Earnings call transcript: Avio’s record revenues and growth plans in Q1 2024

Avio (AVIO) announced record revenues of €441 million for 2024, marking a significant milestone in its financial performance. The company also reported an EBITDA of €25.8 million, reflecting a 20% increase compared to 2023. Despite the impressive revenue growth, net income showed no significant improvement, maintaining a 6.4% margin. According to InvestingPro data, the stock has delivered remarkable returns of over 110% in the past year and is currently trading near its 52-week high of €21.47. The company’s gross profit margin stands at 31%, while maintaining a healthy balance sheet with more cash than debt.

Key Takeaways

• Avio achieved record revenues of €441 million in 2024.
• EBITDA increased by 20% year-over-year.
• The order backlog reached a historical high of €1.7 billion.
• The company is expanding its defense propulsion production capacity.
• Avio is targeting a revenue growth of up to €480 million in 2025.

Company Performance

Avio’s performance in 2024 was marked by record revenues and substantial growth in EBITDA. The company’s order backlog, now at €1.7 billion, is a testament to its strong market position and future revenue potential. This backlog is four times the annual revenues, indicating robust demand for Avio’s products and services. InvestingPro analysis shows the company maintains a solid Altman Z-Score of 3.26, suggesting financial stability, while its debt-to-equity ratio remains low at 0.05. The company’s strategic focus on expanding its defense propulsion capabilities and exploring new markets, such as the U.S., highlights its commitment to sustaining growth.

Financial Highlights

• Revenue: €441 million in 2024 (record high)
• EBITDA: €25.8 million (+20% vs 2023)
• Net Income Margin: 6.4% (no significant change)
• Order Backlog: €1.7 billion (historical record)

Outlook & Guidance

Avio’s guidance for 2025 projects revenues of up to €480 million, with an anticipated EBITDA growth of 15%. Based on InvestingPro’s Fair Value analysis, the stock appears fairly valued at current levels. The company is focusing on increasing its launch cadence to six per year by 2027 and expanding its defense market presence. With a P/E ratio of 48.24 and a PEG ratio of 0.63, investors can access detailed valuation metrics and 13 additional ProTips with an InvestingPro subscription. Avio’s exploration of U.S. manufacturing locations, potentially starting in 2028 or 2029, aligns with its strategy to tap into new markets and enhance production capabilities.

Executive Commentary

CEO Giulio Ramzo emphasized the potential for significant growth in the defense sector, stating, "Defense for us has a higher average margin than space." He also highlighted the company’s capacity expansion plans, noting, "We can even multiply by four the volumes that we are doing today." These comments underscore Avio’s strategic focus on margin improvement and market expansion.

Risks and Challenges

• Supply Chain Disruptions: Potential delays in production and delivery.
• Market Competition: Increasing competition in the space launch sector.
• Regulatory Changes: Potential impacts from shifts in defense and aerospace regulations.
• Economic Conditions: Macroeconomic factors that could affect demand.
• Technological Advancements: The need to keep pace with rapid technological changes in the industry.

Avio’s earnings call provided insights into its robust financial performance and strategic plans for growth. The company’s focus on expanding its defense capabilities and exploring new markets positions it well for future success, despite potential challenges in the competitive aerospace industry.

Full transcript - Avioane Craiova SA (AVIO) Q4 2024:

Conference Operator, Chorus Call: Good afternoon. This is the Chorus Call Conference operator. Welcome, and thank you for joining the Avio Full Year twenty twenty four Results. As a reminder, all participants are in listen only mode. After the presentation, there will be a Q and A session.

At this time, I would like to turn the conference over to Mr. Nelio Patrin, Investor Relations. Please go ahead, sir.

Nelio Patrin, Investor Relations, Avio: Good evening. Good evening, everyone, and welcome to twenty twenty four results conference call of Avio. I’m here with Mr. Giulio Ramzo, CEO of Avio and Mr. Alessandra Gosti, CFO of the company.

In a moment, we will go through the presentation we just published on our website and in the end, we will welcome your questions. Thank you for your attention. And I leave the floor to Giulio.

Giulio Ramzo, CEO, Avio: Thank you all for joining the call for the twenty twenty four year results. So if we jump to Page four, some of the highlights of the main achievements of the year we just concluded. So the results were overall in line with guidance with revenues and backlog exceeding expectations. Notably, I would say we had a good success with BB25, the return to flight of legacy, which was long awaited. It went well.

So we’re now nearly ready to launch the BB26 mission within the second quarter, and that’s quite rewarding for us, very important achievement, I would say. Towards the end of the year, we signed two important contracts, the completion for the development of Vega E and we also sold the first loan service, the first Vega loan service directly as Avio in our new capacity as loan service provider for the Forum satellite with the European Space Agency. The AM6 maiden flight performed just a few days ago its first commercial flight successfully. So that’s also very important and testimony of the fact that the AN6 is ramping up towards regular flight schedule. We also are on track on the new technology development programs that we have long talked about in previous sessions.

And of course, we saw in 2024 a very substantial growth of orders in the defense propulsion business. Based on all these results, you will see later on, we made a proposal for a dividend distribution this year as well. So on Page five, the main results. So very rapidly, the back log went all the way up to $1,700,000,000 This is a historical record high. It’s a very big backlog also compared to revenues, which in 2024 topped up to $441,000,000 Also this number is a record high in the history of the company.

The EBITDA recorded jumped to $25,800,000 which compares very well with the expected guidance is actually towards the upper part of the guidance and it’s more than a 20% improvement with respect to 2023. So I would say we did our best to secure an increase in earnings, which was very well what the shareholders pushed us to achieve. You see that unfortunately, the net income is only 6.4%, so no improvement with respect to last year. Still within the guidance, but no significant improvement, the reason being a higher charge from taxes and less of a result from the financial income. In contrast, the net financial position, which we expected quite frankly to be lower than what we have, reached EUR 90,000,000.

Now that’s, to be honest, timing because a lot of it is due to the fact that we signed some large contracts towards the end of the year that we’re with lots of cash advances and that’s the reason why we see so much cash at year end. We’ll talk about it later with Alessandro in the financial section. So if we move to Page six, twenty twenty four overall was an important year, I would say. We had the name of Flight of RM6, very successful. So once again, our P120 saverdruck and motors performed perfectly and that was very important to untap the longer weighted growth of the ION6 Arian six launcher.

Then we had the last flight of Vega, the previous version of the rocket. This was important. We sort of retired this program after 22 flights, 120 satellites launched with some very good record of success but also two failures. So all in all, it was a good completion of the program. And towards the end of the year, we returned to flight with Vega C as we had anticipated to you.

So we just essentially did what we said we would do. Most importantly, we also signed almost $350,000,000 worth of contracts towards the end of the year with the European Space Agency. And as I said before, our first loan service contract as Avian, the capacity of a loan service provider that you may recall, it’s a new role for us that was formally performed by Allianz Space, it’s now being performed directly by Allianz. Another very important achievement was the signature of new contracts with U. S.

Customers for defense, importantly with Raytheon and with the U. S. Army, but also a really large contract with MBDA for the supply of solid rocket motors as well. And all of this contributed to this very substantial growth in the defense propulsion order backlog. On Page seven, we review just real quick the success of the return to flight mission, let me highlight on this one thing that is, in my mind, very important for you to keep in mind.

So this launch of legacy demonstrated a failure performance in some synchronous orbit of 2.3 tonnes, which is exactly twice as we did with Vega, the previous version of the rock. So we established a completely different capacity for Europe. That is crucial and strategic. Why that? Because these big heavy satellites are typically earth observation radar technology satellites, very sophisticated technology that can observe earth over day and night with very accurate images that can also be taken across the clouds.

So it’s a very important piece of technology. And so we are quite proud, not only of having return to flight, but also having established a capability that quite frankly is not that easy to achieve and is crucial for Europe for the future. On Page eight, we report just a real quick, the success for the first commercial flight of IM6, which was performed just a few days ago. So that’s also quite important. It was with the CSO3 satellite for the French Ministry of Defense.

So once again, a very sophisticated spacecraft. Also in this case, the launcher performed nominally. And as you know, we have a lot of technology, not only in the boosters, but also the turbopumps for the main liquid propulsion systems. With this launch, we believe we are on track for the ramp up in production volumes of the P120 and P160 motors that are so crucial for us to secure that our production activities reach again critical mass and therefore that we have a better operating leverage on our fixed costs. On Page nine, we report, as I anticipated before, the signature of these very large contracts with the European Space Agencies, which were well known.

One of these for the completion of the Vega e launch and development, which Vega e will be the successor of Vega C. So it’s important because while we stabilize Vega preparing the next version of the rocket with even more pay off performance and hopefully more efficiency on cost given that Vega E would feature one less propulsion stage, it would be only three propulsion stages compared to Vega C, which has four. So that’s important to have as a roadmap for the future. The second important contract was the signature of the Vega C cadence upgrade at the Spaceport with some funding available for us to enhance our capabilities. And most important assets all around the launch complex with specific new facilities dedicated to the pre integration of the launcher to eliminate any bottlenecks in the ground operations that surround the flight activities.

And this was important to make sure that we would have growth capacity in flight rate. As I said just a few minutes ago, important achievement towards the end of the year, the signature of Forum as the Forum satellite as the first mission that actually sold as Avio. It could be launched in 2027. It’s an ESA satellite. This tells you, given that we already have 16 or 17 missions in backlog, selling another one and adding lots of other missions in pipeline tells you how robust is the air conservation business, which is what we are addressing with legacy.

On Page 11, maybe some status on the development of the P160 booster, which is the successor of the P120. As you may recall, it’s a slightly longer booster that will be used for both M6 and legacy and that will provide even more payload performance to both LN6 and legacy, which is an important tool to continuously improve cost competitiveness because at the end of the day, additional payload performance allows us to have a lower cost per kilogram transported and therefore it’s an important element for competitiveness. So we are preparing for the final test of the support QM3, which will be effectively qualifying for flight the P160 motor. And it’s incredibly important for us to be introduced both on IM6 and Vega C. On Page 12, some updates on the progress of the Vega E launch development program.

You may recall that we had fired already in previous years the M10 engine on ground. Now we are working on a number of other surrounding elements of the liquid propulsion systems, the whole complex of valves and other pipings and equipment that are required to make sure that this after stage with liquid oxygen and methane would work properly. So we have successfully achieved the qualification of further subsystems and therefore we are marching on track towards the critical design review. Some important developments also on Space Rider on Page 13. As you may recall, Space Rider is our somewhat unique application of sending a spacecraft with Vega to space that will have the ability to re enter atmosphere and land on ground.

As you can see now, we have already manufactured the hardware for the first mission and we are testing this hardware mechanically prior to flight, but I’m very glad that now all of the hardware is coming together and we will proceed towards the subsequent ground tests prior to qualification review. But I’m very glad to see on our side that all the hardware is coming together and similarly on the Parecelinia side for the spacecraft. Now on page 14, also some other reports relative to the next gen EU funded technology programs that address four different areas of technology development. On one side, you made a call, we talked about the liquid oxygen methane technology. We have two main projects, one addressing an in flight demonstration with a very small flying prototype, which you see the drawing of here on the bottom left.

We have manufactured the tanks and tested the tanks. Now we are integrating all of this prototype rocket together for some ground tests in the course of 2025 with a view to execute the in flight demonstration sometime in the first part of 2026. We have also been finding parts of the liquid oxygen methane engine, the six tonne liquid oxygen methane engine, the so called iTrust engine. You see the photos here of the very first findings. So this is a much larger version of the Vega E cryogenic engine.

So I’m very glad that also that has reached filing test successfully. And most notably on the right side of the page, we have also successfully fired a number of times the so called multipart touchscreen engine, which is something that we will install in the legacy configuration in some time and that will allow further performance in orbit and this is particularly innovative using green technologies for propulsion. Then we are marching towards the green air design review of the in orbit service module, again in partnership with Telesalenia. And all of this creates, I would say, a set of technological building blocks that will form the basis for us to start putting together the products of the next generation that will follow Vega C and Vega E and that will come afterwards. And as you can see, we are putting together a very niche technological base to face the future with a lot of technology.

On Page 15, this is just a recall of what we had posted some time ago, the signature of very relevant defense contracts with MBDA, Raytheon and U. S. Army. This has been probably the year and the history of the company that we got most orders ever in defense, no surprise. But I want to highlight something.

You may have seen from the news a lot of attention in defense over the last two months, but you realize that this contract did not take two months to get to, right? So this was work that commenced probably three years ago and that led to success in here. So this deep wave of defense demand surge is something that was not created in a day that we worked on for a long time and then reached success. There is, as we can very well see, further upside with respect to both in The U. S.

And in Europe and we are getting prepared for that. I’ll say more about it towards the end of this presentation. But this is substance. You’ll see that in terms of backlog, we have reached over $400,000,000 worth of backlog in defense propulsion and it’s expected to grow further in the course of 2025, both from U. S.

Customers and European customers. So that’s that’s a very good dynamic because it’s partially balancing the business mix more between space and defense. So with this, I would pass the word to Alessandro to cover the section on financials. [SPEAKER ALEXANDROSA RAMAKANTH:]

Alessandro Gosti, CFO, Avio: Thank you, Giulio. Good evening, everybody. I will move to Page 17. We reported order backlog evolution over the last six years that shows a compound annual rate higher than 20%. Twenty four year end backlog of BRL1.7 billion, this is guidance, it is the highest in the company, so as Julien said before and is about four times the yearly revenues thus providing strong visibility in the medium term.

In 2024 order intakes amounted approximately 800,000.0. Major portion of $450,000,000 related to Vika with Vigor in development for about BRL300 million and Vigor C currency improvements. Intake of the vessel fashion amounted to BRL260 million more than double compared to previous year, basically related to Kamiara and Osteflower and ETA. 90,000,000 related to Ariane six for Tier 160 motor, the first stage of Ariane six that launches in view of the production ramp up following the successful maiden flight last July. Following such intakes, as you can see, data backlog represent approximately 50% of the year end backlog and the test production growth is 25%.

Production backlog is about 60% and development backlog is 60% and development backlog is 40% of the total. The test backlog is nearly three times that Arian backlog as you can see in the chart, waiting for the ramp up of the Arian six launches following the medium flight of last year. If we move on Page 18, we reported the prior news, which significantly increased by about 30% compared to previous years, as Giulio mentioned before. Such increases being spread driven by the defense propulsion activities, technology development projects funded by next gen DEO programs as well as VEGA. VEGA revenues accounts for approximately 50% of total revenue and the best proportion for about 16%.

Fifty % of revenue comes from production activity and the other 50% on development activities. Shall we move on Page 19, we reported the main financial for the year, ’twenty four compared with the year ’twenty three. Significant decrease in revenue of 30% as the principal driven, as we said before, by propulsion production activities, data and technologies drop down projects. EBITDA adjusted also increased by about 12% compared to 2023, basically as a result of the contribution of higher revenues from the Transprofasion, data development technology development project as well as for lower energy cost compared to previous year. Now the current costs were significantly lower than 2023 before lower activities and costs for the Gaziro jet to flight may be concentrated in previous years.

This led to an even better improvement in the reported EBITDA for higher than 25%. EBIT was affected by higher depreciation mainly for bigger currency increase and IT improvement projects. Talking before tax, as it shows in the chart is a result of lower interest income from lower cash available during the year invested in short term deposits as well as higher financial expenses and negative foreign exchange rates. In Page twenty twenty, we reported that the main source and uses. Working capital is cut away negative, thanks to cash advances for orders and takes towards year end.

Fixed assets mainly for increase for CapEx for bigger currency increase, IT improvement projects within artificial intelligence and net of depreciation of the period. Net cash position improved versus previous year. Terms of collection of cash advances as Giulio mentioned before basically from Vega E and the first propulsion points towards the year. On Page 21, we reported the breach of the net cash position between 2023 and 2024. The increase compared to the previous year is mainly attributable as you can see to EBITDA cash advances on new order intake net of CapEx of the period.

In Page 22, we reported the quarterly pattern of EBITDA and net cash position. The chart shows the quarterly pattern of these two captions. Generation is toward concentrated toward the end of the year, typically in the fourth quarter. Then on page finally 23, we reported the proposed dividend distribution in 2024. Total shareholder return benefit from the dividend distributed in April 24 for 6,000,000 and about 64% of stock capital gain, more than 100% over the last twelve months.

This morning, Avio Boruto, Ted Hector proposed for this year to approve the dividend of $3,750,000 in compliance with our current dividend policy. Well, I’ll give you back Giulio the floor for outlook and opportunities sections.

Giulio Ramzo, CEO, Avio: Thank you, Alessandro. So moving to the outlook for the future, just bear with me a couple of minutes. If you move on Page 25, here rather than the outlook, we have a little bit the history of the last decade. The reason why I bring this up with you is that looking at the outlook, I think it’s important first to see where we are in the economic cycle for the company. So in the upper part of the graph, you see what was the sequence of flights with Arian, let’s say, which for us was a main business in 2020, in 2015 when I started as a CEO.

And as you can see, unfortunately, the Ariane business went tremendously down in volumes due to much lower than expected transition from an M5 to an M6. So you can very well see that until 2029, we still had reasonable volumes covering a substantial part of our production capacity. While over the last four years, unfortunately, we were systematically below the critical level of plant utilization in a way. So this has inevitably affected our ability to deliver on profits. And on Vega, we have sadly a similar story because in the first part between 2015 and 2019, we had a somewhat stable flight rate between two and three.

In the period from 2020 to 2024, we were expecting to grow in flight rate, but we were unfortunately slowed down by on one side, the flight anomalies that we suffered and on the other side, a partial delay in the introduction of legacy. So unfortunately, on none of these two products, we have the opportunity to fully utilize our production capacity and let’s say distribute our fixed costs, right? So these were the main reasons why the profitability of the last two years was lower than expected quite frankly. On the opposite, I would say, if you look at the interesting dynamic that we had on the defense business, defense business a decade ago was negligible to the point that we were barely talking about, right? Only 35 solid rocket motors per year.

By 2019, production volumes had already reached nearly 100 motors per year. And in 2024, we manufactured two thirty. So we observed a steady growth in defense. As I was telling you just a few minutes ago, this was not built in the last few months because now defense has become very popular. There is a long term trend in defense demand growth that comes from very far.

It doesn’t come from last year or the last six months. And as we demonstrate to you with all the backlog we have, we can only expect for the future that this will grow. Now while we had these somewhat terrible times, I would say, over the last four years where we did not deliver the profits we expected to deliver, we did our job, I believe, in growing the book of business, the backlog. The backlog in the last five years grew from seven thirty six million dollars to $1,700,000,000 It grew by $1,000,000,000 So we spent time while we faced issues with leverage all the work we have done so far, leverage all the work we have done so far to go towards a steady profitable growth. And in fact, when you look at 2020 at Page 26 and you look at what we expect for 2025, it’s a substantial ramp up in Arianne six flight rate, a notable ramp up also in Vega sea flight rate.

I’m not quite sure now whether we’ll do three flights or four flights. We will see. If it’s not four flights, probably the fourth flight will be at the very beginning of 2026. But we expect obviously a very rapid growth in production volumes, right? And that’s the reason why I expect that 2025 will be now first of hopefully a long series of growth years.

2025 is also I don’t need to speak much about the growth in defense. You already know we have long talked about it. We’ll talk more about it. But if we go to page 27, in space, 2025 will be an important year because we will have the 2025 ESA Ministerial Council, which as you may recall every three year awards funding for new projects, for developments or for supporting the so called exploitation of existing launches. And we have some key objectives and pursuits for funding that are extremely important for us.

On one side, we aim at further consolidated legacy to really and rapidly move towards a flight rate six per year and to further improve the product by eliminating some older technologies and replacing with new ones, trying to also improve the margins where we can and so to fully industrialize deliver more margin. Then we have to execute on the development of Egay. We have the contract now and we can go towards the completion, but we also need to optimize the configuration of Begayi such that it will be more and more cost effective. Then we know that through the next generation EU fund, we have started the develop and also through Berghay with the development of liquid oxygen and methane technologies. What we aim to do is to develop these technological building blocks further with the objective of starting to prepare a next generation launcher, right?

This is something that will likely fly sometime in the 2030s. But again, we live in very long technological cycles. So we need to start to think about what the launch year will look like in two thousand and thirty. We need to start thinking about it today. And we have pretty good ideas of what we want to do.

So we hope that the Ministry of Council will support us towards this goal. Then we need of course to secure proper funding to support the exploitation of both Iron six, namely for P-one 60 and Vega C. This is very important because we have so many committed orders that we have to deliver on them. As I was saying before on page 28, we have updated this chart, you have seen this chart before. On the left side, you see the growth in defense orders, which tops up now four thirty nine million and in the graph on the right side, you see what is the expected evolution in terms of production volumes.

As you can see, there is quite a bit of growth over the next few years, but there is further opportunity for upside and I don’t need to explain much about it, what has happened in the course of the last year or the last six months, even more importantly in the last two months, calls for a very substantial potential upside. On top of which, we have added our effort to penetrate in The U. S. Market, as you know, and we have had the first successes. But these successes are not do not represent the full objective that we have in mind, which for if you stretch it to a longer time horizon is way more ambitious than we have today.

And what you can see from this graph is that the volumes can grow over the last, the next few years by two or three times with respect to what we are doing today. So we need to prepare for this. And in fact, on Page 29, we have started over the last few days really reflecting on what is happening also in not only in The U. S. But also in Europe.

As you very well know, the European Commission started to announce the possibility, not certainty, but the possibility of a substantial plan to re equip Europe with defense capabilities with the order of magnitude of SEK800 billion. Whether this will materialize or not, whether it will materialize with a smaller number or not, we don’t know yet. I guess nobody knows. But we have started an exercise to make sure that we can be ready very rapidly to double our defense production capacity in Italy in case of a demand surge. Now this is important because we can leverage the existing assets to do this, to double the capacity much faster than anyone who has to do it from a benefit, of course.

Lots of assets we already have. We can repurpose some of the assets we already have and that we have used in the past. And therefore, we can very rapidly expand the capacity. Of course, to support this action, we think we will have at least three investment sources. On one side, some grants for which quite frankly we had already applied for in the course of 2024.

Some support will certainly come from the customers. It has traditionally been the case for this type of products. And so this has been quite rapid as well. And then for the rest, I think we will be prepared in case to add a portion of sales funding given that the magnitude may be quite interesting and remunerative in a way. Now when you put all of this together and as I was showing in the graph, we can probably even create the opportunity to multiply by four or even more the production volumes with respect to what we do today, which means essentially quite rebalancing the business portfolio and the business risk across defense in space.

We have a lot of stuff in space to come, as you have seen, and more will come with the next ministerial conference and a lot in defense and more may come with new plans for demand in defense. Now looking, of course, this will cover the next few years, not just twenty twenty five. Now when it comes to 2025 on Page 30, we’ll be cautious a little bit on the backlog. We think we’ll stay pretty much stable, some increase in backlog but not necessarily huge. There might be upside if it materializes on the fence.

But at the same time, we will have to crunch a lot of incremental revenues potentially reaching all the way up to $480,000,000 That will obviously subtract from the current backlog and therefore that’s the reason why we think with the backlog will stay stable or marginally growing. With EBITDA reported, we plan on growing, I would say order of magnitude, another 15% with respect to 2024. ’20 ’20 ’4, we closed at 25.8% EBITDA reported. So if we’d be in the middle of the guidance, we’ll have a 15% increase. The net income will not show as big a growth for the reasons I was telling you before because we have in particular in ’twenty five ’twenty four and ’twenty five a negative impact from taxes with respect to normal, I would say.

That’s something that will soften in ’twenty six and ’twenty ’twenty seven, but that we will still face in 2025. I wish we would not have it, but unfortunately, taxes you have to pay, I’m told. And therefore, that’s what we see for 2025. Our commitment will be, of course, to do our best as we did this year to exceed the guidance on each of these parameters. So as we said, beyond 25%, we commit to keeping a very long term visibility of the business.

So the backlog, we plan on keeping it high for several years to come. I don’t know how much we can get in terms of growth. This will depend on how business conditions change, but we like what we have today, having at least four years’ worth of visibility, which by the way, is the longest visibility we have ever had. And we also will increase the responsibility on non services. We have acquired this new role, but in the course of 2026, ’20 ’20 ’7, ’20 ’20 ’8, we will fully exercise our new role and hopefully extract also margin optimizations out of that.

That’s the goal. Then in this period, we will consolidate the legacy flat cadence, making sure that we reach a stable cadence six by 2027. And that’s going to be so important to fulfill existing orders and to have space for additional orders. Then the new infrastructure we have in Kuru at the launch side will probably enable us to go beyond 6% per year, maybe all the way to 8%. But this will remain to be seen with respect to market conditions and so on.

We will continue developments, as I said before. This we have already talked about. But our commitment will stay on improving margins, which we believe is the main goal that we should achieve in the next four to five years. So not everything can happen in a day or in a year, but stay assured that our medium term commitment is primarily focused on growing margins and earnings. On the defense side, of course, we are in front of an unprecedented demand growth.

And luckily, we have the right competencies to deliver against this unprecedented surge in demand. It’s a completely new and changing environment, part of which we only partly understand, I would say, especially over the last few months. But I believe you would agree with us that we have done the right move over the last two or three years to position ourselves in defense, not only in Europe, but also in The U. S. So I hope you understand today in 2025 the reason why we started in 2022 to address The U.

S. Market, because we had kind of spotted that this demand would have come. And now you see that the company is positioned to get that growth as well. Had we not done that investment back then, we would not be in the position to capture that growth. And so I believe this is quite important and I hope it will be appreciated by shareholders and investors in general.

With this, I thank you very much for your attention and I turn the call over to Nadia.

Nelio Patrin, Investor Relations, Avio: Thank you, Giulio. Thank you for your attention and we now can answer to your questions.

Conference Operator, Chorus Call: Thank you. This is the Chorus Call conference. Operator, we will now begin the question and answer session. The first question is from Andrea Bonfa, Acros.

Andrea Bonfa, Analyst, Acros: Very quickly, going back to the interesting slide on Page 29 on the right hand side. That upside is apparently related only to European upside. It does not include The U. S. Upside.

That’s my first question. And the second one, as far as the backlog is concerned on defense, does that include, let’s say, the initial order from Rayatheon and the U. S. Army? Or is that included in development?

Or does it include anything from The U. S. As of today? And the final the third one and I will come back. I mean, for me, the upside on defense is really clear.

But I think that the latest geopolitical events suggest also there is potentially in the medium term a massive opportunity in creating a constellation satellite like the Starlink as Europe currently is not strategically independent on that front. So I was wondering if you can comment on that in the sense that how much capacity would be needed in terms of Pegasi and vis a vis Arianne in order to create a semi equivalent starting network? And for what I know, it seems that the Vega C is the best, let’s say, rocket in order to launch a low orbit satellite. I want to know if that is correct or if I’m wrong or is absolutely neutral between which booster to use Vega or Allianz? Thank you very much.

Giulio Ramzo, CEO, Avio: Sombre, thank you for your question. Fiserv on Page 29. Let me make a step back. You remember when we announced in the course of 2024 the contracts we had obtained in The U. S, we also announced that we were looking for a location to build a factory to manufacture solid truckloaders in The U.

S. And we are actively pursuing that effort as well. So as soon as we will have secured larger contracts with customers, we will become more serious on that project because namely, we would have so much demand hopefully from The U. S. That we will be unable to do this in Europe.

On one side for logistical reasons, on the other side for regulatory reasons connected to security and so on. And on the other side because of customer expectations, right? So that’s one part of how we expect to address the expectation for defense demand growth. Now Page 29 has to do with a much more recent set of avenues. As you have seen in the course of the last few weeks, there is likely the possibility that Europe possibility, which is not certainty, right?

It may as well not be true, I don’t know. But there is the possibility that the growth in defense demand in Europe will be much higher than what we have anticipated. We already have for the projections we have provided to you growth over the next few years and substantial growth. Unfortunately, if this or fortunately, should this plan for rearming Europe or however you want to call it, should this go live, then there will be even more. And I believe it is for us mandatory that we stand ready to react to this demand.

And if it doesn’t materialize, it doesn’t materialize and we will not invest. But we have done an exercise to see what we should do in Europe for Europe. Okay? So what we have best in Page 29 is primarily devoted as securing that we may have additional capacity in Europe for European products. Most of The U.

S. Products will be manufactured in The U. S. There is also the possibility that some products, some U. S.

Products we will manufacture in Collefedero. I would say one of the, at least one of the products we have already contracted will probably be manufacturing for the Pedro. But when you put this all together, I think that this exercise we have done explains that we do not have very big limitations in terms of growing our capacity. This is what I wanted to convey. So whatever the mix of products or whatever the demand, we can even multiply by four the volumes that we are doing today, okay, with relatively small investments.

Why? Because we are already acting on an existing infrastructure that is already quite well equipped. Of course, if you want to do four times the volumes, you need more tooling, you need to repurpose some buildings, you need to change some equipment to add for sure, but it’s an efficient set of investments that will also address technology improvements, efficiency and modernity in a way, right? So that’s the thing. We need to be prepared to address the numbers in The U.

S. And in Europe. And I think we know where to go to do that.

Conference Operator, Chorus Call: The next question?

Giulio Ramzo, CEO, Avio: No, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no, no understand the question on Constellation, the story of Raytheon. I need to clarify. So Constellation, look, it’s a long story there. STARLINK in Europe, I don’t know. I have no idea.

I have not seen, to my knowledge, anyone in Europe capable of launching constellation of that magnitude measured in terms of tons of objects to be launched to space. But there is a very clear possibility, very concrete actually, that smaller constellations will be launched in Europe, namely, for example, IL2, for which we are obviously positioning ourselves to get at least a share of the launches and so on. Apart of those, we may also be performed by IM6, which turns out to be good for us as well because we deliver solid drop in motors for IM6. So one way or another, I think we will be in the game with Iris Group. There are other things happening as well.

I mean, if you look at the announcements we saw from Leonardo just a few days ago, there is the possibility that in Europe, a new Earth observation constellation will be launched. That is with characteristics that I would expect legacy to be very ready to launch. And of course, we will convince our partners in Italy that it might be a smart idea to launch them with legacy for sure. We also have to, by the way, execute in delivering the launches of the EVID constellation in Italy, Earth Observation constellation. So all these things are already in pipeline.

Now if you are talking about a massive telecom constellation in Europe, my honest answer is I don’t know. We will see what happens. Whether there is an equivalent of Stavnik, I don’t see it or not. What was the last question, rate and rate and in backlog? Rate and how big is rate and in backlog?

This we cannot say. Unfortunately, we are not authorized. As we explained to you earlier last year, some of these programs are completely powered by security, confidentiality. So we cannot talk specifically about the volumes, the pricing, the values, pretty much nothing. That’s why we have very, very simple statements and so on.

This is not because we don’t want to be transparent, but we are not entitled to share this information.

Conference Operator, Chorus Call: The next question is from Martino De Ambroggi of Equita.

Unidentified: Yes, can you hear me?

Giulio Ramzo, CEO, Avio: Yes, yes. I’m clear.

Martino De Ambroggi, Analyst, Equita: Thank you. Thank you and good evening everybody. My first question is on the defense propulsion. So first of all, what is the current capacity and utilization? And you mentioned that you want to double the capacity in Italy and you split between grants, customer support and CapEx.

But you also added that the CapEx needed for you is not a big number. So just to have an idea of what is needed to have all capacity in Italy. And still on this subject, is there any, I should pause now, but just to double check, is there any supply chain issue to be managed in order to, based on the stronger growth in volumes? And this is my first question.

Giulio Ramzo, CEO, Avio: So let me start from the last question actually. So first of all, in the production of solid rocket motors in Europe, we do not have substantial supply chain issues because as you know, you have also visited the plant, we are quite vertically integrated and we manufacture even our own materials. So we do not expect to face significant supply chain issues. That said, we can always improve it. We can improve it from an efficiency point of view, cost and so on.

And hopefully, on larger volumes, it will be easier to manage this type of efficiencies. Second point, today, we are manufacturing about two fifty solid rock motors, of course, of different sizes and so on. We currently don’t have any problem to reach all the way to four sixty or 500 motors per year with the current installed capacity, okay? What we are conveying is that we can go from 500, six hundred to 1,000 or 1,200 motors per year. This is what we can do with the incremental plan.

How much would the incremental plan cost in terms of CapEx? A few tens of millions, okay. But be careful. This stuff is typically covered to a good extent by the customers themselves in their interest to secure that you have the right product specific equipment to manufacture their products. In fact, it is covered by grants that we have already applied for and you may be familiar with given the low eight zero eight experience you have and such.

And in part, if needed, we will cover through our CapEx in a small portion. Should there be such a growth in demand, I think we won’t have the problem of expensing some more capital expenditure for that. All of this, we don’t know. This is completely uncertain at the moment, maybe speculative, I don’t know. But I think it is serious for us to be prepared for this scenario should this scenario turn out to be true.

If I look at the past, I think we had spotted this demand, defense demand growth and we were right. And we were not caught by surprise. As you very well see, now there is a huge growth in demand and we are prepared. So all we have to do is prepare ourselves ahead

Nelio Patrin, Investor Relations, Avio: of time.

Martino De Ambroggi, Analyst, Equita: Okay. So I understand you are starting it, but this is something that could materialize the start of this doubling capacity in ’twenty five, ’twenty six or takes longer?

Giulio Ramzo, CEO, Avio: I think nobody knows, but I very much think that the incremental orders can very well start already in 2025. As I understand, institutions in Europe call for a very rapid action most of the next ten years. Now whether Europe delivers on this or not, I honestly don’t know and probably nobody knows. But my perception, if I need to place a bet on it, is we might see a further surge in demand already starting from 2025. As always, we’ve come from incremental backlog, okay?

Alessandro Gosti, CFO, Avio: And Martino, this is Alessandro speaking. This depends upon margin in print should unlock the development of scale in 2025 combined with increase in currency of Viga and R and C.

Giulio Ramzo, CEO, Avio: But the very first time you will see is by 2025, we will exceed order backlog in particular on the Fence side. So today, $440,000,000 in defense order backlog. Should we be by end of ’twenty five at 600,000,000? Well, it means that we will have had an upside, quite an upside.

Martino De Ambroggi, Analyst, Equita: Okay. A more general question on the EU investment plan. I imagine, is it clear about what’s your feeling about the need to increase the launch capability in Europe? In the sense, do you feel or do you believe the European Commission will push on the acceleration in order to get new players. Some one of them are very early stage, but are already working on it.

Or will push on Kuru Spaceport increasing the launches capacity or maybe a second spaceport in another place. So is there any plan that you feel that will be with a strong impact on the sector in one sense on the other one?

Giulio Ramzo, CEO, Avio: I believe demand in terms of satellites to be launched is growing in Europe. Even in our segment, in the Earth Observation segment, demand is definitely growing. There’s one admission from the European Commission. We had a recent discussion with all of the industry leaders with the new commissioner, Cubilius, They’re now the European commissioner combines fence and space. There is interest to do more in satellite launch.

And so there will for sure be more opportunity than in the past. At the same time, Europe has decided to promote more competition among also the new players. The new players still need to prove themselves, but there is a possibility that someone will show up and that we will have to share the fight with. At the same time, the new players will have to demonstrate that we have comparable capacities to us. Because one thing is demonstrating that you can lift a small rocket to space and one thing is demonstrating, as I was telling you, 2.3 tons per cent for it in SSO.

So I think we have quite an advantage because we have experienced, we have demonstrated capability and we have a payload performance that is quite unique in Europe for reabsorption. So I think we are optimally positioned. But for sure, we are going towards a more competitive market even within Europe. That said, even the export market is growing a lot. Now that we are entering legacy commercial operations, we are flooded with requests from The Middle East, from the Far East of opportunities of things that need to be launched.

I would think there is any country in The Middle East wants to have its Earth Observation constellation. A few years ago, we used to have some countries like Morocco willing to launch two satellites as we did for them. Now the ambition of countries like Emirates, Saudi, Oman and so on is to launch several satellites to have their own constellations and so on. We will see if they achieve this dream, but we see the commercial pipeline filled with a lot of opportunities. So there’s definitely easy opportunity to grow in cadence.

Now the point would be to balance the volume also with the price. We need to make sure that if we get I’m not crazy about raising the flight cadence unless it leads to an interesting pricing. I just don’t want to increase the flight rate for the final increase in the flight rate. If the price is good, good. Otherwise, we need to improve the margin, the profit.

So we do what we can to balance these things out.

Martino De Ambroggi, Analyst, Equita: Okay. Thank you, Giulio.

Conference Operator, Chorus Call: The next question is from Bruno Permotti of Intesa Sanpaolo.

Unidentified: My question relates the margin. So I would like to understand what if we look at the guidance you gave, we see that the EBITDA at the middle of the guidance range should be at 6.5% in terms of margin. So I was wondering how we can assume the evolution of the marginality of the group will be in the coming year. I mean, what could be a reasonable long term target that if you have something in mind? Also assuming that the defense business will increase its weight, so if I have well understood, the profitability should be higher for that business compared to aerospace.

And then if I may, also a question related to the technology. So I’m not an expert of defense, but I was wondering if there could be some alternative technologies to the classic defense missiles that you produce. I refer in particular to larger or things like that. And if that is something that could be perhaps something that could develop in the next few years or if not? And above all, if the target in terms of defense could be the same of the current defense missiles or if it is a completely different story.

Yes, these are the two main.

Giulio Ramzo, CEO, Avio: So first of all, on profitability. I will start from a disclaimer, first of all. When we look at EBITDA reported, you need to keep in mind that today, within EBITDA reported, we also account for the cost of our other USA operations, which for the right being is not yet generating incremental profits, right? It’s a long term commitment. We have reported those in the non recurring costs for a while now they are in EBITDA reported.

So the EBITDA reported has a charge of $4,000,000 to $5,000,000 of costs that we are incurring, but that we need in order for us to develop The U. S. Business, right? So that’s one point. Now when The U.

S. Business picks up, which is probably around 2028, that will be offset, this cost will be fully offset by the profit we generate with The U. S. Business, right? And so that will tend to already improve the profitability by 1.5 percentage points because today, out of 30,000,000 worth of EBITDA reported, you lose 1.5% because you have a charge for an investment, basically, that we are making on The U.

S. Business. The second aspect is we in the course of the next five years will change the mix of the business because although space will continue to grow, defense will grow faster. And defense for us has a higher average margin than space. And that is due to the fact that our content in the delivery of the product is way higher when we deliver motors such as for the fence than when we deliver the entire launcher because we have so many external suppliers.

So the change in the mix of the business as we go towards 2020, ’30, ’30 so to speak, you have seen that the fence used to be 3% of the business. It’s 20% today, maybe by the end of the day, it will be 40%. So the change in the mix of the business will help improve probably one to two percentage points in the margin. And that is what Alessandro was saying before, we will also have maybe another 1.5 percentage point that we can improve due to operating leverage because overall the business will be larger. Then relative to no recurring costs, I hope at some point we will stop having non recurring costs and we’ll go back to normal where as you remember maybe in 2018, ’20 ’19, we had very small non recurring costs and this led to much better margin.

So overall, I think we have several ways to improve the margin in the next few years. Already from last year to this year, we improved the margin, the EBITDA margin like for like, let’s say, we will improve by 0.7, zero point eight from 2024 to 2025 and we shall continue to do that even more rapidly in the years to come.

Alessandro Gosti, CFO, Avio: Yes, definitely in the medium term, the CapEx will be lower than the increase in production. So we will have better result in operating leverage and economies of scale. And the CapEx that we are now incurring are also a significant portion is devoted to improvement projects, artificial intelligence to better increase the efficiency of in production processes. So these two factors should help EBITDA reporting margin in the medium term.

Unidentified: Okay. Thank you. And if I may on this point, for the CapEx for 2025, you can give us guidance?

Giulio Ramzo, CEO, Avio: Hopefully, it will be less than we have incurred in 2024. Also on this, there is the unfriendly fact that we have this IFRS 16 that it’s making things difficult to understand because IFRS 16 not really a cash out, but shows us CapEx. But the target for ’25 is to slightly increase the overall CapEx expense and to decrease it even further in twenty six, twenty seven, twenty eight. Because as Alessandro was saying, we will have completed certain major investments such as the introduction of a completely new digital infrastructure to support NGE operations and therefore which we have started a number of years ago and this forms the basis to be able to use artificial intelligence to improve operations. This has been a long effort In the course of 2026, I hope it will be over and therefore we should not see much of our CapEx on that front.

So we expect between now and 2028 the CapEx to go down.

Conference Operator, Chorus Call: Gentlemen, there are no more questions registered at this time. Excuse me, there is a follow-up question from Martino de Ambroggi of Equita. Yes.

Martino De Ambroggi, Analyst, Equita: Thank you. On the last point for CapEx declining going ahead, this is through also including the CapEx to double the capacity, as you mentioned, for the propulsion

Giulio Ramzo, CEO, Avio: systems? So wait, if we get into a different scenario that we have not yet planned for, we will see and revisit what we need to do with CapEx. So far CapEx will be busy. Okay.

Martino De Ambroggi, Analyst, Equita: On that, should the market move to U. S. Or

Giulio Ramzo, CEO, Avio: So if we get into a different scenario where we have new opportunities that completely change our expectation for volumes. Also the areas will change, also the margins will change. So we will have to modify also our plan and to be honest with you, I don’t know. But if nothing changes with respect to our plan, the CapEx will be reduced.

Alessandro Gosti, CFO, Avio: Should we have something disruptive, we will incur the CapEx. But on the other way, on the other case, we will reduce as to what you said before.

Martino De Ambroggi, Analyst, Equita: Okay, clear. And answering to one of the previous questions, you mentioned that maybe I understood, I don’t know if it’s correct or not. Production for U. S. Will start in 2028.

Am I wrong?

Giulio Ramzo, CEO, Avio: Hopefully, yes.

Nelio Patrin, Investor Relations, Avio: Martino, please, could you mute yourself on your microphone? Thanks.

Giulio Ramzo, CEO, Avio: So we need at least three, four years to build the plant, okay, at the minimum. And more will be needed to fully qualify in new production lines and so on. And I believe this is understandable. So we have started the design. We have conducted accurate search for the right location in The U.

S. To make this happen for the possibility to also find a couple of people to workforce. And therefore, I expect that the first full year of production may even be 2029 considering that it will take three years to build that land and the first two years for production may as well be 2029.

Martino De Ambroggi, Analyst, Equita: Okay. Thank you. And very last one last short term, the sales

Alessandro Gosti, CFO, Avio: Very last on short term, the sales for

Giulio Ramzo, CEO, Avio: Compassion System could be triple digit in ’twenty

Martino De Ambroggi, Analyst, Equita: five, I suppose. But looking at the growth in volumes and the growth in sales, these are nice pricemix mix effect because if I just divide the sales value by the number of new cycle and the propulsion systems

Giulio Ramzo, CEO, Avio: Sorry, Martino, we cannot hear you well because there is another voice in the background.

Martino De Ambroggi, Analyst, Equita: Yes, unfortunately, I try to repeat. If I look at sales for propulsion in 2025, I have an estimate around 100,000,000. And looking back to the past couple of years, there is also quite nice effect in terms of mix or price because the average value for propulsion systems is to be much higher. So could you just elaborate? It is just a natural mix or there is a nice effect in price?

Giulio Ramzo, CEO, Avio: Look, that’s propulsion revenues reach 70,000,000 in 2024. In the next few years, this number will grow for short. And when you compare that to the overall revenues, they will represent a much larger proportion of overall revenues. Now no other revenue within our business mix has nearly the same AmbiO content, okay,

Alessandro Gosti, CFO, Avio: which means that

Giulio Ramzo, CEO, Avio: in what we do for Defense Motors, we are automatically generating more margin, but not because of anything, but the fact that we have more work content, okay? So when we reach something like 30% defense, 70% space, for sure we should have a higher average margin, okay. Of course, as soon as we have 40% defense, it would be even better. And as Alessandro said, at some point, also the overall volume of activity of the whole company will be larger and we will better distribute our fixed costs in general.

Martino De Ambroggi, Analyst, Equita: Okay. Thank you.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.