Fincantieri S.p.A.

Good morning. This is the course call conference operator. Welcome and thank you for joining Fincantier's full year 2020 results conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. If anyone needs assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Giuseppe Bono, Chief Executive Officer of Fincantieri. Please go ahead, sir.

Thank you. Good morning, ladies and gentlemen, and welcome to our conference call. 2020 has been an extraordinary year for everyone. The pandemic has indeed affected us all. I hope you are well. I am proud to say that we at Fincantieri reacted with great determination to safeguard our people, our operations and our backlog. We can still confirm that we received no ordinary cancellation and that we entered 2021 with an intact and robust backlog maintaining a sound funding capacity thanks to our talented people our expertise and our tenacity we were able to deliver all the cruise ships scheduling prior the covet with obviously delivery, including a very important ship at the end of September. Our 100th cruise ship, Princess, was handed over to Princess Cruise, a Carnival Group brand. I have said many times before, we believe in the resilience of the cruise industry, and so we are collaborating with the ship owners to build their ship with the most innovative solution in the future, implementing all the safety standards in order to offer to cruise passengers the best and the safest experience ever. A few years ago, we envisioned a European champion for the shipbuilding industry. While for a mutual agreement, we decided not to pursue the consolidation in the cruise business area, taking account of the situation. We are on the right path with one of the naval business areas. Naviris JV with Naval Group is full operational and it is going forward with the contracts signed with the OCA, the European Agency for Defense Procurement. Moreover, we have just signed the Memorandum of Understanding for the Development of the European Patrol Corvette Programme. a very important project that will bring forward our idea of a European champion. Italy is committed to order aid of this new patrol corvette. Despite being heavily affected by the pandemic, 2020 was a year of success. and improvement. We confirmed ourselves as a partner of choice in the naval segment, and we became, for the first time, prime contractor for the U.S. Navy. First time not only for Ficatieri, but for the whole industry in the world. We are also taking advantage of the excellent now we developed in the offshore business during the 2020 we shifted away from the oil and gas sector to a greener and more business. In fact, during the 2020 risks. to a more sustainable segment such as the one of the renewable energy sector in which we strongly aim to establish ourselves and to reach a position of leader. Moreover, we kept improving and increasing our competencies and capabilities to prove ourselves as leaders in sectors such as infrastructure, electronics, and cybersecurity. We can count on our strong project management skills and system-integrated capabilities. Such know-how allows us to further stand out in complex, non-maritime projects. The delivery of the Genoa Bridge is only one of the many more accomplishments to come. We delivered the bridge in record time. For what concerns our economic and financial result, as I said before, 2020 was deeply impacted by the health emergency. However, Fincantieri found the way to safeguard the health of all the people in its sites while gradually ramping up tradist production again with new processes. The results of the last two quarters of the year show how fast we were able to rise and adapting our operations to the new safety standards, and this is a clear sign of what is to come. We are confident that we are back on the road path we undertook a few years ago, reaching the marginality embedded in the current backlog and returning to profit this year and to give the dividend to our shareholders in 2022. I'd like to tell you that the business plan for the next year could show a growth of revenues of about 10 percent for years with an inevitable margin between Thank you and good morning to everybody.

We'll start at page six of the presentation we uploaded on the system at our executive summary. Health and safety and preserving backlog as the CEO I just said being our top priorities in this extraordinary year. We believe we are on the right path to growth and profitability, but let's start with some numbers regarding 2020. People's safety and their health. Less than 4% of our workers tested positive, and I'm sure you can appreciate the importance of this indicator in a tough environment like shipyards. That tells you about investments in people and tools and health and safety checks to protect those who are building our ships. We've been also able to protect our best practice, our engineering and construction capabilities in this very difficult and challenging period. which has been preserved from the crisis. No orders being canceled. We have a total backlog of roughly 36 billion at the end of last year. And the production programs have been, I would say, successfully rescheduled and I will say in full agreement with our clients. Seven cruise ships have been delivered in the past year. This is very important indicator also of the relation we have with our clients and the resilience of the industry. Importantly, we will see that later on 12 more ships have been delivered in the naval and the offshore and specialized vessel sectors. In terms of strategic developments, new orders have been achieved in the region of 4.5 billion. That is 18 new units thanks to excellent performance by our naval department and our wind and offshore sector. The consolidation global defense industry has been very constructive both at the domestic level and the international level. We continue to strengthen our position in the infrastructure sector in a very selective and prudent way. while at technology and digital division, which is our new Fincantieri Next Tech, development is being encouraged, encouraging, as has been also testified by the important agreement we reached with Autostrada and IBM for monitoring the Italian highway network through sensors, AI, drones, and I would say state-of-the-art technology. If we go to page seven, we have the results. You can see that our revenue base has gone from $5.8 billion to $5.2 billion. That is the best way to appreciate and gauge our revenue capabilities because this number, which is 5.2, excludes the effect of the so-called pass-through activities. which has been basically carrying zero margin to debt. The accounting figure is 5.8, basically in line, but the real figure is 5.2, and to that we also compare our EBITDA, which has gone from 320 to 314, which is a margin of 6.1, when we compare to the revenue base of 5.2. It's important that excluding this pass-through activities, we can better appreciate the impact of COVID in the past year and what will be the rebound expected in 2021. Net debt increased from 736 million to 1 billion 62 million, which by the way is a sharp decrease compared to 1 billion, 425 million of the third quarter. When we consider the COVID-related impact, we have to consider that being a manufacturing company, we lost roughly 20% of our production hours, which is 3.2 million hours. That has an impact of roughly 1 billion and 50 million. That cost the company 80 million in reduced VDA, We also had to account for roughly 200 million of COVID-related extraordinary costs. And we also had the capacity, the financial soundness, to provide our clients in the cruise sector with 450 million of financial flexibility, very much appreciated by those clients. When we look at the bottom left, The evolution of our quarterly revenue and ABDA, you can see that Q2 has been, as expected, the worst of the year, which has been the one most impacted by the virus. But as we already commented during the third quarter presentation, results at the end of September showed a rebound in production and revenue and a significant rebound in EBDA with margin going to 7%. EBDA margin we basically maintained in the fourth quarter with 114 million in terms of EBDA with a sharp increase, roughly 50%, compared to the sequential quarter, the third quarter. We continue to maintain sound, robust funding capabilities. At the end of the year, we had 1.3 billion cash and cash equivalent, plus 1 billion available credit lines. We have a very, very significant portion of our debt, which is long-term, medium to long-term, with no financial covenants. Turning page, the business update. Just a few comments regarding our strategic developments. On cruise, we delivered seven cruise ships, five from our Italian shipyards and two from our Norwegian shipyards. It's testifying not only the resilience of the business, but also our production commitment and how overall the sector is ready for a new start. On defense, very positive commercial achievements have been recorded in 2020 in the naval, and in what is offshore specialized vessels on the naval, both domestically and internationally. We include also two frigates and two submarines of the new generation for the Italian Navy. We confirmed our role as a prime contractor for U.S. Navy, plus the Navieris joint venture with our French counterparty has been fully operating signing also two new contracts with OCAR in 2020 and a memorandum of understanding with Navantia for European patrol corvette. Offshore is not just about restructuring, a theme we've been discussing quite frequently in the past couple of years, but it's also about conversion, redirection of our strategy towards more sustainable businesses. like fishing, but more importantly, wind. We're talking about a wind offshore platform, which is a business which is projected to grow in a very significant way in the 10 to 15 years to go. And they would need vessels specializing for installing, maintaining these platforms, laying cables. And we're talking about ships and vessels with being able to product for the oil and gas business. Now we're adopting those skills, the engineering and those commercial capabilities towards this new growth sector. In equipment systems and services, we've been enhancing our high-value added sectors from the infrastructure to accommodation, which is our marine interior. And very importantly also on the technology, digital, and cyber business, which is Fincantieri Next Tech. Also in the infrastructure sectors, an acquisition of Inso and its hospital maintenance business has been completed. Roughly 3,000 cabins have been supplied to our joint venture with the CSSE in China. Last but not last, Sustainability Fincantieri is among the leaders in the fight against climate change and also, I would say, in a cleaner ocean. Our rating has been upgraded from B to A- by the Carbon Disclosure Project and by DG OIRIS. We are the first in a group of 53 peers in the sector worldwide in terms of our effort for a better world. Page 9, we have the new orders divided by shipbuilding and offshore and specialized. I won't go that much. You have all these figures, but it's important to highlight that the Italian Navy has been ordering two new of French brigades plus two new submarines with two further options. And you can see that this is providing significant visibility in terms of delivery in the years to come. I would say for the decade to come. Offshore specialized vessels, I would like wind, and we already talked about that before, fishing, and also aquaculture. and also eight marine robotic vessels. The same trends which are applying to the auto industry, which is electrification and autonomous, are being applied also to the naval business with a strong impulse to invest more and more in technology for more digitalized vessels and also cleaner ones. Plus the cable-laying vessels, which is again linked to the wind offshore. I would also like to highlight the very important factors. What has been in the last years is a strong diversification of our client base, and also in terms of engine of growth. It's not just cruise. We got the naval, which is pumping ahead. We got new sustainable sectors like the wind offshore. And you can also see that in the 2020 deliveries, A single client didn't have a weighting above 20%, which is a very important factor in terms of diversification for us. Page 10, you can see what I just mentioned. And very importantly, we celebrate our 100th cruise ship, which is Enchanted Princess, delivered amid the pandemic. Backlog development improved visibility up to 2029 in the naval business. Three new units acquired in the offshore specialized vessels also gave the sense of the work which has been done in Norway and offshore specialized vessels. You can see how those orders are being distributed throughout the next few years. and you can also appreciate the impact of new orders which have been seized and captured in a tough year like 2020. Our backlog is intact. Actually, it grew in 2020 and is more diversified than ever. Basically, to sum it up, 19 units delivered, 18 new units, 97 ships in backlog with 116 ships if we include the soft backlog. Now let's go to throw down the numbers and hand it over to Giuseppe D'Addo, our CFO.

Thank you, Fabio. Good morning, everybody. And now we turn to page 13 of the presentation. And as you can see from the numbers, we reiterate what Fabio just said. We've really successfully managed our backlog intact on one side on the other side we really kept pursuing our long-term strategy of growth international internationalization and diversification and the result of this you can see in the considerable increase in soft backlog which is at 7.9 billion euros versus last year and And the total backhaul is at almost 36 billion, or six times 2019 revenues. And this gives us very long-term visibility throughout the years. On the left-hand side of the page, you see order intake for the year that stands at 4.5 billion euros, with a strong contribution, as we mentioned before, from the NAVL. where we achieved both domestic and international successes, including the contract for the two submarines for the Italian Navy, plus the two frigates, and of course, the iconic achievement in the United States with the contract for the first in-class frigate for the U.S. Navy. And of course, the additional nine options bringing the total value of the contract potentially at 5.5 billion dollars and this is accounted for in the backlog. The offshore and specialized vessel order intake has nearly tripled year-over-year and this is also thanks to the building momentum in the wind offshore and the new sustainable markets. One support operation vessel for the maintenance of wind offshore farms and one cable lane vessel for offshore wind farm activities. Plus eight robotic vessels with onshore remote control and these are also light crewed and can sail uncrewed to be deployed in UK and US waters. And in this business, we are reaping the benefits of the turnaround strategy that we implemented in 2019. And at the same time, we're capturing new opportunities outside of the VARD legacy business. Moving on to page 14, when it comes to revenues, we had a steady top line year over year, despite the loss of slightly over $1 billion revenues related to the development of the COVID-19 pandemic. And of course, these loss of revenues comes out of the 3.2 million hours that we lost in production. By no means these revenues are lost. As we said many times, since we did not experience any other cancellation and the production programs have been rescheduled, The shortfall is due to be recovered in 2021 and 2022. In the next few years, we will basically complete the production program of the ships that were reassessed in terms of schedule. On average, we moved forward our production schedule by three, between three and six months. So revenues stand at 5.2 billion euros excluding pass-through activities, and this goes to almost 5.9 billion euros, including the pass-through activities. So excluding the 5.2 billion, we are down 11% year over year. Of course, we already discussed extensively why in shipbuilding. In the offshore and specialized vessel segment, instead, we recorded a significant increase of almost 20% despite COVID, even though in our Norwegian shipyards, we did not experience the production halt that we experienced in Italy. I remind you that in Italy, we shut down our yards for a month between mid-March and mid-April, but production resumed at full potential only starting from June, July. Again, in offshore specialized vessels, revenues grew 20% despite COVID and despite the negative effect of the euro NOC conversion rate that is roughly 26 million. In the equipment systems and services, revenues were up 4% year over year, and this despite almost over 200 million euros due to the COVID-19 pandemic. On page 15 we commented EBDA which was robust in 2020 despite the loss of 80 million euros related to the billion euros revenue shortfall. So one billion less revenues meant 80 million less EBDA contribution for the progress. of the advancement of the completion of the vessels. Out of these 80 million, 58 were lost in the shipbuilding segment. The offshore and specialized vessels, as we rated many times in the past calls, has reached finally nearly break-even. And we had also 22 million of lost EBDA contribution in the equipment systems and services. This is still due to COVID. All in all, in 2020, EBDA stands at 314 million euros versus 320 last year, with an EBDA margin excluding pass-through activities at 6.1%. When we move to page 16, we wanted to show you the path to recovery in quarter by quarter during the year and the trend of revenues, lost EBDA contribution, lost production hours, and the recovery of the EBDA margin. As you can certainly appreciate, the second half of the year during which we resumed production almost at full pace, we recovered our profitability back to the levels that we expected before the pandemic. And as you can certainly appreciate, the worst quarter that we had is Q2, when we had the lowest amount of revenue, of course, the highest impact in terms of loss of contribution from the progress of construction, 50 million, and the highest number of lost production hours and of COVID-related extraordinary cost. This clearly, this path, this trend clearly shows you how the group behaved during the pandemic and how we recovered in the third and fourth quarter. Moving on to page 17. Of course, the impact of COVID-19 has been heavy. And as a matter of fact, we had almost 200 million of extraordinary costs that are related to COVID. And this includes the reduced operating leverage after the production halt and after the rescheduling of the deliveries and of the production program. And on top of this, we had 52 million euros of cost for asbestos-related litigations. I'm now on page 18, the CAPEX. Of course, we know we stand in this situation. We kept the pace of our CAPEX program, which is aimed at adjusting and improving our production capacity in the Italian yards in order to execute our important backlog. Notably, most of the investments are concentrated in the two main yards dedicated to the cruise business, Montfalcone near Trieste and Marghera near Venice. And of course, also we target the improvement of general safety and environmental conditions all across globally, all across our yards. We're keeping improving efficiency in Romanian yards, and we're starting to scale up U.S. operations on the back of the award of the contract for the frigate to the US Navy. Now on page 19 on networking capital and net financial position. On the left hand side, networking capital is negative for 202 million euros and the main drivers of course on one side are the increased inventory and advances mainly due to the advancement in production programs and postponement of the expected installments, 450 million euros, we mentioned it before. We also had increased rate payables for 91 million due to the higher production volumes that we recorded in the fourth quarter of 2020. On the right hand side, you see net debt. Of course, we had an improvement versus the end of September. At the end of September, we were at 1.4 billion euros net debt with 1 billion in construction loans. Of course, this improvement of the net financial position comes also from the greater reliance on construction loans that we had in the last quarter. This is a good sign also because, I mean, the financial institutions show belief in the robustness of our backlog by giving us construction loans which are financing specifically related to projects. And the drawdowns we did in the last quarter are related to cruise ships. We also have an adequate liquidity position. We said before Of course, we delivered two cruise vessels in the last quarter of the year. We had such a loan for 1.15 billion euros. And also, as we said before, our debt, financial debt, is free of covenant. And this gives us a lot of flexibility when it comes to management of liquidity and debt. Now we go to the outlook, and I leave the floor back to Mr. Gallier.

Thank you. We are at page 21 now, with focus on cruise. Why do we start from cruise? Because it's been, first of all, and it is still the biggest chunk of our activity, and also because it's been probably one of the most severe victims of the pandemic. This sector, I'm sure you're familiar with that, has been kind of through hell and back. And it's important to say that now the outlook for 21 can still be considered a transition period, but all the comments coming from the operators is about 2022, which will be a very positive one. Yesterday, the CEO or one of our clients have been using terms for how he sees his future. He believes that we are approaching a boom time in terms of demand and probably demand will soon exceed supply. Having a young, I would say, environmentally friendly fleet is more and more important than ever. And he also mentioned the fact that 2022 demand from clients is particularly encouraging. Therefore, we believe that still and will still be a transition year is 2021, but we can look ahead in the future years somehow encouraged by the secular growth trend that this sector can offer. Just remembering that when we look at the penetration of the cruising holidays, it's around 5 percent in U.S., 6 percent in Australia, it's between 2 and 4, 4 and a half in Europe, and 0.5 in China. And these numbers are all projected to grow significantly. This is just to give the sense of how we see things in the years to come. Having said that, in terms of operations, you know that European operations partially resumed this year, while U.S. operations have been voluntarily suspended. But changes are coming over, and gradually the situation will improve over spring and summer. And operators believe that Christmas season, end of year, will be positive. Cruise sentiment is our numbers, not the one I mentioned before, but 74% of cruisers are likely to cruise again in the next few years. Two out of three cruisers are willing to cruise within a year. And all the future credit for cruising, it's an important indicator of the will of clients to go back and use their money and keep their money as an advance for a holiday to come. What is important to look also at the post-pandemic scenario, as we already said, the capacity, the ability to innovate will be of paramount importance. That is about technology and that is about impact on the environment, particularly in terms of emission and impact on the ocean. Therefore, we look at this sector with trust, with confidence, regarding what can be the role that we will continue to play, even looking at our competitive positioning versus the other players in the sector. We are emerging from this crisis stronger than before. If we go to page 22, we have some comments. regarding the other sectors. In terms of shipbuildings, we believe that there would be a reduction ramp up in the orders and that we catch up the revenue shortfall in 2020. Five ships will be delivered from Italy and two from Norway. Five vessels delivered from Italy in the naval business, three from US. And 2021 would be a very important year in terms of the kickoff of our preliminary operations for the future frigates for the U.S. Navy, a very important program which has been already commented before. When we look at offshore specialized vessels, we believe the orders will be basically in line with 2020 with significant intake expected from wind, offshore, and fishery for vessels to be delivered in 21, pursuing margin recovery also through diversification strategy which has been implemented. In equipment, systems, and services, we continue to execute on the backlog. We continue to focus on after-sales services. And when we look at our electronic and systems software, we believe that the growth opportunities, thanks to the competence and skills we have inside and to a string of small let's say, silent acquisitions we've been doing has been providing Fincantieri with a wealth of competence, which will be very important in the future in this sector. And we say it again, we say it again, infrastructure will continue to diversify, but very close to what is our DNA. We're talking about steel infrastructures, like in the General Bridge, for example, ports, and healthcare facilities, providing our knowledge, the knowledge we captured through a string of acquisitions to capture the growth in this sector. At page 23, and this is the final one, you have the 2021 company outlook. We're envisioning a growth in revenues around 25% to 30%, which gives you the range between 6.5% and 6.8%. for 2021 we believe we can achieve a margin around seven percent of this revenue base and the net financial position which is supposed to be in line uh highlighting the fact that in the first half of the year we'll probably expect a little uh blip up but it is totally consistent with the production schedule we have as you see already stated before we believe that uh return to profit will lead to resumption of sustainable dividend distribution starting from 2022. And he already mentioned the bright prospects we see ahead when we look at the medium-term plan for the company. Thank you so much, and we are happy to take your questions.

Thank you. Excuse me. This is the chorus call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. To remove yourself from the question queue, please press star and two. And we kindly ask you to use handsets when asking questions. The first question comes from Alessandro Pozzi of Mediobanca. Please go ahead.

Hi there. Good morning. I have two questions, and I will do one at a time if it's okay. The first one is on the cruise industry. Based on your commentary, it feels like the sentiment is changing a little bit. And we've seen the cross operators being focused up until now 100% on controlling cash burn. But it feels like they are becoming more constructive. And I was wondering if that's the case and whether possibly we could see cross operators coming back into the market maybe with new orders towards before year end. So that is my first question.

Thank you. In terms of orders, I go back to, I guess, straight to your question. We are not expecting new orders on the cruise sector in 2021 and 2022. We believe that new orders will come back in 2023. But this is, we would consider, a conservative approach. and definitely we have to look at how the industry will evolve in the end of this year and particularly in 2022 that might accelerate the resume resumption of new orders also taking account what i said before more and more operators are looking for new fleet fleet which are characterized by technology fleet which are characterized by a lower minor impact on the environment of the ocean, and that might change. But in our business assumptions, we are not considering on an order before 2023.

Thank you. My second question is on the guidance for 2021. Can you give us maybe a bit more granularity on EBITDA margins across the divisions? And also, what is the level of COVID-related costs that you expect in 2021? Okay.

Again, on the guidance, the indication you have to live with right now is of an EBDA margin of roughly 7%. of course, which is definitely consistent with what you have seen in terms of EBDA margin in the last quarter of 2020. We will see throughout the year how things develop. Maybe we can be more precise throughout the year. When it comes to COVID-related expenses, Yes, we are forecasting assuming between 30 and 40 million at this stage of COVID related expenses. No costs related to production shortfalls, just expenses for safety and for the health and safety of our employees and that's it.

Okay, thank you. And in terms of margins, clearly big improvement in 2021. Is this a first step and I would like to see more improvements in margins in the years to come?

First of all, our guidance is only related to 2021. In a certain way, you can consider this as a first step. If we refer to the business plan that we presented in the past, which was not, and it is not updated today, as of today, of course, the margins embedded in our backlog show a potential for further growth, let me put it this way. But prudently, we'd rather stick with the one-year guidance and then we will see when we will present a more long-term guidance on occasion of the presentation of the completion of our business plan exercise.

Okay, thank you. Thank you. You're welcome.

The next question is from Monica Bozzio of Intesa San Paolo. Please go ahead.

Good morning, everyone, and thanks for taking my questions. The first one is still related to the guidance. Can you give us some colors? Any colors would be useful on the assumptions behind the low-end and the top hand of the guidance. Just very straight. Do you feel confident on the achievement of the top end of the guidance? I'm trying to explain. If I add back the revenues lost and the margins lost for the COVID, it seems to me that even at the top end of the guidance, there could be a little bit of room for a further upside on top of the high end of the guidance. Am I missing something? If you can give me any details, it would be useful. Thank you. And the second question is on the NAVAL. Can you give us some rough indication regarding the contribution in terms of orders intake and revenues from the NAVAL in 2021? Thank you very much.

Thank you for your questions. Just comments regarding the first one, and then we turn to Enable. Target, we provided you with this figure. I believe that you trust us. We are relatively conservative when saying that. It's also important to take into consideration the pretty unique characteristic of this kind of sector, our sector constructions. We're not selling cans of Coke or sneakers. Therefore, something can happen. We already mentioned before in the next financial positions, should delivery being postponed by 10 days, you might miss a quarter, for example, and then you get the money 10 days later. So we think this is a solid, solid, guidance and you can make the calculation. We prefer to provide you with a range, just not because we want to hide things, but just because it's a very deep nature of our business. So it's more prudent to give you six and a half, 6.8 with a margin around 7%. We feel confident if we declare so, we feel confident we can achieve that. And we also believe that our company, so that I gradually switch to naval, is poised for a period of opportunities when we look around. First of all, you have to consider a competitive position in the cruising. Maybe already you all know the figure, but roughly one out of two of the ships under construction are from Fincantieri. They're being built in the Fincantieri shipyards. Roughly one-third of those ships in the ocean are from Fincantieri. We're very strong in the frigate. Frigate is a very important vessel because it can be very impactful, very effective in terms of defense. It's more agile. It costs less, but it can be as impactful as other machines, which cost more. And very importantly, They require a slower construction period. So we are very well positioned in a specific segment, which is the one of frigates, which is growing. When you look at the growth rate projected for years to come, you can see that Asia will be probably driving the growth of the naval business, with Europe and US more stable with more gentle growth. The company, our company, has been switching from being basically a single client companies. Think about our, I saw regulation with one client in the cruise and one client which is our Navy, Marina Militare, in the naval business. And look how more diversified is our client base. It's by far the most diversified in the industry. And we've been growing in other geography in the naval business thanks to the competitiveness of our frigates, but also thanks to the competitiveness of our products, destroyers, corvettes, submarines, and more and more. And that also tells you why our fintech is so important. That tells you also how electronics is getting more and more important. And that is where we have been investing to get skills in order to add more high-value products and services in the business. We never provided a detailed breakdown of the orders and other figures between cruise and naval, and we will have to stick to that. Sorry about that, but I'm sure you understand.

Okay, I understand. If I may, just a follow-up on the net debt. As for the $450 million of net debt shortfall due to COVID, Is it expected to be recovered in 2021 and 2022? The recovery, how can we figure out the recovery? I can imagine it will be more skewed toward 2022. Is it correct?

Well, when it comes to the net debt evolution in the next, throughout this year, first period, Consider as Mr. Gaglia said before, consider that we have five vessels to be delivered out of Italy this year, three cruise vessels deliveries concentrated in July of 2021. Okay. Well, no terms of payment in our industry. 80% of delivery, you can easily imagine the trend of our net debt position in the next six months and the recovery in the second. We expect in the second part of the year. Now, we are guiding net debt levels as stable end of 2021, but please consider that as of the end of January of 2022, we have a cruise ship delivery. So you know very well how this behavior of our net debt has to, when analyzing that, you have to take into consideration the delivery calendar also. This is first concept. Second concept, 450 million gap improving versus the gap that we communicated as of the end of September, which was roughly 600 million. consider that as of the end of September, we had one delivery that was postponed from mid-September to mid-December of 2020, and the ship was delivered. So we are going to cover this gap throughout 2021 and 2022, roughly within the same timeframe during which we will recover the revenue shortfall that we lost in 2020 for the COVID-19. After starting from 2022, yes, we do expect the path to the leveraging to keep a very clear direction. with the deleveraging process starting from 2022 and moving on 2023 and so on and so forth. But again, for 2021, net debt is going to be stable. We have adequate credit lines, adequate capacity to make a front to also adverse scenarios we have no covenants in our net debt in our financial agreements so we're very flexible as we have proven to be throughout 2020. okay thank you very much very clear thank you monica as a reminder if you wish to register for a question please press star and one on your touchtone telephone

The next question is from Matteo Bonazzoni of Kepler. Please go ahead, sir.

Good morning. I have some questions. The first one is related to pass-through revenues. Your guidance for 2021 is excluding further pass-through, so start from $5.2 billion, which is 2020 ex-pass-through. My question is, should we expect, I know that is important only for the revenue figure and not for the EBDA, but should we expect further pass-through in 2021? The second question is as regards CAPEX. So, CAPEX, we have 309 million, which is a high proportion, let's say, of intangible CAPEX, 77 million, which is more than 20% of your EBDA. Could you detail a little bit more about the deployment of this CAPEX? So, basically, where you address this CAPEX and particularly intangibles? And I also read in the press release, if I'm right, that in 2021 we should expect the continuation of relatively high CAPEX, can you provide a sort of range for 2021 and maybe also if you want 2022? And then the last question is as regards the financial position and the construction loan. So you've got a stable debt in the region of 1.1 billion. What about the evolution of the construction loan? Can you also remind us the average cost of both debt and construction loan, if construction loan, the breakdown of the construction loan between VAR and Italy? And finally, should we expect a start of some deleverage from 2022?

Thanks. Okay. on pass-through activities. We do expect some, but it's not really a material number for 2021. When it comes to CAPEX, yes, the number is substantial. But again, as we said before, we did kept our pace in the CAPEX programs that were already started before the COVID-19 outbreak. And when it comes to the CAPEX for Italy, as I said during the call, they mostly relate to the improvement in our production process in our Marghera shipyard and in our Monfalcone shipyard. It's improvement of the production process and also improvement in a way of the production capacity. When I speak about production capacity in this case, I refer to the fact that, for instance, Marghera is building progressively bigger and bigger ships. Therefore, we need to, let me say, upscale the yard, let me keep it simple, to upscale the yard in order to be able to build these bigger ships. Of course, these investments were already priced in the budgets related to the projects that we plan to build in Marghera, and therefore It's everything within what was originally planned. When it comes to CAPEX on intangibles, this year we had roughly 18 million euros in CAPEX for intangibles, and these break up well, two-thirds of that refers to R&D, capitalized R&D, so engineering cost, and improvements in our ERP and in our engineering software systems. We also, of course, capitalize and classify intangibles any broker fee that we incur into when acquiring projects. And basically these three items qualify and specify what we had this year in terms of investments, in terms of CAPEX. On your last question, net debt and construction loans. We guided net debt as stable for the year 2021. Also, construction loans are going to be roughly at the same levels with, I would say, three-fourths of the construction loans related to cruise shipbuilding and therefore related to the Italian activities and the rest related to VARD. on cost of that. Depending on the geography, the total cost of that is between 1.4% and 1.3%. Of course, Fincantieri and the Italian operations are somehow more competitive. We are in the range of 1.2% all-in, and Vardis in the range of 1.4%. And this is, you know, the ballpark average of the total cost of that.

If I may, I would like to add a comment regarding investments, which is a very important question. Shipyards need investments, and clearly it's also, it's about traditional investments plus new tools which are linked to evolving technology. Robotics, for example, and other areas of innovation we are deploying in our shipyards. And this is very important because all those investments allow us to be more competitive, which means to lower the break-even for constructing a ship. Second layer of investments is our U.S. operations. Those are paramount importance. And you may understand that when we provided the guidance, those also take into account the fact that those investments are needed to become more competitive, more innovative. And again, technology and environment will be two driving forces for the sectors. In terms of competitive positions, you may appreciate that we're in a stronger

role position versus our competitors therefore we gather capacity financial capacity and and also the skills to invest for future competitiveness okay thank you there was only one last question on the potential delivery starting from 2022 so it's important in my view for investors to understand if finally there should be some positive cash flow coming after 2021.

As I said before to Monica, and although this does not constitute a guidance, let me say, but yes, deleveraging in substantial ways is expected starting from second half of 2022. Thank you.

The next question is from Emanuele Galazzi of Equica. Please go ahead, sir.

Yes. Good morning, everybody. Just one follow-up on the NAVAL segment, just to have an idea on the pipeline of potential order that you see in 2021 and where basically you see the main opportunity for this segment. Thank you.

U.S., United States. as I mentioned during the call, the overall value of the Future Freegate program is $5.5 billion. We got the award of the first in-class ship and we expect further the options for the future ships to be exercised throughout the next five years to one or two per year. Therefore, of course, this is the first on the list. Then we have We may have some new opportunities with the Italian Navy, which of course is our main partner, not the sole one anymore, but it is our historical client. And I stop here. Of course, we are pursuing several leads also in other geographical areas. and other countries, but it's really commercially sensitive.

Okay. Thank you very much.

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One moment for the next question, please. The next question is from Gabriela Gambarola of Banca Acros.

Please go ahead.

Yes, good morning, and thanks for taking my questions. The first one is, again, on the 2021 guidance. I was wondering what could be the contribution from the newly acquired assets in so-and-so of the infrastructure operations, let's say, And then I was, I didn't get your answer, maybe I missed it on the CAPEX for 2021. I'm sorry, I don't know if I didn't get it, but is it possible to understand what could be the order of magnitude of these CAPEX? And the last one is on the near future submarine after three years you did it. There is this good news and I was wondering if you see any significant export opportunity on this new type of summary. Thank you.

Okay. First question. Contribution of the newly acquired business, not really, really not material. Second, Question on CAPEX. We did not give specific guidance for 2021 on CAPEX. Expect somehow higher level, slightly higher level with respect to the ones we had this year. And it relates on the continuation. And in this case, I would say continuation and completion of the CAPEX program in Italy and the ramp up of the CAPEX program in the United States. And when I say continuation and completion, it means that beyond 2021, so in the years to come, you're going to see the amount of CAPEX to decrease materially, I would say.

Regarding the near future summary, do you see any opportunity beyond Italy?

It's too early to say. Let's keep a cautious stance here. Where we see an export opportunity definitely is, as we said before, is on the French frigate. The frigate is the backbone of the surface combatant ships in any fleet. But when it comes to submarines, I would keep a cautious stance here.

I would just like to add a comment regarding naval export opportunities. You may know that in several cases, exporting some of our vessels is also linked to the support we can provide them in terms of logistics. for that can be also a profitable area of growth, which we are exploiting. And the message is that a number of regions have to invest more to defend their sea, their oceans. This is a trend. And we've got competitive vessels, and we are very good also in providing all the supporting, the logistic support for that. We are recognized internationally for that.

Okay, thank you very much.

The next question is a follow-up from Alessandro Pozzi of Mediobanca. Please go ahead, sir.

Hi, thank you for squeezing in an extra question. You recently signed the, you joined a new program, the European Patrol Corvette program. I feel it could be a quite substantial program for Fincantieri. I was wondering if you can give us maybe some indication on how many units you expect to deliver, what could be the value of the ship, and maybe your work share as well in a standard ship, and whether there could be export opportunity for this program as well.

As you have certainly read, we are really, really, really in the early stages of this program because we are on the design phase And as with any novel program, these projects develop really, really in very long terms, very long time frames, let me say. Therefore, it's really too early to say, of course, when you look at the type of ship that this program entails, you expect substantial orders in terms of size because a patrol corvette is is is is uh like the free gate is pro again it contributes to the backbone of the surface vessels part of a fleet therefore we do believe in that program it's going to be a european program i mean if we look at the past uh the french free gate program was was The program following the Horizon one, we built 10 free gates for the Italian Navy. We have another two right now expected to be built in substitution to the ones that we resold to another foreign Navy.

Is it possible to have an indication of the potential value of a ship of that size?

Oh, no. Again, too early to say, but sizable.

Thank you.

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Mr. Dado, at this time, there are no questions registered, sir.