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

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Avio full year 2024 results. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Nevio Quattrin, Investor Relations. Please go ahead, sir.

Good evening. Good evening, everyone, and welcome to 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 published on our website. And in the end, we will welcome your questions. Thank you for your attention, and I leave the floor to Giulio.

Thank you all for joining the call for the 2024 year results. So if we jump to Page 4, some of the highlights of the main achievements of the year we just concluded. So the results were overall in line with guidance with revenues and backlog exceeding expectations. Notably, I would say we had a good success with VV25, the return to flight of Vega C which was long awaited, it went well. So we're now nearly ready to launch VV26 mission within the second quarter, and that's quite rewarding for us, very important achievement, I would say. Towards the end of the year, we signed 2 important contracts, the completion for the development of Vega E. And we also sold the first launch service, the first Vega launch service directly as Avio in our new capacity as launch service provider for the FORUM satellite with the European Space Agency. The Ariane 6 maiden flight performed just a few days ago, its first commercial flight successfully. So that's also very important and testimony of the fact that Ariane 6 is ramping up towards regular flight schedule. We also are on track on the new technology development programs that we have long talked about in previous sessions. And of course, we saw in 2024, a very substantial growth of orders in the defense propulsion business. Based on all these results, you can see later on, we made a proposal for a dividend distribution this year as well. So on Page 5, the main results. So very rapidly, the backlog went all the way up to EUR 1.7 billion. This is a historical record high. It's a very big backlog also compared to revenues, which in '24 topped up to EUR 441 million. Also, this number is a record high in the history of the company. The EBITDA reported jumped to EUR 25.8 million, which compares very well with the expected guidance, is actually towards the upper part of the guidance, and it's more than a 20% improvement with respect to 2023. So I would say we did our best to secure an increase in earnings, which was very well what the shareholders pushed us to achieve. You see that, unfortunately, the net income is only EUR 6.4 million, so no improvement with respect to last year. Still within the guidance, but no significant improvement, the reason being a higher charge from taxes and less of a result from the financial income. In contrast, the net financial position, which we expected, quite frankly, to be lower than what we have reached, EUR 90 million. Now that's, to be honest, timing because a lot of it is due to the fact that we signed some large contracts over the end of the year that we're with lots of cash advances, and that's the reason why we see so much cash at year-end. We'll talk about it later with Alessandro in the financial section. So if we move to Page 6, 2024 overall was an important year. I would say we had the main flight of Ariane 6, very successful. So once again, our P120 solid rocket motors performed perfectly, and that was important to untap the long-awaited growth of the Ariane 6 launcher. Then we had the last flight of Vega, the previous version of the rocket. This was important. We sort of retired this program after 22 flights, 120 satellite launched with some very good record of success, but also 2 failures. So all in all, it was a good completion of the program. And towards the end of the year, we returned to flight with Vega C, as we had anticipated to you. So we just essentially did what we said we would do. Most importantly, we also signed almost EUR 350 million worth of contracts towards the end of the year with the European Space Agency. And as I said before, our first launch service contract as Ariane, the capacity of launch service provider that you may recall, it's a new role for us. It was formerly performed by Arianespace. It's now being performed directly by Ariane. Another very important achievement was the signature of new contracts with U.S. customers for defense, importantly with Raytheon and with the U.S. Army, but also a very large contract with MBDA for the supply of solid rocket motors as well. And all this contributed to this very substantial growth in the defense propulsion order backlog. On Page 7, we review just real quick the success of the return-to-flight mission. Let me highlight on this one thing that is, in my mind, very important for you to keep in mind. So this launch of Vega C demonstrated a payload performance in sun-synchronous orbit of 2.3 tons, which is exactly twice as we did with Vega, the previous version of the rocket. So we established a completely different capacity for Europe that is crucial and strategic. Why that? Because these big heavy satellites are typically Earth observation radar technology satellites, very sophisticated technology that can observe Earth over day and night with very accurate images that can also be taken across the clouds. So it's a very important piece of technology. And so we are quite proud, not only of having return to flight, but also having established a capability that, quite frankly, is not that easy to achieve and it's crucial for Europe for the future. On Page 8, we report just real quick the success for the first commercial flight of Ariane 6, which was performed just a few days ago. So that's also quite important. It was with the CSO-3 satellite for the French Ministry of Defense. So once again, a very sophisticated spacecraft. Also in this case, the launcher performed nominally. And as you know, we have a lot of technology, not only in the boosters but also the turbopumps for the main liquid propulsion systems. With this launch, we believe we are on track for the ramp-up in production volumes of the P120 and P160 motors that are so crucial for us to secure that our production activities reach again critical mass and therefore, that we have a better operating leverage on our fixed costs. On Page 9, we report, as I anticipated before, the signature of these very large contracts with the European Space Agency, which were known. One of these is for the completion of the Vega E launch development, which Vega E will be the successor of Vega C. So it's important because while we stabilize Vega C, we are already preparing the next version of the rocket with even more payload performance and hopefully more efficiency on cost given that Vega E will feature 1 less propulsion stage. It would be only 3 propulsion stages compared to Vega C, which is 4. So that's important to have as a road map for the future. The second important contract was the signature of the Vega C cadence upgrade at the space port with some funding available for us to enhance our capabilities and most important assets all around the launch complex with specific new facilities dedicated to the pre-integration of the launcher to eliminate any bottlenecks in the ground operations that surround the flight activities. And this was important to make sure that we would have growth capacity in flight rate. As I said just a few minutes ago, important achievement towards the end of the year, the signature of FORUM satellite as the first mission directly sold as Avio. It will be launched in 2027. It's an ESA satellite. This tells you, given that we already have 16 or 17 missions in backlog, sending another one and having lots of other missions in pipeline tells you how robust is the Earth observation business, which is what we are addressing with Vega C. On Page 11, maybe some status on the development of the P160 booster, which is the successor of the P120. As you may recall, it's a slightly longer booster that will be used for both Ariane 6 and Vega C and that will provide even more payload performance to both Ariane 6 and Vega C, which is an important tool to continuously improve cost competitiveness because at the end of the day, additional payload performance allows us to have a lower cost per kilogram transported and therefore, it's an important element for competitiveness. So we are preparing for the firing test of the so-called QM3, which will be effectively qualifying for flight, the P160 motor, and it's incredibly important for us to be -- introduce both Ariane 6 and Vega C. On Page 12, some updates on the progress of the Vega E launcher development program. You may recall that we had fired already in previous years, the M10 engine on ground. Now we are working on a number of other surrounding elements of the liquid propulsion systems for the whole complex of bulbs and other pipings and equipment that are required to make sure that this after stage with liquid oxygen and methane would work properly. So we have successfully achieved the qualification of further subsystems and therefore, we are marching on track towards the critical design review. Some important developments also on Space Rider on Page 13. As you may recall, Space Rider is our somewhat unique application of sending a spacecraft with Vega to space that will have the ability to reenter the atmosphere and land on ground. As you can see now, we are -- we have already manufactured the hardware for the first mission, and we are testing this hardware mechanically prior to flight. But I'm very glad that now all of the hardware is coming together, and we will proceed towards the subsequent ground tests prior to qualification review. But I'm very glad to see on our side that all the hardware is coming together and similarly on the ThalesAlenia side for the spacecraft. Now on Page 14, also some other reports relative to the Next Gen EU-funded technology programs that address 4 different areas of technology development. On one side, you may recall, we talked about the liquid oxygen-methane technology. We have 2 major projects, 1 addressing an in-flight demonstration with a very small flying prototype, which you see the drawing of here on the bottom left. We have manufactured the tanks and tested the tanks. Now we are integrating all of these prototype rocket together for some ground tests in the course of 2025 with a view to execute the in-flight demonstration sometime in the first half of 2026. We have also been firing parts of the liquid oxygen-methane engine, the 60-ton liquid oxygen-methane engine, the so-called High Thrust Engine. You see the photos here of the very first client. So this is a much larger version of the Vega E cryogenic engine. So I'm very glad that also that has reached firing test successfully. And most notably on the right side of the page, we have also successfully fired a number of times the so-called Multi-Purpose Green Engine, which is something that we will install in the Vega C configuration in some time, and that will allow further performance in orbit. And this is particularly innovative using green technologies for propulsion. Then we are marching towards the Preliminary Design Review of the in-orbit service module, again, in partnership with ThalesAlenia. And all of this creates, I would say, a set of technological building blocks that will form the basis for us to start putting together the products of the next generation that will follow Vega C and Vega E and that will come afterwards. And as you can see, we are putting together a very niche technological base to face the future with a lot of technology. On Page 15, this is just a recall of what we had posted some time ago, the signature of very relevant defense contracts with MBDA, Raytheon and U.S. Army. This has been probably the year in the history of the company that we got most orders ever in defense, no surprise. But I want to highlight something. You may have seen from the news a lot of attention in defense over the last 2 months, but you realize that this contract did not take 2 months to get to, right? So this was work that commenced probably 3 years ago and that led to success in here. So this big wave of defense demand surge is something that was not created in a day that we've worked on for a long time and then reached success. There's, as we get very well see, further upside with respect to this, both in the U.S. and in Europe, and we are getting prepared for that. I'll say more about it towards the end of this presentation. But this is substance. You see that in terms of backlog, we have reached over EUR 400 million worth of backlog in defense propulsion, and it's expected to grow further in the course of 2025, both from U.S. customers and European customers. So that's a very good dynamic because it's partially balancing the business mix, more between space and defense. So with this, I would pass the word to Alessandro to cover the section on financials.

Thank you, Giulio. Good evening, everybody. If we move to Page 17, we reported the order backlog evolution over the last 6 years that shows a compound annual growth rate higher than 20%. '24 year-end backlog of EUR 1.7 billion. This guidance, it is the highest in the company, so as Giulio said before, and it's about 4x the year-on-year revenues, thus providing strong visibility in the medium term. In '24, order intakes amounted to approximately EUR 0.8 billion, major portion of EUR 450 million related to Vega with Vega E development for about EUR 300 million and Vega C cadence improvement. Intake of Defense, margin amounted to EUR 260 million, more than double compared to previous year, principally related to CAMM-ER and ASTER for MBDA. EUR 90 million related to Ariane 6 for P160 motor, the first stage of Ariane 6 that launches in view of the production ramp-up following the successful maiden flight last July. Following such intakes, as you can see, Vega backlog represent approximately 50% of the year-end backlog and defense propulsion growth is 25%. Production backlog is about 60% and Development backlog is 40% of the total. Defense backlog is nearly 3x the Ariane backlog, as you can see in the chart, waiting for the ramp-up of the Ariane 6 launches following the maiden flight of last year. If we move on Page 18, we reported revenues, which significantly increased by about 30% compared to previous years, as Giulio mentioned before. Such increases are driven by defense propulsion activities, technology development projects funded by Next Gen EU programs as well as Vega. Vega revenues accounts for approximately 50% of total revenue and defense propulsion for about 16%. 50% of revenue comes from production activity and the other 50% from development activities. Shall we move on Page 19, we reported the main financials for the year '24 compared with the year '23. Significant decrease in revenue of 30%. These decreases are driven, as we said before, by propulsion production activities, Vega and technology development projects. EBITDA adjusted also increased by about 12% compared to 2023, basically as a result of the contribution of higher revenues from defense propulsion, Vega development technology development projects as well as for lower energy cost compared to previous year. Nonrecurring costs were significantly lower than 2023 for lower activities and costs for Vega C return to flight may be concentrated in previous years. This led to an even better improvement in the reported EBITDA for higher than 25%. EBIT was affected by higher depreciation mainly from Vega currency increase and IT improvement projects. Profit before tax as it shows in the chart is a result of lower interest income from lower cash available during the year, invested in short-term deposits as well as higher financial expenses and negative foreign exchange rates. In Page 20, we reported the main source and uses. Working capital is starting in negative, thanks to cash advances from order intake towards the year-end. Fixed assets, mainly for increase for CapEx for Vega cadence increase, IT improvement projects within artificial intelligence and net of depreciation of the period. Net cash position improved versus previous year. In terms of collection of cash advances, as Giulio mentioned before, basically from Vega E and the test propulsion points towards the year-end. On Page 21, we reported the bridge of the net cash position between 2023 and '24. The increase compared to the previous year is mainly attributed as you can see to EBITDA, cash advances from new order intakes net of CapEx of the period. In Page 22, we reported the quarterly pattern of EBITDA and net cash position. The chart shows the quarterly pattern of these 2 caption. Generation is toward -- concentrated toward the end of the year, typically in the fourth quarter. Then on Page, finally, 23, we reported the proposed dividend distribution in 2024. Total shareholder return benefit from the dividend distributed in April '24 for EUR 6 million and about 64% of stock capital gain, more than 100% over the last 12 months. This morning, Avio Board of Directors proposed also in this -- for this year, total dividend -- approved a dividend of EUR 3.75 million in compliance with our current dividend policy. Well, I give you back, Giulio, the floor for outlook and opportunity sections.

Thank you, Alessandro. So moving to the outlook for the future. Just bear with me a couple of minutes. If you move on Page 25, here, rather than the outlook, we have a little bit the history of the last decade. The reason why I bring this up with you is that looking at the outlook, I think it's important first to see where we are in the economic cycle for the company. So in the upper part of the graph, you see what was the sequence of flights with Ariane, let's say, which for us was the main business in 2020 -- in 2015, when I started as the CEO. And as you can see, unfortunately, the Ariane business went tremendously down in volumes due to a much lower-than-expected transition from Ariane 5 to Ariane 6. So you can very well see that until 2029, we still have reasonable volumes covering a substantial part of our production capacity. Well, over the last 4 years, unfortunately, we were systematically below the critical level of plant utilization in a way. So this has inevitably affected our ability to deliver on profits. And on Vega, we have certainly a similar story because in the first part between 2015 and 2019, we have had a somewhat stable flight rate between 2 and 3. In the period from 2020 to 2024, we were expecting to grow in flight rate, but we were unfortunately slowed down by, on one side, the flight anomalies that we suffer and on the other side, partial delay in the introduction of Vega C. So unfortunately, on none of these 2 products, we have the opportunity to fully utilize our production capacity and, let's say, distribute our fixed costs, right? So these were the main reasons why the profitability of the last 2 years was lower than expected, quite frankly. On the opposite, I would say, if you look at the interesting dynamic that we have on the Defense business, the Defense business a decade ago was negligible to the point that we were barely talking about, right, only 35 solid rocket motors per year. By 2019, production volumes had already reached nearly 100 motors per year. And in 2024, we manufactured 230. So we observed a steady growth in Defense. But as I was telling you just a few minutes ago, this was not built in the last few months because now defense has became very popular. There is a long-term trend in Defense demand growth that comes from very far. It doesn't come from last year or the last 6 months. And as we demonstrated to you with all the backlog we have, we can only expect for the future that this will grow. Now while we had this somewhat terrible times, I would say, over the last 4 years where we did not deliver the profits we expected to deliver, we did our job, I believe, in growing the book of business, the backlog. The backlog in the last 5 years grew from EUR 736 million to EUR 1.7 billion. It grew by EUR 1 billion. So we spent time while we faced issues with profits, we faced time to really fill the order backlog and prepare for the future. So what I hope from 2025 onwards is that we really now can fully leverage all the work we have done so far to go towards a steady profitable growth. And in fact, when you look at 2020 -- Page 26, and you look at what we expect for 2025, it's a substantial ramp-up in Ariane 6 flight rate, a notable ramp-up also in Vega C flight rate. I'm not quite sure now whether we'll do 3 flights or 4 flights, we will see. If it's not 4 flights, probably the fourth flight will be at the very beginning of 2026. But we expect, obviously, a very rapid growth in production volumes, right? And that's the reason why I expect that 2025 will be now the first of, hopefully, a long series of growth years. 2025 is also -- well, I don't need to speak much about the growth in Defense. You already know, we have long talked about it. We'll talk more about it. But if we go to Page 27, in Space, 2025 will be an important year because we will have the 2025 ESA Ministerial Council which, as you may recall, every 3 year awards funding for new projects for development or for supporting the so-called exploitation of existing launches. And we have some key objectives and pursuits for funding that are extremely important for us. On one side, we aim at further consolidating Vega C to really and rapidly move towards a flight rate, 6 per year and to further improve the product by eliminating some older technologies and replacing with new ones, trying to also improve the margins where we can. And so to fully industrialize [Audio Gap] deliver more margin. Then we have to execute on the development of Vega E. We have the contract now and we can go towards the completion. But we also need to optimize the configuration of Vega E such that it will be more and more cost effective. Then we know that through the next-generation EU fund, we have started the develop -- and also through Vega E, the development of liquid oxygen-methane technologies. What we aim to do is to develop this technological building blocks further with the objective of starting to prepare a next-generation launcher, right? This is something that will likely fly sometime in the 2030s. But again, we live in very long technological cycles. So we need to start to think about what the launcher will look like in 2030. We need to start thinking about it today. And we have pretty good ideas of what we want to do. So we hope that the Ministerial Council will support us toward this goal. Then we need, of course, to secure proper funding to support the exploitation of both Ariane 6, namely for P160 and Vega C. This is very important because we have so many committed orders that we have to deliver on that. As I was saying before on Page 28, we have updated this chart. You have seen this chart before. On the left side, you see the growth in Defense orders, which tops up now EUR 439 million. And in the graph on the right side, you see what is the expected evolution in terms of production volumes. As you can see, there is quite a bit of growth over the next few years, but there is further opportunity for upside, and I don't need to explain much about it, what has happened in the course of the last year or the last 6 months. Even more importantly, in the last 2 months, calls for a very substantial potential upside. On top of which, we have added our effort to penetrate in the U.S. market, as you know, and we have had the first successes, but these successes are not -- do not represent the full objective that we have in mind, which for -- if you stretch it to a longer time horizon is way more ambitious than we have today. And what you can see from this graph is that the volumes can grow over the last -- the next few years by 2 or 3x in respect to what we are doing today. So we need to prepare for this. And in fact, on Page 29, we have started over the last few days really reflecting on what is happening also in -- not only in the U.S. but also in Europe. As you very well know, the European Commission started to announce the possibility, not certainty, but the possibility of a substantial plan to reequip Europe with defense capabilities with the order of magnitude of EUR 800 billion. Whether this will materialize or not, whether it will materialize or a smaller number or not, we don't know yet. I guess nobody knows. But we have started an exercise to make sure that we can be ready very rapidly to double our defense production capacity in Italy in case of a demand surge. Now this is important because we can leverage the existing assets to do this, to double the capacity much faster than anyone who has to do it from a greenfield, of course. Lots of assets we already have. We can repurpose some of the assets we already have and that we have used in the past. And therefore, we can very rapidly expand the capacity. Of course, to support this action, we think we will have at least 3 investment sources. On one side, some grants for which, quite frankly, we have already applied for in the course of 2024. Some support will certainly come from the customers as it has traditionally been the case for this type of products. And so this has been quite rapid as well. And then for the rest, I think we will be prepared in case to add a portion of sales funding, given that the magnitude may be quite interesting and remunerative in a way. Now when you put all of this together and as I was showing in the graph, we can probably even create the opportunity to multiply it by 4 or even more the production volumes with respect to what we do today, which means essentially quite rebalancing the business portfolio and the business risks across Defense and Space. We have a lot of stuff in Space to come, as you'll see, and more will come with the next Ministerial conference and a lot in Defense and more may come with new plans for demand in Defense. Now looking -- of course, this will cover the next few years, not just 2025. Now when it comes to 2025 on Page 30, we'll be cautious a little bit on the backlog. We think we'll stay pretty much stable, some increase in backlog, but not necessarily huge. There might be upside if it materializes on Defense. But at the same time, we will have to crunch a lot of incremental revenues, potentially reaching all the way up to EUR 480 million. That will obviously subtract from the current backlog, and therefore, that's the reason why we think with the backlog would stay stable or marginally growing. With EBITDA reported, we plan on growing. I would say, order of magnitude, another 15% with respect to 2024. 2024, we closed at EUR 25.8 million EBITDA reported. So if we'll be in the middle of the guidance, we'll have a 15% increase. The net income will not show as the growth for the reasons I was telling you before because we have, in particular in '24 and '25, a negative impact from taxes with respect to normal, I would say. That's something that will soften in '26 and '27, but that we will still face in 2025. I wish it would not happen, but unfortunately, taxes you have to pay, I'm told. And therefore, that's what we see for 2025. But our commitment will be, of course, to do our best as we did this year to exceed the guidance on each of these parameters. So as we said, beyond '25, we commit to keeping a very long-term visibility of the business. So the backlog, we plan on keeping it high for several years to come. I don't know how much we can get in terms of growth. It will depend on how business conditions change. But we like what we have today, having at least 4 years' worth of visibility which, by the way, is the longest visibility we have ever had. And we also will increase the responsibility on launch services. We have acquired this new role, but in the course of 2026, 2027, 2028, we will fully exercise our new role and hopefully extract also margin optimization out of that. That's the goal. Then in this period, we will consolidate the Vega C flight cadence, making sure that we reach a stable cadence 6 by 2027, and that's going to be so important to fulfill existing orders and to have space for additional orders. Then the new infrastructure we have in Peru at the launch side will probably enable us to go beyond 6 flights per year, maybe all the way to 8. But this will remain to be seen with respect to market conditions and so on. We will continue development, as I said before, which we have already talked about. But our commitment will stay on improving margins, which we believe is the main goal that we should achieve in the next 4 to 5 years. So not everything can happen in a day or in a year, but stay assured that our medium-term commitment is primarily focused on growing margins and earnings. On the Defense side, of course, we are in front of an unprecedented demand growth. And luckily, we have the right competencies to deliver against this unprecedented surge in demand. It's a completely new and changing environment, part of which we only partly understand, I would say, especially over the last few months. But I believe you would agree with us that we have done the right move over the last 2 or 3 years to position ourselves in Defense not only in Europe but also in the U.S. So I hope you understand today in 2025, the reason why we started in 2022 to address the U.S. market because we had kind of spotted that this demand would have come. And now you see that the company is positioned to get that growth as well. Had we not done that investment back then, we would not be in a position to capture that growth. And so I believe this is quite important, and I hope it will be appreciated by shareholders and investors in general. With this, I thank you very much for your attention, and I'll turn the word to Nevio.

Thank you, Giulio. Thank you all for your attention, and we now can answer to your questions.

[Operator Instructions] The first question is from Andrea Bonfa, Akros.

Very quickly, on -- going back to the interesting slide on Page 29 on the right-hand side, that upside is apparently related only to European upside. It does not include the U.S. upside? That's my first question. And the second one, as far as the backlog is concerned on Defense, does that include the, let's say, the initial order from Raytheon and the U.S. Army? Or is that included in development? Or does it include anything from the U.S. as of today? And the final -- the third one, and I will come back. I mean for me, the upside on Defense is really clear. But I think that the latest geopolitical events suggest also there is potential in the medium, long term a mass opportunity in creating a constellation of satellites like Starlink as Europe currently is not strategically independent on that front. So I was wondering if you can comment on that in the sense that how much capacity would be needed in terms of Vega C and vis-a-vis Ariane in order to create semi-equivalent Starlink network? And for what I know, it seems that the Vega C is the best, let's say, rocket in order to launch a low-orbit satellite. I want to know if that is correct or if I'm wrong, or is absolutely neutral between which booster to use, Vega C or Ariane.

Andrea, thank you for your question. First of all, on Page 29. Let me make a step back. You remember when we announced in the course of 2024, the contracts we had obtained in the U.S. We also announced that we were looking for a location to be a factory to manufacture solid rocket motors in the U.S. and we are actively pursuing that effort as well. So as soon as we will have secured larger contracts with customers, we will become more serious on that project because mainly, we would have so much demand, hopefully, from the U.S. that we will be unable to do this in Europe. On one side for logistical reasons, on the other side for regulatory reasons connected to security and so on, and on the other side because of customer expectations, right? So that's one part of how we expect to address the expectation for Defense demand growth. Now Page 29 has to do with a much more recent set of happenings. As you have seen in the course of the last few weeks, there is likely the possibility that Europe -- possibility, which is not certain, right, and may as well not be true. I don't know. But there is the possibility that the growth in Defense demand in Europe will be much higher than what we had anticipated. We already have for the projections we have provided to you growth over the next few years and substantial growth. Unfortunately, if this -- or fortunately, should this plan for rearming Europe or however you want to call it, should this go live, then there will be even more. And I believe it is for us mandatory that we stand ready to react to this demand. And if it doesn't materialize, it doesn't materialize and we will not invest. But we have done an exercise to see what we should do in Europe for Europe, okay? So what we address in Page 29 is primarily devoted as securing that we may have additional capacity in Europe for European products. Most of the U.S. products will be manufactured in the U.S. There is also the possibility that some products, some U.S. products we will manufacture in Colleferro. I would say one of the -- at least one of the products we have already contracted will probably be manufactured in Colleferro. But when you put this all together, I think that this exercise we have done explains that we do not have very big limitations in terms of growing our capacity. This is what I wanted to convey. So whatever the mix of products or whatever the demand, we can even multiply by 4 the volumes that we are doing today, okay, with relatively small investments. Why? Because we are already acting on an existing infrastructure that is already quite well equipped. Of course, if you want to do 4x the volumes, you need more tooling. You need to repurpose some buildings, you need to change some equipment to add, for sure, but it's an efficient set of investments that we also address technology improvements, efficiency and modernity in a way, right? So that's the thing. We need to be prepared to address demand both in the U.S. and in Europe, and I think we know where to go to do that. I need to finish. I understand the question on constellation, the story of Raytheon, I need to clarify. So constellations, look, it's a long story there. Starlink in Europe, I don't know. I have no idea. I have not seen, to my knowledge, anyone in Europe capable of launching a constellation of that magnitude measured in terms of tons of object to be launched to space. But there is a very clear possibility, very concrete, actually, that smaller constellations will be launched in Europe, namely, for example, IRIS2, for which we are obviously positioning ourselves to get at least a share of the launches and so on. A part of those may also be performed by Ariane 6, which turns out to be good for us as well because we deliver solid rocket motors for Ariane 6. So one way or not, I think we will be in the game with IRIS2. There are other things happening as well. I mean if you look at the announcements we saw from Leonardo just a few days ago, there is a possibility that in Europe, a new Earth observation, constellation will be launched. That is with characteristics that I would expect Vega C to be very ready to launch. And of course, we will convince our partners in Italy that might be a smart idea to launch them with Vega C, for sure. We also have to, by the way, execute in delivering the launches of the EAGLET Constellation in Italy, Earth observation constellation. So all these things are already in pipe. Now if you are talking about a massive telecom constellation in Europe, my honest answer is, I don't know. And we will see what happens, whether there is an equivalent of Starlink, I honestly don't know. What was the last question, Raytheon?

Raytheon in backlog.

Raytheon, how big is Raytheon in backlog. This, we cannot say. Unfortunately, we are not authorized. As we explained to you earlier last year, some of these programs are completely powered by security confidentiality. So we cannot talk specifically about the volumes, the pricing, the values, pretty much nothing. That's why we have very, very simple statements and so on. It is not because we don't want to be transparent, but we are not entitled to share this information.

The next question is from Martino de Ambroggi of Equita.

My first question is on the defense propulsion. So first of all, what is the current capacity and utilization? And you mentioned, you want to double the capacity in Italy and you split between grants, customer support and CapEx, but you also added that the CapEx needed for you is not a big number. So just to have an idea of what is needed to double capacity in Italy. And still on this subject, is there any, I suppose no, but just to double check, is there any supply chain issue to be managed in order to -- based on the strong growth in volumes? And this is my first question.

So let me start on the last question, actually. So first of all, in the production of solid rocket motors in Europe, we do not have a substantial supply chain issues because, as you know, you have also visited the plant, we are quite vertically integrated. I mean we manufacture even our own materials. So we do not expect to face significant supply chain issues. That said, we can always improve it. We can improve it from efficiency point of view, cost and so on. And hopefully, with larger volumes, it will be easier to manage these several issues. Second point, today, we are manufacturing about 230 solid rocket motors, of course, of different sizes and so on. We currently don't have any problem to reach all the way to 460 or 500 motors per year with the current installed capacity, okay? What we are conveying is that we can go from 500, 600, to 1,000 or 1,200 motors per year. This is what we can do with the incremental plan. How much would the incremental plan cost in terms of CapEx? A few tens of millions, okay? But be careful, this stuff is typically covered, to a good extent, by the customers themselves in their interest to secure that you have the right product-specific equipment to manufacture their products. In part, it's covered by grants that we have already applied for and you may be familiar with even the low 808 experience you have and such. And in part, if needed, we will cover through the -- through our CapEx in a small portion. Should there be such a growth in demand, I think we don't want to have the problem of expensing some more capital expenditure for that. But all of this, we don't know. This is completely uncertain at the moment, maybe speculative, I don't know. But I think it is serious for us to be prepared for this scenario should the scenario turn out to be true. But if I look at the past, I think we have spotted this demand, Defense demand growth, and we were right. And we were not caught by surprise. As you can very well see, now there is a huge growth in demand and we are prepared. So we -- all we have to do is prepare ourselves ahead of time.

Okay. So I understand you are studying it, but this is something that could materialize the start of this doubling capacity in '25, '26 or it takes longer?

I think nobody knows, but I very much think that the incremental orders can very well start already in 2025. As I understand, institutions in Europe call for a very rapid action on this front, not something to distribute most of the next 10 years. Now whether Europe delivers on this or not, I honestly don't know and probably nobody knows. But my perception, if I need to place a bet on it, is we might see a further surge in demand already starting from 2025 as always will come from incremental backlog, okay?

And Martino, this is Alessandro speaking. This depends upon [indiscernible] should unlock development of scale in 2025, combined with increase in cadence of Vega and Ariane 6 as to [indiscernible].

But the very first time you will see is by 2025, we will exceed order backlog in particular on the Defense side. So today, EUR 440 million in Defense order backlog. Should we be by end of '25 of EUR 600 million? Well, it means that we will have an upside, quite an upside.

Okay. A more general question on the EU investment plan. I imagine is it too early, but what's your feeling about the need to increase the launcher capability in Europe in the sense, do you feel or do you believe the European Commission will push on the acceleration in order to get the new players? Some of them are very early stage, but are already working on it or you push on crew space port increasing the launches capacity or maybe a second space port in another place? So is there any plan that you feel will be with a strong impact on the sector in one sense on the other one?

I believe demand in terms of satellites to be launched is growing in Europe, no doubt. Even in our segment in the Earth observation segment, demand is definitely growing. And there's one mission from the European Commission. We had a recent discussion with all of the industry leaders with the new Commissioner Kubilius, the now European Commission combines Defense and Space. There is interest to do more in satellite launch. And so there will, for sure, be more opportunity than in the past. At the same time, Europe has decided to promote more competition among also the new players. The new players still need to prove themselves. But there is a possibility that someone will show up and that we will have to share the pilot. At the same time, the new players we will have to demonstrate that we have comparable capacities to us. Because it's one thing demonstrating that you can lift a small rocket to space and one thing is demonstrating, as I was telling you, 2.3 tons for example in SSO. So I think we have quite an advantage because we have experience. We have demonstrated capability, and we have a payload performance that is quite unique in Europe for Earth observation. So I think we are optimally positioned. But for sure, we are going towards a more competitive market even within Europe. That said, even the export market is growing a lot. Now that we are entering Vega C commercial operations, we are flooded with requests from the Middle East, from the Far East of opportunities of things that need to be launched. I would think there's any country in the Middle East wants to have its Earth observation constellation. A few years ago, you used to have some countries like Morocco willing to launch 2 satellites and we did for them. Now the ambition of countries like Emirates, Saudi, Oman and so on is to launch several satellites to have their own constellations and so on. We will see if they achieve this dream, but we see the commercial pipeline filled with a lot of opportunities. So there definitely is the opportunity to grow in cadence. Now the point will be to balance the volume also with the price. We need to make sure that if we get -- I'm not crazy about raising the flight cadence unless it leads to an interesting pricing. I just don't want to increase the flight rate for the fun of increasing the flight rate. If the price is good, good. Otherwise, we need to improve the margin, the profit. So we do what we can to balance these things out.

The next question is from Bruno Permutti of Intesa Sanpaolo.

My question relates the margins. So I would like to understand that what -- if we look at the guidance you gave, we see that the EBITDA at the middle of the guidance range should be at 6.5% in terms of margins. So I was wondering how we can assume the evolution of the marginality of the group will be in the coming year. I mean what could be a reasonable long-term target that if you have something in mind? Also assuming that the Defense business will increase its weight, so if I have well understood, the profitability should be higher for that business compared to aerospace. And then if I may, also a question related to the technology. So I'm not an expert of defense. But I was wondering if there could be some alternative technologies to the classic defense missiles that you produce. I refer in particular to lasers or things like that. And if that is something that could be perhaps something that could develop in the next few years or if not. And above all, if the target in terms of Defense could be the same of the current Defense missiles or if it is a completely different story. Yes, these are the 2 main, yes.

So first of all, on profitability. I will start from a disclaimer, first of all. When we look at EBITDA reported, you need to keep in mind that today, within EBITDA reported, we also account for the cost of our Avio USA operations, which for the time being, is not yet generating incremental profit. So it's a long-term commitment. We have reported those in the nonrecurring costs for a while. Now they are in EBITDA reported. So the EBITDA reported has a charge of EUR 4 million to EUR 5 million of costs that we are incurring that we need in order for us to develop the U.S. business, right? So that's one point. Now when the U.S. business picks up, which is probably around 2028, that will be offset -- this cost will be fully offset by the profit we generate with the U.S. business, right? And so that will tend to already improve the profitability by 1.5 percentage points because today, out of EUR 30 million worth of EBITDA reported, you lose 1.5% because you have a charge for an investment basically that we are making on the U.S. business. The second aspect is we, in the course of the next 5 years, will change the mix of the business because although Space will continue to grow, Defense will grow faster. And Defense for us has a higher average margin than Space. And that is due to the fact that our confidence in the delivery of the product is way higher when we deliver motors such as for Defense than when we deliver the entire launcher because we have so many external suppliers. So the change in the mix of the business as we go towards 2030, so to speak, you have seen that Defense used to be 3% of the business, it's 20% today. Maybe by the end of the decade, it will be 40%. So the change in the mix of the business will help improve probably 1 to 2 percentage points in the margin. And the rest is what Alessandro was saying before, we will also add maybe another 1.5 percentage points that we can improve due to operating leverage because overall, the business will be larger, okay? Then relative to nonrecurring costs, I hope at some point, we will stop having nonrecurring costs, and we'll go back to normal where if you remember, maybe in 2018, 2019, we had very small nonrecurring costs and this led to a much better margin. So overall, I think we have several ways to improve the margin in the next few years. Already from last year to this year, we improved the margin, the EBITDA margin like-for-like, let's say. We will improve by 0.7, 0.8 from 2024 to 2025, and we shall continue to do that even more rapidly in the years to come.

Yes, definitely the medium term, the CapEx will be lower than the increase in production. So we will have a better result in operating leverage and economies of scales. And the CapEx that we are now incurring and also a significant portion is devoted to improvement projects, artificial intelligence to better increase the efficiency of in-production processes. So these 2 factors should help EBITDA reporting margin in the medium term.

Okay. And if I may on this point, for the CapEx for 2025, maybe you can give us guidance?

Hopefully, it will be less, less than we have incurred in 2024, net. Also on this, there is the unfriendly fact that we have this IFRS 16 that it's making things difficult to understand because IFRS 16 must be a cash out, but shows us CapEx. But the target for '25 is to slightly increase the overall CapEx expense and to decrease it even further in '26, '27, '28. Because as Alessandro was saying, we will have completed certain major investments such as the introduction of a completely new digital infrastructure to support engineering operations and therefore, which we have started a number of years ago, and this forms the basis to be able to use artificial intelligence to improve operations. This has been a long effort. In the course of '26, I hope it will be over. And therefore, we should not see much of our CapEx on that front. So we expect between now and 2028, the CapEx to go down.

[Operator Instructions] Gentlemen, there are no more questions registered at this time -- excuse me, there is a follow-up question from Martino de Ambroggi of Equita.

Yes. On the last point for CapEx declining going ahead, this is true also including the CapEx to double the capacity, as you mentioned, for the propulsion systems?

So if we get into a different scenario that we have not yet planned for, we will see and revisit what we need to do with CapEx. So far, CapEx would be easy. Now if we get -- so if we get into a different scenario where we have new opportunities that completely change our expectations for volumes, also the revenues will change, also the margins will change. So we will have to modify also our plan. To be honest with you, I don't know.

But if nothing changes with respect to our plan, the CapEx will be changed. Should we have something disruptive, we will incur the CapEx. But on the other way, under in the other case, we will reduce as Giulio said before.

Okay, clear. And answering to one of the previous questions, you mentioned that maybe I understood, I don't know if it's correct or not, production for U.S. will start in 2028. Am I wrong?

Probably yes. So we need at least 3, 4 years to build the plan, okay, at the minimum. And more will be needed to fully qualify new production lines and so on. And I think this is understandable. So we have started the design. We have conducted accurate search for the right location in the U.S. to make this happen for the possibility to also find capable people to work for us. And therefore, I expect that the first full year of production may even be 2029, considering that we will take 3 years to build the plant and the first full year of production may as well be 2029.

So the sales for propulsion system could be triple digit in '25, I suppose. But looking at the growth in volumes and the growth in sales is a nice price/mix effect because if I just divide the sales by the number of missile or propulsion systems...

Sorry, Martino. We cannot hear you well because there is another voice in the background.

Yes. Unfortunately, I'll try to repeat. If I look at sales for propulsion in '25, I have an estimate around EUR 100 million. And looking back to the past couple of years, there is also a quite nice effect in terms of mix or price because the average value for propulsion systems seems to be much higher. So could you just elaborate? Is it just a matter of mix or there is a nice effect in price?

Look, fixed propulsion revenues reached EUR 70 million in 2024. In the next few years, this number will grow for sure. And when you compare that to the overall revenues, they will represent a much larger proportion of overall revenues. Now no other revenue within our business mix has nearly the same Avio content, okay, which means that in what we do for defense motors, we are automatically generating more margin, not because of anything, but the fact that we have more work content, okay? So when we reach something like 30% Defense, 70% Space, for sure, we should have a higher average margin, okay? Of course, as soon as we have 40% Defense, it would be even better. And as Alessandro said at some point, also the overall volume of activity of the whole company will be larger, and we will better distribute our fixed costs in general.

Gentlemen, there are no more questions registered at this time. I'll turn the call back to you.

Thank you, everyone, for your attention. We remain at your disposal for any further questions offline.

Bye-bye.

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