Saipem SpA (SPM) Earnings Call Transcript & Summary

Good morning, and welcome to Saipem First Half 2022 Results Presentation. I'm pleased to have with me Alessandro Puliti, our Chief Operating Officer; and Paolo Calcagnini, Chief Financial Officer, who in a moment will take you through the details of our operations, our progress on operations and on the numbers. But let me start with a summary of the results and achievements we're communicating today. We are pleased to report a quarter of robust growth in revenues and margins. In the second quarter, as you can see from the slide, we have had revenues for EUR 2.5 billion, delivering a quarter-on-quarter growth of 28%, and EBITDA of EUR 176 million, which is about 21% higher than in Q1. Now whilst delivering on existing projects, we've also continued to build the base for future growth. And as you can see, the order intake was EUR 2.5 billion. That gave us a book-to-bill at 1.4. In terms of balance sheet, end of June net debt closed at EUR 1.7 billion. This is, of course, the number on June 30. As you know, we've completed the capital increase in mid-July, but was a number that is in line with our expectations, as Paolo will tell you in a moment. Now for clarity, all of these numbers, for the sake of comparison, including -- are including of drilling onshore. You may remember we've announced back in May the signing of an SPA with KCA Deutag, and therefore, as of this quarter, the business is reporting according to IFRS 5 as discontinued operations. But as I said, for clarity, transparency of comparison, these numbers are inclusive of that business. So in summary, this was another quarter of profitable growth. And I must say, results are grounded in an operating machine that is now really motoring on all cylinders. And if we move to the next slide, that can be seen in 2 metrics. If we look more closely to these 2 numbers, EUR 2.5 billion represents 30% -- almost 30% growth rate quarter-on-quarter. But actually, if we compare it to Q2 last year, the growth rate jumps to 55%. And that, in our view, suggests that the volume of activity and project execution, and consequently billing, is coming back to pre-COVID levels, not withstanding the orderly exit from Russia and still some issues in the international logistics in what we can call the post-COVID, even if COVID is still, unfortunately, with us. Most importantly, this is common across all of our business areas. And the second element I'd like to draw your attention on is if we open, if you wish, the total order intake, is drilling on offshore. Now the backlog of drilling offshore is around EUR 900 million, a figure that's almost doubled year-on-year, reaching the highest level since 2018. Now as you may remember, since the end of last year, we've been looking at drilling offshore as a good proxy of the new oil and gas investment cycle. Alessandro will tell you that we continue to see momentum in this business, providing a further indication that we're indeed in a strong, favorable market environment that has all the elements of what industry is calling the super cycle. If we move to the next one. The other element that I'd like to highlight is that, in this context, we've been able to gear our order intake towards the businesses and products that we have identified as essential to the strategic priorities we have set out in the plan. Now the numbers here referred to first half. The pie chart on the left is total order intake. And as you can see, more than -- almost 55%, 54% of that is in offshore activities, E&C and Drilling, which, historically, have been contributing the higher margins in -- among Saipem's segments. And if we then focus just on E&C order intake, which is the pie chart to the right, we see that 65% of that is represented by gas monetization. Once again, an indication that the commercial initiatives and the commercial drive is being actively driven in the direction of segments where we think we have not just something to say, but the technology platform to enable us to produce better margins. So it means that we're building a platform for profitable sustainable growth. And all that translates into a first half of profitable growth, whose key numbers are now summarized in Slide #5 for who among those are following our webcast. Revenues of EUR 4.4 billion with a growth of almost 40% versus half 1 2021. And an EBITDA that's swung back to profit of EUR 321 million versus a loss of EUR 266 million last year, with, as we said, total order intake of EUR 5.8 billion, which give us a book-to-bill of 1.3, which we consider a good indication of times ahead. So all in all, before handing to Paolo, that would take you, as I was saying through the details, just a quick recap. Second quarter and the first half with profitable growth, driven by strong industrial and commercial performance. The machine is humming and is recovering very nicely. And those numbers clearly enhance confidence and visibility on the targets for '22 and for the plan. Let me close this short introduction by emphasizing that in parallel to the running of operations, we've made very good progress on the initiatives that are essential for the execution of our strategy from the refocus of our commercial effort to the reduction in our cost base to the active management of our portfolio in this area. As you have read or might have read from our announcement, Saipem has continued to work on cash generation initiatives that we had set out in our plan, namely the agreement of KCA Deutag for the drilling offshore that will generate $550 million in cash at closing, and the more recent disposal of Cidade de Vitoria FPSO that will give us $73 million to our cash. Obviously, last but not least, in July, we completed a capital increase that has given Saipem the financial resources to continue along this growth, this profitable growth path that we have set out in our plan. And with that, I would hand over to Paolo that will take you through the financials, and then Alessandro, that will illustrate the tremendous work that this team is delivering in making our plan actual cash for shareholders. Paolo, to you.

Thank you, Francesco, and thanks, everyone, for joining the call today. So before we jump into the numbers and then referring to Page 9 for those of you following the webcast, and just a quick methodological premise. As you know, we signed a binding agreement for the sale of the drilling onshore business, whose closing is expected in October this year. So according to the accounting principles and to allow you a visibility on certain number, gross and net of the drilling onshore, the numbers are shown according to the 2 possible views, so with or without the drilling. In the chart, the numbers you see in orange, if they are in orange, is kind of a weird color, but it's orange-ish, I'd say, those are the drilling onshore contribution to the [indiscernible]. So this said, the chart shows the 2022 1st half results vis-a-vis the same period of 2021, where group revenues increased by 39% year-on-year, driven mostly by offshore E&C and drilling activities, but we will come to the business unit numbers later in the presentation. As Francesco recalled earlier, the Q2 revenues grew 28% versus the first quarter, which is a tangible sign of the recovery across all group activities. The adjusted EBITDA in the first half was EUR 321 million. This is a 7.2% EBITDA margin over revenues. It's EUR 600 million higher year-on-year, with the second quarter that accounted for EUR 176 million versus EUR 145 million for the first quarter, which is a 14% roughly increase over the first quarter. Now let me make a couple of additional comments on these figures. Number one, the EBITDA improved across all business lines. We will see the numbers in detail later, but it's an important sign that across all businesses the margins are improving. And second, let's remember that the backlog review left a sizable part of the portfolio with no positive contribution. So all the projects that have been reviewed in the back review have a K factor equal to 1. So meaning that they may contribute the revenues, but they don't contribute to the margins. And it's a factor that should be kept in mind when reading the margins over time. And finally, the net result was negative for EUR 108 million. But let's remember that EUR 98 million was the loss reported in the first quarter. So if you compare the numbers quarter-on-quarter, actually, the second quarter reported a very limited loss vis-a-vis the first one. Now moving to Page 10. We go to the business lines, and we start from the E&C Offshore, which is shown in the left side of the chart. The offshore activities, E&C posted a revenue of EUR 2.1 billion. This is doubling year-on-year. And it's driven by the ramp-up of all the projects already in the backlog end of last year. So they accounted for roughly 90% of the revenues that we recorded in the first half. So those were the projects acquired last year, whose execution is moving ahead smoothly. And offshore activities enjoyed the recoveries across all regions, mostly Middle East and Sub-Saharan Africa, but also in the Americas performed well compared to the previous year. The adjusted EBITDA for the E&C Offshore was positive for EUR 166 million, with an adjusted EBITDA of 8%, which is an increase of EUR 435 million versus the first half of 2021, with the second quarter improving substantially versus the first one. To give you a number, the EBITDA for the E&C Offshore grew from EUR 65 million to EUR 101 million over the last 3 months, which is a 55% increase quarter-on-quarter. A couple of comments -- additional comments on EBITDA. So the first half of the year -- of the previous year was negatively impacted by some execution issues in wind projects and some bottlenecks in Far East that were related to the COVID situation. And those effects disappeared this year, and they are hopefully behind our shoulders. And that explains part of the better results in the first half of 2022. Second element is that, in 2022, we had to take in account the effects of the Saipem 7000 accident. The Saipem 7000 was idle for 6 weeks after the accident. Now it's at full operational on the Seagreen campaign, and so it's not impacting the operational activities anymore. Still, we had one of our most important vessels that suffered a 6 weeks stop in the first half. E&C Onshore, now the revenues are in line year-on-year, but we need a few words of explanation because these numbers come from a mix of negative and positive elements. On the negative side, you remember that -- you may remember that starting from April 2021, the activities in Mozambique have been suspended. Mozambique accounted last year for a significant part of the first half revenues, while the contribution this year has been very limited, obviously. On the other hand, so notwithstanding the negative impact of Mozambique, most of the remaining projects in Asia Pacific and Americas and the Middle East posted consistent growth in revenue and client billings, so compensating almost the entire impact of Mozambique and other few projects that came to a stop for reasons outside Saipem control. Moving to the EBITDA. The EBITDA was slightly positive by EUR 11 million, with an improvement of -- versus the EUR 70 million loss in 2021. Now, again, the E&C Onshore, it's a business where the tail impact of the backlog review accounts the most. So we had a few projects that are not contributing to the EBITDA margins, even though they are contributing to the revenues. So the number should be read keeping in mind that it's -- when it comes to EBITDA, it's a mix of these 2 factors. And so in this context, we look at first half figures as overall encouraging and especially when compared to a year ago. We are obviously aware that there is clearly a lot of wood to chop and that 2022 remain a challenging year for the activities on land. Moving to Page 11 to the drilling activities. So offshore drilling increased 73% year-on-year in terms of revenues. And the EBITDA reached EUR 289 million, so it's almost 2x 1 year ago. And it increased from -- increasing from EUR 45 million to EUR 86 million, with a margin slightly lower than 30%. So the performance improvement comes from 3 factors. The first factor is the improved fleet utilization. All vessels are booked for this year. And 75% of the billable time is already booked for 2023, so for the next year, which gives quite a good visibility on the future results. Second is the increase in rates that we are seeing on the market for drilling vessels. And third is the beginning of the activities of the new Santorini drillship in the Gulf of Mexico that began in February 2022, so it was not in the 2021 numbers, but it accounts for a part of the 2022 results. And one comment on the drilling onshore results. The numbers are shown in the slides. There is not -- there's not much to comment. And the -- as you know, the business unit will be sold in October this year. Now moving to the P&L. So I'm referring to Page 12. This slide is a bit crowded, but I want to draw your attention on a few aspects. First, the difference between reported figures and adjusted figures is only [ EUR 12 million ] in terms of net result and EUR 19 million in terms of EBITDA. These numbers compared to EUR 120 million in 2021. That's a sign that the situation is progressively going back to normal and the COVID effects may eventually become negligible on our operations going forward, and let's keep the fingers crossed because that's a factor that is outside of our control. But so far, the impact we experienced in the first half is very limited compared to the previous 12 months. Second, the net result for the second quarter was negative for EUR 23 million, which compares to EUR 98 million in the first quarter. So in the chart, you see the total for the first half, which is EUR 108 million, but if you dive deeper in the numbers, the second half was actually very encouraging compared to the first one. Now going below the EBITDA, and just to comment some P&L items, the G&A increased by EUR 27 million. The reason being that, in 2021, we had certain vessels, both in drilling and E&C, that were not working for extraordinary maintenance. And when this happened, the depreciation is suspended. So this year, all vessels are working and you see a depreciation number which is higher than the previous one. Financial expenses were EUR 59 million. So it's -- this is EUR 5 million more than last year. It's a mix of 2 different factors. Number one, the -- we had to take into account the cost of the financing package, so the bridge facilities that brought the company to the capital increase, and that's obviously an increase in financial expenses. On the other hand, we enjoyed some positive effects on our hedging activities and currency exposures given the depreciation of the euro vis-a-vis most of the other currencies, including, first, the U.S. dollars. The result from equity investments improved in second quarter by EUR 19 million. The number for the first quarter was minus EUR 43 million, so leading to a negative of EUR 24 million with an improvement of EUR 19 million. Tax, the income taxes are the best estimate for the entire year, which is then accounted for in pro rata temporis on the first half results. The reason why it increases is also because as the activity gains momentum in some countries, we are subject to withholding taxes that you pay on revenues. So by the time you bill clients, you pay the withholding taxes, which may, in some cases, hopefully be recovered later when the full P&L results are produced. Just a couple of slides more before I hand over to Alessandro, Page 13, and this is a bridge of the net debt evolution over the past 6 months. The net debt, including IFRS, was EUR 1.7 billion, sorry, prior to the capital increase, or EUR 1.4 billion net of the IFRS 16 effect. So let's have a look at the cash flow evolution, which is highlighted in light blue, in the light blue areas of the chart. The net cash flow from operations before working capital and CapEx was positive around EUR 160 million, driven by the positive operational results in the first half, while the working capital was negative for EUR 600 million. Now there are 3 elements that explain the number. The first one is the backlog review. The backlog review was accounted for in 2021, but the cash out was foreseen in this year, and then the EUR 200 million part of it, so roughly EUR 200 million is a cash out that we had in the first half. The second effect is the working capital and other nonmonetary items. Now the business is growing and, obviously, as the business grows, there is some working capital absorption, and that accounted for EUR 200 million over the EUR 600 million. And last but not least, the remaining EUR 200 million is a cash reversal of advance payments from clients. So the reason why this is happening and was obviously was -- is in line with the business plan projections is because as we are taking more work on the onshore activity, which doesn't enjoy the same level of advanced payments, and we move on in delivering on the onshore backlog, the net effect is negative because the onshore business typically enjoys advanced payments while the offshore doesn't. Final, the CapEx in the first 6 months were EUR 112 million. And this is because in terms of schedule of the maintenance of our vessels, they are mostly concentrated in the second half. So the total number, which is around EUR 400 million for the 12 months, splits in not equal parts. So it's been a bit lower in the first half, and it's going to be a bit higher in the second part. Now moving to Page 14. We try to help you read the numbers because we understand that in terms of financial position, there have been quite a few moving parts and moving elements, including the month of July. So the left side of this chart shows the first half numbers, and pro forma taking into account the effects of the capital increase, which are the -- obviously, the cash in from the capital increase, but also the repayment of the bridge facilities. So the gross debt was EUR 3.7 billion end of June. But if you pro forma the numbers for the capital increase, the gross debt reduces by almost EUR 900 million to EUR 2.9 billion. And when it comes to the liquidity position of the company, it was EUR 2.3 billion at the end of June, while after the completion of the rights issue, pro forma goes up to EUR 2.9 billion, which is, again, EUR 600 million higher than the accounting numbers for the end of June. And then the right side of the slide shows the maturities of our bond and banking facilities, while the bottom part shows the liquidity as of June, again, with the accounting figures and pro forma to keep into account the cash inflow, the net cash inflow from the capital increase. So this is the numbers, we should keep in mind, are net financial position, pre-pro forma, pre-IFRS 16, which is roughly 0. It was actually positive for EUR 90 million. And after IFRS 16, it's negative for EUR 220 million. So that's the net pro forma net debt. Page 15, this is the last slide I will comment before I leave the stage to Sandro. We basically give you a projection of the net financial position by year-end. So from the EUR 1.7 billion end of June, we need to deduct the EUR 1.5 billion of the capital increase. And then we had to add the expected free cash flow for the second half. So a few words on the expected free cash flow. So the free cash flow from operational activities are positive for second half. You can say that they are neutral, keeping into account the swing in the working capital. However, there is still -- there is going to be still EUR 300 million that are the second, let's say, installment of the backlog review costs. So those are cash outs that are related to the backlog review and to the extra costs that were accounted for in 2021 report, whose cash out is foreseen in the second half. And then you have the remaining CapEx that I commented before. So that gives an expected net debt before the disposal of the drilling onshore around EUR 0.8 billion. That goes down to EUR 0.3 billion, keeping into account the proceeds from the billing onshore, which is going to be EUR 0.5 billion in October and then the remaining 50 plus the stake in KCA that will come -- well, the remaining EUR 50 million will come in 2023 and then the stake in the KCA participation. And so the EUR 0.3 billion, including IFRS 16, it's roughly 0 or slightly positive, including -- excluding IFRS components, so in terms of financial debt net debt. So all in all, these numbers confirm the targets that we gave you in the business plan, including the drilling onshore. Obviously, they don't include any other extraordinary managerial actions to improve the cash position and the variation of our assets that we are working on. Now I will hand over to Sandro that will go through the business plan execution in the remaining part of the presentation.

Thank you, Paolo. And now we'll go through the execution of the strategic plan that is progressing faster, smoothly and in line with the expectation. Starting from the commercial focusing, order intake is concentrated in the offshore, both in the engineering and construction and drilling businesses that are historically the higher margin segment. Drilling Offshore fleet is fully engaged for the current year and has an engagement rate of 74% for the next year, with the daily rates that are on the rise, and several new contracts are under negotiations currently. We activated cost efficiency actions worth a run rate of EUR 120 million of cost savings, in line with the cost reduction plan than was foreseen, EUR 150 million cost savings at the end of the year. We came out from 2 projects in Russia in compliance with the regulation and reducing risk, the Moscow refinery and the drilling operation of [indiscernible] Perro Negro 8 that is now working in a different area. On the energy transition, in May, Shell and Petrobras awarded Saipem a contract for the utilization of flat fleet -- FlatFish subsea drone for inspection activities at 2 ultra-deepwater fields offshore Brazil, a green shop for future subsea robotics development. On the offshore wind, we are progressing along our dual strategy. We are delivering on existing backlog. The Saint Brieuc transportation and installation has been completed, and all jackets of Formosa 2 have been delivered to clients. Saipem 7000 restarted operation and is now executing the Seagreen. On the asset valuation and cash actions, we signed the agreement with KCA Deutag for the sale of the drilling onshore business for a total consideration of $150 million cash, plus a 10% equity stake in the new KCA Deutag after the acquisition. And finally, we signed an agreement with BW Energy for the sale of the FPSO Cidade de Vitoria in Brazil for $73 million. With these actions, we have already reached around 50% of the value planned cash actions already announced in the strategic plan. In terms of order intake, the first semester has been considerable, and it has been a result of our refocusing of commercial activity. Further, it is concentrated in high-margin offshore segment. In E&C Offshore, we have been awarded the Yellowtail SURF in Ghana, a key country for subsea development, and the Scarborough sea line in Australia, leveraging our strong track record in very large, very long trunk lines and utilizing the pipe layer CastorOne. Moreover, we won 4 new contracts in Middle East, consolidating our primary role in Saudi. Drilling Offshore backlog doubled year-on-year, thanks to an order intake of EUR 0.8 billion in the semester. The drilling fleet is fully engaged for the year, and it has a 74% engagement for 2023, which daily rates that are on the rise and delivers confidence of our plan. And moreover, expectation of full engagement also for 2023 are fueled by several new contracts that are currently in the final negotiation stage with the clients. Coming to the E&C Onshore, we are delivering the projects in the backlog on schedule. In the slide, you can see a list of milestones and deliveries that we have reached during the second quarter on a number of projects across different segments and geographies. In the E&C Onshore, our commercial approach is more focused on selectivity. We may [ exercise ] them in a joint venture with Clough has been selected as the exclusive EPC contractor for the development of the Perdaman Urea Plant in West Australia. The contract value is USD 1.35 billion in Saipem share, with further risk and reward provision to provide flexibility to manage any potential further deterioration in market conditions. In Brazil, we have been awarded a contract for the engineering services for the Gato do Mato FPSO, which is preliminary to clients possible final investment decision to develop the EPCI project. Both contracts have in common an early engagement and risk-sharing transparent approach, both before the definition of the EPC contract price and after, which can reduce the risk of both client and contractor in the current inflationary supply chain market environment. Finally, in Saudi Arabia, we signed an agreement with Aramco and NSH Corporation for the establishment of an EPC national champion that will be performing the full range of onshore EPC project activities. The establishment of this entity is expected by the end of this year, and will combine the strength of the 2 companies. This proposition will reinforce our positioning in the country and reinforce ties with the client, further reducing risk. Looking at the backlog, IRFS backlog at the end of June was EUR 23 billion. As you know, we have derisked our order portfolio performing an extensive in-depth and externally validated review of the E&C backlog that covered 22 projects representing around 88% of the backlog of the E&C segment. The backlog, including nonconsolidated projects, amounts to EUR 24.6 billion, of which more than 3/4 of the E&C part is not oil-related. 69% is gas; renewable and green energies are 4%, mostly wind farms; while infrastructure and other nonoil are 4%. The backlog is solid and well diversified across segments and geographies. And now I focus on offshore wind, where we are progressing along our dual strategy in this segment. First of all, we are delivering on the existing projects in backlog. The Saint Brieuc P&I has been accomplished, and those jackets for Formosa 2 have been completed and delivered to clients. Saipem 7000 restarted operation and is now executing Seagreen, installing the foundation for wind turbines offshore Scotland. The other large offshore wind EPCI projects are progressing on track according to the revised schedules agreed with main clients and defined in the backlog review. Regarding our full strategy, we have made a couple of steps ahead, including agreements with companies in Italy and in Norway. In Italy, with Trevi, on the development of drilling systems for large diameter foundation holes. And in Norway, with Afren, to widen our value proposition and identify new and more profitable ways of executing EPCI wind projects. The final slide is on asset valorization and cash actions. In just 4 months from the announcement of the updated strategic plan, approximately 50% of the asset valorization and asset cash actions have been already delivered. In fact, in early June, we finalized the agreement with KCA Deutag for the sale of drilling onshore business for the total consideration of $550 million cash, plus 10% equity stake in the new KCA Deutag. Closing the transaction is expected by end of October this year for Middle East and by the end of March 2023 for Americas. I want to remind you that this action was not factored in the strategic plan targets. Further, at the end of June, we agreed with BW Energy the sale of the FPSO Cidade de Vitoria in Brazil for $73 million. So this slide concludes my section, and now I hand over to Francesco for some closing remarks.

Thank you very much, Sandro, and thank you for your very thorough explanation, Paolo as well. So before handing over to you for Q&A, let me recap where we got to. We've completed a capital increase on July 15. That was well before year-end, in less than 4 months from announcement, and that has clearly strengthened our balance sheet. We have now delivered the second quarter of industrial and commercial very robust performance that give us an acceleration in growth in both revenues and EBITDA and order intake vis-a-vis not only Q1, but also H1 2021. And this set of facts and numbers, actually, provide us the best possible validation of our organizational and strategical choices over the last few months and clearly indicate a very positive feedback, encouraging feedback from our clients that we, as you can imagine, value very, very much. We're also delivering at a fast pace our strategic goals, and benefiting, obviously, from a context of oil and gas market that we refer to as -- not just us, the market, the industry refers to as a super cycle. And lastly, as Sandro just mentioned to you, illustrated to you, we've announced important cash quick actions that are accelerating the deleveraging. So these facts and figures and numbers and results position us well on track to achieve the objective for the year and for the strategic plan that we set 4 months ago. And with that, [ thanks ] for your attention, and I would ask the operator to begin to handle Q&A. Thank you.

[Operator Instructions] The first question is from Mark Wilson of Jefferies.

Congratulations on what appears a much more in line operational outlook and performance. My question is, on Slide 20, in the backlog review, still over half of your backlog is in E&C Onshore. Could you let us know, within that backlog, what are the largest projects currently in that E&C Onshore? And then if they're not, what -- how much amount is related to Mozambique and also Nigeria Train 7 and expectations there? And then just remind us what is in the nonconsolidated backlog, which projects make up that EUR 1.6 billion.

Thank you very much. Sandro has all the information.

Okay. So the major projects, as you were mentioning in our E&C backlog are mainly located in Mozambique, Saudi Arabia, definitely, and in -- and the Bonny LNG is certainly another very important contributors. If you want to comment on those ones, I would like just to say that in Saudi Arabia, in all our E&C project, we are progressing well. On the [indiscernible] project, we just achieved on the 30th of June our readiness for first gas seen in the first train, and this is one of our major achievement in terms of delivery of the project. And I believe that also what is worth to mention, and on those projects, we are participating to a relief package plan that has been delivered by our client to cover for most of the extra expenses we incurred for the COVID season in 2020 and early 2021, prior restarting those activity that have been suspended. And this is a very clearly important financial relief for those activities. Regarding Mozambique, we still in -- the project is still suspended. Our current costs are covered in a fully reimbursable scheme from the client. And we do not expect any restart of operation within 2022. That's our -- the mean regarding those projects.

And as a follow-up to that, one of the characteristics of Saipem is very high backlog, a lot of which was won before COVID. And are there any possibilities of even rebidding some of these larger legacy projects, even Mozambique?

Sure. Clearly, many things, as you were mentioning, has happened between the period of 2018 and 2019 when many of those projects that were acquired and basically were in a completely different world today, first of all, [ disclose ] of the COVID, and second, because of the inflation of the raw materials that we have been experiencing starting the end of 2021, even before the beginning of the Ukrainian crisis. And what we see is that most of the client, after an initial period, are now clearly willing to accommodate those costs that are documented. And one of the clear example was the one that I was mentioning before, the relief package in Saudi Arabia. Clearly, we restart when there will be a restart of operation in Mozambique, those have to be necessary on different terms and conditions because what was agreed back at the beginning of the project is clearly no longer sustainable. So therefore, restart of the project will be definitely on a different basis, a renegotiated basis with the client.

The next question is from Massimo Bonisoli of Equita.

Just 2 questions from me. If you can provide some update on the funding, if you can remember us what are the next steps with the banks for the new funding facilities? And the second question, if you can shed some light on the positive result from the equity income from associate that was in second quarter versus a negative result in the first quarter?

Paolo, will you pick that up?

Sure. So thanks for the questions on funding. You may remember that the remaining piece of the financial package was the [ indeed they asked yet ]. According to the plan we had, we are negotiating that we were -- we agreed with the banks to negotiate the RCF after the capital increase. So this is what we are doing as we speak. And we expect to close the RCF in September. And that would basically bring the financial package delivery to a final conclusion. Then we also shared a maximum amount of roughly EUR 1 billion in previous occasions. When we should -- when we came up with the number, the drilling onshore disposal was not signed and was not binding for both parties. So we may reconsider the amount of the RCF, bringing the RCF to a slightly lower number because we can rely on the EUR 500 million of liquidity which is coming in from the drilling onshore in October. And that's the first comment -- the first question. The second question was -- remember me on...

On the equity results from associates.

Yes, that's actually a mix of quite a few different things. So those are participations that are accounted for with the equity method. So we [ basically deduct the ] -- our share of the valuation of the equity value of the participation, and it's a mix of 7 or 8 different items. There was one participation where we accounted a loss with the equity method in the first quarter that recovered in the second quarter, therefore, reducing the loss in the first -- in the second quarter. That's the explanation of the difference. Plus there is another JV where the equity valuation brought a positive contribution in the second quarter because of the results of the JV. And that explains why the second half has a positive number for EUR 19 million compared to the EUR 43 million negative in March 2022. Sorry, we don't expect major changes in the second half. So we don't expect material numbers for the remaining 6 months.

The next question is from Nikhil Gupta of Citigroup.

I have 2 questions, please. One is on the asset valorization plan. So could you give us some colors on what are the remaining assets or kind of assets that you plan to sell? And second is, it's good to see a higher order intake number, but can you please comment on the cash profile of the new contracts have? Has it been becoming more positive or -- working capital positive? Or how does the cash profile looks like?

Okay. So in the asset valorization plan. As we made clear during the presentation, we achieved already more than 50% of our target that is EUR 1.5 billion for asset valorization program. And this was supposed to be along the full year plan, but this was achieved along the first 4 months of the full year plan. So the speed at which we are bringing this activity is really very fast. What's next? Clearly, what we are thinking, and this cannot, as you can easily imagine, cannot be disclosed immediately because we are under negotiation, but mainly would be valorization of the -- of our current assets through dedicated vehicle that they can become nonconsolidated and where our share will be no longer 100% and will be reduced. And accordingly, there will be a cash income. So this will be the scheme under which we will valorize our fleet and our assets without basically losing control, without losing our operational control, but reducing our share of ownership of those assets. So the remaining part of the plan will be subject to this kind of operation. And as you can imagine, just to give you an example, all the deep water offshore fleet is getting every single day in higher value considering the market in which those ships are nowadays operating. So that's the way forward. Regarding working capital for new projects, for new E&C projects, this is part of our strategy of new acquisition where we want to be far more selective on margins on the projects that we are acquiring. So this strategy is value over volume. And this includes also working capital. So we are very careful that the new projects are acquired with the proper amount of cash advancement by the client that allow us to be cash positive throughout the entire execution period of the project.

The next question is from [ Roberto Ranieri ] of [ CECL ].

Two questions, please. So the first one is a [indiscernible] actually. Could you please give us some details on the order cancellations you mentioned during the presentation? And the second one is on the new orders that you acquired in the gas sector. I'm interested in more details in terms of geography. And specifically, if this geography will relate to the proximity to Europe and Italy, just to understand if this gas project could also involve the -- some countermeasures on the Russian gas crisis for Europe and Italy as well.

The orders does not cover the specific issue of energy crisis in Italy, but we're very pleased to have taken it. And nevertheless, and Sandro will give you the specifics of the important order we won. I'm not quite sure I understood your -- the first part of the question in terms of order cancellation. Is that right?

Okay. Regarding... Okay. Regarding order cancellation, the main movement that we had are really linked to -- at the end of the first quarter, basically, we had an order cancellation that was relevant to the Perdaman, to the first Perdaman, and that was then reentered in the backlog in the second quarter after the completion of the negotiation with the successful completion of the negotiation with the client. So this is -- this was reported as a minus in the first quarter [indiscernible] entered in the second quarter as a plus. Then, clearly, we had to -- since we closed the project in Russia, the Moscow refinery, we removed EUR 180 million around of order related to that project in Russia that was terminated within the framework of the sanctions in mid-May this year. Regarding activity on gas, clearly, we are very active in these sectors. Both, I would say, all over the world, there is not a specific geography. And as you appreciated, for example, in Thailand, we just delivered the first gasoline in the Nong Fab regasification plant that we built there. That is the regasification plant with a greater LNG tanks ever built. So definitely, we're extremely active. We are participating to all possible gas initiatives that are arising in these days, even in Italy, where some clients did ask us some quotation for activities. And definitely, whenever there is gas, we are ready. And we're specifically ready for everything regarding the LNG, both traditional liquefaction plant, but also fast track LNG plant on floating units that can be quickly delivered in different geographies according to client need. So definitely, the answer is yes.

Sandro, can I add just a few elements. Roberto, the order cancellation -- so the net order intake, if you deduct all the cancellation, would have been roughly EUR 5 billion vis-a-vis the number that you saw on the chart. And it comes from 2 projects, and the 1 is the Perdaman, and the other is Moscow refinery that was terminated in the first -- in the second quarter. So it's not in the backlog anymore and if I remember correctly, that accounted for roughly EUR 200 million. And then given your question on Italy or Europe, there -- stay tuned because there might be the signing of a project in Italy, or let's say Mediterranean Sea.

And let me add to this point that, clearly, the geopolitical context is something that nobody is particularly happy about. But from a business perspective, is something that, as you've seen, is driving new interest and demand in more mature markets compared to the untraditional market for energy infrastructure, particularly gas, where we have, as Sandro was saying a second ago, a very strong track record and expertise. So for the numbers you've seen in the quarters, there is still the majority of orders coming from abroad. But as Paolo just said, we look at Europe, mature markets, including Italy, as a horizon of opportunity and growth as decisions are taken in making energy infrastructure more robust and more resilient.

The next question is from James Thompson of JPMorgan.

I just wanted to ask, in terms of the 2022 to '25 strategic plan that obviously you laid out earlier this year, the -- there's obviously a big difference in terms of the kind of free cash flow profile for the business based on the kind of base case versus the asset sale processes that you're going through. Just in terms of you being halfway through that process at this point in time, I just wondered, Francesco, whether the actions taken so far mean that you are going to see that sort of very significant free cash flow uplift more into 2024 rather than 2025? Or is that really going to come through some of the contract negotiations that are ongoing?

Thank you very much. I would ask Paolo to give me some comfort. But broadly speaking, as Sandro was saying a moment ago, what you've seen and what we're reporting is clearly a very quick start of the implementation of the plan, partially because the drilling onshore idea on active portfolio management was with us already at the beginning -- at the end of last year, so that we're enabled to execute quickly. We are today not moving around targets, guidance or views on the way forward. But clearly, we've seen the numbers that you see, and we're comforted by the strength in demand and our ability to deliver. So I'm just saying that, watch this space in terms of perhaps increased flexibility going forward. But at the moment, I wouldn't feel comfortable in telling you that what we've announced in terms of targets and market projections 4 months ago has moved or is changing. Comfortable on the projections, pleased to see the traction of the machine, but still very, very careful in making sure we first deliver and then we announce. Paolo?

Yes. Agree. Agree. No, just one comment on free cash flows. Now -- so let's split the topic in 2. So we are doing a lot of things that may -- that will improve the cash position and deleveraging of the company. Those are the actions -- those are the, let's say, low-hanging fruits, and we are getting the most out of the things we can do in the short term. On the other hand, working on the structural change in the way working capital is managed, it requires, obviously, time. And we are doing it, but the benefits will be -- will appear in the net cash flows starting from next year. So we can confirm the targets for 2022, and for the remaining part of the business plan, obviously, we are working to do possibly better than that, especially when it comes to cash flows.

Okay. That's fair. Maybe I could just follow up in terms of some of the confidence underlying there. I mean obviously, we've seen a lot of macro volatility in the first half, whether it's kind of Russia, Ukraine or kind of some of the recessionary discussions that are out there. I just wondered if you could maybe give us a bit more flavor in terms of kind of customer discussions, confidence on order intake in the second half? I mean particularly offshore drilling has been very good. Where are you in terms of pushing the envelope on pricing for 2023 kind of remaining capacity in 2024? So some discussion on pricing and just general kind of market [ bench ] would be really helpful.

Thank you. I think Sandro can give you a much more detailed view, but the overall message is that in discussions with customers and big clients, we sense -- continue to sense a sense of urgency and interest on the fast track delivery of our projects and infrastructure. That, for us, means that the demand is pretty robust out there, notwithstanding the turmoil you were referring to. But Sandro has had very recent meetings with very important clients.

Okay. Clearly, the current price of the commodities is driving the market, the offshore mainly, I would say, market, both in drilling and engineering and construction, in a very strong manner. I would say, clearly, the first signs is always drilling, getting the first hit, positive or negative, by the way, and in this case, it's extremely positive. And I believe that the most interesting sign is that clients are now asking for long-term contracts for drilling rigs. We were no longer used to see clients asking us for 3 years or even 4 years plus options type of contracts. While this is becoming common nowadays, so this means that our main clients, the major oil and gas companies, are believing in a long-term cycle. And this is driven not just by exploratory activity, but it is driven by development activity to put in production reserves that have been already discovered. So this also, in turn, is driving the E&C offshore market because then what we see is that we already -- we said very clearly in the presentation that our drilling fleet is fully booked. But I will say that our offshore construction fleet is fully booked as well. And now to find a pipe layer or to find a vessel able to install jumpers in deepwater activities, Christmas trees and so on, and all what is needed for subsea production equipment is very difficult. And the market will be tighter and tighter because some of those vessels that were clearly utilized for fleet development and pipe laying, and we have one of those is very clear is our is our Saipem 7000, now are no longer utilized for the oil and gas, but they are utilized for offshore wind. So there is -- even in a growing market, there is less capacity than we were used to have 3, 4 years ago. So utilization will be at full, definitely, in the next year. And coming -- how this is turning in terms of order intake? We do expect very good order intake in West Africa, Ivory Coast, Angola. But also on the other side of the Atlantic is very -- the market is very active, Guyana, definitely, and also Brazil, definitely. So those are the areas where we see -- and where we see the most important order intake for this kind of activities, both drilling and E&C Offshore.

The next question is from Mark Wilson of Jefferies.

I'd just like to confirm post the capital raise, it's roughly 30% of your shares that are held by the banks. I'd like to confirm that. And then is there any coordinated action to resolve that holding that you could speak to?

Paolo?

Yes, the takeouts from the banks was around 29%. So the number you have in mind is correct. Obviously, we don't know what's going on nowadays. I mean it's their business, not our business, how and when they are possibly selling shares. What we know from official sources that a part of the banks, the consortium decided to sign an agreement for an orderly disposal of the participation accounting for 70% of their stake. And this is all we know. There is no, obviously, coordinating actions with the company. That would be impossible.

Next question is from Haris Papadopoulos of Bank of America.

Could you perhaps provide us with an idea of how EBITDA and free cash flow will look following the disposal of onshore drilling. Any chance you could give us a bit of guidance?

Paolo?

Yes. So when it comes to EBITDA, you can have a look at the numbers on the presentation and [ for some ] Page 7, those where the -- where you see the contribution of the drilling onshore on the overall numbers and was EUR 58 million for the first half. And that's how much the drilling onshore accounted for in the Saipem numbers. And when it comes to -- your second question was on cash flows related to the -- on the guidance? No. So when it comes to the guidance, if you look at the numbers of the drilling onshore, the contribution to the overall cash flows is not really material. So we don't see a reason for reviewing the guidance we gave you for this year.

Gentlemen, there are no more questions at this time. I hand the call back to you.

Okay. Thank you very much. Thank you for your attention, and we look forward to speaking to you at the next quarter.