Fincantieri S.p.A. (FCT) Earnings Call Transcript & Summary

Good morning. This is the Chorus Call conference operator. Welcome and thank you for joining Fincantieri First Half 2022 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Folgiero, Chief Executive Officer and Managing Director.

Good morning ladies and gentleman. It is my pleasure to get in communication after my first month, 2 months as CEO of Fincantieri. I spent 2 very exciting months meeting and interviewing the key management, meeting clients, visiting shipyards and all the relevant stakeholders of this very prominent player at global level. I would like to provide you with certain observations and early strategic priorities that I'm looking into. First of all, I would like to tell you more about the strategic review of infrastructure projects and other non-core businesses. I strongly believe that there is a big reserve of value in that Fincantieri core business. While I believe that in the infrastructure business or better the infrastructure business needs a different set of competencies and different entrepreneurial mindset and differential geographical footprint as well. So that's the first takeaway. The second takeaway has to do with the enhanced collaboration with Leonardo on defense business, and in general the level of collaboration with electronic and combat systems suppliers at the international level. In this respect, I believe that Fincantieri will have to envision a fully-fledged prime contractorship business model whereby we leverage our competencies in being a strong integrator of systems, integrate the platform, the electronics and the combat system at the same time. This business model will position very well Fincantieri in pursuing a big growth expected in the military business and defense business. As the third takeaway, also international alliances, again, in defense business will be particularly important also considering the spending model that European fans on defense are expected to be engaged. As a further point, I would like to move to the process of modernization and digitalization of shipyards operations. The leadership of Fincantieri, it's a quality premium kind of leadership as well as a very good cost performance. In order to foster this distinctiveness from time to time, we will continue to modernize and digitalize our shipyards up to excellence. Again in order to pursue distinctiveness, which is the name of the game for the way forward in the core business, we will increasingly focus on an entrepreneurial approach on green propulsion systems, i.e., LNG, methanol, ammonia, hydrogen, whatever will be the state-of-the-art, Fincantieri will be there and will be there with a strong competencies in integrating the new technology in an industrialized product ready for the use, ready for the operations in the benefit of our prominent clients all over the world. Similarly digital solutions will be once again a source of distinctiveness. So when you are design authority, when you can control from A to Z, the functionality of a very complex cruise ship, you have to be also the pioneer and the leader in digital twins, in simulators, in energy management tools, in predictive management tools. And by doing this, you can be a provider not only of CapEx expenditure, but also of operating expenditure, OpEx. And with a CapEx plus OpEx approach, you are a provider of total cost of ownership kind of leadership, which is to me a kind of competitive model when you are from Italy, when you are from Europe. Last but not least, we will pursue maximum attention to financial discipline and deleveraging because we believe that there is some important efforts in this respect. And last but not least, we will be increasingly and progressively focused on Fincantieri human capital as any organizational model. So we strongly believe that Fincantieri is a people business. The real capital, the real asset is the quality, the motivation, the sense of belonging, the entrepreneurship of our people. And so a big chunk of our strategy will be focused on how to unlock this people business intrinsic value more and more. Moving to the performance of the first semester or the first H, I would like to say that in terms of top line, we are recording positive operating performance, which at the same time is severely hit by the results of the strategic review in infrastructure, I was introducing before, a certain dynamic in the raw material prices, impacting shipbuilding projects at level of whole life costs, certain write-off on some financial assets and goodwill impairment related to the Norwegian subsidiary Vard and to a certain extent our U.S. subsidiary, Fincantieri Marine Group. Net of these one-offs, EBITDA margin would have landed over 7%. The solid top line with revenues up to 16% to EUR 3.5 billion represent a positive performance across all segments. The 88% of revenues generated from international clients and over 75% are produced locally in Italy. The bottom line is also an impact that's driven by extraordinary expenses, leading to a net loss of EUR 234 million. Let me point out that we are positively witnessing the first signs of resumption in cruise orders. And we will get back to it in a few seconds. Moving to financial and operating highlights. First of all let me say that Giuseppe will discuss the group main financial and operating performances in more detail later on. Let me point out upfront that we have decided to represent the net financial position according to ESMA guidance and figures are therefore restated accordingly. Basically we are reclassifying construction loans in the net financial position. Therefore representing the nature of shorts of working capital due to the typical payment scheme of our contracts in the cruise sector, but being a source and being a source of money coming from the banks, we decided to fine-tune the representation for the purpose of the net financial position measure. Moving to the business update. Again, I would like to touch base on the positive revamp in the cruise order. Only in July, we signed a memorandum of understanding for 2 hydrogen-powered cruise ships and the contract for an ultra-luxury cruise ship amounting to over EUR 2.5 billion. This is a testament of the revamping of the market on the one end, on the other end, also a testament of our leadership in the technology. So in the green propulsion, as I was mentioning before, and our nature of pattern of choice when you want to launch new products such as the ultra-luxury cruise, which will be very soon a reality. On Naval, on the defense sector, the U.S. Navy exercised the option to build the third Constellation class guided missile frigate for a value exceeding $0.5 billion. Again this is additional evidence of our reliability as long-term partner of the most important defense nation and system in the world, i.e., the U.S. defense system. I believe that all this will pave the way to forthcoming opportunities in our core business, namely cruise and defense business, which have a lot of growth in France in the medium and long-term. Let me get a little bit more into our effort to implement cutting-edge technologies to improve environmental performance. The memorandum with MSC Cruises is the first major agreement for new construction after COVID-19 pandemic. But most importantly, this memorandum envisages the construction of 2 additional hydrogen-powered cruise ships. 4 exploration cruise ships out of 6 will now be equipped with LNG engines, which today is the cleanest marine fuel available, and it can contribute to cut CO2 emissions by up to 25% compared with standard marine fuels. On top of it, hydrogen fuel will power a 6 megawatt fuel cell to produce emission-free power for the hotel operation and allow the vessels to run on a zero emissions in ports with the engines turned off. All in all, we are demonstrating that we can pave the way to the industrialization of hydrogen as a source of propulsion. Let me move also to certain very important key ESG initiatives signed in 2022. We are fully committed to catch commercial opportunities that fully entails industry and sustainability targets. Green innovation and energy transition are obviously key in the medium and long-term growth. We are focused on creating efficiencies, synergies with best-in-class company, taking advantage from renewable sources and, again, confirming our technological leadership in the integration of digital solutions. [ Defense ] is the agreement signed with Renovit is now subsidiary in the energy efficiency for the construction of solar farms at 5 Italian Fincantieri production sites to ensure savings on energy bills and reduce greenhouse gases emissions. So basically we are changing the power source of our very, very important shipyards. Fincantieri is also taking part, being selected to the IPCEI, the Important Projects of Common European Interest, for a project aimed to develop hydrogen energy, which will be financed by the European Commission for a total of EUR 5.4 billion as the value of the total program, out of which EUR 1 billion will be allocated to Italy. And again, it will be a place in which we will industrialize all the supply chain in the hydrogen economy as applied in the marine business. On top of it, on the digital side, we are partnering with Almaviva and Leonardo to offer integrated and innovative solutions for the static and dynamic monitoring of certain critical infrastructure and growth. And we recently closed also several sustainability-linked guarantees, facilities for a total potential amount of EUR 2 billion with different financial institutions. Obviously we are striving to become a model of excellence, acknowledged at international level because sustainability journey will require commitments in order to be successful. Our agenda is full of initiatives to be implemented that will further enhance our long-term impact on society and our tireless effort to ensure the highest environmental, social and government standards. Government standards has been recognized by several ratings and scores and position us as one of the players, which leads its industry in managing ESG risks and opportunity. Let me put again the spiel on innovation as a key for future growth. We want to act as frontrunner and pioneer in new industrial macro-trends. We want to innovate with cutting-edge technologies. We want to put closer and closer attention to hydrogen as alternative fuels, cold iron, cold ironing and green ports and digital innovation in general in the management of the ship. Again those are principle we want to translate into real approaches, tangible approaches. The first I would like to mention is ZEUS, being an experimental ocean geographic research fuel cell-powered marine vessel equipped with lithium-ion battery. It is the first of its kind in the world. On top of it, we are also working in order to target to produce zero emissions in ports by 2030 with a series of agreement for new generation port infrastructure and for the electrification of logistics activities onshore. Cold ironing will be the name of the game and will allow electricity to be supplied to the ship directly from the dock. As a consequence, the ship's engines can be shut down while it is ported, reducing polluting emissions. The third macro-trend is in the marine robotic vessels, featuring among all fuel cells and green ammonia fuel systems and onshore remote control. A big step in terms of green hydrogen production that will contribute to a sustainable and future-oriented maritime industry. We will continue to constantly push technology boundaries towards more sustainable processes and products for a greener [indiscernible]. Let me move now to the delivery of vessels expected for the way forward. We have 8 vessels delivered from 5 shipyards with more cruise ships to be delivered by the end of the year. EUR 1.5 billion in new orders with a book-to-bill ratio at 0.4 and execution and the capacity to closely stick to the delivery schedule are key strengths of our business across all segments. We believe also that we can deliver, thanks to long-term visibility both in cruise and naval up to 2029. We are also concentrated on fast-moving wind offshore sector, given further investments to come, that will substantially contribute to the energy transition process once again. We have a backlog coverage that ensure more than 5 years of work compared to 2021 revenues, allowing us to hold the solid stance towards the future. And now I will hand it over to Giuseppe, who will discuss our financial results in more details.

Yes. Good morning, everybody. We can move on to Slide 17 and comment on order intake and backlog. Well, as very visible, order intake is still impacted by COVID sector slowdown. And I refer to huge business, of course, even though we are seeing the first signs of recovery in orders. In the past 2, 3 years, owners have reduced substantially their fleet. We expect a resumption in the market, and therefore there will be a recovery in orders. We're seeing the first signs in terms of agreements signed and also discussions with the owners. Well, given that total backlog is still preserved, we are at EUR 34.6 billion, including EUR 10.5 in soft with a backlog of EUR 24 billion, 113 ships, 93 in the backlog and 20 in the soft backlog. Order intake, as I said before, came in at EUR 1.5 billion, with a very positive impact from the offshore and specialized vessel business, which is still showing signs of a robust growth. Other orders, very important, the third Constellation class frigate for the U.S. Navy, we still have 7 to go in a contract for a total of 10. The other 7 are the soft backlog. In the offshore, in detail, 6 marine robotic vessels for Ocean Infinity, this order puts the total fleet order by Ocean Infinity at 23 vessels. 2 further Commissioning of the Service Operation Vessels for the offshore wind farms operations and 1 mission vessels. Again we hope in a very positive cruise orders with resumption expected for the second half of '22, but mainly in 2023. Revenues. We did book a growth, 16% with respect to the first 6 months of last year. We are still growing notably in cruise, thanks to the hefty order acquisition realized before the COVID pandemic. So EUR 3.5 billion, plus 16%. Shipbuilding still grew of 6.5%. We had over 8.5 million hours of production in the first half of 2021. So we are executing, again, the substantial backlog acquired last year, 48.5% of the revenues. Refer to the cruise business. Defense business weights for about 23.3% versus a 23.1% in respect of last year. Substantial growth came from the offshore and specialized vessel business, in which revenues grew 78.8% compared to last year. And of course, this is a further sign of the successful repositioning of Vard towards, in the new wind offshore support vessels business. EBITDA, Page 19. Total EBITDA stands at EUR 90 million with the margin of 2.6%. Of course, as we said before, results are heavily impacted by lower marginality in infrastructure due to in-depth review of the whole life margins of some projects in the infrastructure business. Of course, we had a further increase in raw materials prices, notably in steel. And this is something that came in after the start of the war between Russia and Ukraine. As many know, we used to source a substantial part of our steel from Ukraine. And of course the war has totally disrupted the supply chain. Right now, I can confirm that although we are not facing any problems in terms of sourcing the material, in the quantities that we need and in the time that we need, of course, prices have increased further. Fortunately, I would say, wisely, we already increased our assumptions in steel prices at the end of 2021. But nonetheless, we had to further slightly increase our assumptions for the years 2022 onwards. Also we had to write down the work in progress of the reassessment of a client credit rating, a ship that initially was envisaged to be delivered in July. And now it is, the delivery according to, of course, in agreement with the client has been postponed to December. Net of all of these elements, EBITDA would have been over 7%. And I'm saying this to underline the fact that notwithstanding the first 2 months of the year, we still had many cases -- many COVID cases that has impacted the production in the yards and the start of the war in Ukraine and some clients still have to recover from the impacts of COVID-19. The operating performance of the business, of the core business is at very good levels. Move on. Slide 20. Net loss came at EUR 234 million due to first half 2022, also due to first half 2022 extraordinary items. So on top of what I had discussed before, we had a total of EUR 156 million of extraordinary items. EUR 107 million were due to impairments of goodwill related to the acquisitions done in the U.S. and Norway Vard and the Marine Group. And this impairment came in mainly as the result of the sharp increase in interest rates that we faced in the first half of 2022. Of course, this is a phenomenon related to the increase of inflation. And still EUR 29 million for asbestos-related litigations. Another EUR 20 million came in as provisions for risks of not fulfilling some offset obligations that we had in connection with contracts that date back to 10 years ago. Let's discuss CapEx now. Slide 21. CapEx, capital expenditures came in at EUR 108 million. More than half of that relates to fixed assets. We are still on course on the program of the capacity enhancement in the United States, 31% of the CapEx came from there. And still we have the tails of the CapEx program in Monfalcone and Marghera, our 2 shipyards in the Northeast, which are almost completed and which are producing the benefits that we envisaged in terms of more efficiency, more capacity and a very, very good operating performance in the... On Page 22, net financial position, which, as we said before, we present aligned to the ESMA recommendations. We decided to -- even though in the past we did provide ESMA structure of the NFP in the notes to the financial statements we decided to provide it upfront in order also to end the endless conversations on where the construction loans should be. But net financial position, the ESMA structure came at EUR 3.2 billion. And this is, of course due to still it is affected by COVID-19 measures that we implemented to support our clients, even though we are at the tails of this phenomenon. And of course, from an operational standpoint, all of you know very well that the net financial position levels are also linked to the production and the delivery schedule. As a matter of fact, as of today, I can say that the EUR 3.3 billion that you see at the end of June, as of Friday will be EUR 2.6 billion because during the month of July we cashed in -- we cashed and we are going to cash in by the end of the week substantial amounts related to the delivery repayment of a vessel, of a cruise ship that we're going to deliver Friday. Net working capital is positive at EUR 1.3 billion. And this, of course, is a net working capital without construction loans. And this is mainly to the increase of construction contract of the -- the increase of the work in progress by over EUR 700 million. And this, of course, comes in as production volumes increased substantially. We also had an increase in trade receivables as we invoiced other installments in some foreign business. Now I hand over again the word to Mr. Folgiero for the outlook and some concluding remarks. Thank you.

Thank you, Giuseppe. On the cruise, almost full capacity to be reached during the summer, booking trends back in 2019 levels already by year-end and passenger volumes are expected to recover and even surpass pre-pandemic levels by the end of 2023. All of these means a near comeback; includes orders and potential further investments. Another important part of the outlook is the vision on net carbon neutrality by 2050. By 2027, almost 180 ships will have shoreside power connectivity with a technological edge and less impactful functionality. On the naval side, global defense spending will be over EUR 2 trillion -- over EUR 2 trillion in 2021, is expected to accelerate in the upcoming years. And we are therefore ready to catch further opportunities given our leading competitive position in surface vessels such as frigates and corvettes and the diversified client base. On the offshore side, we are market leaders in production of service operation vessel, reaping the benefits of the turnaround strategy implemented back in 2019, the positioning part in more promising and growing markets with over -- with 29 vessels ordered since January 2020 and considering that the total fleet will soon double. Moving to the concluding remarks. First of all, let me give you our expectation for the way forward. Assuming no further deterioration of the current macroeconomic scenario, we expect operations in full swing, 2022 revenues higher than in 2021. Marginality is also set to improve, although at lower levels than in 2021 and financial position presented according to ESMA recommendations, is expected to slightly improve by year-end. Thanks to the delivery of 5 cruise ships in the second semester 2022. It will be still affected by the growth of production activities of 4 cruise ships to be delivered in the first semester 2023. 2 macro waves driving Fincantieri in the next future, namely cruise and naval. We will ride them, fostering the turnaround in green innovation, digitalization and energy transition to ensure our medium, long-term growth. We will be frontrunners and pioneers in a sector that is always seen as all leadership positions. In the second semester 2022, we will carry out an in-depth analysis to define the strategic guidance, to strengthen the group's business portfolio. We are fully committed to relentlessly improve our products and operations with a particular focus on the core business, namely cruise and naval while boosting digital and green innovation solutions. The new strategic direction will encompass the review of the group risk profile, concentrating on those projects with an effective and material balance between value creation, risks and costs and more importantly, driven by our distinctive competitors. Identify decisive actions in order to rationalize the process, cutting inefficiencies and looking at savings obviously. This is key to drive through the market challenges, and we are determined to play a global role as an Italian industry champion, developing synergies and strengthening forward our positioning. We would do best our core business and most importantly an Italian industry champion with a global footprint. With that being said, let's move to the Q&A session. Giuseppe and I stand ready to answer any questions you may have. Operator, Please go ahead.

[Operator Instructions] The first question is from Emanuele Gallazzi of Equita SIM.

A couple of questions from my side. The first one is on the infrastructure business, which is clearly no more strategic for the company. And I was wondering if you can provide more color on the future of this business and also looking at the ESS business unit considering the revision made on the infrastructure business, what will be a sustainable profitability level for the business unit going forward? The second question is on the deleveraging. Your guidance for 2022 is for just a slight improvement in the net debt by year-end. Can you just give us more detail on this, maybe a more precise target on the net debt? And can you comment on when do you expect to see a material reduction on the net debt position going forward?

On the infrastructure side, let me say that we believe that we have a backlog to deliver, first of all. We believe that we have a very clear understanding, which are the risks and opportunities commented in this backlog. And therefore we went through it and somehow put together this strategic review kind of adjustment. So this is the future in the short-term. So to deliver the backlog seriously and in a convinced way. So I would never ever like to convey the message that we are not committed to deliver and committed to serve our clients. In terms of strategy, simply, I don't believe in the strategy. So I believe on the fact that we need to respect impeccably our contract, but I don't believe that we have financial energies, managerial energies and competencies to be successful in a tough business such as the infrastructure business, which I know very well. So what will be the future? The future will be to protect the value of what we have, to protect the competencies and the value of the people embedded in what we have and then to understand strategically how to unlock this value in conjunction or in alliance probably with someone else. So this is a very straightforward vision on the infrastructure. So obviously it's just a couple of months passed by, but this is the kind of clear cut vision of the future. On the rest of the division, the rest of the division has a totally different nature. The rest of the division has nothing to do with hospitals, has nothing to do with marine works, has nothing to do with infrastructure, with terminals. But has to do with, I would say, the historical vertical integration of the group, which is a kind of industrial nature of Fincantieri group. So Fincantieri has a business model focused on covering as much as possible end-to-end the value chain and so pursuing vertical integration historically. So there is a value embedded in this vertical integration, probably is one of the source of industrial strength of the group because when you control the propulsion system, when you control the transmission system, when you can deliver electromechanical integration, it means that you have fewer risks in front of your very demanding clients. So I believe that there is an industrial value in the vertical integration that is not necessarily driven only by percentage marginality, but is also to do with the entire advantages of having such vertical integration inside. So this is a very important piece of the reasoning in that respect. Obviously, when you have a captive market, you have to be very clever because captive is beautiful because it gives you effectiveness, it gives you control of the value chain, but it can be also "self-referential". It's very important that these entities are very good also on a non-captive market perspective. And this is what they do. This is what they do already. So they provide electromechanical works outside, they provide the knowhow also outside in order to stabilize the workload. So I believe that there is a bit of strategic value in this perspective. So it is not a black-and-white answer on the marginality, but I think it's a very good base for you to understand what we believe of the business. Moving [indiscernible], for sure, it's not on the lower side of the story, but it's on the higher side of the range. So you can be reassured that it's a healthy business. But again, healthy to me means instrumental to the core business. That is the name of the game. So you have to be instrumental in the core business. Otherwise we are not a conglomerate. We're not looking for holding discounts. We are looking -- our strategy is to create industrial value consistently going through core business functions. Moving to the deleveraging, I would like to then give the floor to Giuseppe, having a very, very in-depth understanding of the financial dynamics of this company. I'm very happy to collaborate with him. But what I can tell you is that if you know, as we know this business, there could be 3, 4 movements in the net financial position that can change the face of it quickly. So please don't consider ourselves a kind of business in which the cash generation is driven by, I would say, continuous movement, but is rather driven by specific steps that need to be fulfilled. So for example, very soon, very soon meaning in a couple of days, I will attend to a ceremony for the delivery of a very, very important ship we are building for a very reputable client. And obviously this step will mean the possibility to invoice and collect money, with an amount of money that can be remarkably interesting for the deleveraging of the story. So you're right when you say, give me more visibility, we can give it -- give it to you. But I want to stress the fact that in a business like our business, by definition, the net financial position is driven by specific events that once triggered, can heavily change the face of the normal. So Giuseppe, why don't you tell us something more in this respect?

Okay. Well, thank you for the question, Emanuele. As with guidance on net debt, of course, we already said net debt levels at the end of June are affected by [indiscernible] to the economic performance on one side. Still we have the tails of the efforts that we did to support our clients in -- during the pandemic. Some of these efforts were recovered already during the month of July as we cashed in roughly EUR 250 million from a client. They had asked us at -- in the last year they asked us a deferral in the payments, we granted the deferral and it has paid back EUR 250 million. And then the other major event, as Mr. Folgiero mentioned, is the delivery of a very large cruise vessels, the first vessel for Norwegian cruise lines. It's the first time we produced a cruise ship for this brand, and we're very proud. It will be delivered out of the Marghera yard, this vessel of roughly 140,000 tonnes. And of course, with this size comes also a huge delivery payment, a substantial delivery payment. So 3.2 is the net financial position at the end of June, 2.6 is the financial position -- net financial position according to ESMA, and I will say it once again, and I won't say it anymore, 2.6% is the net financial position at the end of July. So it moves in discrete quantities and you know it very well. As with the end of the year, we expect a slight improvement with respect of the end of June because, of course, we will strive not to incur into any more extraordinary items or we will -- we do hope that the inflation comes down in terms of commodity prices, especially, and those things impact the net financial position. We still have a hefty production program in the cruise business. Therefore, we have to expect that we need to support our net working capital requirements also for 2023. Deleveraging will come in naturally intrinsically with the development of our backlog. But of course, deleveraging now becomes a target for the group in terms of what we need to do to deleverage on top of our production -- on top of the requirements of the net working capital. It's a bit early to say what extent we will deleverage. We hope to come back to you by the end of the year on this. There's one more. It also depends on the order flow on the naval business, which is expected to come in, in the near future. But of course, it's, again, too early to say when, okay.

The next question is from Alessandro Pozzi of Mediobanca.

First of all, congrats to Pierroberto for the new role. My first couple of questions are on more strategy. I think the first priority is to complete the strategic view of infrastructure. And it sounds like it's a bit of a change of tact compared to the previous -- what the previous management wanted to do and probably focusing more on the core business. But without [indiscernible] your decision, I was wondering what are your thoughts about the infrastructure business? And I guess, once the review is done, what do you think are the most important growth drivers for Fincantieri? That's a question for Pierroberto, of course, and how you're planning to support those in the medium-term?

First of all, nice to hear again from you and a pleasure to interact with you in this new capacity. I understand you have 2 questions. One has to do with [indiscernible] infrastructure. And the second is about the cost driver. Can you tell me what was the second question?

Growth drivers for Fincantieri. So top line drivers for Fincantieri in the medium-term, what do you think are the most important drivers to grow the business of Fincantieri?

I see. I see. Well, let me answer the first question with the second. I don't believe that the top driver would be the infrastructure. So again, I don't need to exaggerate. I strongly believe I convey the right message is, i.e., we will impeccably deliver our backlog. So no jokes about the reliability of our brand, the reliability of our people. We will take very seriously to deliver in the infrastructure business. So you can depend on me on that. But since on our core business, there is a lot to do, and we don't have infinite financial and managerial resources by default, obviously, we would like rather to channel those energies to what we can do very well. So is the [indiscernible] business model. I don't know if you have ever heard it, [indiscernible]. So that's the answer to your question. So we will -- the growth will come from what we can do very well since [ 250 ] years, i.e., ships. Thanks to God, the market is giving good signals in the cruise sector. The cruise sector is driven by occupancy rates. Occupancy rates, as we have specified, are back to good metrics, which is a very important signal. Obviously the balance sheet, the financial statements of ship owners are still affected by the COVID because it was a great hit and it is not that you recover overnight. So they are on their way to get back to normality. A stronger and healthier kind of ship owners are already taking bold steps in this respect. So if you are a player having a diversified shipping business, you can be faster in this recovery process. So the healthier ones are taking a strong view in new investments. Obviously as in any capacity business, the real entrepreneurs are the ones that invest in advance. So in a capacity business, it is very important to invest anti-cyclically. That's a very old story. So you have to invest when the others are thinking to invest. That's the way to gain market share. So I would say smarter and healthier players and the ones having the strength, the financial strength, are giving very good signals. So you know very well which are the metrics in the cruise business. So it's a market that grew a lot, but there are still a lot of passengers that with a diversified offer and approach, the cruise tourism. So there is conceptually still a lot to do and a lot to go. And so there is a lot of entrepreneurship in the cruise business and the cycle will be up again. So the top line will be driven by that. Moving to the defense, needless to say that in the past, the defense was something somehow ancillary, for the future, the defense will be truly at the center. You know that Fincantieri in the naval business, it's truly top ranked. So it's truly a global kind of signature. So if there is growth in surface battleships, we will be there with a very strong project, with a very reliable product, with a strong backup with -- of the Italian Navy, which is a kind of excellence in the Mediterranean. You know better than me that after Ukraine, the Mediterranean will be key, will be, I would say, sadly overcrowded by submarines. You will be in desperate need to having extra friends, extra Fincantieri ships in order to secure more and more this kind of submarine traffics in our Mediterranean Sea. You know that the U.S. Navy will be more and more concentrated on the Pacific side of the story, and Europeans will have to take care of themselves. And Italy, in the European defense sector, is by nature in charge for taking care of the Mediterranean. So the first and very important anchor client in the defense sector will be the Italian Navy because they will have to fulfill this new role in the Mediterranean Sea. Then the rest of the naval and militant defense business for Fincantieri will be our ability to go international. To go international with a geopolitical back up, with a strong backup of the Italian government in this respect. When you go international on the defense side, it's an institutional exercise. Fincantieri obviously is very, very strong institutionally, having 70% of the shareholding in the hands of the government. So there will be a lot to do. The demand for naval and defense ships will grow, not only in the Mediterranean, but all over the world. And with the Italian geopolitical footprint, we will be at the forefront of it, having a product that is undisputed all over the world. So I can speak you -- I could tell you a lot, but I don't want to bother you too much. So there is a lot to do with the core business and, again, no doubt about it.

Yes. Just remaining on the defense, I think you also mentioned a stronger collaboration with Leonardo. Can you give us maybe more color exactly what that could entail?

That is very simple. I don't believe in competing with Leonardo. So I don't believe that there is value in producing radars and try to sell radars instead of promoting Leonardo radars. So we have to be integrator of solutions, not producer of defense products. You know what I mean? So when you are an integrator, you have to have the business model of the integrator. And the integrator is very knowledgeable because to integrate, you have to be as knowledgeable as a producer of the solution itself. It's a competence-driven business. It's a distinctive competitiveness driven business, but it's not a fabrication business. So it is not that you need to fabricate with others, but you have to integrate with others. So we will shift the level of collaboration with Leonardo to a level in which we want to be the prime contractor of the fully fledged ship. So it is not that I'm only a platform integrator, but I'm the integrator of the platform plus the electronics plus the combat system. So this is the winner business model for us. So to be prime contractor. It's a kind of prime contractorship strategy that is very, very, very important for us. Something we already do because, for example, in the United States, we are a prime contractor, so we integrate either the platform and the electronics and the combat system of Lockheed Martin. So we need to be integrator. We don't need to be a producer of solutions. So I hope I was clear enough.

Yes.

So with Leonardo, we have a fantastic opportunity because they have a very strong combat system, a very strong electronic system. We can integrate them as prime contractor. And first of all, we can serve is very, very, very valuable anchor clients, i.e., the Italian Navy with a proposition that is very strong, very straightforward. We have already a company that is called Orizzonte Sistemi Navali. This company was fitting this purpose by birth, and that's the lever we want to act. So very simple and very complicated at the same time, dear Alessandro.

The next question is from Monica Bosio of Intesa Sanpaolo.

I have 3. The first one is on infrastructure. I know that it's very early and just 2 months from your arrival, Pierroberto. But do you expect further strategic review on the infrastructure business? Or do you think that most of the work is already done? And as for raw materials on the whole life cost of the shipbuilding project, I can imagine that some raw materials might go down, but there are also the energy costs. Do you plan to revive or do you feel that you could provide further the assumptions behind the whole life cost of the ship building projects? This is the first question. The second one is on the cruise segment. There is a ship that will be postponed to the last part of the year. Do you plan any further provision on the back of the possibility that the client might ask for a further postponement, any flavor on your level of confidence on the delivery of the ship is appreciated? And the very last is on the second half '22 profitability guidance. In 2021, the EBITDA margin was in the range of 7.4% ex-pass-through activities. And can you help us to figure out a range of profitability for the second half of 2022? Am I wrong if I assume something in the range of 6.5%, just for my housekeeping?

Thank you for your interest and for your question. On the infrastructure, your question is, is this finished or not? Let me say to the best of our knowledge, this strategic review is finished. So there would have been no point in doing it if we don't believe it is the ultimate one. So the decisive one. Obviously this is the answer, very straightforward. So we did all our -- we applied for all our knowhow of the industry in order to take a definite view. Obviously if you are a client in the projects, business model, you know that there is a number which is a kind of margin number at the moment of estimating the cost to completion. And the margin number is the progress. So if the progress is the 95%, if you take a view, you're taking a view of 5%. If the progress is 5%, you are taking a view of 99% or 95%. So let me say that whatever is the level of accuracy, whatever is the level of expertise, there is always a factor that is the progress to go. The higher is the progress to go, the higher by logics is the volatility of the expectation. So the progress -- the average progress on the infrastructure business is not that high. It is less than 50%. But having said that, I am very, very convinced that we did a very in-depth exercise despite the limited time available, where we did a very in-depth exercise that is providing us with a lot of trust on the quality of the review. Moving to your second point on raw materials dynamics, I would say that if you look at the past, any expectation has been -- and that's a problem not of Fincantieri. It's the problem of the industry, it's a problem of the world as of today. Any expectation has been different from reality. So let me say reality has been constantly different from expectations from the COVID onwards. So we take a view that is prudent. We take a view that is consistent with this volatile market. But obviously we have to be prepared of the world that is always surprising us. Let me also say that I'm not a great believer in creating allowances because once you create allowances, you tend to spend it. So I believe that on the one hand, you have to be realistic. But on the other hand, you have to push your internal system to cope with the [indiscernible] and to take the challenge. So I think that the name of the future is to be, I'd like to say, to be comfortable in the uncomfortable. That's the destiny of these extraordinary times of this extraordinary management. So with this in mind, we took a view on the dynamic, on the steel, in particular, that is projecting to the future, the current level. So we are not taking a view that is going to improve. So that's why we -- it's a quite simplistic methodology, but it's all we can do today on top of pushing our people to continuously and relentlessly looking for savings, looking for operational discipline, looking for performances, operational performances in terms of dial-inch per day, in terms of metrics per day that will constantly create headroom for us to live with other uncomfortable surprises in the future. Moving to the point on postponement on the delivery, I will leave the ground to Giuseppe. On your request to have the quantitative guidance for the second page, I believe you asked for a range in the profitability, the EBITDA for the second page. We decided to take a qualitative view, not a quantitative view. It is not for a lack of transparency, but it is because it's due to the volatility of a number of dynamics. For sure, we don't want you to take a negative view. So we believe we can do much better, obviously, which is what we did in the first stage. We gave a kind of qualitative floor to the second page. And maybe, Giuseppe, I don't think it's worthwhile to give a quantitative number, but we can be more precise on the postponement risk.

On the postponement, I mean, I repeat what I said before, of course, we agreed on the postponement of the delivery. The client has declared that the ship is not needed at this point in time, the client is still recovering from COVID emergency, we agreed on a postponement. And that's it. We have to wait and see what happens in the next 6 months. We believe that the fundamental -- well, the conversation after this, the conversation goes back to the fundamentals of the business. If the business recovers as a whole, I mean, we believe that there will be room also for this client to recover and grow. That's it.

But let me add one thing for my curiosity and your curiosity. I believe it's in a sense, physiological. So in a moment in which the ship owners are recovering from the big hit of COVID, obviously, it makes sense that there are some reorganization, financial reorganization also, and also kind of postponement of certain important drawdown in the financing. So I believe it's a kind of physiological consequence of the turmoil that took place due to COVID in this very important sector. So are a kind of pace of the past that understandably can get take place.

The next question is from Gabriele Gambarova of Banca Akros.

The first one is on CapEx. I saw that they were down heavily in the first half. So I was wondering whether they could point this year and possibly even in the following years? And if something has changed in terms of CapEx or your, let's say, curtailing them? So this is the first question. The second question is, again, I'm sorry, on the delayed delivery of this cruise ship to your clients. I guess that it has an impact -- it has an impact on net working capital and net financial position. And I was wondering if your indication, qualitative indication on the net financial position by year-end assumes that this ship is delivered or not. So just to better understand your guidance. And then on the new -- the recently announced cruise ship orders, clearly, it was very surprising and positive that they restarted before 2023. This was the original expectation. I was wondering if you can, let's say, give us a few more details on pricing on margins on what kind of, I mean, not numbers, but qualitatively, if these contracts carry good interest in margins. And if anything has changed in contractual terms considering all the changes, all the challenges you are facing at this time?

Okay. Thank you, Gabriele. This is Giuseppe speaking. CapEx, yes, there were -- CapEx came in at EUR 108 million. From a qualitative standpoint, we go back to what I said before, the largest chunk of CapEx comes -- originates is dedicated to the CapEx program we have in the United States in order to prepare, let me say, the yard for the execution of the frigate program for the United States Navy. Again, as I said before, we still have the tails of the CapEx program in Italy, notably Marghera and Monfalcone. But recent events, coupled with COVID and coupled with the fact that we are in parallel with the CapEx program, I should say differently, we need to execute a very ambitious backlog production program. We are reaching record levels in terms of production hours, over 8 million hours in the first 6 months. At the same time, we are deploying our CapEx program, which is not an easy task to do in parallel, building ships and revamping shipyards is not definitely an easy task. You should have come to Marghera 6 to 8 months ago or a year ago, actually, and to see what I mean. I don't expect 108x2, let me say, by year-end. I expect more, more in the range of EUR 300 million in terms of CapEx for 2022. After 2022, I would rather at this point in time not to give you any quantitative color. But there is still, again, the United States going on and some projects that we may envisage in Italy. And that's it for the CapEx program. I don't know if Mr. Folgiero wants to add something. But as of question #2, impact of late delivery and guidance on net financial position. I have always tried to be very conservative when making assumptions on the net financial position and on cash. Therefore I can tell you that net financial position will be slightly better at the end of the year compared to what it is today, even if the delivery of the cruise vessel is postponed further, okay? To ship holders, we'd rather give you all details at this point in time as, of course, it is -- it is a solid order. It's a memorandum of understanding, it's subject to financing. It came in at standard terms, let me say. And it is a confirmation of the partnership that we established with MSC. It's a very important holder in terms of technology, in terms of the design of the ships, in terms of the market segment that these ships are allocated to it. The luxury business is one of the most promising markets of the cruise business in terms of growth in a number of ships, and that's it. And it's a positive sign, of course.

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

Okay. Thank you.

Thank you very much for attending the conference call.

Thank you. Bye.

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