Avio SpA

MIL:AVIO

Q1-2025 Earnings Call

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Avio First Quarter 2025 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Nevio Quattrin, Investor Relations of Avio. Please go ahead, sir.

[Nevio Quattrin, executive]

Good afternoon, everyone, and welcome to Q1 2025 Results Conference Call of Avio. I'm here with Mr. Giulio Ranzo, CEO of Avio; and Mr. Alessandro Agosti, CFO. In a moment, we will go through the presentation we just uploaded on our website. And in the end, as usual, we will welcome your questions. Thank you for your attention, and I leave the floor to Giulio.

[Giulio Ranzo, executive]

Thank you, Nevio, and welcome to you all. Thanks for joining our first quarter call. I will start from Page 4 with a summary of what happened during the quarter, although I think we updated the whole investor community not too long ago at the occasion of the fiscal year 2024 results. Let's see what else has happened over the course of the last few weeks.

Well, first and foremost, the success of our Vega C VV26 mission, launching ESA's biomass satellite to orbit with the usual orbit and injection accuracy, so a very successful launch, very happy customer. We also had the success of Ariane 6's VA263 flight, launching the CSO-3 French satellite to orbit equally successfully.

One other important event was the firing test of the P160C motor, which is the largest version of Vega C 96 first stage propulsion system. This is important because it will provide more for us to both Ariane 6 and Vega C provided, therefore, more payload performance and competitiveness to both launches, as we expected. We were for a long time waiting for the firing test. We have performed that successfully, and we are quite pleased with that.

We also achieved quite some increase in the revenues and EBITDA compared to the first quarter of last year. Although let me tell you that the first quarter, as always, is not very indicative of what happens. You can follow that let's say, sequentially that over the quarters, we've been increasing speed towards the growth that we have anticipated to all of you in our guidance, and we committed to growing revenues and profits and such. And I think we are in the direction of travel is the one that we have set for ourselves in the guidance. We have distributed dividends on May 7th. And therefore, all in all, I'd say that on the first quarter, we think we are in the right direction towards what we committed to for fiscal year '25.

On Page 5, just something on the last launch of Vega C. I think it was important, first of all, because we launched a very peculiar satellite from the European Space Agency that is monitoring the way the larger Amazonian forest capture CO2. So a very relevant topic for the public, I would say, a very precious satellite with radar technology, a very large antenna under our very delicate pass and therefore, to launch the space. It was perfectly delivered the way it was supposed to be. It's now we have information from the customer that's being operated as expected. And therefore, there's nothing better than a success than a satisfied customer, I would say. So the European Space Agency Earth Observation Director is quite pleased with that.

And as far as we are concerned, this launch was equally important. We achieved 3 launches, 3 successful launches in a span of about 8 months. We have another one coming in July, which means that we are now performing at a rate of slightly more than 4 per year, which is one of the near-term objectives we had, which was to recoup a certain speed in flight frequency and so on. And I think we are going in the right direction. It's early to say this is consolidated, but I think we are demonstrating we are on the right direction with a competitive product.

On Page 6, we report the successful firing of P160. That's very important because it shows you also the flexibility we have in improving our technologies and delivering more results for the customers. In this case, we have taken our first stage for P1 for Ariane 6 and Vega C, the P120, and we have basically made this motor longer by about 1 meter and with about 15 tons more propellant, which means delivering more boost to the first stage of both Ariane 6 and Vega C and therefore, increasing the payload performance by about 10% for both Ariane 6 and Vega C at a very limited incremental cost.

Therefore, this definitely adds competitiveness to these long systems, leveraging the solid propulsion technology that, as you know, it's in the core competency of Avio in particular, but also our partner, ArianeGroup. Therefore, we are quite pleased about that. The firing test revealed that the motor fired extremely well. So we will soon introduce this in Ariane 6 in the course probably of 2027; and then shortly after also on Vega C. So that's very good and important for us.

There are no other particular news occurred between our last exchange with you at the occasion of the fiscal year 2024 results and now more to come in the next few weeks with another launch by the end of July with Vega C, more firing tests, more activities on the development projects, but we have nothing specific to report in this -- just in the few weeks. But nothing else that is not being performed as expected. So I would say no news, good news, no particular news, good news. We are cruising at the right speed.

I would leave it now to Alessandro to walk you through the first quarter financials. As I said, knowing that they are typically not so relevant for us. But still, I think Alessandro can walk you through the details. Alessandro, can you...

[Alessandro Agosti, executive]

Thank you, Giulio. Good afternoon, everybody. On Page 8, we reported the order backlog evolution over the last 6 years, which shows a compound annual growth rate higher than 20%. '25 end of first quarter backlog is substantially in line with '24 year-end, and it is the highest in the company history and about 4x the yearly revenue, thus providing strong visibility in the medium term.

In Q1 '25, order intakes amounted to approximately EUR 90 million [Technical Difficulty] and for about 40% capital gain based on the stock performance, which is more than 60% over the last 12 months. As a result of this on Page 13 [Technical Difficulty], EBITDA reported between EUR 27 million and EUR 33 million, which -- with more than [ 50% ] growth versus 2024, including the business development cost of AVIO USA reported as general expenses, as said before. And EBITDA -- EBITDA adjusted ranging between EUR 30 million [ to ] EUR 36 million, assuming EUR 3 million of non-recurring cost. Finally, net income is expected between EUR 7 million and EUR 10 million with some 30% growth versus 2024 also considering the higher tax rate expected compared to previous year.

We have completed the presentation. I leave the floor back to Nevio.

[Nevio Quattrin, executive]

Thank you, Alessandro. Thank you, Giulio. Now we can open the Q&A session.

[Operator]

[Operator Instructions] The first question is from Martino De Ambroggi.

[Martino De Ambroggi, analyst]

Very quick questions on the tactical propulsion. If you can provide an indication on sales and order intake for the current year. And I don't know if you can share with us what is the potential order in terms of nego size of the -- overall size of the negotiations ongoing for this division and that you expect for the rest of the year and going ahead? And I clearly understand Q1 is typically the weakest quarter of the year, but Q1 showed a significant improvement. Just a quick comment on this.

And on the P120, just to have an update on the run rate and the expected contribution going ahead.

[Giulio Ranzo, executive]

Yes. Martino, I think Alessandro and I [indiscernible] responding to these questions. Now regarding P120/P160 because now we have a blend of production of the 2. Last year, production volumes were extremely low in aggregate, about 4 to 5 units in the year. This year, we target overall to have more or less 15, 16. So it's a substantial increase in production rate, now still far from the 30, 35 that we should achieve at steady state, but a good increase in production. The reason why we don't grow any faster in production is, as you recall, we have quite some stuff in the warehouse sitting in inventory still to be taken out of inventory. And therefore, we go this year at rate production 15, 16, more or less.

In terms of the expectation for the order intake in defense this year, Alessandro, correct me if I'm wrong. I think in the order intake of '25, we should assume that we add another EUR 150 million less in terms of order intake. Then we will have some revenues that obviously will be larger than last year, but we should land at the end of '25 with a larger net order backlog in defense with respect to what we had in 2024, more or less, okay? Therefore, I think that's pretty much what will happen in defense. So I'm looking at some figures with Alessandro on this stuff. So order intake defense this year, I would say, target something like EUR 150 million, give or take.

Now the point on the timing of the orders is something to be watched with a little bit of caution because the fact that maybe it slips by 1 quarter doesn't mean that the order is not coming. What we have in the pipeline, as you know, goes well beyond another EUR 150 million in order intake. We are pitching for a lot more in the U.S. and a lot more in Europe. Given the acceleration that we are seeing on the sector, we know that more orders are going to come. We don't know exactly when they're going to materialize and how big they are going to come. But they may be a few hundreds of millions worth of additional order intake.

Now on the European front, the effect of the ReArm Europe Plan is still to be determined in terms of the quantitative impact on the programs that are relevant for us, namely Aster and CAMM-ER. But there is no doubt that more volumes will come in the course of '25, '26, '27, '28 all the way towards 2029. I think all of this is currently in the making across the European customer, particular between Italy and France and for some of the export activities that we are doing with [indiscernible] CAMM-ER.

In the U.S., we are addressing new customers, a broad set of new customers. We have identified the programs, 2 of which are already signed, as you know, on 2 programs with Raytheon and the U.S. Army. There's probably a possibility for more from the U.S. Army and definitely there is the possibility for more with Raytheon. In addition to which we are obviously working the commercial pipeline also with another customer at least, possibly more than one additional customer. So there is a lot of stuff in the pipeline. Now what will materialize in terms of firm order this year, as I said, order of magnitude, EUR 150 million and so on.

In terms of sales from defense last year, we achieved something a little bit less than EUR 70 million after all. This year, we expect definitely a double-digit growth in terms of revenues from defense. Now how far we will go with that depends also on our ability on the new programs to demonstrate technical viability of the production activities, in particular for U.S. Army, for example. So -- so we want to go fast. We don't want to rush too fast that we are not ready and not ready for it. So -- and we are not anxious, quite frankly, because we know the order is in the bag. So now we just need to execute safely. But you will see a double-digit growth in defense revenues anyway.

Alessandro, is there anything else we left over?

[Alessandro Agosti, executive]

[indiscernible].

[Giulio Ranzo, executive]

Is that fine, Martino?

[Martino De Ambroggi, analyst]

Yes. On the P120, the 35 units, is it achievable in '26 or it takes longer?

[Giulio Ranzo, executive]

Probably we will achieve that by '27, considering that now we are also spreading production across a mix of P120 and P160. And in the meantime, we also have to -- to take stuff from the inventory, which is completely filled at the moment, in particular of [indiscernible] motors. So I don't think we will achieve a steady-state production before '27.

At the same time, ArianeGroup is expecting to accelerate in the rate of flight quite substantially. So we see -- we hear from them faster demand expected. Now they will fly in August, more flights will occur. Another 2 to 3 flights will occur in the second part of the year. So depending on how fast they consume the inventory, we can accelerate production. But between now and '27, we should be pretty much at 50 more or less and whether we are at 30 or 35 is going to be then I think what is important is that really by 2027, we should be at 30 order of magnitude at which point the degree of capacity utilization will be such that will positively impact profit substantially. So that's pretty much, I think, the path we have in mind.

[Alessandro Agosti, executive]

Martino, we can see the benefit on the EBITDA gradually before now as you can see right now in the first quarter, considering the better economics of scale as long as we increase the production rate of the P120 having already incurred all the CapEx for the production.

[Operator]

The next question is from Andrea Bonfa from Akros.

[Andrea Bonfa, analyst]

Can you hear me now?

[Giulio Ranzo, executive]

Yes.

[Operator]

Yes. We can hear you.

[Andrea Bonfa, analyst]

Okay. Sorry. I mean some of my questions have been already answered. Maybe Giulio, if you can elaborate a little bit more on the timing of the greenfield plant in the U.S. how that project is developing? And the second one is related to the traditional space activities. I mean, the Kuiper constellation of Amazon, which is partly set to be launched by Ariane and the new Ariane 6.2, 6.4 has got some tight deadlines in order to, let's say, to keep the licensor. I mean how is the state of-the-art from your standpoint? How do you see Ariane being able to deliver the amount of volume, I mean, the number of launches requested?

[Giulio Ranzo, executive]

So thank you for your question. First of all, on your last question on the Kuiper project, I think the positive test of P160 was an extremely important piece of news for Amazon more than for anybody else because for them, having more performance on Ariane 6 is crucial in order to be able to launch 34 satellites per launch. So now considering that they launched the satellites with us and with -- I mean, with Ariane 6 and with ULA Vulcan, ULA Vulcan has had a little bit of a problem on their second launch that they are fixing, so on a big deal.

But being reassured that Ariane 6 will be ready for them to launch over 30 satellites per launch, I think it's great news for them and in turn for us as well. So I think we are on track to deliver their satellites in time. I don't recall when is the first Kuiper launch scheduled for Ariane 6. I honestly don't remember. This is more for Ariane Space to announce. But I think we are on track with what they expected.

On the timing of the greenfield plant in the U.S. so obviously, the answer would be as quickly as possible. I think we need at least 3 years to put in place an infrastructure of that type. So between the second half of '28 and the second half -- the first half of '29 is where -- when the plant should be fully in operation. Now that is -- this is our target at least.

Now obviously, to motivate the kickoff of such project, we need to do a number of things. We need to secure customer commitments. We need to secure funding support and lots of things. But I think the demand is there, the capabilities are there. We have completed the preliminary design of the plant. We have identified our target site and location in the U.S. We have been funded by U.S. government funding for the preliminary design and factory planning. So that's -- all the parts of the puzzle are coming together.

I think the timing is good with respect to what the customers expect. We are now working on the programs and with the customers to define what type of commitment they can come up with such a long-time span in mind because this practically means that we cannot start processing work in the U.S. before 2029, right? So it means that we have to have a very long-term span in terms of what we look for, but that's a fact.

What is very positive is the relationship we are developing with U.S. Army because that program will be processed entirely in Italy. And so, that does not have problems to go into revenues and profits immediately and therefore, will be effectively a gap filler before the U.S. plant is ready. And if, as I expect, the relationship with U.S. Army will develop into possibly working also on another program, this will further add into the gap filler, so to speak. So generating more revenues and profits, while we work on the U.S. factory construction. So that's pretty much the status so far. The U.S. team is working on it. It's a lot of conditional commitments to be lined up, but I think we are, again, on the right track on that as well.

[Operator]

[Operator Instructions] The next question is a follow-up of Martino De Ambroggi. Sorry, so we have Maritano Carlo from Intermonte.

[Carlo Maritano, analyst]

Can you hear me?

[Operator]

Yes. Please go ahead.

[Carlo Maritano, analyst]

I just have a question. I know that maybe too early, but I was wondering if you have any idea of what would be the funding for the space launch activity at the next ESA Ministerial Conference. And on the competitive landscape, do you imagine that ESA will continue to provide funding for other launches, so to increase competition for European Space.

[Giulio Ranzo, executive]

The discussion, I mean, Ministerial Conference is ongoing. I think for us, the topics are clear. We have to possibly continue on the development programs for [indiscernible] propulsion on liquid oxygen methane along the lines of what we have started with the PNRR technology development projects. This could be our wish.

But most importantly, we need to make sure that we are properly supported on Vega C for further work to be done on strengthening the industrial robustness and supporting the rate increase not only for us, but also for our supply chain. So the topics are clear. We have discussed that with the European Space Agency.

Now the European Space Agency is discussing with the various space agencies across Europe to stimulate them to participate through subscriptions by November. I think objectives are clear. We will see what happens on the real subscription by the end of the year. But I mean, by now, I have seen at least 4 or 5 of these Ministerial Conferences, and I have rarely seen surprises. So I expect that we will be covered on our objectives.

As I told you before, in terms of the total amount, the last Ministerial was particularly large. This might be slightly smaller. I'm not concerned about that at all, knowing that we are moving in terms of the revenue mix more towards production, which is what we should be doing, by the way. And therefore, I don't expect particular issues on this.

[Operator]

[Operator Instructions] The next question is from Gabriele Gambarova from Intesa Sanpaolo.

[Gabriele Gambarova, analyst]

Two actually. The first is on the overall, let's say, scenario with the new U.S. administration, there has been frictions between Europe and America and many politicians have been vocal about buying more European products when it comes to armament. So I was wondering if you are aware or you saw any kind of, let's say, change in the European decision-maker attitude when it comes to buying, I don't know, air defense systems or something [ similar ] or it's too early to say?

And the second one was again on the U.S. programs. I was wondering if you have, let's say, an idea of when, let's say, these 2 -- these couple of programs may get the green light from the client. That's all for me.

[Giulio Ranzo, executive]

A couple of things. First of all, the effect, the impact of the new administration in the U.S. on the policy for defense procurement is yet to be seen. I don't have the crystal ball in this particular case to know exactly what's going to happen. I can just observe that the amount of money being spent in space and defense is set to increase very substantially, and we have evident signs everywhere.

The launch of the Golden Dome, for example, in the U.S. in space, I don't know if you noticed the procurement of national security launches. I have never seen in my life a single procurement for launches from SpaceX, ULA and Blue Origin of $14 billion in just 1 day, $14 billion. This is a huge procurement of launch services. The U.S. government purchased in 1 day, 59 launch services. That's incredible. So the amount of money being invested by the U.S. government in both space and defense is just beyond even imagination.

Now I think the winning factor of our proposition is that we do no export of any product. We do not intend to sell European products or Avio products to U.S. customers. We are not sending any of our products. We are making ourselves available to work in the U.S. on their U.S. products, not on our products. Therefore, what we do will be safe from any argument related to tariffs, to trade tariffs and will be safe from any discussion between import and export because we do no export, right? Even for the U.S. Army, we do not send the product back to the U.S. We design and manufacture a product for U.S. Army on European territory, and we deliver it here within European territory for NATO.

So we do not have any export, reexport. So we are away from this logic of the tariffs and this logic of defense system procurement because we are not selling any European product to the U.S. or buying any product from the U.S. We are just working directly on the products. And the fact that we work not only with OEMs, but also with end customers, meaning the U.S. armed forces, it's an incredible added value.

As I probably told you in the past, our authorization to work for the Department of Defense was sponsored by the U.S. Navy. So we are working closely with U.S. Navy, with U.S. Army, potentially with U.S. Air Force. This is where the things happen. This is not intermediaries. So we think this is a winning proposition for the U.S. government and even for this administration because what this administration demands for is an increase in manufacturing activity in the U.S. and so on.

Now most importantly, if you follow what was on Meloni and Trump joint statement, there is a sentence that talks about joint production of defense articles, okay? And this means practically what we are doing at the moment, right? And meaning that we will manufacture some of the U.S. products in Europe, manufacture some of the U.S. products in the U.S. but the logic is to make our capabilities available to the U.S. needs practically, okay?

In parallel, we will continue to do our job with our European customers, namely in defense, MBDA, serving the European market. And the U.S. administration has been extremely vocal in expecting European parties to increase production of defense articles within Europe. So we are just following exactly what is being asked by the new administration.

Now I think we want to predict ourselves that we had this strategy before the new administration came in, in the U.S. So we had thought about this strategy because we knew it would have been safe to any change in administration because this is in the best interest of both parties and does not involve import or export clause.

[Gabriele Gambarova, analyst]

Second question is on the -- the second question was on green light.

[Giulio Ranzo, executive]

Yes. When are these orders going to come? Good question. Now the honest answer is I don't know precisely. It depends on many things. Obviously, the change in administration has definitely slowed down some of the administrative processes to get contracts signed and so on. It doesn't mean that they have changed their mind, but people are changing, point of contracts are changing, and we are wasting a bit of time.

But I expect, as I said, to deliver some EUR 150 million worth of order intake in defense this year. So something will come, if not in the second quarter, maybe at the beginning of the third quarter, but we should see more orders coming from the U.S. in this time frame. And moreover, we also expect additional orders coming in Europe from incremental procurement of our current products for MBDA in the wake of the early phase of the European ReArm plan.

So in this context a very rapid acceleration of demand, it's very difficult to bet on the timing of new firm order backlog. There's always something in the administrative procedure that can make it slipped by a quarter, but I wouldn't be anxious about it because demand is coming. Trust me.

[Operator]

[Operator Instructions] Gentlemen, there are no more questions registered at this time.

[Nevio Quattrin, executive]

Thank you, everyone, for joining the call.

[Giulio Ranzo, executive]

Bye-bye. Thank you.

[Alessandro Agosti, executive]

Thank you, everybody.

[Operator]

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