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Good afternoon, this is the Chorus Call conference operator. Welcome, and thank you for joining the Avio First Quarter 2021 Results Conference Call. [Operator Instructions]
At this time, I would like to turn the conference over to Mr. Giulio Ranzo, CEO of Avio. Please go ahead, sir.
Good afternoon, to you all, and thank you for joining the first quarter 2021 results, and sorry for having postponed a little bit. I hope you all have in front of you our presentation. I will start from Page 3, with the highlights. First of all, as a premise, the first quarter as you know, typically tells little about what happens during the year. And this year, probably even less than in previous years, given the very peculiar situations in which we found ourselves. So in particular, we worked mostly on the return to flight of Vega on the VV18 mission, which was completed successfully, as you probably know, on April 28 with the launch of Pleiades Neo 3 and 5 mini satellites on our SSMS derived module.
This followed a very in-depth review of quality and flight worthiness in our assembly and integration, and testing processes to secure reliability. So the mission was successful, we're very happy about that. But of course it required a very intense effort. In parallel, as you know, the effect of the pandemic were not yet finished, in particular the region where we have all of our production and development activities in Italy. Colleferro was actually subject to a red zone due to a very local high peak in the effects of the pandemic. So if you want, we overlapped 2 very negative elements of scenario, all in the same quarter.
Meanwhile, the order backlog, we managed to keep it healthy. As you can see, it's essentially in line with that at the end of 2020, which means that we got some order intake which offset completely the revenues we generated in the period. And there is -- the revenues of the quarter was down by 34% with respect to last year, at EUR 52.6 million, due to a slowdown in production and development activities, which has been induced by the situation of the operations for VV18, and to the enduring effect of the COVID-19 restrictions, which in many ways obviously, did not allow to progress as fast as we hoped to.
As a consequence of a reduced top line, we have an reported EBITDA EUR 3 million, which is down 58% with respect to last year, and now reported EBIT negative EUR 2.2 million. These results were also the effect of a higher -- of higher non-recurring expenses, due to 3 full months of COVID effects. The non-recurring costs of COVID were actually incurred due to the very peculiar situation I told you about specifically here in Colleferro, and to the extra costs which we incurred to actually make sure we would have the VV18 flight on schedule. On the positive side, I would say the net cash position remained pretty stable, with respect to the year-end. As you can see, what is relevant in this scenario is that we managed to have 2 important parameters healthy, then net order backlog and the cash position. So all in all, we did not lose any visibility on future business during this quarter, but we unfortunately worked very intensively on the return to flight.
Meanwhile, we managed to progress also on the commercial side, with the signature of some advance payments for the next batch of Vega launches for the future. So we announced to pay for our long-lead items to procure our materials. And Arianespace also signed a new Vega launch with Airbus for the CO3D constellation, which I should say is a very relevant result considering the difficult situation we found ourselves in. So all in all, I would say not exciting results in terms of revenues and profits, but very healthy net order backlog in cash, and also, I would say, business visibility for the future.
Moving on to Page 4, a quick snapshot of the intense effort that was spent over the last, I would say, 5 months preparing for the VV18 flight, with a very intense set of over inspections to secure flight worthiness. We completely reviewed all of the assembly, integration, and testing procedures. Almost 4,000 procedures were reviewed. We increased the number and depth of the quality checks everywhere in the process. We introduced a new specific layer in the organization to ensure an independent technical cross-check on any of our technical processes. We executed a number of trainings for the workshop operators involving assembly, integration, and testing, to make sure that all of them would have the best knowledge of the matter. And we also managed to spread the actions on the -- improvement actions on the next few flights, meaning on the next Vega 19 and 20 as well as on the maiden flight, such that the effort of implementing these improvements was not incurred alone only on VV18. Otherwise, we would have had further delay and so on. So I would say a very, very intense period of work.
Now, on Page 5, I think it's interesting to review the success of flight number 18. Why? Because this was a very peculiar flight, it had a major payload, Pleiades Neo. Pleiades Neo is a very interesting Airbus satellite with less than 30 centimeter -- it's an earth observation satellite with less than 30 centimeters resolutions. So let's say, it's a novelty in the business, a very precious payload. We launched on -- in addition to that 5 small satellites by leveraging a portion of the SSMS, our adapter for small satellites. So this flight has also proven the ability not only to launch again, of course, but to launch a bundle of satellites in a different configuration that we had done September. In September, you may recall, we had launched 53 different small satellites. This time we have launched what we would call a piggyback. So a major big satellite with an addition of 5 small ones. And so this is important because it tells you a lot about the flexibility of our technology to embark satellites of different sizes and shapes and so on, even almost on a last-minute basis.
Now, allow me also on Page 6 for a bit more of a technical point, and follow me on that, because I want to explain to you the relevance of this. VV18 flight also marked another first-timer in Europe. It was the first time we ever tested on a European launch vehicle, the use of satellite telemetry. Now, what is that? You know that when a launcher is actually flying, you need to be able to track where the launcher is from Earth. So the way you do it is you have a number of telemetry stations on the ground, everywhere on the planet, and somehow you need to follow this rocket, which is actually running pretty fast. Now this requires a very extensive network of telemetry stations all around the world, which have a cost, which are complex to maintain, and complex to have them all operational at the same time when you need to fly.
Now, for the first time, we tracked the flight of the satellite from space, from a network of NASA satellites that provides this type of service. And a receiver, let's say that we embarked onboard Vega, the so-called TDRS device, which you see here in the pictures. Now, what are the benefits of this and why is this important for the future? First of all, because we will have lower reliance on ground stations, thereby also optimizing the cost in part of the launch, but increasing substantially the flexibility to execute flights even when one of the stations may actually not be operational.
And we also, from this point of view have a great deal of improvement from a safety standpoint, because rather than tracking the launcher discreetly, only in certain parts of its flight through different ground stations on earth, you can actually follow it throughout the entire flight, which is much, much better for safety. So I apologize for having had a deep dive on this, but this is a very important milestone that you will see will make the difference in the future. Some of the U.S. rockets use satellite telemetry, but in Europe was never done, so it's an interesting first time.
Now, if I move to Page 7, there's a detail of the key financials. Starting from this quarter, we decided to also report the net order backlog, even though you know that the net order backlog on a quarterly basis, is not necessarily very much telling of what is happening on the commercial side. Nonetheless, as you can see, the backlog stayed pretty stable, which means, obviously, we had a positive order intake in the order of magnitude of the revenues we generated in the period. Which is good, because as I said, it means the visibility on future business stayed pretty much the same, well above 2 years equivalent of annual revenues.
Net revenues as we said before was down by 34%. Now, when it comes to reported EBITDA, obviously, the lower contribution to profit was driven largely by a lower volume of business. And there's also the fact that the non-recurring costs were higher than we actually had anticipated, and definitely higher than we had last year, when COVID materialize only towards mid-March, whereas this time, we have had it throughout the quarter. And most importantly, we didn't have as much specific extra cost to run the flight as we actually had last year.
Then, when we go down to the EBIT line, the EBIT reported is down to negative EUR 2.2 million. This in part, as you know already from the results of 2020, is due to the fact that starting from 2020, in fact, we have higher depreciation than we used to have in just in 2019, because we started depreciating some of the new assets we've put in place for the new generic portion, factories that we used for Ariane 6 and Vega C, while we do not yet have the steady-state volumes, and as a result of that, the plans are still underutilized, so there's a bit of a heavier impact of depreciation on the accounts.
The cash position is robust. As you can see it stayed at EUR 58 million compared to EUR 62 million at year-end. So as I said before the quarter is disappointing from the point of view of the economics of the period, but naturally so due to the effects of what I said before, while the visibility on the business in terms of order backlog and the robustness of the balance sheet stayed pretty much stable and healthy.
Now, on Page 8, there's a usual review of how the quarters go typically. And so we compare the -- here is also the quarter with previous years, and as you probably recall, we generate most of the profits in the -- actually in the fourth quarter. So almost half of our profits are typically generated in the fourth quarter. Even the first half as you can see is hardly one half of what we do at year-end. And as a consequence of that, typically reviewing the first couple of quarters is not so indicative of what happens within the full year. This year, as you can see from cash, we started from a higher cash position. Now we anticipated that there will be, as typically is the case in the mid of the year, some consumption of this cash to then come back up towards year-end, as it is typically the case.
Now, looking forward for -- to the next steps on Page 9. What are the key next steps in 2019 -- in 2021? Now that we have successfully returned to flight, of course, we are working hard to catch up with our schedule. And we have pretty busy upcoming flight activity with VV19 scheduled to happen in the summer in the third quarter, and VV20 to happen at the beginning of the fourth quarter, 2021. So we will be working back to back with flights one after the other in the attempt obviously to catch up with the schedule. But not only that, because before the end of the year, we need to start work on the final adaptations of our ground systems in preparation for the Vega C maiden flight, which we expect to take place at the beginning -- at the very beginning of 2021, but work to assemble the rocket on the launchpad for its maiden flight will definitely start before the end of 2021.
So let's say we have a pretty intense schedule ahead of us. A lot of effort in a condition where COVID is still there, but as you can see what we have ahead of us, it's a lot of work. In parallel, what we are doing in the plant, we are progressively ramping up with the -- some of the development activities in particular with Space Rider either and with Vega E, for both of which we had signed contracts with the European Space Agency, completely for Space Rider and in part for Vega E. And in parallel, we shall also progressively ramp-up with production of P120 motors, for Ariane 6 and Vega C. And with tactical propulsion that as you may recall, we anticipate in having a sharp increase in volumes for the next, let's say, 2 to 3 years with the ramp-up that should begin in 2021.
We will report the first-half results on September 10. We'll see by then if we be in the position to define a guidance. We refrained from providing guidance prior to return to flight for obvious reasons, as you can imagine. We are still refraining to do so in consideration of the fact that we have just returned to flight. But we still have, as you have seen, a very, very busy schedule and we are still amid several COVID challenges, which make, for example, the flight campaign's pretty complex, as you may imagine. You need to have extra people in your teams to make sure that you have substitutes in case someone falls sick, requirements of quarantine periods for people coming and going to the launch site are pretty complex, and they make utilization of people far from efficient. So for this reason, we are refraining at the moment to provide specific guidance, economic guidance towards the end of the year. We have tried to provide to you the outlook of what we're actually going to do. But converting that into numbers is at the moment a difficult exercise.
Then on November 8, we will be reporting in the 9-month results and then we should add towards the end of the year with the preparation of the Vega C maiden flight. And that's a bit it for the first quarter of 2021.
[Operator Instructions] The first question is from Martino De Ambroggi with Equita.
My first question is on the backlog evolution. So it's very clear, it's difficult to make a explicit guidance for the P&L and cash generation. But could you recap what is included in your current backlog, and what you expect over the next few quarters, based on your current visibility? And the second question concerns the P120 engine, and how the ramp up is progressing. And the second part of the question, when do you plan to get the benefits from the additional margin contribution coming from the full exploitation of the P120?
So let me start from the second question, the ramp-up in the P120 production. Last year we started production of flight hardware in the order and magnitude of between 4 and 6, let's say items. That's part of it, which is in work in progress. This year we are scheduled to be almost twice as that. So to be closer to 12 -- between 12 and 14 items, ready by year-end. So we are working on the schedule, and as you can imagine, as we -- so, if at the end of the year we'll be at rate, let's say 12 or 13, we are probably at 1/3 of our journey, a bit more than 1/3 of our journey towards the goal of reaching, let's say, an overall steady-state volume of about 30 more as per year.
But still, of course, a lot of the efficiency will be gained already once you reach, let's say, a cadence in the order of magnitude about 20 maybe per year. So we will need to wait until at least the end of next year to see some good economic benefits of the volumes reaching a stable production level. And we don't know yet what the volumes of 2022 will actually be, we will see. But for the time being we were almost doubling with respect to last year, so it's a relevant challenge. On the backlog, I would actually leave it to Alessandro, maybe to respond.
Yes. The backlog is substantially composed as pretty much as revenue. So half and half between Vega and the 120 (sic) [ P120 ] for the Ariane line of business. An increase in portion is related as we reported over the last year, to the new contract signed for tactical propulsion. In Q2, for backlog evolution as you ask Martino, we expect a contractualization of the [ ministerial ] conference amount that was set up in the previous year.
Then what we expect, let's say, between now and year-end, although we don't know exactly for what precise amount. First of all, we expect some further progress in the consolidation of the backlog for the P120, and some further progress on the order of Vega batch 4 for which we only had a portion, let's say, maybe a bit more than 1/3 of what we expect throughout the life cycle of batch 4. So we expect to make progress. Of course, in particular on Vega is we largely depend on how the commercial activities will, let's say regain momentum after a little bit of our standby during this period, related to the failure. But as you have seen, even during this period Arianespace was able to close one new contract with Airbus for CO3D. So we think there are good elements to expect for these aspects. In terms of the amount, we don't know yet. We'll go as always a little bit in tranches.
The next question is from Ben Heelan with Bank of America.
Just on our second answer that you gave around resuming the commercial activities post the failure at the end of last year. Can you talk a little bit about that? I mean, how is -- how are you feeling about competition? How are you feeling about the demand outlook? That would be my first question. And then secondly, you highlighted in the presentation, the production and development activities, obviously, came under a lot of pressure because of COVID. How should we be thinking about those revenues as we go through the year?
Okay, thank you for your questions. So first of all, I start from the second question, how should we expect revenue. I hope we'll be accelerating on revenues. I don't know how fast we can accelerate on revenues, but I count on us accelerating, on making progress on revenues. Why that? Because actually we do have the backlog. Now we need to convert such backlog into revenues. We've been trapped by extra activities to make sure we would come back to flight. Now let's say we've proven. And let me say that the result of this flight was so accurate in terms of performance of the flight, that indeed, it demonstrated if there was any need for that, that the problem -- the product is extremely well performing. So when it's well executed and assembled, it perform it's -- incredibly well.
So now what we need to do to accelerate revenues is to go back to\work, to obviously walk through the many operational issues which are imposed by this pandemic situation, which aren't finished, yet, in terms of operating and industrial business. But we expect to accelerate revenues towards year-end. Both, let's say, in terms of production activities and in terms of working in on development projects, which we have slowed down in the past quarter. So on both sides we should have means to accelerate. Then on the -- on resuming commercial activities and on-demand outlook. So the demand outlook is incredibly attractive, it's actually improving from my point of view, every quarter.
So there's demand everywhere, there's opportunity everywhere, and of course with opportunity also comes competition, no doubt. But we think we have our means to compete in this environment. Of course, it has been difficult so far in the last 5 months, so to speak for obvious reasons. But as we go through hopefully another successful flight to follow VV18, conditions will improve quite significantly. One big element we have in the pipeline and then we have already anticipated to investors is, acquiring contracts for the next generation copper, nickel satellites from the European commission. These are government satellites for earth observations.
We have launched some of them in the past, and more are coming between now and end of this decade. So there is a wealth of launch services to be captured between now and the end of the decade. We are discussing actively on this, with the commission, and at some point together with Arianespace, we shall land on a first batch order. We'll see how big the batch order is, we'll see how well paid it is. Don't know yet, but that - this shall be coming within the near future. Then on the side of Ariane, let's say there already is a good order backlog, which is now consolidating.
And in parallel, also on Ariane 6, they have a comparable opportunity to capture a bulk order for the Galileo satellites, for the European navigation satellites, which at some point in the near future should be crystalized into an order to Arianespace. These are the more, let's say, near-term milestones in terms of commercial activities, which would be highly focused on government payloads in Europe for the next few years. Then of course we are active in many different fronts all around the world.
A more important activity is happening right now on constellations of different sizes and different magnitudes. There's heavy competition on that, but again there are some niches of activities where we think we have good opportunities. And as we gain also credibility with our main customers, I think we will have incremental opportunities, because we do know and we do see that their pipeline is actually growing. So at some point, I think we will have further opportunities also with our traditional core customers.
[Operator Instructions] There is a follow-up question from Martino De Ambroggi with Equita.
Just a usual question, we used to ask you. Concerning the M&A scouting, I don't know if there is any progress or focus was 100% on the return to flight for Vega. And a very minor question I know, but is there any contribution from the ground activities that you are now managing, or probably is not material -- I don't know?
Again, let me start from this last question. This contribution was good already in 2020. Actually, it did contribute to some of the good health of 2020. As a matter of fact, it actually helped us in 2020 to offset some other negative aspects that as you may recall, we have suffered due to very high recurring costs and so on, so this is already working. This may work also in 2021, provided that we actually execute all of these flights. If we execute, as expected, we have 2 more flights to come and the preparation of the maiden flight.
I think that should provide some relief. Then on the M&A, yes, you're right. We've been completely distracted by return to flight. It's a priority, we needed to demonstrate that we could do it, and we actually needed to demonstrate that we could do it relatively fast. We could not allow to wait another 3 or 4 months before coming back to flight. And so, I think if you can see there, that the average meantime between 2 launches for us is about 10 weeks, so 2.5 months. Okay. This time we have taken 5 months, we have wasted maybe 2.5 months, but we have fixed a major issue. So I would say we have also demonstrated ability to remain resilient across challenges and now, we need to try and fast -- and run as fast as we can.
[Operator Instructions] Gentlemen, there are no more questions registered at this time. Mr. Ranzo, the floor is back to you for any closing remarks.
Well, thank you very much to you all, and we look forward to come back to you with more news as soon as we have some. Thank you.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.