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

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Fincantieri First Half 2025 Results Presentation Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Pierroberto Folgiero, CEO and Managing Director. Please go ahead, sir.

Good afternoon, ladies and gentlemen, and thank you for joining us on today's call to discuss Fincantieri's first half 2025 results. We are pleased to present a strong set of results for the first half of the year, building on a highly successful 2024 and equally positive first quarter of 2025. We recorded a solid performance in all of our key financials and metrics, putting the group firmly on track to achieve its 2025 guidance for revenues and margins and to improve our guidance on leverage with a net debt-to-EBITDA range of 2.7x to 3x. Let's now move to Page 4 for a brief summary of the financial and commercial highlights of the first half of the year. Revenues increased by 24.3% year-on-year to EUR 4,576 million, underpinned by a positive contribution from all segments, in particular, shipbuilding, confirming the group trend of the first quarter. Thanks to the virtuous path pursued by Fincantieri over the last years, we delivered also a significant increase in profitability with EBITDA posting an impressive double-digit growth of 45.3%, reaching EUR 311 million. EBITDA margin grew to 6.8% with a market improvement compared to 6.3% at year-end of 2024, and increasing by 100 basis points versus 5.8% achieved in the first half of 2024. This growth is all the more impressive considering that we operate in the heavy industry sector that typically has slow bio rhythms. Our net debt came in at EUR 1,644 million, significantly lower than the EUR 2.42 billion reached in the first half of 2024 and marginally better than the EUR 1,670 billion (sic) [ EUR 1,670 million ], excluding rights issue achieved in 2024, leading to a net debt-to-EBITDA ratio of 2.7x. Turning now to our commercial performance on Page 5. We achieved remarkable results in the first half of 2025. Order intake stood at EUR 14.7 billion, showing an extraordinary growth compared to the first 6 months of 2024 with a book-to-bill ratio of 3.2x revenues. As a result, the backlog reached EUR 41.9 billion, up 35.1% compared to the full year 2024, with a record high total backlog of EUR 57.7 billion, representing 7.1x full year 2024 revenues. Let's now move to Page 6. Our commercial pipeline remains strong, driven by our solid positioning and favorable market dynamics in all our segments. In the Cruise sector, we signed contracts with Crystal Cruises for 2 high-end vessels, with Four Season Yachts for a second ultra-luxury ship, with Norwegian Cruise Line Holdings for 4 jumbo ships and with Viking Cruises for 4 units. In the Defense sector, we signed a contract for the construction of 2 PPA multipurpose combat ships. The 2 new PPAs in Light Plus configuration will be built at the integrated shipyard of Riva Trigoso and Muggiano, with deliveries scheduled for 2029 and 2030, respectively. We also signed a Through Life Sustainment Management (TLSM 2) contract for in-service support for all systems and equipment for the FREMM units built and delivered by OSN to the Italian Navy. In Offshore, the momentum remains robust with orders for 2 units for Dongfeng offshore. Lastly, in the new Underwater segment, we are seeing the tangible benefits of the strong commercial positioning and unique products and services offered by Remazel vessel IDS. Looking ahead, we see further opportunities to strengthen our order intake, thanks to a commercial pipeline in which we are actively participating of approximately EUR 23 billion across all business segments. Moving to Page 7, you can see how our commercial efforts are translating into an impressive order book. In the first half of the year, our portfolio benefits substantially from the acquisition of new orders, further consolidating Fincantieri's expansive global reach across all business segments and providing a profound visibility up to 2036. In the first 6 months, we delivered 13 ships from 8 shipyards. And as we speak, we have a full state of deliveries scheduled over the next 11 years, with more to come. In the first half of 2025, we not only delivered outstanding financial and operational results, but we have also continued to execute on certain core strategic initiatives that represent a solid foundation for future growth and innovation. In recent months, Fincantieri has taken decisive and visionary steps to establish itself as a leading technological integrator in the underwater domain, which more and more plays a central role in geopolitical strategy, driven by military priorities and protection of critical subsea infrastructure for energy and communications as well as for strategic control of the seabed. In particular, we completed the acquisition of Leonardo's Underwater Armament Systems business line via the purchase of WASS Submarine Systems. We formalized the investment in WSense, a leading Italian deep tech company specializing in wireless network and advanced underwater monitoring and surveillance systems. And we signed 2 MOUs; one with EDGE, to jointly develop underwater technology supporting the United Arab Emirates in its ambition to become a regional reference point; and one with Graal Tech, for the development and commercialization of autonomous underwater solutions. We are also accelerating our digital transformation across the cruise, defense, and port infrastructure sectors, also through the creation of Fincantieri Ingenium, a joint venture 70% owned by Fincantieri NexTech and 30% by Accenture. This is not a think tank or a venture capital, but a concrete element for our digitalization strategy for the industry today. One of its strategic initiatives is the development of Navis Sapiens, a digital ecosystem designed for the next-generation vessels and for upgrading the existing fleet that will be installed on the first ship by the end of 2025, beginning of 2026. Last but not least, in our unwavering commitment to driving a sustainable industry, we established CircularYard in collaboration with Hera Group to implement an innovative integrated waste management system across all our Italian shipyards. Now I will hand the call over to Giuseppe, who will discuss our financial results in more detail. Please, Giuseppe.

Thank you, Pierroberto, and good afternoon to everybody. Well, we can move on to Page 10, which we highlight again the record level of order intake. We reached in excess of EUR 14 billion, almost equal to the entire fiscal year 2024. At the end of the semester, the book-to-bill ratio stood at 3x revenues, and that indicates robust and sustained growth in Fincantieri's commercial pipeline, fueled by robust demand across all core business segments. Of course, in addition to the order of the 4 jumbo cruise ships that Pierroberto mentioned before, for Norwegian Cruise lines, and the 4 ships ordered by Viking, we add to this order in the second quarter of 2025, the order coming from the Italian Navy that renews and strengthen further our partnership with our national client. Orders were also robust in the Offshore, Underwater and Equipment Systems and Services segments, together amounting at EUR 1 billion. On Page 11, this record level brings the total backlog at over EUR 57 billion. In this slide, it is worthwhile to note the very strong conversion of the soft backlog into backlog. And at the same time, soft backlog remains robust, announcing further commercial successes in the times in the future. On Page 12, revenues reached EUR 4.6 billion, up over 24% year-over-year, strong contribution coming from the Shipbuilding, which posted a 26.3% growth compared to the first half of 2024. In particular, the Defense segment recorded a 21% increase, mainly driven by the contract that we finalized with the Indonesian Navy in the first quarter of 2025. Shipbuilding accounts for 68% of group total revenues, of which 43.2% from Cruise and 24% from Defense. Offshore and Specialized Vessel accounted for 13% of total revenue, and those revenues rose in excess of 10% year-over-year. And this comes from the sustained growth trajectory in the recent years and the progressive increase in order intake in wind offshore. Underwater reached EUR 274 million, ramping up heavily compared to the first quarter of 2025, as expected, we must say, as the submarine program for the Italian Navy is picking up in terms of revenues and also in terms of contribution to EBITDA. We expect further revenue growth coming in the second half of the year, and we remain consistent with the guidance that we gave in the Underwater Day. Equipment Systems & Infrastructure delivered a 9.8% year-on-year increase, reaching 13.4% of total revenues, and this comes primarily by a solid performance across the mechatronics and electronics clusters. Moving on to Page 13. On EBITDA, in the first half of the year, we reached EUR 311 million, rising in absolute terms by 45.3% compared to the first half of last year. And of course, this has been driven by higher profitability in all the business segments. EBITDA margin grew to 6.8%, up 1% year-on-year and improving compared to 6.3% reported at year-end. Within the segments, Shipbuilding recorded an EBITDA of EUR 280 million, increasing by 40.1% versus previous year, and EBITDA margin of 6.5%, up 0.6% compared to the same period of 2024, and this reflects revenue growth in the higher-margin defense business and the further improvement we are reaching in efficiency in the cruise business. Offshore, EUR 32 million, increased by 20.7% compared to the first half of last year with a margin of 4.9%, up 40 basis points year-on-year. And Underwater, EUR 47 million and a margin of 17%, driven by what I said before, i.e., the sharp increase in revenue driven by the submarine program and also driven by very good performance from Remazel and also WASS. In the Equipment Systems & Infrastructure segment, EBITDA increased by over 42% compared to the first half of last year, reaching EUR 46 million and an EBITDA margin of almost 7%. On the back of the return to net profit -- and I'm on Page 14 right now -- at year-end 2024, in the first half of 2025, we posted, again, a net result, positive net result of EUR 35 million, marking a sharp recovery from the EUR 27 million negative recorded in the same period of 2024. And this result is mainly driven from the material growth in EBITDA, lower financial expenses as well as a reduced extraordinary and nonrecurring expenses burden. Adjusted net result, EUR 48 million, improving almost 5x compared to the EUR 10 million -- or compared to the EUR 10 million net loss in the first half of 2024. On Page 15, net debt EUR 1.6 billion negative, improving significantly in comparison with the EUR 2.4 billion as of the end of June of 2024, and marginally better compared to the end of the year. Net debt-to-EBITDA ratio improved to 2.7x, and this is significantly lower than the 3.3x of year-end. And this is driven by a strong focus on financial discipline, optimization of net working capital and also -- this is also driven for the neutral net working capital strategy in Cruise. As of today, we have a very well-distributed debt maturity profile with no significant long-term debt maturities until 2027. And we also can rely on a sound financing structure with no covenants and approximately 85% fixed rate or hedged by derivatives. Notwithstanding this, we continue to work on the optimization of our financing strategy. And a few days ago, we completed the placement of a medium- to long-term senior unsecured "Schuldschein" financing, which includes a 3-year maturity tranche due in 2028, and a 5-year maturity tranche due in July 2030, for a total amount of EUR 395 million. We received on this loan, a very strong demand that enabled us to upsize the original amount while securing interest rates at the lower end of the guided range. Finally, on Page 16; net working capital stood at negative EUR 456 million, slightly up compared to year-end. This is mainly due to higher trade receivables and those higher trade receivables were partially offset by reduced construction contracts and client advances alongside increased inventories and advances to suppliers related to higher production volumes and the sale of the 2 vessels to the Indonesian Ministry of Defense. With that, I will now hand the call back to Pierroberto.

Thank you, Giuseppe. The execution of our strategy continues to deliver remarkable results also in the first half of this year, reinforcing the company's growth outlook across the businesses. Our relentless focus on cash flow continues to drive our daily activity as we turn every stone to unlock value. The significant margin growth we are seeing in the first half of 2025 is a clear testament of the validity of these initiatives. The cruise business continues to witness an impressive growth in demand, which we are satisfying by extending our delivery schedule to 2036. This deep backlog visibility allows us to optimize our procurement costs while the saturation of our capacity enables us to spread our fixed cost base more effectively, leading to higher profitability. In defense, we are witnessing a favorable macro trend internationally, where we see more than EUR 20 billion of potential market opportunities that we can capture, also thanks to our flexible production capacity globally. In the underwater, we have laid the foundations to grow this business further, leveraging on the dual-use DNA of Fincantieri, while continuing to validate our new product road map. Thanks to the strong results achieved during this 6-month period, for year-end 2025, we confirm our guidance for revenues at around EUR 9 billion, EBITDA margin above 7% and positive net result and improve our guidance on net debt to EBITDA, which we expect between 2.7x and 3x compared to the previous guidance, in line with fiscal year 2024. With that, we are now open to take your questions.

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

Three questions from my side. The first one is on APAC. You have been flagging the opportunities there for some time. And basically, we have seen some important initiatives to strengthen Fincantieri relationship there, like in Indonesia, Malaysia and Philippines. But how do you see this relationship evolving? And do you see other attractive market over there in APAC? That's my first question. Maybe we can go one by one.

On Southeast Asia, we confirm a number of possible deals, either in Indonesia, in Malaysia, Philippines, where the programs are loud and clear there. Then we are "cultivating" other markets such as Thailand and Vietnam. So those are the countries in which in Southeast Asia, we are very focused on. Again, we are also increasing our presence in India, where we are already working on certain specific market components, in particular, propulsion systems, but we are positioning ourselves in terms of collaboration with the major state-owned and private shipyards because India has a Make in India strategy and requirement, but we are working actively also to be supportive and instrumental to this kind of renaissance of shipbuilding also in India. So that's all in all our, I would say, enlarged Southeast Asia perspective.

The second one is on the cruise business. Because looking at your second quarter results, and I think also you mentioned during the presentation, the cruise business is reporting, let's say, material improvement in terms of profitability. Can you give us a sense on how margins are evolving for the cruise business?

Let me say, we have been explaining since the presentation of the business plan in 2024 -- sorry, in 2022, that the main objective was to demonstrate that the profitability in the cruise business is better than what the market expects. So we have been working, we have been promising it, and we have been also explaining that the different pillars, the different projects, strategic projects envisaged in the 2022 business plan were exactly aimed at unlocking this value. To give you the sense of those strategic projects, probably the most effective has been the procurement excellence and operational excellence. Procurement excellence has to do with a different approach on how to pursue economy of scale considering the big volumes that we can aggregate at group level and economies of scope at the moment of concentrating the procurement strategy on certain specific category. So basically, this is a typical exercise you can perform when you have a variety of items to be procured and purchased and when you have also big volumes. Consider that a company having something like EUR 9 billion of revenues in the general contracting business, typically, the procurement accounts for, let's say, 60%. So assume that you have something like, I don't know, EUR 5.5 billion or even EUR 6 billion or whatever it is. If you save 1%, it's EUR 60 million. If you save 2%, it's EUR 120 million, if you save 3% it's EUR 180 million. So this is the magnitude of, let me say, an incremental improvement in the performance when you have such volume to be addressed. So economy of scale and economy of scope on procurement, which is definitely where money is in a business like the general contracting. The rest is operational excellence. So how you manage execution risks in terms of contract management, in terms of risk management, in terms of construction management, in terms of management of subcontractors and performance at large. So we have been optimizing our operations from different perspective, for example, from the perspective of applying new technologies on welding or how to anticipate building conflicts when it comes from different itemized component in the typical engineering flow and construction flow. So there are a number of, I would say, micro activities that have been implemented in the last 3 years. And now we are taking the fruits of that very meticulous day-by-day order optimization of the execution.

Very clear. The last one is a very quick one for Giuseppe and it's on financial charges that were down materially year-on-year. If you can just provide guidance for 2025 on financial charges, or expectation?

Yes, materially down also thanks to the optimization on net working capital that we have realized in the first quarter. Of course, we are partially profiting from a better interest rate environment, let me say. We should be in line with the first half of the year for the second half.

The next question is from Alessandro Pozzi of Mediobanca.

I have 2. The first one is on U.S. defense spending. We have now a better idea of where U.S. is going to spend money and how much is going to spend money in defense, up 13%, the defense budget year-on-year. Previously, you talked about the opportunity to do -- to build icebreakers to increase maintenance activity, especially in Jacksonville. Can you give us maybe an update on the opportunities that you see there? And also second question is there was an article that caught my attention the other day, talking about the potential expansion of the shipyard in Ancona, with building much larger cruise ships. If you can maybe give us an idea of how that will improve the performance of cruise going forward?

On U.S., basically, we are working on 2 directions. One direction is how to, I would say, contribute to the debottlenecking of the naval shipbuilding in U.S., which is a big priority for the new administration. And we believe that Fincantieri can be very helpful, again, having more than 15 years of experience, having invested something like EUR 800 million and having 3,000 people there. So the first focus is on how to, I would say, take advantage of this momentum in the, let me say, reorganization and in this new phases of the programs, of the navy programs and correspondent improvement in the productivity of existing shipyards. The second priority is on the repair, as you very clearly mentioned, in Jacksonville, but also in the civilian shipbuilding. So we are, as you may know, also in the civilian shipbuilding because we have a shipyard that is already active in a number of ships that are built in U.S., according to the U.S. regulation. And we are, as you mentioned, highlighting and emphasizing the skills and competencies and capability we have for icebreakers and cable layers being 2 kind of ships that has the characteristic of being strategic because they are needed for your, I would say, sovereignty, for your self-resilience and independence. So we are working on those 2 directions. Again, the new administration is progressively, let me say, materializing. It's view and vision on the months to come, and we will keep you posted accordingly. Moving to Ancona. The investment program from Ancona was already there. The project was signed, if I don't go wrong, something like 1 year ago, project being the Alturita Portuale, so the port authority incurring the infrastructure costs for strengthening the throughput capacity of the shipyard. Because again, we have the availability of those spaces under a concession. And then we are expected to do our investments, which refer to the equipment associated. So lifting power and cranes and things like that. So Ancona is a key shipyard for Fincantieri because it's the shipyard in charge for the luxury segment, taking advantage of the specific supply chain that you can rely upon in that region, again, having to do with luxury and so certain specific skills, materials, components, workforce and things like that. Luxury ships are also, I would say, increasing their size, remaining still in the luxury segment. So we need the shipyard to be able to manage ships having gross tonnage beyond 50,000, 60,000, which is the current capacity. So I believe that those investments are healthy for the shipyard, healthy for the country and giving flexibility to Ancona, again, still remaining focused on the luxury segments, but giving flexibility to Ancona Shipyards, which plays a very important role in the system of shipyards of Fincantieri at large.

And will it bring more volumes? Or is it an example of a gain in productivity and efficiency?

It's both. It's both. We can manage higher gross tonnage, we can manage more ships at the same time in the shipyard, which means flexibility on the tonnage of the ship and ability to improve the productivity, and therefore, I would say, profitability of the infrastructure itself. So it's an investment in flexibility and in productivity.

The next question is from Antonio Gianfrancesco of Intermonte.

I have 2, please. The first one is about your Defense business segment. So what is your general outlook in that market? And mainly, what you can tell us about the major tenders you are competing for? I'm thinking about frigates for Norway, submarines for Philippines and also on the Polish ORKA submarine program. My second question is related to U.S. tariffs. I was wondering how you are thinking about the impact of potential rising in aluminum and steel prices in single market, considering that the current U.S.-EU tariff agreement doesn't seem to cover that material and the U.S. has imposed a 50% global tariffs on that.

Can you repeat the first question? Which segment are you interested in?

Defense business segment, please. And mainly on the tenders you are competing for. So frigates for Norway, Philippines submarines and Orka program for Polish Navy.