Fincantieri S.p.A.

Good morning. This is the Coruscant Conference Operator. Welcome and thank you for joining Fincantieri first half 2022 results conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need 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. Folgero, Chief Executive Officer and Managing Director. Please go ahead, sir.

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

Yes, good morning, everybody. We can move on to slide 17 and comment on order intake and backlog. Well, as very visible, auto intake is still impacted by COVID sector slowdown. And I refer to huge business, of course, even though we're seeing the first signs of recovery in others. Past two, three years, owners have reduced substantially their fleet. We expect a resumption in the market and therefore there will be a recovery in orders. We're seeing the first signs in terms of agreements aside and also discussions with the owners. Well, given that the total backlog is still preserved, we are at 34.6 billion euros, including 10.5 in soft, with a backlog of 24 billion. 113 ships, 93 in the backlog and 20 in the soft backlog. Order intake, as said before, is came in at 1.5 billion, with a very positive impact from the offshore and specialized vessel business, which is still showing signs of a robust growth. Other orders, very important, the 3rd Constellation Class Frigate for the US Navy. We still have seven to go in contract for a total of 10. The other seven are in soft backlog in the offshore in detail six marine robotic vessels for ocean infinity this order puts the total fleet order by ocean infinity at 23 vessels two further commissioning service operation vessels for the offshore wind farms operations and one fish investments again We hope in a very positive cruise order resumption expected for the second half of 22, but mainly in 2023.

Revenues.

We did book a growth, 16% with respect to the first six months of last year. We are still growing, notably in cruise, thanks to the Hefty order acquisition realized before the COVID pandemic. So 3.5 billion euros plus 16%. Shipbuilding still grew of 6.5%. We had over 8.5 billion hours of production in the first half of 2021. So we are executing, again, the substantial backlog required. 48.5% of the revenues refer to the cruise business. Defense business waits for about 23%, well, 23.3% versus the 23.1% respect of last year. Substantial growth came from the offshore and specialized vessel business in which revenues grew 78.8% compared to last year. And of course, this is a further sign of the successful repositioning of VARD towards, you know, in the new wind offshore support vessels business. EBDA, page 19. Total EBDA stands at 19 million euros with a margin of 2.6. Of course, as we said before, results are heavily impacted by lower marginality in infrastructure due to in-depth review of the whole life margins of some projects in the infrastructure business. Of course, we had a further increase in raw materials prices, notably in steel. And this is something that came in after the start of the war between Russia and Ukraine. As many know, we used to source a substantial part of our steel in Ukraine. and of course the war has totally disrupted the supply chain. Right now I can confirm that although we are not facing any problems in terms of sourcing the material in the quantities that we need and in the time that we need, of course prices have increased further. Fortunately, I would say wisely, we already increased our assumptions in steel prices at the end of 2021, but nonetheless, we had to further slightly increase our assumptions for the years 2022 onwards. Also, we had to write down the work in progress of the reassessment of a client credit rating The ship that initially was envisaged to be delivered in July and now it is the delivery in agreement with the client has been postponed to December. You know, net of all these elements, EBDA would have been over 7%. And I'm saying this to underline the fact that we're standing, you know, The first two months of the year, we still had many cases, many COVID cases that impacted the production in the yards and the start of the war in Ukraine. And some clients still have to recover from the impacts of COVID-19. The operating performance of the business, of the core business is at very good levels.

move on. Slide 20.

Net loss came at 234 million euros due to first half 2020, also due to first half 2022 extraordinary items. On top of what I discussed before, we had a total of 156 million euros of extraordinary items. 107 were due to impairments of goodwill related to the acquisitions done in the U.S. and Norway, Vard and the Thierry Maringrou. And this impairment came in mainly as the result of the sharp increase in interest rates that we faced in the first half of 2022. Of course, this is a phenomenon related to the increase of inflation. And still, 29 million euros for asbestos-related litigations. Another 20 million came in as provisions for risks of not fulfilling some offset obligations that we had in connection with contracts that date back to 10 years ago. Let's discuss CAPEX now, slide 21. Capital expenditures came in at 108 million euros. More than half of that relates to fixed assets. We're still on course on the program of the capacity enhancement in the United States. 31% of the CapEx came from there. And still we have the tails of the CAPEX program in Monfalcone and Marghera, our cruise shipyards in the North East, which are almost completed and which are producing the benefits that we envisaged in terms of more efficiency, more capacity, and very, very good operating performance On page 22, net financial position, which, as we said before, we present aligned to the ESMA recommendations. We decided to, even though in the past we did provide the ESMA structure of the NFP in the notes to the financial statements, we decided to provide it up front in order to also and the endless conversations on where the construction loans should be but net financial position the SMA structure came at 3.2 billion euros and this is of course due to still it is affected by COVID-19 measures that we implemented to support our clients even though we are at the tails of this phenomenon And of course, from an operations standpoint, all of you know very well that the net financial position levels are also linked to the production and the delivery schedule. As a matter of fact, as of today, I can say that the 3.3 billion euros that you see at the end of June, as of Friday, will be 2.6 billion euros. because during the month of July we cashed in, we cashed and we are going to cash in by the end of the week substantial amounts related to the delivery payment of a vessel, of a cruise ship that we're going to deliver Friday. Networking capital is positive at 1.3 billion euros and this of course is a networking capital without construction loans. And this is mainly to the increase of construction contracts, the increase of the work in progress by over 700 million euros. And this, of course, comes in as production volumes increased substantially. We also had an increase in trade receivables because we invoiced other installments in some foreign business.

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

This is the Corsco 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 touch-tone telephone. To remove yourself from the question queue, please press star and 2. We kindly ask to use handsets when asking questions. Anyone who has a question may press star and 1 at this time. We will pause for a moment as callers join the queue. The first question is from Emanuele Gallazzi of Equitasim. Please go ahead.

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

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

Okay. Well, thank you for the question, Emanuele. As with guidance on net debt, of course, we already said net debt levels at the end of June are affected by not brilliant economic performance on one side. Still, we have the tales of The efforts that we did to support our clients during the pandemic, some of these efforts were recovered already in the month of July as we cashed in roughly 250 million euros from a client that asked us, last year they asked us a deferral in the payments, we granted the deferral and he has paid back. And then the other major event, as Mr. Foggero mentioned, is the delivery of a very large cruise vessel, the first vessel for Norwegian Cruise Lines. It's the first time we produce a cruise ship for this brand, and we're very proud. It will be delivered out of the Marghera Yard. It's a vessel of roughly 140 tons and of course with this size comes also a huge delivery payment, a substantial delivery payment so please 3.2 is the net financial position at the end of June, 2.6 is the financial position according to ESMA and I will say it once again and I won't say it anymore 2.6 is the net financial position at the end of July So it moves in discrete quantities and you know it very well. As with the end of the year, we expect a slight improvement with respect of the end of June because of course we will strive not to incur into any more extraordinary items or we do hope that Inflation comes down in terms of, you know, commodity prices especially, and those things impact the international position. We still have a hefty production program in the cruise business. Therefore, we have to expect that we need to support our networking capital requirements also for 2023. The leveraging will come in. naturally, intrinsically with the development of our backlog, but of course, deleveraging now becomes a target for the group in terms of what we need to do to deleverage on top of our production, on top of the requirements of the networking capital. You know, it's a bit early to say what extent we will deliver. We hope to come back to you by the end of the year on this. Okay, thank you very much. Sorry, one more. There's one more. It also depends on the order flow on the novel business, which is expected to come in in the near future. But, of course, it's, again, too early to say when. Okay. Thank you very much.

You're welcome.

The next question is from Alessandro Pozzi of Mediobanca. Please go ahead.

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

Just a moment.

First of all, nice to hear again from you and a pleasure to interact with you in this new capacity. I understand you have two questions. One has to do with my thoughts on infrastructure and the second is about the cost driver. Can you tell me more about the second question?

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

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

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

But it's very simple. I don't believe in competing with Leonardo. So I don't believe that there is value in producing radars and trying to sell radars instead of promoting Leonardo radars. So we have to be integrator of solutions, not producer of defense products. You know what I mean? So when you are an integrator, you have to have the business model of the integrator. And the integrator is very knowledgeable because to integrate, you have to be as knowledgeable as a producer of the solution itself. It's a competence-driven business. It's a distinctive competencies-driven business, but it's not a fabrication business. So it is not a unit to fabricate products, but you have to integrate products. So we will shift the level of collaboration with Leonardo to a level in which we want to be the prime contractor of the fully fledged ship. So it is not that I'm only a platform integrator, but I'm the integrator of the platform plus the electronics plus the combat system. But this is the winner business model for us. So to be prime contractor, it's a kind of prime contractorship strategy that is very, very, very important for us. Something we already do because, for example, in the United States, we are prime contractor. So we integrate either the platform and the electronics and the system of login marketing. So we need to be integrator. We don't need to be producer of solutions. I hope I was, I was clear enough. So Leonardo, we have a fantastic opportunity because they have a very strong combat system, a very strong electronic system. We can integrate them as prime contractor. And first of all, we can serve this very, very, very valuable anchor client, i.e. the Italian Navy with a proposition that is very strong, very straightforward. We have already a company that is called Horizonti Sistemi Navali. This company was fitting this purpose by birth and that's the level we want to act. So very simple and very complicated at the same time, dear Alessandro.

Thank you very much for your answers.

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

Good morning, everyone, and thanks for taking my questions. I have three. The first one is on infrastructure. I know that it's very early and just two months from your arrival, Pierroberto, but do you expect further strategic review on the infrastructure business, or do you think that... Most of the work is already done. As for raw materials on the whole life course of the shipbuilding project, I can imagine that some raw materials might go down, but there are also the energy costs. Do you plan to revise or do you feel that you could revise further the assumptions behind the wool life coat of the ship building project? This is the first question. The second one is on the cruise segment. There is a ship that will be postponed to the last part of the year. Do you plan any further provision on the back of the possibility that the client My task for a further postponement and its labor on your level of confidence on the delivery of the sheets is appreciated. Thank you. And the very last is on the second half, 22, profitability guidance. In 2021, the EBITDA margin was in the range of 7.4%. X passed through. activities and can you help us to figure out a range of profitability for the second half of 2022? Am I wrong if I assume something in the range of 6.5% just for my housekeeping? Thank you.

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

Yes thank you.

Okay thank you.

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

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

Okay, very clear. Thank you very much.

The next question is from Gabriele Gambarova of Banca Acros. Please go ahead.

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

Thank you, Gabriele Giuseppe speaking. CapEx, yes, there were, CapEx came in at 108. From a qualitative standpoint, let me go back to what I said before. The largest chunk of CAPEX originates, is dedicated to the CAPEX program we have in the United States in order to prepare, let's say, the yard for the execution of the free-gate program for the United States Navy. Again, as I said before, we still have the tales of the CAPEX program in Italy, notably Marghera and Falcone. But, you know, recent events coupled with COVID and coupled with the fact that we are in parallel with the CAPEX program, I should say differently, we need to execute a very ambitious backlog production program. We are reaching record levels in terms of production hours, over 8 million hours in the first six months. At the same time, We are, you know, deploying our CAPEX program, which is not an easy task to do in parallel. Building ships and revamping shipyards is not definitely an easy task. You should have come to Marghera six to eight months ago, or a year ago, actually, and to see what I mean. I don't expect 108 times two, let me say. by year end. I expect more, more in the range of 300 million euros in terms of CAPEX for 2022. After 2022, I'd rather at this point in time not to give you any, you know, quantitative color, but there is still, again, the United States going on and some project that we may envisage in it. And that's it for the CAPEX program. I don't know if Mr. Fogero wants to add some But as of question number two, impact of late delivery and guidance on net financial position, I have always tried to be very conservative when making assumptions on net financial position and on cash. Therefore, I can tell you that net financial position will be slightly better at the end of the year compared to what it is today, even if the delivery of the cruise vessel is postponed further. Okay? Okay. To ship owners, we'd rather give you no details at this point in time as, of course, it is It is a solid order. It's a memorandum of understanding. It's subject to financing. It came in at the standard terms, let me say. And it is a confirmation of the partnership that we established with MSC. It's a very important order in terms of technology, in terms of the design of the ships, in terms of the market segment that these ships are allocated to it, you know, the luxury business is one of the most promising brackets of the cruise business in terms of growth in number of ships, and that's it. And it's a positive sign, of course.

Clearly. Okay, thank you very much, Giuseppe.

Thank you, Gabriel.

For any further questions, please press a star and one on your telephone. Mr. Dado, there are no more questions registered at this time.

Thank you.

Thank you very much for attending the conference call. Thank you. Bye.