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.