relationship with the customers and understanding the requirements more thoroughly because in this way, we can design the launcher, provide solutions to integrate satellites on the launchers that actually cost less. Think about all of the customization that we had to do, for example, for the last flight to fit all the customers, this was a tremendous effort. By getting closer and closer to the customers, we can understand this better and so reduce substantially the cost of customization, hopefully. So this is what we expect.

One more question just on the extra coverage from the European Space Agency. I imagine that you cannot provide a precise figure for your slides, but just to have an idea, are -- is this already included in '23 guidance or will be in the following years? And I don't know if you can elaborate on what could be the impact for you?

The amount is defined. It's up to EUR 21 million per year in the next few years. It will not be 2023, but 2023 is covered somehow, 2023 and '24 by the regime that was voted at the Ministerial of 2022. So it is something that is somewhat less than this amount, not much, but maybe 20%, 30% less than this amount. But still, there is a coverage coming from the previous Ministerial Conference. This is an amount that will become effective most probably by 2025 and it is increased with respect to the current value, but most importantly, is associated to a guarantee of a larger number of institutional flights, 3 rather than 2. So it is 2 benefits at the same time. On one side, you are secured of having 3 launches per year from European institutional customers. On the other side, you are also backed up with a larger financial package to cover costs, which protects us from the risk on the margin basically. So I think it is a double benefit in a way that will kick in most realistically from 2025. '23 and '24, we will cover with existing resources. Obviously, the package is much less significant than that of Ariane. We have less a problem of cost competitiveness on the product than Ariane and we believe that we can very well manage with this amount.

Okay. So you are not receiving anything for Ariane?

Well, we will receive our portion because, of course, also the part for Ariane, maybe 8%, 10% of Ariane is done by us. So a share of that will flow to us as well.

[Operator Instructions] The next question is from Bruno Permutti with Intesa Sanpaolo.

I have a question related to the timing of the new integration building. So I would like to understand from when there will be such an increase in the integration capability? And then on the -- some details on the Ariane, the widening competition. So Ariane's past will continue to sell Vega and at the same time, what do you expect to sell along with Vega? So what do you expect that there could be some competition? And do you have any plans to be more present in smaller launcher systems [indiscernible]? How do you see the competitive scenario? Then I would like to understand as to the expansion of the production of CAMM-ER. Do you expect to have an increase in CapEx related to the new orders you expect to have in 2024 and in particular propulsion? And lastly, this is only a summary in the Slide 13, you indicated EUR 9 million of nonrecurring costs, which does not seem consistent with the implied adjustment. That's why [Technical Difficulty].

Bruno, the line was very bad. We hardly understood what you said, but we will try to answer. So first of all, what is the timing of the integration building? The honest answer is we will see, because now this is an existing building, which was in operation until 6 months ago, but was designed for another rocket. So we will likely have to do some modifications, okay, which we can take probably 2024 to carry out and maybe make the building available in 2025. What is good is that the building is in operation, is well-maintained, so it's not an old abandoned asset somewhere, but something that was in operation only until a few months ago. So I expect to make a long story short that by 2025, it will be in operation, allowing to increase the flight [ sale ]. Regarding the question on competition Arianespace, I honestly did not understand the question, because I couldn't hear very well. But in general terms, I would say Arianespace will continue to do the job. It's not up to us to say what Arianespace will do in the future. I don't know. There are many European announced new rockets, as you know. At least that I know of, there is 2 in Germany, 1 in France, 1 in Spain and maybe more to come, so we will see. I think the European Space Agency has realized that there is appetite for more operators to enter this sector and has consequently adopted their approach to a new scenario that was not there just 3, 4, 5 years ago, okay? Therefore, we are adapting to this scenario and we try to do the best we can, knowing that we have quite some track record or experience compared to other players and that is very relevant. There is one more important thing, not only do we have a very relevant track record compared to competitors, but we have assets. And assets are of fundamental and paramount importance, because you can be extremely good, you can be extremely cost-competitive, but if you don't have a launch pad, if you don't know where to integrate your launcher and that is not ready to go, it takes years before you figure this out. Years. This is not months. So many do not understand this, but it's fundamental. A part of the experience we have, out of 20 years we do this, is understanding all this availability of assets and knowledge to use these assets to integrate the rocket, to make them flight-worthy. It's of paramount importance to flight cadence. Many of you have asked over the years, why don't you increase the rate and so on? You can increase the production rate, but then the flight rate depends on where you can use the asset on the launcher center. Relative to CAMM-ER production CapEx, essentially in this type of business, the CapEx is part of a customer concern. So the customer includes in the pricing the coverage of the CapEx because they want to make sure that you adapt your production capacity to what they need. So it's all in one package, with the price, which is a very reassuring approach, of course, for this type of products. Then, on the issue of nonrecurring costs, maybe Alessandro can cover.

Yes. Thank you, Giulio. On nonrecurring, we had -- we reported EUR 5.4 million in 9 months '23, compared to EUR 3.5 million in 9 months '22. In 9 months '23, the most relevant portion of these nonrecurring costs was related to the Zefiro 40 anomaly, as already reported in the half-year '23. In 2022, as a matter of fact, EUR 3.5 million was net of nonrecurring income related to the cancellation of management incentives long-term in 2022. So on a like-for-like basis, only the nonrecurring costs for '22 were EUR 5.1 million, so substantially in line with the EUR 5.4 million of '23. And we confirmed the guidance for full year in '23.

Okay, sorry, Alessandro. And the guidance is for EUR 6 million for nonrecurring costs in the full year?

Yes, the guidance is, as we commented before, EBITDA adjusted implies EUR 6 million, more or less EUR 6 million nonrecurring costs. For the time being, we expect to be on track of the expectation.

[Operator Instructions] The next question is a follow-up from Martino De Ambroggi with Equita.

Yes, 2 more questions, please. One is still on the competitive environment. So now there is the European Launcher Challenge, but I don't want to ask you about competitors, because I imagine you don't want to talk about. But when do you feel the de facto monopoly could be broken? So is it 2028, 2030 events that you expect? Or maybe obviously, if someone else will have a product, reliable product sooner or later, which is still a question mark at current stage? And the second is on the tactical propulsion. So you stated 20%, 25% of your sales in 3, 4 years, so it means already in '26, '27. And I don't know if you are willing to share with us what are your expectation in terms of the new CAMM-ER Polish order contract?

So let me answer first the last question. Your view is correct. In the next 3 years or so we need to ramp up to that level of revenues, because we need to perform on contracts. And by the way, there is more in pipeline to come. There is more orders that we are currently working on a commercial basis and we hope to be able to announce them in the next few quarters, but there is more to come. Now the Poland order was announced to be 1,000 motors. It will cover a certain period of time, a number of years. I cannot be more precise than that because I need to follow the guidelines of what MBDA has decided to announce, okay? And so -- but it's 1,000 motors. Now as always, these contracts have options for more, but give or take that's the number that was announced by MBDA. So this practically means that in aggregate, in the past few years, we were manufacturing something like 50, 60, 70 motors per year. We will very soon move to 300, 350 motors per year, which is not tremendously high compared to what we used to do maybe at the end of the 1990s or something like that. There is a comeback, definitely, of the defense business and quite a relevant one. And as I told you, there is more to come, substantially. Then, on the story of competition for Vega, well, difficult to say. In particular, we have to see this competition, what type of the market will be able to cover based on the performance that they can feel and on the launch rate that they can feel. So if you look at the current announcements, if you just read the current announcements in Europe, launches were announced with performances, target performances that are significantly smaller than that of Vega C, okay, which practically means that if these competitors were to implement these products as announced, they will be unable to launch many of the satellites we know today. Just to make a very simple example, the European Commission Sentinel programs has satellites which are all heavier than the maximum performance of any of the new announced launches. So practically speaking, these are small launches, okay? Whether or not they will grow their performance, I don't know. It is possible. All of them have the ambition to create a rocket as big as that of SpaceX, I mean, Falcon 9. I have no idea. We will see. What I can speak is coming from our experience, we first did a rocket of 1.5 tonnes. Now we moved to 2.3. It took us a decade to go from 1.5 to 2.3. If someone is able to do faster, I will congratulate them. It's not exactly a trivial task in my view. Additionally, the story of flight rate, as I said before, the flight rate very much depends on your capabilities, especially at the launch site. Not so much because of congestion with other flights, which is not the case in Europe, but because you have to have assets and means to make this happen. You know what I mean? And it does not only depend on your factory's throughput. It depends on your ability to design the mission, to make the mission available for a certain date, to align all of your assets and means at the launch site. It's a very long chain of capabilities. So even assuming that the new competitors will come with a product in a performance range and maybe it's one out for Vega C, we should see by when such competitors will be able to fill enough capacity in reality. Not production capacity, but launch capacity available. Some of them have announced that they will launch from Norway. Norway has just completed a new very, very small launch pad, but such launch pad is limited in the type of orbits that can be served. France has announced, as you know, we also participated into such challenge, the possibility to have additional new launch pads in Kourou, in French Guiana, but in an area that today is green grass. There's nothing. There is no infrastructure. There is no electricity, nothing. So we need to discount for some time to infrastructure what today is green grass. So once again, here, I believe the advantage we have is that we are dealing with assets that are already in operation and actually closely interconnected with each other and very closely located. So that is, I believe, one of the advantages we have with early competition. And as always, we don't have to underestimate competition and this is the reason why, with the new responsibilities, we will try to tighten our bolts and to stay as competitive as we can on the cost and quite frankly, on the delivery capability, because cost is important. It's important for us with margins. I speak also as a shareholder. But today, what is important is really to deliver flight frequency, because the demand is growing too fast for us to cope with. So what is most important is launch rate.

[Operator Instructions] Mr. Ranzo, there are no more questions registered at this time.

Thank you all. Thank you very much and I look forward to follow up with any of you. If you need more exchange, Alessandro and I are available at any time. Thank you.

Thank you. Bye-bye.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.