Avio S.p.A.

Good evening. This is the Coruscant Conference Operator. Welcome and thank you for joining the Avio full year 2025 results presentation. All participants are in listen-only mode and after the presentation, there will be a Q&A session. At this time, I would like to turn the conference over to Mr. Nevio Quattrine, Head of Investor Relations. Please go ahead, sir.

Good afternoon, everyone, and welcome to 2025 Results Conference Call of Avio. I'm here with Mr. Giulio Ranzo, CEO of Avio, and Mr. Roberto Perassai, Chief Financial Officer of the company. In a moment, we will go through the presentation we just released on our website. And at the end, as usual, we will welcome your questions. Thank you for your attention, and I hand the conversation over to Giulio.

Thank you, Navio. Good afternoon. And thank you for joining the fiscal year 2025 results. In the interest of time, I will go to the agenda. So we will go quickly over the highlights, and then we'll have some review of the financial results with our CFO, and then go back to the to describe the outlook for 2026. So 2025 was a very important year for the company. We recorded the highest economic and financial performance ever. I remind everyone that we had recently upgraded our guidance for backlog and revenues. We have exceeded 2 billion euros worth of backlog, never happened in the company, and also revenues over 540 million, never happened before, and net income EBITDA above guidance and EBITDA well within the guidance on the upper part. So I would say overall an extremely positive 2025. On the operational front, you know, the activity, the flight activity of Vega was very successful. We completed our last flight in December for Vega C. and with that we achieved four missions within 12 months which was a target we had for ourselves and we're very glad we reached that. We also demonstrated acceleration on the Ariane 6 programs which for us is extremely important as you know as we deliver many many motors to them and growing and the success of 25 was quite relevant also more recently with the introduction of ariane 64 the full booster version which is even more relevant for us in terms of the delivery of the motors and that paved the way for further growth in in 2026 in particular for the launches for amazon neo that is currently underway Towards the end of the year, as you know, we also achieved a good result of the European Space Agency Ministry of Council with over 600 million worth of subscriptions for contracts to be awarded to ABIO that will unfold in the course of 2026 and partly 2027, meaning that they will materialize in form of net order backlog within this timeframe. Most importantly, in 2025, we achieved over 250 million worth of order intake in the defense propulsion. So we had anticipated, we were expecting growth in the defense business. I think this big accumulation of backlog was a testimony of the right strategy being pursued over the course of 2025. Now the defense propulsion backlog stands at over 600 million. It's never been that high, represents almost a third of our backlog, has never represented a third of our backlog. So a very relevant testimony to the transformation of the company. As you also know, we achieved a successful capital increase towards the end of the year for 400 million euros, which is extremely important if you think about it now. We are in a completely new scenario in 2026 with an active massive conflict in Iran. with equity markets that are extremely volatile. And quite frankly, very glad we achieved this process before the end of the year. And now we have cash in hand, ready to be invested in our projects, which seem to be at the very core of where demand is going to be in the future. Now, we also, of course, prepared a dividend proposal for the shareholder meeting of 2026 in line with our payout. I think there's been quite a lot of shareholder return on the stock. Nonetheless, we proposed the shareholder meeting to also vote for a dividend in line with our traditional payout ratio. Now, one important goal, we will come back to that on the guidance of 2026. As we had anticipated in our long-term plan, we do see continued growth in 2026. But I have to anticipate to you there may be potential upside with respect to that. Now, the question is we are in the middle of an active, massive, unprecedented conflict in Iran with a huge consumption of missiles. And everywhere in Europe and in the U.S., there is a concrete expectation for far more demand than we had anticipated, probably two or three times more. Yet, you know, this conflict only started 12 days ago. So we need to wait for the dust to settle before we can correctly plan for the future and guide you through, if possible, updated targets. So far, we have projected a guidance that we feel comfortable with. Also remind that converting ideas and expectations and forecasts into firm order backlog under contract is something that takes time. But everywhere we go in our business, we see far more demand than we had anticipated. This we wanted to report to you. Now, as soon as we will have more concrete information, if needed, we will come back to you and update if needed any information on the future. So, On the following page, reviewing a little bit the numbers in detail, we put here a summary of what we did in 2023, 24, and 25. Why did we do that? Because it's important you note how fast the backlog grew over the last three years quite consistently from 1.3 billion to almost 2.2. This represents an annual compound annual growth rate of 26%, which, as you can see, is consistent across the backlog, the revenues, the EBITDA, and so on. Now, why is that relevant in my mind? Because the backlog demonstrates that the commercial capability we have in the markets we address is actually effective. So we are getting orders as we expect. Converting that into revenues is a completely different story. It tells you that we are capable of converting our commercial capabilities into our industries and turning that into deliveries. Maybe not yet in profits, but definitely in deliveries. Now, when it comes to profit, you see that also the profit has been growing at a 25% compound annual growth rate. Now, starting from 2026, we will report the split between the EBITDA we generate, so to speak, in Europe and the costs that we have incurred in the U.S. for the setup of the U.S. operations. Why that? Because as we reported to you in our plan, we have a growing EBITDA in Europe. We have a growing set of costs in the U.S. before we are fully functional with our new plans. The result of these two things in our plan would likely be a flattish EBITDA over the next two to three years. But we have a growing EBITDA in Europe and a set of costs in the U.S. and no revenues for the moment, right? Things may change in the future for the better, but that's pretty much what we have had so far. Let me also highlight to you that the numbers in terms of backlog and revenues were far more than the guidance we had given to you back then in March last year, which we had upgraded early in January this year. So we went far beyond that expectation. Last and not least, also the net income surprised positively, a little bit above what we had put in guidance. We put the guidance between seven and 10 million. We are at 11.6, not a huge value, still healthy situation. last important point is on the nfp so the cash position stands right now at 592 million we will see that with roberto later a good chunk of that of course comes from the um the capital increase but as you may appreciate there's more than 200 millions worth of cash coming from the business which is a huge amount of money okay and once again that is a testimony of how well we can do commercially by drawing advances on the new contracts, okay? Which is important, it's a terribly important situation to plan for the business for the future, make sure that we flow down our activities to suppliers and that we execute. Otherwise, converting those orders into future revenues becomes impossible. If you do have the cash, you have many more levers to play for revenue conversion. Next, let's review a little bit what happened in the course of the last few months. As we said, a very successful flight on legacy mission BB28 with a Korean satellite. I think that this Korean customer is very important, is a very important success. It's an export customer. We had the pleasure to win and, you know, We launched a very heavy, relevant satellite for Earth observation of the Korean Peninsula. We will do more this year. We'll launch a second Korean satellite. And as you know, we've been successful, again, in the Far East with Taiwan selling another launch. So that consolidates a little bit our ability not only to deliver in Europe, but also in the export markets. On Ariane, I said it before, I am very proud of how Ariane Group ramped up on Ariane 6. They did a very good job at ramping up Ariane 6 too, with certain missions for Copernicus and for Galileo, but more recently, also for Amazon Neo with the Ariane 6.4 version. So what we had designed together with Ariane Group as a European industrial setup to deliver two complementary launch services between Ariane 6 and Vega-C is now shaping up and you can see that almost at full steam. Not yet, but almost at full steam. You see how rapidly we are upgrading our launch frequencies. um more contracts for the future achieved just in the last few weeks a very important one towards the end of the year um the the new contract signed with ariane uh to deliver boosters for the next so many launches probably a 100 boosters or so uh so a very massive contract uh it's important you appreciate that this this type of delivery is for any group for m6 We get in batches, right? So you get an order every now and so often that lasts two to three years, then you get another one, and so on. So we're not going to get, unfortunately, an order for $200 million every year, but, you know, this covers pretty much the next three years, and we're very proud of it. Probably it will be less than three years because they are likely to consume boosters far more rapidly than we had anticipated. As I said before, I was very happy also with the new launches sold for Vega C. Very happy to have signed with Airbus for Player Neo next version. We had launched Player Neo before. Now we have Player Neo next. For us, Airbus is a very relevant customer. I would say also for their commercial applications, not only for institutional projects. So we are very, very happy to have this customer and very happy to have recently signed a new contract. One other important aspect many of you had asked, we are working effectively to increase the launch rate at the launch site. But to do that, we need more infrastructure. So at some point during this year, we were transferred the so-called integration facility for the launcher, the so-called BIL. It's a building that was formerly used for Ariane 5 where we will be able to integrate the Vega rocket while another one is being launched on the pad. which is fundamental for us to make sure we can reach a stable flight cadence of six per year without any issues of logistics and other complexities, okay? So the building was transferred recently. We are working heavily now on repurposing this site, but this will help in the next few years to grow the cadence without doing any particular other effort. The P160 booster for Ariane 6 and Vega-C will debut very soon on Ariane 6-4. It's the larger version of P160. As you may recall, this was developed recently as a stretched version of P120. On this, we will accelerate deliveries This year we will manufacture as many as 22 as compared to 14, which we manufactured last year. So we are ramping up production and filling up the factories here as per the plan. So very proud about this motor, which ends up being the world's largest monolithic carbon fiber solid rocket motor. Also progress on Vega E, complex project, as you know, to upgrade at some point Vega C with cryogenic upper stage with liquid oxygen methane. We are continuing to carry out subsystem level testing for all of the liquid propulsion management system. We have tested a number of subsystems. You may recall in previous years we have developed the engine itself, MR10, Now we are preparing all other surrounding subsystems to make sure that at some point we will be able to fill the upgraded Vega C to Vega E with a cryogenic upper stage. So good progress on that as well. um space rider another project we we oftentimes uh talk about our um launch and re-entry spaceship small spaceship that we orbit around earth uh stay there for a few months and come back on ground and then potentially be reused as you can see we are uh building up effectively the first flight items together with Thales Alenia. We work on the power module and the solar panels and all of that while Thales Alenia works on the aircraft itself. We provide, in addition to that, all of the propulsion systems and the guidance and navigation systems. So we are prepping for a flight sometime between 28, 29 And it's a very sophisticated product, may open up new opportunities for business that doesn't yet exist, but it's a very forefront application that we are very happy to be now at a very advanced stage of development. More innovation for the European Space Agency and the Italian Space Agency is being done with our liquid oxygen engine flight demonstrator on the left of the page. We are preparing for flight, our first flight item, which will fly sometime in 2027. We will begin testing this year on ground and then fly next year. It's a small prototype of a launcher using liquid oxygen methane technology. Very complex project, I have to say, but very rewarding because there's a lot of new technology on that that we are finally converging towards demonstrating in flight. Then we are also preparing what we call the iTrust engine, which is a larger, far larger, liquid oxygen methane engine that we may want to use for the future. And last and absolutely not least, we have very successfully conducted an extensive number of tests on our new so-called multi-purpose green engine, which is an improved propulsion system for our Vega C upper stage that uses hydrogen peroxide, a clean propellant, essentially. So a lot of new technology that, as you know, we deliver for the agencies as a customer-funded research effort. Now, on the defense side, as I anticipated to you in my highlights, there is definitely a continued momentum in defense. I would call it more than a momentum. This is probably the highest surge I have ever seen in my professional lifetime. The order book already speaks for itself. We are getting more and more demand from NVDA for Europe. I have been reached by Italian armed forces, by European institutions, all asking how we can improve, increase the production rates, the deliveries and so on. We are all working collectively between prime contractors, tier one suppliers, tier two suppliers to see how we can grow production capacity. And so in Europe, even there is a great expectation for a completely new expectation for demand. In the U.S., I don't need to say much. We have achieved quite some results in 2025 with the new contracts for Raytheon from U.S. Army and very, very recently a second contract for a second product for the U.S. Army, both for development and subsequent production. In addition to that, we have been supported in the US by the state of Virginia for the setup of our production plant, which will be instrumental to serve these US customers for the future. As I said before, in US defense for solid rocket motors, given what is happening even over the last few weeks, but not only over the last few weeks, the demand may be two, three times more than we anticipate. But at this time, my guess is as good as anybody else's. We can only count how many missiles have been launched lately. This you can do yourself. It's massive. So consumption is definitely at a peak surge. and i have to say if we were to consider how much it would take to to replenish this stock and so on it feels like it will be very many years unless we significantly grow the annual production rates so we are debating with the customers how to make this happen how to deploy investment and i think we are in exact in the exact sweet spot of adding the cash available to invest towards this effort and to go exactly along the plan that we have projected. So it's on one side very sad. On the other side is a business opportunity. We are here to serve. And I think this is a great, great potential. I would leave it now to Roberto to go a little bit deeper, although rapidly, across the financials, and then we'll come back to some considerations on the output.