Tesmec S.p.A. (TES) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Tesmec [ results ] as of September 30, 2021, conference call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Ambrogio Caccia Dominioni, Chairman and CEO of Tesmec. Please go ahead, sir.

Thank you. Thank you, everybody. I am Ambrogio Caccia Dominioni. I will introduce this presentation. We have several slides. So probably it is easier to start on Slide #12 firstly, basically is making a summary of what we have done in this quarter. Basically, in this quarter, we have a celebration of our 70 anniversary. It was an important date for us because, basically, is a good period for a change of our strategy. It's a good period to have a new way of -- in our focus on development and new technology and basically coming on this new world that is changing. For this point, we have organized an event in September in Bergamo that were going on and last week also to produce our company in our different location in Italy. The priority given was how to celebrate our traditional business that was in the year 50, basically coming out from the new generation of energy stringing business going to the current technology, where we talk about the digitalization, we talk about automation, we talk about artificial intelligence. It was a huge trouble during -- in this period, and we are proud to see that basically we are now starting to collect the first [ year ] the good result about this big development of our technology. We have a strategic positioning in the market, and we are now starting from our -- currently in Italy, we have a good reputation for our brand, and we are on the way to develop our international strategy in the area of clean energy, in the area of sustainability, in the area of the new technology. Going then to -- I mean, in the business development, I think that I will transfer you to Mr. Paolo Mosconi, General Manager, that will introduce you what is our strategic -- strategy about our development -- about development and new plan. Thank you, Paolo.

Thank you, Mr. Caccia. Good afternoon to everybody. So the main strategic change that we are operating now is that we are and we are becoming to be a more sustainability company. In fact, Tesmec Group strategy is focused on the integrated ESB -- ESG principle into our growth path. Let me say that Tesmec paid in the past and is paying a great attention to the design of cutting-edge solution, in particular aimed at operating efficiency and reducting environmental impact. So our culture, let me say, is oriented toward the technological innovation and the paradigm of Industry 4.0 and the principle of the digitalization, and the interconnection of the system is part of our development plan. The growing attention to the topic of sustainability is also reflected in the sustainability report that we started in 2017 with the nonfinancial statement and in the preparation of the sustainability plan that we are in progress. There are various important number of certification held by our group, including the so-called carbon footprint or ISO/14067 for that -- as the first company in our group, Tesmec Automation, awarded this year. In particular, we changed also our internal organization, and we have now a sustainability manager. That is Mrs. Patrizia Pellegrinelli that will introduce you our target and our activities to be in the preparation of our sustainability plan.

Good morning to everybody. Yes, Tesmec Group considers sustainability as a strategic driver for its development plan, and this topic must be integrated in our business. So we are preparing our sustainability plan, working on a specific guideline that must be integrated in the industrial plan. And in particular, with reference to ESG target, we can show you this main deadline, which are the increase of the percentage of green and digital solutions, a stronger action for environmental protection and climate change mitigation. We focus on welfare of our people and resources, and we want to strengthen the relationship with our local communities. And last but not least, we are working to design an effective sustainable governance. This is in line with the SDGs, the sustainable development goals of the United Nations that we identified in our strategy. In the next slide, you can find some commitments and some actions that we already taken in the field of sustainability. With reference to ethic and sustainable governance, there is a new sustainability manager, which is me and all the commitment of our Board of Director and Committee in this field so -- in order to monitor and better follow all the topics related to the sustainability. With reference to our core business, which is the development and marketing of green and digital solutions, we can say that our R&D efforts are addressed to the development of electric or hybrid machines to -- both in the Stringing business and in the Railway business. There are continuous improvement in clean and fast solutions for [ cable link ] and fiber networks. There is a strong commitment in the digitalization of all our process and products in order to reduce the environmental impact of our solutions. With reference to the climate change and environmental protection target, we are working with our supply chain in order to even more spread the ESG principle in -- with our suppliers and customers. With reference to the social aspects for the development of local communities, areas and enhancement of and protection of people, several initiatives are underway, and with reference to the employee welfare or involvement and support of new generation. So we have some training programs with the main universities and schools.

Okay. If we enter in the business unit and we see how we improve this new principle in our day-to-day activities in our plan, business unit -- per the business unit, I would like to show you some example. We start from the, let me say, sustainability unit that is automation. And we have, as I told you [Audio Gap] this year, and we are developing a new solution for the medium-voltage and high-voltage substation. In fact, the Italian DSO and the Italian TSO awarded to us important order in the last month. So in this -- thanks to this technology, we increased, as Mr. Paredi will show us after, our backlog in a very important way. If we go into the next slide, okay. For the Stringing, that is the second sector of the energy business unit, we started the mass distribution of electrical machine. So as you know, we had the first prototypes machine in North America in the first half. And starting from this quarter, we started to do the demo and the commercialization of the electrical machine also in Europe with, let me say, one of the most important authority that are out there in France. This is a big change. In fact, our machine and our people now are completely environment friendly, so we don't have any kind of emission, no noise, no pollution, no hydraulic oil. So -- and there is -- there are benefits for the environment and also for the operators that does not need any DPI protection. For -- in the rail sector, we increased our presence in the diagnostic sector to guarantee a better monitoring and safety on the infrastructure. In fact, we put in service a vehicle, diagnostic vehicle to the Lithuanian Railway with 6 advanced apparatus. And we signed a collaboration with a partner to enlarge our presence in the diagnostic sector offering to the market not only the diagnostic to assembly onboard the vehicle but also the fixed diagnostic on the infrastructure to monitoring the state of the vehicles. At the same time, we have our leadership in the catenary solution. In fact, we are doing in this period and we did in the last quarter the final test -- factory test with the most automatized train to renew the catenary installation. The customer that is an important French consortium supported [ sensor ] bid for the factory assessment test, which completely -- was completely successful. And the Trencher. Here, we have our solution for fiber and electrical cable for the automatic laying system, utilizing the low energy to build in a narrow [ beach ], so consuming the low territory. We have also, here, important news. In fact, we developed the -- a new mapping system utilizing the new technology of [ laser ] scan, which is supported by a [indiscernible] or to have a better mapping of the underground infrastructure. So we have a digital application to connect the -- our machine with a better view of the underground. These are the key factor of the last quarter. I will now -- I will give the floor to Marco Paredi that will give us the number of the period.

Thank you, Paolo. Good afternoon, everybody. If you look on Slide 25, we show the main KPI result of the complete financial report for the first 9 months of 2021 compared to the result of end of September 2020. As a general overview of the performance in September, record improvement in all indicator compared to September 2020, bringing back Tesmec to the pre-COVID level in terms of revenue but with higher profitability, margin and net result with some delay in the cash generation of the dilutive increase of net working capital that impacts our net financial position. Look and go forward there in different KPI, the revenue record, EUR 144.2 million of revenue with an increase compared to the EUR 116.8 million end of September 2020 and in line with the 2019, we record EUR 144 million. In -- we achieved this important back result in terms of revenue, although as impacted by the supply chain and logistic criticalities that give us some delay in terms of delivery and forecast and also consider the fact that we have some impact in the target of -- in the U.S. market. In fact, this result is not in line with our previous forecast due to the performance of U.S. market. And for that reason, we will see in the outlook our new forecast, our new KPI for the period. In terms of EBITDA, we have -- we achieved EUR 21.2 million of EBITDA against the EUR 15.7 million for the last year. This result is better also comparing the 2019 and is impacted by the positive Tesmec Energy, Railway business as for in this -- as before in this year. And that confirm the choice that the group made in this business because that generate a high-value margin thanks to the know-how, thanks to the innovation that brings these [ 2 sector ]. The result of the impact of the Energy and the Railway offset this year the negative performance of U.S. market and the delay that we have in the U.S., in the Australian market due to the situation that we faced during the [ third ] quarter in Australia for the lockdown that generated a delay in performance and in revenues. In any case, we want to underline the important improvement in terms of recurring activities. In the next slide, we are going to analyze this important impact in terms of recurring activities. So the profit -- the net result in net income is positive for EUR 2 million against a loss of EUR 4.8 million over last year and also is positive against the EUR 0.7 million of 2019. In term of results, they are having positive impact from the exchange difference, thanks to [ the flow ] of U.S. dollar and the related currencies. In terms of net finance position, we have an improvement versus the result of June but in any case, a delay in our target and what situation if you compare the result of net finance position end of 2020. This variation is already mainly for the variation of the net working capital increase to face the tension in the supply and the shipment/freight activity and to support the sales of the fourth quarter and also in some delay related to the Railway business to cash in and to invoice our projects. If we move into Slide 26, we look at the performance of each business. The Energy business has an important achievement in terms of results because we have a turnover for EUR 36.5 million against EUR 29.2 million over last year. But it's better than also 2019, thanks to the performance of the Energy Automation because if you compare the result of Energy Automation last year end of September, we invoiced EUR 8 million, and this year we are EUR 12 million. So if you consider also our backlog in Energy Automation segment, we are in the right way to achieve our target for this segment in this year and also in the next 3 years, confirming our guideline for the business plan 2020-2023. In terms of EBITDA, we look at the EBITDA growth because we have 18.2% impacted on revenues. Our 2 big -- both Energy Automation segment, Stringing segment, these give a contribution in the performance of the period. The Energy Automation, thanks the higher value-added product; and the Stringing segment, after 2, 3 years of product range transition now starting to collect the benefit of investments that Tesmec made in the previous years. The confirmed order backlog is around EUR 84.6 million, of which EUR 69.5 million is related to Energy Automation. That has continued to collect, to gain tender in the period. About the Trencher, we are, for sure, back to the sales in Trencher because last year, we closed the [ third ] quarter with EUR 66 million. Today, end of September, we closed and we invoiced EUR 84.9 million. There is obviously a rebound in sales, but we underline again the slowdown in U.S. market but -- and also the delivery, the impact of the supply chain and the freight activity. So everybody knows the current situation in this sector, and so that is going to impact our deliveries and our turnover. In any case, we want to underline the growth in -- of the turnover in renewable energies and in the telecom sector. And that is going to support as an increase in the sustainable turnover. In terms of EBITDA, the performance of Australia impact and the drop of the sales in U.S. market impacting the EBITDA of the Trencher division, otherwise, it will be lined up with our target. The confirmed backlog is -- was EUR 79.2 million end of September. The Rail division last year was less impacted by lockdown because the Rail business is related to medium-, long-term contract. And we have, in this case -- in any case, some delay in the start of a new project because that impact the result of the period. In terms of EBITDA is better because the mix is mainly linked to the diagnostic vehicles and the revamping activity that the business rail involve Tesmec. And today, we confirm our order backlog for EUR 98.8 million. But in any case, due to these delays in the new project, there is also a delay in acquisition of the tender. But our pipeline is bigger, and we have a good expectation for the fourth quarter and beginning of next year. So our expectation was in the Rail to respect our target that we specify inside our business plan. For that reason, in the Slide 27, we would like to summarize our backlog, is likely decrease comparing the end of June but much is related to the Railway business, to the delay in acquisition. And so we can say that for -- in the mid- to long term, we see, in any case, a confirmation of our number. In terms of revenues, moving on in Slide 28. Our presence is mainly in Italy and in North America. We have some in Europe. We -- Europe compensated the performance of the year in the United States, in U.S. And in any case, that confirm our presence in the majority economy of the world. As we mentioned it before, one important point is related to the concept of recovering revenues that we show in Slide 29. The recurring revenues are now [ peak ] 54% -- around 55% of our turnover, so an increase. And that is another key point of our business plan, and that is why we would like to underline this point. And now the recurring in terms of absolute value is more than our nonrecurring. So that is very important in our forecast and in our forecasting activity, planning activity. If we look at Slide 31, we see the waterfall related to the EBITDA, and we can see that comparing the EBITDA over last year, we have an important impact of Energy and Railway. Now focusing our networking situation. We can move in Slide 33. And you see that we have around EUR 15 million of deviation in our net working capital. We would like to remind the fact that our target is between -- among 30%-35% of net working capital on -- over the revenues. So we have not lined up with our target. The main reason is the variation related to the inventory and a work-in-progress contract inventory. So it means finished products partially is related to the criticalities in the freight market and supply chain. And the second one is related -- work in progress is related to the activity of the rail business, so we have some invoicing not in production. This impact is also showed in Slide 34 related to the waterfall of the net financial position. If you try to analyze the net finance operation without the impact of IFRS 16, you look at the net working capital increase, the net financial position for EUR 15 million. After that, we have EUR 13.4 million (sic) EUR 14.4 million of CapEx, is lined up with the target of the year. But in the plan, we didn't consider the change of consolidation that we're showing in the slide about EUR 2.5 million of -- for the acquisition of the Saudi Tesmec. Now I pass the floor to Mr. Caccia.

As the guideline for the end of the year and the future outlook, look, as you know, we have given a press release a couple of weeks ago because we have updated our year-end guidance due to the reason that, in the third quarter, we have a certain [ gain ] volume in comparison to our expectation. This basically is not a result of a market situation but is mainly result of a difficult economical growth that is basically conditioned by 2 points: First of all, the supply chain all around the world are in a very difficult position; and second, there is a huge push now on air freight -- shipping agent [ it would just cost ] to be very [indiscernible]. For this reason, yes, we are thinking that in a positive market, this is -- all the trend, as we can show you the Slide 38, are positive. We don't consider that we will come back to the original figures, especially for volume because, basically, we are pushing [ but it's just the name of the order ]. We have to be careful because of this situation of delaying production has an impact. As you have seen, the impact was also in our working capital. Basically, our working capital increase is partially due also to the increase of cost. And our process in the past make it so to try to stabilize prices, and we were obliged to buy -- to anticipate certain components to stop any cost increase. The inflation rate, as you know, basically, in the U.S.A. is around 5.2%. In Europe is less, less than that. But in the manufacturing area, like our area by mix between material supplies in our inflation rate, of course, is going to become end of the year between 6% to 8%. This is a possibility for us also to be more performing because we got a lot of products that we have now in our pipeline are made with old cost. But no doubt in the future, we have to face this problem with the inflation rate. For this point, after that, if you go to Slide #39, we are trying to summarize what are our business plan guidelines. Let's say, our whole planning was for volume to go to 2020, and we are telling that we are going to be more than -- more above EUR 200 million. The [ main already ] priority is not volume now but is also quality because now we are going to put, as we told before, stress to increase our green revenues that in a way are giving us a strong impact in our financial environment. No doubt that, as of today, the things are changing very, very fast. And we are going on in that philosophy to produce clean products and to be sustainable product or, if not, we are going to put some [ long-term plan ]. About the profitability, in a way, as we told, we lost a little bit in the third quarter. We are going to improve the middle of year. So we are expecting to have a good last quarter, but we are not able to -- we will not be able to come on the middle of the year around 16%. But probably in the quarter, we are going to be better than that. About financial position, that was expected to be our focus. As we told, as of today, we have -- in the third quarter, we had improvement compared to the previous quarter. We are expecting, especially due to the new rules in Italy, to cash money and to decrease our financial position to improve our financial position year-end to be in a better position. But probably due to the priority, we have to be -- to keep cost fixed. Our working capital cannot come back to the normal before the first quarter of next year. For this reason, we are expecting a figure that is higher than our expectation. That is near [ 110 ] and probably lower than that. But we are going to have a good cash generation in the quarter but not enough to meet the original guideline. For this point, we think that or positively confirm that this is a short-term trend opposite on a long term. We are expecting a stronger 2022 and a strong 2023 for mainly 2 reasons because, firstly, we have huge possible order in different areas. Second, we have to -- we were able to produce -- to put [ -- underline ] our backlog, especially in the automation, that we can do much more than what we have done. But we are now limiting supply chain deliveries. The situation is going to be like that probably up to next June, but we are taking action to improve the situation. Last but not least, as you have seen, we have taken a strong decision to improve our American organization. We have now a new CEO that is the top manager with an expectation that we are going to consider our first market for next year, to develop our U.S. market. For this point, we are putting our organization under review because the market is becoming back good, especially in terms of energy, but we have to change our distribution channel. We have to change because, originally, we were more dedicated to the business of oil and gas, the safer and generally speaking, traditional business. And now we have to move to the energy business, telecom business and new technology. No doubt that the things are positive because we have a good reputation and a good progress. But no doubt that the change is not going to be because the market is under stress, especially on a human resources situation because there is in [ western ] market to find the right people. I think that we were very long today. If you have any questions, we are very happy to give you clarification. Thank you.

[Operator Instructions] The first question is from Enrico Coco of Intermonte.

If I extrapolate the quarterly performance from the 9 months results, actually, the third quarter was the best quarter in terms of volumes for Energy and Railway. And also the profitability was really good. In Energy, you did 22% -- around almost 23% of EBITDA margin, also Railways close to 20%. So the only weak point is on Trencher. Now my question is do you see -- in terms of demand, do you see weakness both in the sales of product and rental business or you see difference in the type of demand? And also on Trencher, in terms of environmental impacts, how Trenchers compared to excavators? Do you see difference on these that are impacting demand or this is not an issue?

Thank you, Coco, for these 2 questions. You have already understood what is our problem. We say this quarter was, for Trencher, a difficult period for 2 reasons. Mainly in U.S.A., we have only a volume problem. The market in U.S.A. was giving priority to rental and not giving priority to buy -- to sales and on the short term is determined a decrease in volume mainly due to the change on the U.S. economy with the change of the price and everything. Things are moving and basically for the people especially that they have to move out from oil and gas infrastructure is not easy to have a new strategy. And U.S.A. also, there is a market of renewable energy that, in a way, there is a big delay in new project due to the fact that the financial coverage are not so clarified because, basically, what is waiting from central government financing but now the -- basically, U.S.A. economy is moving with the private money. And for this reason, the delay of volume was due to U.S. Obviously, delay of profitability is due basically to the fact that we had one project was for a big Spanish contractor that was in Australia that for 8 weeks, we were obliged to stop the project due to unexpected COVID problem in Australia that, in a way, Australia is much better positioned than Europe. But when they have 40 case by day, they close. And then the area where we suffer was we were obliged to stop the project for 8 weeks. And we lost profitability for EUR 1.8 million. We thought this EUR 1.8 million loss was just going toward that. Also, the Trencher was near to the 16% and 17% that they were our target. So for this point, I think that this can be our developer for the future. No doubt that our expectation is that if we are going to be in a better balance, we are going to grow everywhere in a better way. The second question was?

[indiscernible]

The comparison with excavator. Theoretically, we have a huge advantage because, theoretically, when we do the same test between -- going on the project, with the trencher and excavator, we made comparison of CO2 production. We are 70% lower than excavator because, basically, the machines are more efficient, and they use much less [ unit ] in compared to excavator. Imagine that in a normal site preparation, a trencher can make a production of 6 or 7 excavator. That means that, in a way, the trencher versus excavator is huge. No doubt that, especially in the future, as Mr. Mosconi told, the future of this machine, especially in the urban area is to utilize machine but with different type of technology. Nobody is ready because still in the area, the electrical machines are not ready. Opposite, we have a very good solution there of stringing, and the railway. And for this point, by utilizing the technology of other business units, we are expecting to be, in a short period, able to come with a new generation of machines that are, no doubt, with lower environmental impact. This is a priority for us in basically, especially in the area of this new strategy. No doubt that nothing is easy, and that the trencher machine are difficult machine to be converted to that. So we are going to go probably in hybrid solution not fully ready.

Okay. If I may add a follow-up question, it's about your upcoming ESG plan. Do you expect the CapEx guidance, which in the current plan is EUR 60 million in 4 years, do you expect this CapEx plan to change significantly because of your push on ESG?

Let's say, no doubt that -- we have 2 strategies. First strategy, that there is a situation in Italy that we are giving priority for investments in connection to new fiscal incentive and to everything. So basically, the [ media ] is exactly what we told, and we are not going to change. Probably, we have -- we are going to have a new push by -- but on a net point, probably we are lowering our debt on the gross investments, especially in south of Italy because we are finalizing agreement, especially for R&D. But basically, we have a full coverage of new development for the next couple of years. And probably in that area of new [ product ] development and increase our efficiency, we will, in Italy, push as a result of 4.0 incentives and tax credit. In the world opposite to the situation is not so fantastic like in Italy, and for this reason, we are really putting a priority to have a capital efficiency. And to what is our point also, if we do investment, we have to reduce our working capital situation. No doubt that our target historically was between 35% and 40% of revenue. No doubt that we want to have a working capital reduction that has to be from 5% to 8% in comparison to revenue. For this point, the 2 priority are this capital efficiency and to optimize investments.

[Operator Instructions] The next question is from Alessandro Tortora of Mediobanca.

I have, let's say, 3 question. The first one is related, let's say, to the confirmation of your 2023, let's say, outlook guidance. And the question is related to the visibility, okay, that you have if you are going to look at the contribution by business because if we see the current order backlog in theory, we still have a huge backlog granting good visibility on Railway and also Energy Automation. And I would like to understand if this is still the case and also your view on, let's say, the Trencher in the coming 2 years in order to get, okay, this full year guidance. The second question is on the profitability evolution and trend that you see next year because, clearly, next year could still be, let's say, affected by all the, let's say, items you mentioned in terms of rising cost inflation. So I would like to understand if you believe that next year, the company will be able to offset or more than offset this cost inflation with higher volumes or price increases. And the third question is related to the Railway business. I joined the call, let's say, lately, but the question was related to the strategy, okay, to go also outside Italy. If you can give us an update on any, let's say, tender able to diversify this focus on the Italian market.

So about the guideline, the balance between different business. No doubt, the backlog of Railway and let's say, especially automation is a long-term trend, and the 2 markets are growing very fast. And basically, at the same time, we will give you, also repeat to the last question, we are expecting to have a strong backlog coming out, especially the automation is still mainly connected to the big player in Italy. The sales that are [ in term ] and basically the big municipalities [ and ] is on the way also to develop a new strategy to grow worldwide with the technology. And probably for the supply, this is a huge push towards capability to have a long-term backlog. No doubt that, especially in this year, the technology are changing, especially in connection to cybersecurity, to new application, a new safety procedure, and this can have an impact on a short term but -- has an impact on the short term but is now going to have a huge possibility to grow. This is everything in compatibility with the supply chain there of automation. The supply chain of automation is strongly impacted by the production of semiconductors, chip and all the electronic components. So the backlog is huge. The capability to grow is very, very [ expansive ]. And we confirm the guidance. Probably in that area, we are going to go better than the expected situation. In [ the area already ], we told that especially we have a strong backlog on the short term. And we are now -- if everything is poised, to enlarge also the scope of our technology because we're expecting strong results from our diagnostic new vehicle that have been installed a couple of years ago. And we are facing the first very good result of our technology. About Trencher, the situation is a little bit more difficult to say. We are trying to increase a lot of the recurrent revenue, and we're expecting to have a strong increase in the business of, let's say, service and rental. About the new machine, it's basically also connected to the new rules that are going to come out for pollution. That means that, in a way, we are expecting to have an increase -- general increase but lower than the other business because we are expecting the sale to be more focused on clean and fast technology of Trencher. But in the area, let's say, for example, on a medium term, we are obliged not to talk any more about mines because every time we talk about mines, mines for the financial market means pollution. For this reason, we are obliged not to give in the future -- we give priority only when we have green light, let's say, probably connection to new materials. And we are facing for new order for that or something connection to battery to [ fix that ] because when we go, we cannot have any development in iron. We cannot have any development in coal. We cannot have any development -- and the world is changing. For this point, we will modify our strategy. We have no doubt that we have to be more quality wise and selective. About profitability, we have made an analysis of our situation. We have a cost increase that we are willing to manage. On materials now, basically we're expecting to have between, let's say, beginning of this year and beginning of next year an increasing material cost of around 20% to 30% midyear. And the materials have an impact on our cost of around 20% of the cost. Opposite on components and subcontractor decrease is much lower, is between 3% to 5%. And this factor has an impact on 30% of our cost. And we are managing now with cost efficiency also to have -- to keep control on operational costs. And we are making -- facing problem in different countries in different ways where the costs are increasing more in the United States. But in Europe, our increase of cost is less than 4% midyear. On the impact on pricing. On pricing, we have 2 different situations. Especially Energy Automation and Rail, we are now try to take the opportunity coming up on the new rules that are out, that the law of the Italian government that are going to be confirmed in the next couple of weeks. Basically, all the contracts are to be automatically indexed to the increase of cost of material. In our forecast as of today, we have included 0 price review, but we know that we can have a [ much cap ] on that. So we think that between Energy Automation that our clients are being mainly Italian groups. They're obliged to recognize to have a flexible price. And the same, we have already a confirmation in the Italian RFI. They have already confirmed that we recognize on all our front full flexibility in pricing. The rules, like always in Italy, very, very clearly done, but all the advocacy that has to be -- come out and to clarify what is going on is still not yet completed. But this is, for us, a very good support for our future development, so we think that we can transfer on our pricing or the increase of cost. On trenching, we have already reviewed our press release. And basically due to the fact that we are in a niche market, normally, especially in U.S. market with this increase of price are already recognized. We have different one when we go to work in Asia Pacific. Asia Pacific for us is not a big market. For this reason, we're expecting to be able to transfer the increase of cost and to keep the profitability in line with our expectation. No doubt that our profitability, the next year especially, will be pushed by the terms, let's say, [indiscernible] and everything. So we expect there also next year a very good year on that point. Starting from 2023, the situation is going to be normalized. But what we have -- due to the fact also we are in the south area where a lot of push to be able to be [ ready on ] that, this is a good help to have a huge development for our business.

Yes. Yes, the question was related to taking into account everything you said assuming that this pricing mechanism, okay, on, let's say, Italian contracts with Italian clients, okay, will be regularly applied. Is it fair to say that next year, in theory, EBITDA margin could increase compared to the level, let's say, mid-2021 level?

My dear, yes, we do our best, and we want to improve. And we want to be -- practically to come out in a couple of quarters with you to tell that we were able to do. If everything is in line with our expectation, there is -- we are expected to have a good advantage about that because, in a way, the rules are good for suppliers. And there is a huge flexibility there that our clients that they have to also increase their price because there is a strong contribution given by the Italian government. I think that this is an incentive that we have to clarify if it's going to work or what has to be done. But we have no reason. We were working in all the association like ANIA and everything. I think that if that is a point, the profitability probably will be increased. No doubt that if we go globally, we have to see what is going on. As we talked, for example, Railway, we are now pushing export business, especially in an area like European area, East Europe. One good point of that area is that normally the tender price are the worst in the world, so because there is a strong competition in Italy between all small Italian and also foreign company. Hopefully, when you go out of Italy, normally, the prices and the profitability are much better. That is a point that is going on. No doubt that there are certain areas that we will have, for example, to try develop our business like Turkey. And we had a discussion a couple of days ago, Turkey, with the devaluation of things like that are counted that now for the future and not -- are very difficult to be penetrated. Hopefully, we have a strong area in Europe and very strong area in U.S.A. that are coming back. Or say, the so-called [ job tracker ], we are expecting to have a push. No doubt that to be successful with our organization, we say it was not so easy for this reason. Our choice to have a strong CEO in U.S.A. is that we want to take this opportunity. And we want to reorganize our business to take this opportunity because U.S. market is [ going to ] do what they are telling it's going to be for on a medium term and a very good market for all this type of application.

Okay. And sorry, just on, let's say, the last piece, maybe a quick follow-up, a small follow-up. Can you tell us if there are any specific reason behind the change in consolidation and the acquisition of the Saudi Tesmec?

Yes, [ I will make ] my friend Paredi that he was the guy that was following...

About the consolidation of Saudi Tesmec because we want to make topics was by Saudi Tesmec. So Saudi Tesmec was out of our perimeter. We bought Saudi Tesmec because we want to reinforce our presence in the Saudi Arabia because in the next 3 years -- 2, 3 years, we have a great opportunity in the business. So we decided to purchase 49%.

Now I would just tell you that the big -- our strategy there was that our driving company -- our driving country was Qatar. For reasons that are really very clear, we follow Mr. Renzi. We think that the new strategy that -- in the future, the big area for us is going to be Saudi. So we are going also for this reason, our historical partnership in -- with the Qatari partner is going to be probably finalized because we need to be fully focused on the opportunity of Saudi. Saudi for reasons that are in connection to new political situation is going to be, in our thinking, the best country in the area due to the big infrastructure projects that are going to launch. The new city of NEOM that they could put in an investment of 300,000 billion -- 300 billion investment just in that city. So basically, Saudi and the fact that we were originally for our Qatari partner was politically a big mistake. And for this point, the decision taken was in a friendly way to find this solution, and now we are fully independent we're going to drive the new business and technologically and probably due to the big change in the economy because originally Saudi, we consider everything is oil and gas. But in a way now, they're obliged to change. There is especially in there of the Red Sea new countries that is going to be created for tourism, for -- and going to get a second [ part ]. It's impressive, the planning of next 10 years in Saudi.

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

Thank you, everybody. I don't know if we were clear. I hope that -- we are ready anyway for any clarification, and we are willing to be available for next conference. Thank you, everybody.

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