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

Good afternoon, and welcome to the Avio 9 Months 2024 Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Nevio Quattrin, Investor Relations Manager. Please go ahead.

Good evening, good evening, everyone, and welcome to the 9 months 2024 Results Conference Call of Avio. I'm here with Mr. Giulio Ranzo, CEO of Avio; and Mr. Alessandro Agosti, CFO of the company. In a moment, we will go through the presentation we just released on our website. As usual, Giulio will go through the main highlights and the events of the period, and Alessandro will go through the main financial results and accomplishments. After that, we will open the Q&A session. Thank you for your attention, and I turn the conference over to Giulio.

Good afternoon to you all, and thank you for joining the call. I would suggest we move to Page 4 for the 9 months 2024 highlights. So the most important thing over the last 9 months was we successfully completed the last Vega flight. As you know, the Vega launcher was retired with this last flight. The flight was successful. Now we hand it over to Vega C to continue the launch service. In fact, regarding Vega C, the other important thing we did at the beginning of October, we performed successfully the second test of Zefiro-40 motor, the second stage motor that you know was under redesign for the other part. So we already had executed a successful test in May. We executed another one for additional purposes. It went extremely well, and that obviously paves the way for a launch of Vega C flight launch on December 3, lifting up Sentinel-2C satellite for the European Commission. In parallel, we have been working quite a bit on the U.S. defense business. In particular, we have entered into a partnership with ACMI, a real estate developer to start planning and design activities for a solid rocket motor production facility in the U.S. Overall, in terms of financials, the first 9 months show growth of profits and revenues with respect to the same period of 2023. The net financial position is pretty much stable overall, as always, is a bit affected by seasonality. And this time, I will come to that point by some last-minute issues, but give or take, it's a stable and positive cash position. So when you put this all together, we essentially confirm the 2024 guidance as we had anticipated in March. On Page 5, some comments around the preparation for the flight of Vega C. As I said before, in May, we have successfully fired the first 40. Then in October, we did another one with an with improved design and with the use of the new material. So this test was performed under different conditions than the other one to fully test the range of performance of the motor. And so now we can conclude the motor is fully qualified for flight, and we actually will be using this motor on December 3 on Vega C. On Page 6, you see some pictures. These are now a few days old. Two days old. The Vega C launch as we speak, is fully integrated on the launch pad. And the reality is only the satellite needs to be brought to the launch pad for the rest, the rocket is ready to go and therefore, is ready to fly by December 3 with Sentinel-1C, which is an earth observation, high-resolution earth observation satellite of the Copernicus installation for the European Commission. So we are excited to execute this launch. It's a very important one. We hold a number of contracts with the European Commission, even the last satellite we launched in September with Vega was one of the Copernicus satellites. So it's very important that we serve this customer at best. And I have to say this is also going to be the largest, heaviest satellite ever lifted by a Vega Class vehicle. So it will be a very important and exciting flight. On Page 7, maybe this is the same page we have seen in previous quarterly reports. So nothing particularly new other than we are exactly executing on the plan that we had communicated to you at the beginning of the year. So we have performed the Vega flight, the Zefiro-40 test, the Ariane 6 maiden flight, and we are preparing now for the last flight of Vega and most probably between the end of the year or maybe beginning of next year, another flight of Ariane 6. This will pave the road for in 2025 with as many as 4 legacy flights and up to 6. And then 6 flights as we may estimate. So the situation will get busier, will drive our production rate forward and will also enable us to obviously go back to full capacity utilization. Now what has happened over the past few months on Page 8, as you know, the order backlog of our defense business has grown very rapidly. Our focus on this is important now because as you can see from the graph on the left side of the page, the order backlog for defense activities grew probably tenfold with respect to what it was in 2019. And it's about EUR 300 million now. And it's not yet incorporating, for example, the CAMM-ER Polish contract that is likely to -- it's already been signed at the level of the customer and DDA. It will slow down to us, hopefully, by the end of the year. That's what we target. So if this will happen, you will see this number growing substantially further before the end of the year. Now when you convert this backlog into the future production volumes for the years to come, you see that there is quite a bit of a sharp increase in production volumes for the next few years. And even more so when we will include the Polish contract for CAMM-ER. But none of this yet incorporates already the U.S. new contract that has just started in July, as you know, with very small initial orders. But if successfully executed, they have the potential of generating an upside that is quite significant with respect to what we are already doing. So this is to say that probably 2024 will be remembered on our side for one very important transition towards a much more relevant defense business within our portfolio. For this very reason, on Page 9, we reported a few days ago of having entered into a partnership with ACMI Group in the U.S. ACMI is a real estate developer that supports typically the development of large industrial parts for either defense or space activities in particular. Here, there are a couple of snapshot of things that they have supported doing in the U.S. facilities for NASA or for defense activities for the Navy, for example, for the Naval Surface Warfare Center. So we have entered into a partnership with them to design and plan a solid rocket motor production facility in the U.S. This is essentially in support to our expectation to grow in production volumes and size of orders from U.S. customers for this type of products that inevitably requires that at some point in the future, we'll be ready to manufacture in the U.S. So this is a long-term effort, of course, but it's very important that we start now, and this may also be a good way to attract financial support from different sources and shareholders -- and stakeholders. Sorry. So that's the executive summary. I will now ask Alessandro Agosti, our CFO, to give you a summary of our 9 months financials.

Thank you, Giulio. Good evening, everybody. Let's move to Page 11. We reported our order backlog evolution over the last 5 years. We show a compound annual growth rate of almost 20%. Backlog of EUR 1.3 billion is the highest of the company history and about 3x yearly revenues, thus providing strong visibility in the medium term. In the 9 months of '24, order intake amounted approximately EUR 160 million. Major portion of intake of EUR 100 million related to propulsion activities for our service, EUR 90 million related to Ariane 6, in particular, intakes for 120 to 160 motors in view of the production ramp-up following the successful major of Ariane 6 last July and the remaining orders acquired were for Vega develop. In addition to these orders acquired in the 9 months, there are significant further orders in the process of being acquired year-end to confirm the guidance. Among the for defense propulsion, the contract with Polish that mentioned before by Giulio and for space business, Vega E development activity at completion and Vega C increase for production current. Following the recent growth in defense order intake, you can see that defense propulsion backlog has reached 25% of the total order backlog at the end of September. In defense backlog is higher than Adian backlog waiting for the ramp-up following the process made flight of Ariane 6 and more than half of the backlog waiting for the ramp-up following the supply of Vega that now is scheduled in less than 1 month in next December 3. 60% of backlog is for production and 40% is for development activities. Can we move to Page 12, we report the revenues. Revenues significantly increased by 25% compared to the first month of previous year. principally driven by defense activities, technology development projects funded by NextGen program as well as Ariane production and development activities. Defense revenue accounted for 16% in the first 9 months of '24 revenues. 55% of revenues come from production and 45% from development at GDP. To Page 13. The results for the first 9 months of '24 compared to the first 9 months of '23. Order backlog is substantially in line with previous year, thanks to the Ariane 6. [indiscernible] Significant increase in revenues of 25% has been principally driven by defense propulsion production and technology development project. EBITDA adjusted increased compared to the 9 months of '23, principally as a result of contribution of our revenue for defense propulsion and technology development project as well as lower energy costs. In the 9 months, nonrecurring costs were significantly lower than previous corresponding period in '23 for lower activity for supply as we almost completed the activity and ready to next December. This reduction in nonrecurring costs led to an even better improvement in terms of EBITDA [indiscernible]. The decrease in net financial position was compared to 2023 was expected. It is mainly attributable to the effect of the transfer of cash advances to subcontractor and to seasonality of cash advances for clients. In addition, at the end of September, we had some specific contingent shift of certain collections expected by year-end that were collected in October -- first date of October. Simply, we can consider that on October 2, the positive net cash position positive at about EUR 30 million. Let's move on Page 14, where we reported the quarterly pattern of EBITDA and cash generation. We confirm the concentration of contribution in the last quarter of the year as in the past. we expect to return to a positive net cash position by the end of 2024. Finally, on Page 15, we report the guidance. As a consequence of the results of 9 months '24, we confirm the guidance that we provided to the market on the first quarter of '24 with order backlog between EUR 1.5 billion and EUR 1.6 billion with a 10% to 15% growth versus '23, mainly thanks to new orders from defense propulsion. Backlog started to roll out in -- for the first time in this year. Revenues between EUR 370 million and EUR 390 million with a 10% growth versus '23 growth in defense from defense EBITDA reported is expected between EUR 21 million and EUR 26 million with a 10% growth versus '23 and EBITDA adjusted expected between EUR 28 million and EUR 33 million. Finally, net income is expected between EUR 6 million and EUR 10 million with a 10% growth versus previous year, also thanks to margin contribution from financial charges. I complete my presentation and give the floor back to Nevio.

Thank you, Giulio. Thank you, Alessandro. We can now open the Q&A session.

[Operator Instructions] First question comes from Andrea Bonfa at Akros Bank.

I hope you can hear me. I do apologize, but my line was pretty bad, so at least from my side. But anyway, I got a couple of questions. One is related to the fact that you confirm your guidance, especially on the backlog, that entails something around EUR 250 million, EUR 350 million of potential new orders in the fourth quarter of the year. And if you can elaborate on that, if it's more defense or space activity or development or whatever? And with reference to defense, I've been -- I mean, I read on the Internet that the U.K. government approved the financial package for the Polish order. So I'm wondering if that you can confirm on that, if that is an acceleration on that front.

Andrea, I will let maybe Alessandro in more detail for sure, between now and year-end, we have, first of all, to crunch quite a bit of revenue. And yes, the order intake would have to be more than EUR 300 million to get to EUR 1.5 billion, EUR 1.6 billion because we have to catch up for another EUR 150 million revenue as well. So it will have to be way in excess of EUR 300 million. It has to be another intake of maybe EUR 400 million or so to get to that point. Now on that front, as you know, we not only have the CAMM-ER another project, we also have a couple of contracts coming from ISA, the last ones on Vega E at completion, the last tranche of Vega E at completion and Vega C flight rate increase contract, which come from the past. And so we still have the last tranches of this contract that need to be finalized. And hopefully, we should be able to do it by the end of the year. Now regarding the orders of the U.K., I didn't quite get the questions for defense. I don't know of a direct link between the orders we get and the order that the prime contractors get at MBDA because the slowdown from MBDA to us is not instantly flowing, how can I say? They make a number of export sales for domestic sales. And every now and then, we get a slowdown order. So what I can report to you is that by any measure on Aster in particular and now also on CAMM-ER, orders are growing every month here. So by the end of the year, we will have a very substantial overall defense order book. And I hope that, that will also come along, I hope -- I mean I count that will also come along with some cash advance. So I mean, all this massive rush towards new orders or order intake by end of the year is also a rush towards accumulation of additional cash. Cash advance, as you know, is needed to feed the supply chain and so on.

Confirm the guidance on the backlog. That means that consider we have EUR 280 million of revenue end of September. Guidance for the revenue end of the year is EUR 390 million. So it means that we will expect an amount of intakes from Vega E completion Vega C, the Polish contract in an order of magnitude, as Giulio mentioned before, between EUR 400 million at least.

[Operator Instructions] Seeing no further questions, I'd like to turn the conference back over to management for closing remarks.

Thank you. Thank you, everyone, who have joined the call. Thank you, and have a nice weekend.

Thank you very much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.