Avio S.p.A. ($AVIO)

Good evening. This is the Chorus Call conference operator. Welcome, and thank you for joining the Avio Full Year 2025 Results Presentation. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Nevio Quattrin, Head of Investor Relations. Please go ahead, sir.

Good afternoon, everyone, and welcome to 2025 results conference call of Avio. I'm here with Mr. Giulio Ranzo, CEO of Avio; and Mr. Roberto Carassai, Chief Financial Officer of the company. In a moment, we will go through the presentation we just released on our website. And at the end, as usual, we will welcome your questions. Thank you for your attention, and I hand the conversation over to Giulio.

Thank you, Nevio. Good afternoon, and thank you for joining the fiscal year 2025 results. In the interest of time, I would go to the agenda. So we will go quickly over the highlights, and then we'll have some overview of the financial results with our CFO and then go back to the -- to describe the outlook for 2026. So 2025 was a very important year for the company. We recorded the highest economic and financial performance ever. I remind everyone that we had recently upgraded our guidance for backlog and revenues. We have exceeded EUR 2 billion worth of backlog, never happened in the company, and also revenues over EUR 540 million, never happened before. And net income, EBITDA, net income above guidance and EBITDA well within the guidance on the upper part. So I would say, overall, an extremely positive 2025. On the operational front, the activity -- the flight activity of Vega was very successful. We completed our last flight in December for Vega C. And with that, we achieved 4 missions within 12 months, which was a target we had for ourselves, and we're very glad we reached that. We also demonstrated acceleration on the Ariane 6 program, which for us is extremely important, as you know, as we deliver many motors to them and growing. And the success of '25 was quite relevant also more recently with the introduction of Ariane 6.4, the 4-booster version, which is even more relevant for us in terms of the delivery of the motors. And that paved the way for further growth in 2026, in particular, for the launches for Amazon Leo that is currently underway. Towards the end of the year, as you know, we also achieved a good result of the European Space Agency Ministerial Council with over EUR 600 million worth of subscriptions for contracts to be awarded to Avio that will unfold in the course of 2026 and partly 2027, meaning that they will materialize in form of net order backlog within this time frame. Most importantly, in 2025, we achieved over EUR 250 million worth of order intake in the defense propulsion. So we had anticipated and we were expecting growth in the defense business. I think this big accumulation of backlog was a testimony of the right strategy being pursued over the course of 2025. Now the defense propulsion backlog stands at over EUR 600 million. It's never been that high, represents almost 1/3 of our backlog, has never represented 1/3 of our backlog. So a very relevant testimony to the transformation of the company. As you also know, we achieved a successful capital increase towards the end of the year for EUR 400 million, which is extremely important. If you think about it now, we are in a completely new scenario in 2026 with an active massive conflict in Iran with equity markets that are extremely volatile. I'm quite frankly, very glad we achieved this process before the end of the year. And now we have cash in hand ready to be invested in our projects, which seem to be at the very core of where demand is going to be in the future. Now we also, of course, prepared a dividend proposal for the shareholder meeting of 2026 in line with our payout. I think there's been quite a lot of shareholder return on the stock. Nonetheless, we proposed the shareholder meeting to also vote for a dividend in line with our traditional payout ratio. Now one important goal, we will come back to that on the guidance of 2026. As we had anticipated in our long-term plan, we do see continued growth in 2026. But I have to anticipate to you that there may be potential upside with respect to that. Now the question is we are in the middle of an active, massive unprecedented conflict in Iran with a huge consumption of missiles and everywhere in Europe and in the U.S., there is a concrete expectation for far more demand than we had anticipated, probably 2x or 3x more. Yes, this conflict only started 12 days ago. So we need to wait for the dust to settle before we can correctly plan for the future and guide you through, if possible, updated targets. So far, we have projected a guidance that we feel comfortable with, also remind that converting ideas and expectations and forecast into firm order backlog on the contract is something that takes time. But everywhere we go in our business, we see far more demand than we had anticipated, this we wanted to report to you. Now as soon as we will have more concrete information is needed, we will come back to you and update if needed, any information on the future. So on the following page, reviewing a little bit the numbers in detail, we put here a summary of what we did in 2023, '24 and '25. Why did we do that? Because it's important how fast the backlog grew over the last 3 years quite consistently from EUR 1.3 billion to almost EUR 2.2 billion. This represents an annual compound annual growth rate of 26%, which, as you can see, is consistent across the backlog, the revenues, the EBITDA and so on. Now why is that relevant in my mind? Because the backlog demonstrates that the commercial capability we have in the markets we address is actually effective. So we are getting orders as we expect. Converting that into revenues is a completely different story. It tells you that we are capable of converting our commercial capabilities into our industries and turning that into deliveries, maybe not yet in profits, but definitely in deliveries. Now when it comes to profit, you see that also the profit has been growing at a 25% compound annual growth rate. Now starting from 2026, we will report the split between the EBITDA we generate, so to speak, in Europe and the costs that we have incurred in the U.S. for the setup of the U.S. operations. Why that? Because as we reported to you in our plan, we have a growing EBITDA in Europe. We have a growing set of costs in the U.S. before we are fully functional with our new plant. The result of these two things in our plan would likely be a flattish EBITDA over the next 2 to 3 years. But we have a growing EBITDA in Europe and a set of costs in the U.S. and no revenues for the moment, right? Things may change in the future and for the better, but that's pretty much what we have had so far. Let me also highlight to you that the numbers in terms of backlog and revenues were far more than the guidance we had given to you back then in March last year, which we had upgraded early in January this year. So we went far beyond that expectation. Last and not least, also the net income surprised positively a little bit above what we had put in guidance. We put the guidance between EUR 7 million and EUR 10 million. We are at EUR 11.6 million, not a huge value, still a healthy situation. Another last important point is on the NFP. So the cash position stands right now at EUR 592 million. We will see that with Roberto later, A good chunk of that, of course, comes from the capital increase. But as you may appreciate, there is more than EUR 200 million worth of cash coming from the business, which is a huge amount of money, okay? And once again, that is a testimony of how well we can do commercially by drawing advances on the new contracts, okay, which is important and it's a terribly important situation to plan for the business for the future, make sure that we flow down our activities to suppliers and that we execute. Otherwise, converting those orders into future revenues becomes impossible. If you do have the cash, you have many more levers to play for revenue conversion. Next, let's review a little bit what happened in the course of the last few months. As we said, a very successful flight on Vega C mission VV28 with the Korean satellite. I think that this Korean customer is a very important success. It's an export customer. We had the pleasure to win and make happy. We launched a very heavy relevant satellite for earth observation of the Korean Peninsula. We will do more this year, we'll launch a second Korean satellite. And as you know, we've been successful again in the Far East with Taiwan sending another launch. So that's consolidated a little bit our ability not only to deliver in Europe, but also in the export markets. On Ariane, I said it before, I am very proud of how Ariane Group ramped up on IM-6. They did a very good job at ramping up Ariane 6.2 with certain missions for Copernicus and for Galileo. But more recently, also for Amazon Leo with the Ariane 6.4 version. So what we have designed together with Ariane Group as a European industrial set up to deliver two complementary load services between Ariane 6 and Vega C is now shaping up, and you can see that almost at full stream. Not yet, but almost at full steam. You see how rapidly we are upgrading our load frequencies. More contracts for the future achieved just in the last few weeks. A very important one towards the end of the year, the new contract signed with Ariane to deliver boosters for the next so many launches, probably 100 boosters or so. So a very massive contract. It's important you appreciate that these type of deliveries for Ariane Group for IM-6, we get in batches, right? So you get an order every now and so often that lasts 2 to 3 years, then you get another 1 and so on. So we're not going to get, unfortunately, an order for 200 million every year, but this covers pretty much the next 3 years, and we're very proud of it. Probably, it would be less than 3 years because they are likely to consume boosters far more rapidly than we had anticipated. As I said before, I was very happy also with the new launches sold for Vega C. Very happy to have signed with Airbus for Pleiades Neo, next version. We had launched Pleiades Neo before. Now we have Pleiades Neo Next. For us, Airbus is a very relevant customer. I would say, also for their commercial applications, not only for institutional projects. So we are very, very happy to have this customer and very happy to have recently signed a new contract. One other important aspect many of you had asked, we are working effectively to increase the launch rate at the launch site. But to do that, we need more infrastructure. So at some point during this year, we were transferred the so-called integration facility for the launcher, the so-called BIL. It's a building that was formerly used for IM-5, where we will be able to integrate the Vega rocket, while another one is being launched on the pad, which is fundamental for us to make sure we can reach a stable flight cadence of 6 per year without any issues of logistics and other complexities, okay? So the building was transferred recently. We are working heavily now on repurposing this site, but this will help in the next few years to grow the cadence without doing any particular other efforts. The P160 booster for Ariane 6 and Vega C will debut very soon on Ariane 6.4, it is a larger version of P160. As you may recall, this was developed recently as a stretched version of P120. On this, we will accelerate deliveries. This year, we will manufacture as many as 22 as compared to 14, which we manufactured last year. So we are ramping up production and filling up the factories here as per the plan. So very proud about this motor, which ends up being the world's largest monolithic carbon fiber solid rocket motor. Also progress on Vega E. Complex project, as you know, to upgrade at some point Vega C with cryogenic upper stage with liquid oxygen methane. We are continuing to carry out subsystem-level testing for all of the liquid propulsion management system. We have tested a number of subsystems. You may recall in previous years, we have developed the engine itself, MR10, now we are preparing all other surrounding subsystems to make sure that at some point, we will be able to field the upgraded Vega C to Vega E with a cryogenic upper stage. So good progress on that as well. Space Rider, another project, we often times talk about our lunch and reentry spaceship. Small spaceship that will orbit around Earth stay there for a few months and come back on ground and then potentially be reused. As you can see, we are building up effectively the first flight items together with Thales Alenia. We work on the power module and the solar panels and all of that while Thales Alenia works on the aircraft itself. We provide, in addition to that, all of the propulsion systems and the guidance and navigation system. So we are prepping for a flight sometime between '28, '29. And it's a very sophisticated product, may open up new opportunities for business that doesn't yet exist, but it's a very forefront application that we are very happy to be now at a very advanced stage of development. More innovation for the European Space Agency and the Italian Space Agency is being done with our liquid oxygen engine flight demonstrator on the left of the page. We will -- we are preparing for flight, our first flight item, which would fly sometime in 2027. We will begin testing this year on ground and then fly next year. It is a small prototype of a launcher, using liquid oxygen methane technology. Very complex projects, I have to say, but very rewarding because there's a lot of new technology on that we are finally converging towards demonstrating in flight. Then we are also preparing what we call the High Trust Engine, which is a larger -- far larger liquid oxygen methane engine that we may want to use for the future. And last and absolutely not least, we have very successfully conducted an extensive number of tests on our new so-called multipurpose green engine, which is an improved propulsion system for our Vega C upper stage that uses hydrogen peroxide, a clean propellant essentially. So a lot of new technology that, as you know, we deliver for the agencies as a customer-funded research effort. Now on the defense side, as I anticipated to you in my highlights, there is definitely a continued momentum in defense. I would call it more than a momentum. This is probably the highest surge I have ever seen in my professional lifetime. The order book already speaks for itself. We are getting more demand from MBDA for Europe. I have been reached by Italian Armed Forces, by European institutions, all asking how we can improve, increase the production rates, the deliveries and so on. We are all working collectively between prime contractors, Tier 1 suppliers, Tier 2 suppliers to see how we can grow production capacity. And so in Europe, even there is a great expectation for a completely new expectation for demand. In the U.S., I don't need to say much. We have achieved quite some results in 2025 with the new contracts for Raytheon from U.S. Army and very recently, a second contract for a second product for the U.S. Army, both for development and subsequent production. In addition to that, we have been supported in the U.S. by the state of Virginia for the setup of our production plant, which will be instrumental to serve the U.S. customers for the future. As I said before, in U.S. defense, for solid rocket motors, given what is happening even over the last few weeks, but not only over the last few weeks, the demand may be 3x more than we anticipate. But at this time, my guess is as good as anybody else's we can only count how many missiles have been launched lately. This you can do yourself, it's massive. So consumption is definitely at a peak surge. And I have to say, if we were to consider how much it would take to replenish the stock and so on, it feels like it will be very many years unless we significantly grow the annual production rate. So we are debating with the customers how to make this happen, how to deploy investment. And I think we are in the exact sweet spot of adding the cash available to invest towards this effort and to go exactly along the plan that we had projected. So -- it's on one side, very sad. On the other side is a business opportunity, we are here to serve. And I think this is a great, great potential. I would leave it now to Roberto to go a little bit deeper, although rapidly, across the financials, and then we'll come back to some considerations on the outlook.

Thank you, Giulio. Good afternoon, everybody. Okay, going through the slide on the backlog, we have already commented that we have achieved our record backlog of EUR 2.2 billion. Let's analyze a bit the composition of this backlog. The defense side has reached 28% of the backlog for a total amount of EUR 600 million order we have enhanced. During the 2025, we have booked order for almost EUR 1 billion and out of which the launch system business contributed for more than EUR 400 million. And this is related also to the fact that Avio has become the launch service provider. But the space propulsion as well contributed for more than EUR 300 million. We have already commented the big order we received from Ariane 6 for the boosters for the years to come. And the defense side contributed for almost EUR 300 million, receiving order from both European customers and U.S.A. customers. In terms of the split, our backlog still is made by 70% of production orders and 30% by development orders. If we move to the next slide, we comment a bit on the revenue performance. I think you can appreciate the good result we achieved, EUR 542 million of revenues with an increase of 23% compared to last year. This revenue growth was mainly driven by the space launch, but also the space propulsion contributed quite significantly and also the defense segment increased and contributed to this outstanding result. In terms of breakdown by activity, you can see that in 2025, the production activity has achieved 58% of the total revenue with 42% coming from the technical development projects. If we move to the next slide and we comment the profit and loss. First of all, the initial comment is that along the various lines, we have recorded double-digit growth compared to 2024. We have already commented the net revenues. We have achieved an EBITDA reported of EUR 32 million with a percentage margin of 6%, growing from the 5.8% for last year. And this EBITDA result has been possible -- has mostly been driven by the growth on the revenue side. We have also achieved a good EBIT reported amounting at EUR 12 million, increasing by 43% compared to last year, despite the higher depreciation costs related to the increased flight cadence for Vega C and the IT improvement projects. It is worth highlighting the good result on the net income. We achieved EUR 11.6 million with a huge growth compared with last year. And this is the result of the good operating performance, but also by some financial income that we generated from the average cash on hands. Speaking about cash, we move to the next slide, and we comment a bit on the net financial position performance. As anticipated, we achieved this record positive net financial position of almost EUR 600 million. If we take away for a while the contribution coming from the net proceeds from the share capital increase, it is worth highlighting that what we call the initial net financial position, the net financial position generated by the business has improved quite significantly from the EUR 90 million of last year to almost EUR 120 million this year. And this also has been possible because we have collected a significant amount of advanced payment related to the orders booked particularly in the fourth quarter of last year. Moving to the next slide. Here, we can comment a bit the balance sheet. And I think it's worth highlighting that our working capital that, as you know very well, is structurally negative has increased along this line by further EUR 142 million. In terms of net fixed asset, we have increased, as a result of the CapEx we are keeping -- investing to support our business, to support the growth of our business. And it's worth mentioning also an initial spending in the Avio USA related to the Avio USA project that we have presented to you on other occasions. And at the end, it's worth mentioning that the equity of the company as a result mostly of the net -- the share capital increase has achieved more than EUR 700 million. Moving to the next slide, you can appreciate the quarterly performance of the company. The EBITDA has consistently grown across -- throughout the year, achieving this EUR 42 million at the year-end with the typical -- the usual seasonality of our company, of our business in the fourth quarter. The net financial position has been consistently positive and much higher compared to last year until the fourth quarter for the reason that I explained above, we jumped at EUR 600 million almost of net financial position. Now I leave the floor again to Giulio to conclude the presentation.

So in terms of the outlook, let's have a look at what we plan on doing in 2026, in particular, on our U.S. projects. You may recall, we have identified the site we're to erect our new plant to work on our main customers. Now I think we have -- seems pretty well what we need to do, in particular, with the U.S. Army, which we will start doing in Italy and subsequently move to the U.S. as well. With Raytheon and Lockheed, with Raytheon, we have started on the Mk 104 project. Let me highlight to you, by the way, that Mk 104 is the motor that powers all the standard missiles, which are on board U.S. Navy ships. You have as many as 9 or 10 destroyers in the gulf presently, each of which has almost 100 missiles on board, and you can see them flying almost every day. So there is where it is most of the missile consumption over these very hours right now. Additionally, we had signed, as you recall, an non-binding term sheet with Lockheed Martin, which serves mostly ground-based systems largely for the Army. So we will work on these customers and on the erection of the plant. So let's see in more detail what we will do in '26. So starting from what we have already signed with Raytheon and Lockheed Martin, we will have to work to be more precise on the volume forecast. Our expectation guidance is not clearly based on the latest forecast expectation, which may exceed what we see by a factor of 2 or 3, as I told. Yes, we need to be careful on setting the expectation on the number, especially when we talk about firm order backlog. Anyways, we need to move from these non-binding agreements to binding contracts as quickly as we can, as much as we have done with the U.S. Army and leverage the incentive package we have in Virginia to get going with our investment alongside the proceeds from our capital raise. In addition to that, we will see whether there is any more financing opportunity, attractive financing opportunity to close the loop on what we need to expense. As we progress in the plant design, we have lots of expenses for the engineering effort around the finishing of the design of the plant. We are about to place the long lead-term orders on the machinery for the equipment to be installed in the plant and at some point, we will kick off work with the general contractor by breaking ground and moving along with the construction of the factory itself. The size of this plant, we have designed from the beginning to be scalable because we had anticipated that it may be a certain size or even twice such size. I'm afraid we will have to think about making a larger one than we had expected. But this year, we will also work a lot on staffing Avio USA with people that we need to train in time for them to be ready as soon as these programs actually hit the road. Launches in 2026, we will have many more launches of IM-6, probably as many as 8. We will see more or less a very rapid ramp-up, lots of activities across mega constellations, Amazon Leo, Galileo and other military satellites. In Vega C, we will have probably 3 launches, problem is with the scheduling of the launches, some satellites were late. So we are likely to have something like 5 flights in 2027 and 3 this year or something like that. I think it will be anyway a busy, interesting year with a new Korean satellite with another launch for the European Space Agency. So a lot of interesting activity. Now coming to the dividend. As I said before, this is a little bit a history of what we distributed as dividend, maybe not the most important of your worries at the moment. Nonetheless, as the Board of Directors, we have proposed to the shareholder, during shareholder meeting, a distribution of EUR 6.8 million, which represents a payout ratio of 58.6%, which is definitely in the upper part of our dividend policy, which is between 30% and 60% payout. Now guidance. So let's be careful on this one. Backlog, backlog for the time being based on the estimates we have for firm contracts to be signed within the year, we see the backlog being in the range between EUR 2 billion and EUR 2.1 billion. This does not incorporate the potential upside we are actually seeing in these very weeks, okay? So this number may be higher. What we don't know yet, we will probably consolidate over the next few weeks is how quickly the customers can convert demand growth expectation into firm orders. I remind everyone that what we put in backlog is firm orders for signed contracts, not soft agreements and shake hands. And that's the reason why we've been cautious on forecasting the backlog. Keep also in mind that in the meantime, we are growing the revenues. So what draws down from the backlog is increased revenues. On the revenues, I think, we feel comfortable that we will likely be in the upper part of the range we have outlined here. We have explained in our plan that we would expect to grow sort of 10% annually across the decade. I think we will target to do the same. So we will likely be in the upper part of this revenue range. You have seen that also this year we beat our own expectation on revenue growth. So we are quite confident on that. Relative to the profit, here you see quite an ample range. First of all, in the plan, we said the EBITDA over the next 3 years will be flat because it will be the result of a growing European EBITDA and a growing cost on the U.S. side, meaning a negative EBITDA. The consolidation of which leads pretty much to a flat scenario in the short term before the U.S. operations are at full fruition. So we will stay within such plan. The costs of running Avio USA in 2026 will be higher than in 2025. We had about EUR 4 million, EUR 4.5 million in 2025. We will have between EUR 7 million and EUR 9 million in 2026 as we grow the team, train the team and so on, build the factory and whatever. Moreover, one warning for the time being is on the risk for potentially high energy costs. Again, we cannot speculate on that. The price of gas has more than doubled over the last 2 weeks. This may stay or may go away. We don't know. But we got to be careful with that, and that is the reason why we have left a bit of an ample range on EBITDA reported. Of course, we will do the best we can to be in the upper part of this range, as one may expect. So the net income will largely be driven by both operating performance and financial performance on whatever cash will remain available. The proceeds of the capital increase will be used to start investing in the U.S. factory. The remaining part will be leveraged for financial income. We will see what type of financial income we can generate. We've been successful so far if the interest rates stay the same, that will also contribute to net income. So this guidance is good as long as we can potentially update it, if we have more accurate information. But we expect to see continued growth in the course of 2026 and of course, the years come. So I'll give it back to Nevio to conclude.

Thank you, Giulio. Thank you, Roberto, for such complete explanation, and we can open now the Q&A session.

[Operator Instructions]. The first question is from Chloe Lemarie of Jefferies.

Okay. Perfect. I have three, if I may. So the first one would be just on the older backlog guidance. So at the low end, it would imply EUR 500 million roughly of order intake in 2026 when obviously, you mentioned the ESA order potential over '26 and '27 should already be around EUR 600 million. So could you maybe talk to what led you to settle on this guide? How we should think about the order phasing prior to, obviously, the big increase in demand from defense? The second question is on your comment on missile demand in the U.S., increasing by a factor of 2 to 3 compared to your prior view. Can you maybe talk about the time frame before that incremental demand could materialize and how it affects your footprint planning in the U.S. And last one, on the energy cost, could you maybe share the sensitivity of your cost base to energy prices, please?

So thank you very much, Chloe. First and foremost, what I call backlog rollout, okay? Now we have to keep in mind that our backlog contains a couple of things, backlog from space and backlog from defense. Let's talk about that from space first and then defense. The backlog from the space is composed of things that roll out pretty much linearly as a function of time, okay? So, we have backlog from launches for Vega. We have backlog for research activities that will come as a result of the European Space Agency Ministerial Conference and such. This will roll out in the course of 2026 and it's somewhat predictable, allow me to say. So we may be off by 1 month, 2 months, it's predictable, okay? The number is well known and so on. If we rush to sign the contract. We can be a little bit faster, but we know what is the total amount, right? So for example, for the development activities is EUR 600 million, this EUR 600 million need to come. So if we can force everything to happen, to sign the contract in '26, we will get EUR 600 million worth of contracts, which is far more than you see now in our expectation for backlog. Typically, what we see is that it takes us a little bit more than a year to convert European Space Agency Ministerial Conference subscription into contracts. That's why we've been a little bit cautious on that. On the defense side. On the defense side, for us, it's far less predictable how fast we can convert demand into firm orders. Why that? First of all, in defense, as you know, we are a supplier. We are not a prime contractor. So we do not have a dialogue most times with end users, right, except for our relationship with the U.S. Army. As you have seen, the U.S. Army, which is an end user, went very rapidly from idea to firm contracts. For the rest of the work we do with prime contractors, Lockheed Martin and Raytheon, the conversion from watching the TV news, seeing the missiles fly and getting an order, the road map is a little bit longer because they need to get money from their end customers. Their end customers, by the way, need to get money from U.S. Congress. Then they need to get an order from the government, then they flow it down to us. And that's why this is being longer, okay? There is no doubt whatsoever that the demand is more than what we put in our backlog guidance. There's no doubt on that. But my visibility of that becoming a firm net order backlog within the year is fairly minimal at the moment. So that's the reason. So I have no worries whatsoever on the fact that the backlog will ultimately grow. But on the timing of that, the situation may be that we are at EUR 2 billion this year and a EUR 3.5 billion next year, something like that, okay? I would love it to be linear, but actually it's not, okay? And it's difficult to predict. The third point, the story of the energy costs. So we have seen this surge in prices before when the war in Ukraine started a few years ago. This is another peak, unprecedented peak, okay? So until a few weeks ago, we were thinking about a price for gas, which was EUR 36 per megawatt hour. Now we may be somewhere between EUR 50 and EUR 60 or even EUR 70. It may be a spike and then we go down. Quite frankly, I wouldn't do planning in the very middle of what is happening right now. We need to, as I said before, wait until the dust settles and watch what is happening. What is the maximum impact of this may be? It's relatively modest. It's between maybe EUR 2 million, EUR 2.5 million, something like that, something that we can probably offset with some other opportunities to have more profit than anticipated. So we are not too worried about it. It's important that we flag it as one of the key issues, and that's pretty much all I can say at the moment.

Very good. Can I just ask maybe on the footprint planning in the U.S., would you have to expand further on what you're already planning to meet that higher demand? Or can your facility essentially extend quite significantly?

So the plant is designed to start from a capacity of 700 tons of propellant per year. Now it can be upgraded to twice this capacity or even 3x with a relatively low investment compared to the initial one. Because, of course, most of the initial investment is for the infrastructure, the land and most of the civil works and so on. Putting more equipment at work will not be as expensive. In the meantime, as you have seen, we are also collecting attractive financial incentive packages to support further growth in the plant size. In fact, the package that we have been awarded, for example, from Virginia already is stretched towards the possibility of reaching an even larger plant than we had anticipated. So we're not very worried on the possibility that this plant may be larger because should this be the case, then there will be more funding -- more cheap funding available to support it, okay? And alongside the proceeds that we already have from the capital increase, I think we're pretty well covered.

The next question is from Martino De Ambroggi of Equita.

Yes. Thank you. Good evening, everybody, and sorry if I repeat some questions because the connection is very bad for me, sorry. So on this order intake, again, could you split in your full year guidance, what is the split between R&D and military business? And specifically, how much of the EUR 600 million presumably is more reasonable to be included in '26 rather than the -- in '27 regarding the European Space Agency orders. And on the energy costs, if I remember correctly, during the previous crisis, you hadn't any automatic adjustment in the new contracts or this has to be managed in a different way?

I didn't quite get the last question. Sorry, can you repeat it?

Yes. For the energy costs, if I remember correctly, in the previous Ukraine crisis, you were not able to automatically adjust the price for your customers for the higher cost of the energy. Has it changed the situation now? Or you are still working on...

Okay. So let me start answering from the first question. A couple of important points on the order backlog. So in 2026, the mix between the expected intake between space and defense, we continue, in my opinion, if nothing changes, to be between 65% space and 35% defense, okay? This may be slightly different if the accelerated programs that they have in the U.S. will actually lead to signing first contracts very quickly, which, as I said, it's a question mark because so far, the process has been lengthy, okay, reliable, but lengthy. On the space side, you have to take into account that last year, we just signed in December the Ariane 6 P120 contract and that we can't sign every year. We sign every 2 to 3 years, more or less. It's a batch, right? So that one, we will, for sure, not have another order to top that up. But again, as I said before, the intake for '26 may be significantly more than we expected if the event side accelerates turning into firm orders. Now keep also in mind on the net order backlog side, in the meantime, the revenues will go towards EUR 600 million. So you subtract from EUR 2.2 billion, EUR 600 million, then you need to add another EUR 500 million, EUR 600 million, hopefully EUR 700 million or EUR 800 million. And that's where you get with the order backlog at the end of 2026. Now regarding the energy costs, we don't have a formula that can anyway adapt to such unprecedented changes in the price of energy. No one price adjustment formula would account for a doubling in the cost of gas. There's no way. Typically contracts say that beyond a certain point, you can sit down and renegotiate if you want. But it's unlikely that you can automatically adapt to twice the cost. However, with respect to what we had 4 years ago, you may recall we had a different energy generation infrastructure here in Colleferro, since then, we have significantly changed our energy production assets in partnership with Enel X. And now we have far more efficient steam generation capacity than we used to have, which is what burns most of our gas. And therefore, that's why we expect that even if we have to have something like a doubling in the gas cost, we will not suffer all that much because we have a far more efficient energy generation capability today than we had 4 years ago.

The next question is from Andrea Bonfa of Banca Akros.

I have the following question. First of all, is that in the light of the sense of urgency coming from the exhaustion of the stockpiles in defense, you can accelerate your, let's say, the time frame of the U.S. factory in terms of construction activities and, let's say, initial operating phase. And the second one if, again, in the light of the urgency of production requirements, some of your U.S. clients can decide to produce locally, i.e. in Italy, the second one. And the third one is a detail, but in the fourth quarter of this year '25, your defense sales were flattish, slightly negative. How can we project defense sales to grow this year? Just to have an idea. Okay, then I will come back for other questions.

So I will start with the second question. Defense sales are set to grow the most in 2026. So what we expect to see out of our growth between 2025 and 2026 will largely be growth in defense deliveries, okay? So I think that will be driven largely by the volumes of ASTER-30, CAMM-ER and now also with the U.S. Army programs that will start to ramp up this year in production already, okay? Now in fact, U.S. Army has used with us an approach that the other customers have not. They very much, like you said, they realized that the matter was urgent, they didn't even bother to wait for the U.S. factory to be ready. They said, okay, you manufacture that in Italy. Now interestingly enough, in these last few days, I'm getting pretty much the same message also from the other U.S. customers who are saying, okay, it's good that you do the factory in the U.S. But in the meantime, if you can, and even for the future, we would like to keep some of the production in Italy as well. So I think the opportunity is larger than before because I don't think they find many other providers who can have a new factory in the U.S. plus an existing factory here. And here, we have the capability of upgrading our capacity much faster than anywhere else because, of course, the plant is already up and running. And as you have seen, we have been growing defense deliveries quite consistently over the last few years, we can continue to do that. So I think what we will see in the future, what I hope we will see is that also other customers will start leveraging our Italian capabilities more quickly and then later, we will transfer in the U.S. That's what leads me to your first question. We will try to accelerate the U.S. factory construction as much as we can, but there are no factories that can be erected overnight. And therefore, it will take time to finish up with the plant. But that will not undermine our ability to deliver to customers for what I just said.

The next question is from Gabriele Gambarova of Intesa Sanpaolo.

The first question regards the sales guidance because on average, you are, I'd say, forecasting a 6% of when you are telling us that the ramp-up in tactical propulsion is ongoing. So I guess that growth will be pretty sizable. And then you have let's say, the doubling in the number of Ariane missiles for space, while Vega is expected to remain almost flat. So it seems to be that this revenue guidance is very, very cautious. I don't know if you can comment on this. And regarding margins on EBITDA specifically, if you have a bigger component of Ariane, in theory, the mix should improve. So margins in theory should improve. Even on this, any comments would be appreciated. And lastly, if you could quantify the impact of the U.S. plant costs in your -- embedded in your 2026 EBITDA guidance.

Let's start from the first point. I agree with you, Gabriele. The revenue guidance is cautious, okay? And I think -- and as I said before, when I illustrated the guidance, we will be in the upper part of the guidance range, possibly exceeding that as we typically do, right? So sometimes that surprises me, too, that we exceed the revenue guidance. This year, we overachieved guidance by a lot. I think our upper range was EUR 480 million back in March last year. We ended up at EUR 540 million. So there is a possibility, quite frankly, that we go beyond EUR 600 million of revenues. I do not deny that. It's a possibility. We're being cautious because the rate of increase in each of this product is very high. So we want to be diligent and deliver good quality products to our customers. So we got to be careful that we maintain the same level of quality while growing the volume so fast, okay? That's very important. I prefer to go one step at a time, be safe on what we do, and that's the reason why we projected a cautious guidance. But I agree with you, it is cautious. On the EBITDA, yes, indeed, the EBITDA is improving because if you look at the midpoint of the EBITDA guidance and you add up to that, something like EUR 8 million worth of costs from the U.S., okay, you would end up with an EBITDA 2026 from Europe, which is nearly EUR 43 million, which is significantly higher than what we have today. So if I were to project just the growth of the European size of the EBITDA, it would be a 20% EBITDA growth, okay? But at the same time, we are investing in the U.S. and not everything we do in the U.S., we can capitalize, such as the cost of people. That's why the cost of people in the U.S. for me in 2025 will be [ 8 ] in 2026. So that's it. And what we said from the beginning when we presented our plan, is that we will finance part of the start-up of the U.S. activity through the growth of the European EBITDA, okay? So that's pretty much what we do.

Okay. If I can follow-up on pricing in space. Do you see any pickup...

Sorry, we could not hear you.

Gabriele, the line dropped.

The next question is from Alex Ciarnelli of S. Muoio & Co.

Most of my questions actually have been asked and answered. I just -- I think you touched upon them already, but I'll just ask again. [ $600 million ] of cash, and I think you have [ $100 million ] from possible incentives. I think you were talking about there would be possible additional needs depending how fast you're going to scale up the infrastructure. Can you comment on that? Do you really need something more at this time? Or you think that you are set for the cash you have? That will be the first one. And then again, the second one, just tying up with the other questions that were asked. Assuming that your suppliers are able to deliver what you need, would you be able with the infrastructure you have today to provide the number of rockets that the demand is there? That's it.

Okay. So first of all, in terms of cash. Keep in mind that we have EUR 600 million of cash total, EUR 200 million which are working capital, give or take, maybe it will be EUR 150 million will be working capital, which means that this money, we need to transfer to the suppliers as quickly as we can. So we will consume that cash by just putting that back into the suppliers and allowing them to do what they need to do for us to be able to accrue revenues. The way we accrue revenues is by moving money to the suppliers, letting them invoice to us, let us invoice to customers and that's the way we generate revenues, right? So what we have in terms of cash for the investment is sufficient for what we have to do today. If we need more cash, we will source more cash. I'm not worried about that, as I said before. And by the way, we will not need that tomorrow morning, right? So it's not an urgent need at all, okay? That said, we will look for as many possible sources of cash that are available at a cheap rate because what we need to do for investors is to make sure we have the cheapest possible cost of capital. So we will anyway continue to look for sources of capital because if we end up in the demand scenario that I just portrayed to you, and we will have potentially to invest another EUR 200 million, then we need to make sure that this EUR 200 million comes at the cheapest possible rate. So that's why we will keep on being very careful on the possibility of cheap sources of capital. Now in terms of ability to deliver with our supply chain, that's a very good question. So far, we have been growing steadily our delivery rates both on the defense side and on the space side. On the defense side, in the past, we have done far more than what we have done today. So we are confident that we can do that. The infrastructure we have in Colleferro has not been built in a day, but in 100 years. So we have deposits and buildings and things that are available. They were used in the past. They were temporarily kept on hold over the past few years. We can quickly revamp a lot of them and dedicate them to production if we need. Just to give you a measure, here in Colleferro, we have as many as 300 operating buildings. But we have more buildings maybe another 100 buildings available that are not operational anymore, but that we can quite quickly revamp for our purposes with relatively modest capital expenditure. So again, you pointed out as one important element, which is are the other suppliers, are our suppliers ready to deliver? And that's a very good question. You may recall that when we raised the capital, we said to ourselves, okay, the largest part of this money will be used for the plant in the U.S., true. But a portion of that, we said we may want to invest in vertical integration with our suppliers. So we may want to do a few selected investments in the supply chain to make sure that we secure the sources of supply we really need, okay? We don't need to do big investments in M&A or anything like that. But we need to make sure that we do a few selected investments to make sure we round off our ability not to be under the limit of one point of supply that falls below the expected ability to supply.

The next question is from Tulu Yunus of Lord, Abbett.

We cannot hear you.

[Operator Instructions]. The next question is from Carlo Maritano of Intermonte.

I just have three questions. The first one is related to investments. So could you give us an indication of the level of investment planned for 2026? And in particular, should we expect to be mainly related to the new U.S. facility or rather to unlocking additional production capacity in Italy? The second one is related to the incentives from Virginia. So could you clarify the form they will take? For example, they will be tax credit, direct grants or a combination of both. And the final question is on -- regarding the potential federal incentives, what kind of time line should we expect. So in previous calls, you've seen that the process might take longer due to the changes in the counterparts you were interfacing with? Are these things moving any faster now?

Okay. Okay, Carlos, let me start from the -- so first question is on the CapEx. And the second one is on the incentives for Virginia. Let me start from the incentives for Virginia. So the incentives for Virginia is a very articulated package, which comprises tax cuts, comprises some tax cuts on different things on the purchase of equipment on the income tax on many other dimensions. Then there are some funds available for the training of the personnel, which is extremely important, in my view, because it's what we drive our ability to actually find people because they will be incentivized to be completely skilled to do this job and so on. Then a small portion of the Virginia investment will also be grants, okay, trade grants. Now regarding federal funds, the situation is more TBD because the policy for federal grants has largely changed in the course of 2025 since the new administration came. We are discussing with the federal government the potential support. They have very, very cheap sources of financing available, okay? We will see how big a facility we can get, and how quickly, we can get one. Again, I think, there will be money there for this purpose. I know for a fact that there is more money available than projects to use all of this money. So we need to be consistent in pursuing this funding. And I think this will add to our -- to the rate of return of our investment. Now the size of what we can source. I'm not worried right now because, as I said before, we are not in urgent need of cash. We just raised equity and so on. The reason why we are continuing to pursue these sources is that we want to stack capital in a way that the overall cost will be competitive relative to our cost of capital, right? So rather than rushing to get cash, we are rushing to get the right cost of capital. Then I would leave it to Roberto to answer to you on the CapEx for '26.

Yes. The range of magnitude of the CapEx we are planning to spend in 2026 is EUR 90 million, including something around EUR 60 million related to the U.S. plant. We need to start acquiring the land, and we need to start acquiring -- ordering some long-lead items that takes a while to be provided. And then the rest, the complement to that is the usual capital spending we are incurring in the Avio Group related to both tangible and intangible activities that the group is expected to perform.

The next question is a follow-up from Chloe Lemarie of Jefferies.

Yes. Thank you. Actually, I'm filling in for Tulu, who kindly sent me these questions. So the first one is on the order guidance in defense. Do you have anything baked in from Raytheon or Lockheed or is it strictly what you see from the U.S. Army. The second one is, could you give us an idea of how scalable the Italian factory is at this point? How is it able to potentially serve the U.S. defense demand from there?

So the order backlog currently incorporates in size, largely U.S. Army only, okay? So far...

On the guide, sorry -- on the guidance for backlog at the end of '26, I think the question was.

Well, there is definitely something from Lockheed and Raytheon, not much more from U.S. Army. Considering that in U.S. Army, we -- I mean there is a portion that we just announced, right, that you know of and we quantitatively indicated that. I don't think we will likely get other things near term from the U.S. Army. It may as well be, surprises are possible. So it incorporates largely Lockheed Martin and Raytheon, okay? Yes. So the Italian factory is scalable for the reasons we said before. We had anticipated already in previous request that today, we delivered between 200 and 300 defense motors per year. We can sort of comfortably reach 600. We are projecting already by the end of the decade to be close to 1,000. We can go beyond that. You have to keep in mind that what we process in terms of propellant every year for space it's just like one order of magnitude or 2 orders of magnitude more than what we do for defense. So scaling up capacity for defense, it's not a question of capacity to cast propellant or anything like that. It relates more to the availability of tooling specific to each and every product because while in space. We do just a few motors every year of very large size here. To get to large volumes in defense, you need to do very high volumes of very many different products from one another. So it all stays on our ability to source the proper tooling and to equip the plants with the right set of tools specific to each and every project.

[Operator Instructions]. Gentlemen, there are no more questions registered at this time. Excuse me, there's one follow-up from Martino De Ambroggi of Equita.

Just a follow-up on the last question on the output capacity in Europe. If I remember correctly, you are adding EUR 50 million -- EUR 100 million of CapEx for the European plant expansion.

Yes. Correct.

EUR 100 million, yes, with EUR 50 MILLION -- EUR 100 million translate into how much of higher production?

It depends on what we are going to do with that. As I said, the destination of these funds, we have not yet allocated million by million, And will largely depend on [indiscernible]. We also anticipated when we presented the plan [indiscernible] that a portion of this money may well be spent for vertical integration within the supply chain. So not necessarily within the Colleferro premise, but maybe in acquiring 1, 2 or 3 small -- very small suppliers to make sure that some key supplies are completely under our control in terms of ability to deliver, et cetera. Keep in mind that most of the capacity upgrade for production rates on each product is typically directly paid by the customers. So even, for example, with MBDA, the increase in capacity is part of the pricing of the contract. It's not part of our CapEx. So the CapEx we expense is a surrounding CapEx, allow me to say, that helps us with our infrastructure to make sure that we can actually deliver higher rates and/or some investment in vertical integration within our supply chain. Just to mention to you a few things. If you want to make so many motors, we have need for several metallic parts that we source from suppliers, et cetera, et cetera. Now maybe one supplier is not sufficient. You need to have 2 or 3 and so on. At some point, we will be better off acquiring a small metallic part manufacturing shop and dedicating that 100% to what we do than trying to source from 4, 5, 6 suppliers here and there, with the risk that they don't deliver. So these are -- it's not going to be a massive M&A effort, but rather something, as I said before, to make sure that our vertical integration is robust and our connection with suppliers is robust.

Gentlemen, this was the last question. So back to you for any closing remarks, if any.

Thank you. Thank you very much for your attention. So we can close the call at this time. Thank you.

Thank you also from me, and looking forward to update you in the coming weeks, I think, we will have the shareholder meeting towards the end of April, 28th of April. Following that, we will have our first Board of Directors. We are renewing the Board of Directors at the next shareholders' meeting and then beginning of May, we will look at the results of the first quarter, which, as you know, it's typically not very indicative of what is happening during the year, but that would be a good occasion maybe to review where we stand with our expectations for growth, for order backlog, et cetera.

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