Fincantieri SpA

MIL:FCT

Earnings Call Analysis

Fincantieri's Positive Q1 Performance and Strategic Moves

In Q1 2024, Fincantieri recorded solid performance across key metrics. Revenues were nearly €1.8 billion, with EBITDA up 16% from the previous year, reaching €100 million. The company delivered four ships and maintained a strong order backlog of over €39 billion. Fincantieri's strategic acquisition of underwater systems from Leonardo underscores its push into the defense sector. The cruise market rebound and new contracts, particularly in Southeast Asia, highlight growth. The company’s commitment to sustainability was reinforced by setting a goal for zero-emission ships by 2035. Guidance for 2024 remains positive, with EBITDA margins expected to stay robust.

Navigating Growth in a Robust Market

In the first quarter of 2024, Fincantieri has demonstrated solid performance across all key financial metrics, aligning well with their guidance for the year. Total revenues reached approximately EUR 1.8 billion, remaining stable compared to the same quarter last year. However, a marked increase in production activities is anticipated, particularly in the second half of the year. The company is poised for substantial growth, with ambitious forecasts that include significant contributions from new orders and an increasing demand for cruise ships—an industry projected to welcome approximately 32 million passengers in 2023, rising to 46 million by 2030.

Strategic Acquisitions Bolstering Market Position

A vital part of Fincantieri's strategy involves their recent acquisition of the Underwater Armament Systems from Leonardo, valued at EUR 300 million, with potential adjustments bringing the total to a maximum of EUR 415 million depending on future performance. This new segment is characterized by strong EBITDA margins, expected to exceed 21%, enhancing the company's profitability potential. The integration of Remazel Group further complements this strategy, expected to lift its standalone EBITDA margin from 5.2% to 5.5% in 2023.

Record-Breaking Backlog Fuels Future Prospects

Fincantieri is enjoying a robust backlog, with a total of EUR 39 billion, which consists of EUR 22 billion in confirmed orders and EUR 17 billion in soft backlog, indicating strong visibility into future revenues. The company's diverse portfolio includes 85 ships slated for delivery through 2030. This backlog is approximately 5.1 times the expected revenues for 2023, ensuring a steady stream of income for years to come.

Shifts in Key Market Segments Drive Expansion

Through new contracts—like the EUR 1 billion arrangement with the Indonesian Ministry of Defense—Fincantieri is expanding its footprint in geopolitically strategic regions, particularly Southeast Asia. The increasing naval expenditure across various countries, especially in the Middle East and Southeast Asia, is expected to bolster demand for Fincantieri's offerings in both defense and civilian markets. Additionally, the company is witnessing a resurgence in orders for offshore vessels, including oil and gas projects and offshore wind farms, affirming their leadership in such markets.

Sustainability and Future Commitments

Fincantieri remains committed to sustainability, targeting the introduction of zero-emission ships by 2035. The company's initiatives are being recognized in the ESG landscape, positioning them among the top-rated companies for environmental, social, and governance metrics. Looking ahead, Fincantieri aims not only to grow in current markets but also to leverage innovations in underwater technologies and sustainable practices.

Financial Health and Outlook

The company's net financial position stands at EUR 2.4 billion, showing substantial improvement from previous years and aligned with their strategic deleveraging path. Furthermore, Fincantieri’s guidance for the full year emphasizes a commitment to financial discipline, with expectations to outperform original debt targets through improved operational performance and execution of new orders. They also indicated that they might lower anticipated net debt further in 2024, building a more resilient capital structure.

Earnings Call Transcript 2024-Q1

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Fincantieri First Quarter 2024 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Folgiero, Chief Executive Officer and Managing Director. Please go ahead, sir.

[Pierroberto Folgiero, executive]

Good afternoon, ladies and gentlemen. Thank you for joining us, and let me welcome to the Fincantieri Quarter 1 2024 financial results. And before discussing the first quarter, I would like to tell you more about the recent executed transaction for the acquisition of Underwater Armament Systems from Leonardo. We are very proud of this transaction because we believe it's a crucial milestone in our equity story, and it's a big step ahead for the implementation of our underwater strategy. This transaction follows a number of previous agreements aimed at creating the new ecosystem of the underwater agreement with CABI Cattaneo agreement with Leonardo, WSense being a company in the telecommunication underwater IoT and Saipem having some good already on the market solutions for the underwater domain. This company is highly specialized in the development and construction of defense systems, including torpedoes, but we want to put this spell on the sonars and on the acoustic heads. So on telecommunication solutions, technological solutions for the traditional underwater communication. It originally, according to Page #5, it originally was established as a white head Alenia system subacre having long, long routes in the historical know-how of the country in the underwater domain since the very old times. Revenues are in the region of EUR 160 million and EBITDA is at EUR 34 million and is located in 2 sites in Italy, one in Livorno and the other in Portfolio. In the same company, we will find also a 50% stake in Eurotorg, which is business dedicated for the commercialization of a specific torpedo. More in general, UAS enjoys a strong positioning in EU with EU Navies, but also in Middle East and also in Far East, being 2 very strategic geographies in our business plan. We believe that it will be a perfect complement to Fincantieri's underwater strategy and in particular, because it will accelerate also our market footprint in the underwater domain. First of all, with the Italian Navy, enhancing the relationship with Italian Navy, including also this kind of technology. leveraging on the interface with Fincantieri surface ships and traditional submarines. Again, it will also help in developing new products, new underwater vessels, nonconventional underwater systems, considering the application in the defense, but also enlarging the application on adjacencies in the civilian market, such the drones for energy infrastructure, under water energy infrastructure and other agencies, such as seabed mining and other application on the seabeds. Other glance, the transaction is characterized by a value of the acquisition equal to EUR 300 million as fixed enterprise value, which will be subject to price adjustment mechanism. On top of it, there will be a maximum EUR 115 million amount as a variable component, which will be based on certain growth assumptions linked to the performance of the business in 2024. The total maximum amount as enterprise value will be, therefore, equal to EUR 415 million. Since we are aiming at having a flexible capital structure, at the same time, consistent with group's growth strategy as per our 2023-2024 industrial plan. And the transaction is expected to be funded through a share capital increase by way of rights offering. Such capital increase will have an amount maximum of EUR 400 million to be offered an option to shareholders. The underwriting commitment for the controlling shareholder GDP equity is already there. And on top of it, a pool of primary financial institutions have signed an agreement to enter into an underwriting agreement for the subscription of the newly issued shares. All in all, shareholders subscribe a capital increase will receive also 3 warrants to be exercised in the future for a second tranche of capital increase up to EUR 100 million. This acquisition marks the move to a new business segment, which is characterized, first of all, by strong margins, more than 21% in terms of EBITDA margin. This new business as a first step would be also managed in combination with Remazel being immediately accretive in terms of EBITDA margin, which will move from the 5.2% stand-alone to 5.5% proforma in 2023. Then obviously, we expect higher marginality for Remazel and therefore, this accretive calculation, is just a starting point for the way forward. Fincantieri revenues in 2023 will reach, therefore, EUR 7.9 billion and the growth of it will continue even better than the stand-alone results. Fincantieri is for sure, fully fledged to become a leader in the underwater domain. We want to be a catalyst and the consolidator of the existing technologies and existing realities in the underwater domain, which are currently fragmented and mostly SMEs. Fincantieri enjoys long routes in the underwater business, having produced 180 submarines so far being the legacy of the country, having a bust and historical experience, either in Italy and in the exports. And the newly acquired companies, this legacy is tradition of the past and our role of "consolidation and association" of the other existing SMEs in the industry is expected to be a very powerful setup for Italy, for the Mediterranean Sea and for the expectation of Europe to work on strategic autonomy and developing a strong Mediterranean geopolitical footprint. Let me move now on Page 10 to the highlights of the first quarter where we are recording solid performance in all key financials and metrics absolutely along the line of the guidance provided for 2024. First of all, revenues were in line, while we are recording a very impressive performance at EBITDA level achieving 5.7% in the direction of the guidance provided at 6% for the full year. In terms of net financial position, we are at EUR 2.4 billion being fully aligned with our deleveraging path. In terms of deliveries, we delivered 4 ships as we speak, and we have 85 ships in portfolio with deliveries up to 2030 with a total backlog, including soft backlog at more than EUR 39 billion being a record level in the history of Fincantieri, equivalent to approximately 5.1x the revenues of 2023. We believe we are very well equipped for our journey to strengthen our position in the underwater space, acting as an degregator, acting as a catalyst, as I just mentioned, in the defense fields and not only in the defense fields. In February, we closed again, the acquisition of Remazel and we are eager to finalize the transaction with Leonardo. Let me tell you more about the record high commercial pipeline as of today. Commercially, the performance is being increasingly and consistently positive. Over the period, we signed more than EUR 1 billion of contract with the Ministry of Defense of Indonesia. This is another milestone for our strategy. Southeast Asia was definitely a key market being our entry point for the Southeast Asia. Geopolitically, it's a very important quadrant. It's a very important theater because it's very big, EUR 250 million inhabitants with the Muslim region, leaving on 17,000 islands in front of China. And we are very happy with this achievement. Again, in the quarter, we signed 4 offshore units with different clients having basically 2 important features. One is that we are, again, touching base in Far East, in Taiwan; and two, because we are experiencing also a restart of the oil and gas offshore vessels. So it's not only this big trend in the direction of offshore wind farms, but it's also some early signs of restart a "renaissance" of key oil and gas offshore investments. The third very important element of the commercial performance of the first quarter has to do with the Norwegian and Cruise Line Holdings. It's, again, another milestone, another cornerstone testifying the relationship with our Belgian Cruise line, testifying the solid restart of the cruise industry as anticipated in the past months. It's a deal with 2 legs. One leg is already financed and already in execution. A second leg is related to a new generation of jumbo ships currently in negotiation for the financing of the relevant financial institutions and expect it to be finalized in the course of 2024. Moving to the deliveries. Again, we delivered 4 vessels, Sun Princess being the first in Sun Princess Sphere class 178,000 gross tons, basically the largest ship ever built in Italy, very modern in terms of digital applications but also in terms of propulsion system being driven by LNG. It's a great success, and we are very happy with this achievement. And then we delivered Queen Anne to Cunard being a kind of legacy in cruise liners from Europe to U.S. It's a historical brand. On top of it, in May, we received other offshore vessels that are, again, testament of this continuing growing financial performance. A few words on the order book visibility up to 2030. We are going full swing, and we are crystallizing a very solid and visible backlog, driven by the dynamics in the cruise sector, but also driven by the geopolitical scenarios that are calling for navel expenditure in different countries and in particular, Middle East and Southeast Asia where we are very, very focused. Now I will hand over to Guiseppe and we'll get back later. Thank you.

[Giuseppe Dado, executive]

Good afternoon, ladies and gentlemen. We move quickly over Page 14 and 15. We pretty much already commented the performance in terms of order intake and of course, being the order intake at a little less of EUR 600 million. This is a stale number, as Mr. Folgiero mentioned, referring to the Indonesia project and the other cruise projects for the brands of NCL, these 2 orders, the first one, subject to financing, but we are quickly moving to of effectiveness of the Indonesia contract and the other orders, which are already effective and signed in the first days of April and in excess of EUR 5 billion to the EUR 593 million. Of course, within the EUR 593 million, we have to know to the consistent performance in terms of order intake of the offshore business, both in the wind offshore, and we are seeing some signals of a restart of orders also in the oil and gas offshore segment. On Page 15, our total backlog has reached record levels, as we mentioned before, almost EUR 22 billion in backlog, plus EUR 17 billion in soft backlog, and we expect the soft backlog to turn pretty quickly into fresh new orders. The delivery plan is confirmed with visibility up to 2030 with 85 ships in portfolio. Of course, these 85 ships do not include Indonesia and NCL, that will be included in the second quarter results. Page 16, revenues, almost EUR 1.8 billion, pretty much in line with the first quarter of last year. But as you already know, we do expect pickup in production activity and therefore, in revenues in the coming quarters, most notably in the second half of the year. Shipbuilding accounts for 70% of total group revenues. And of course, within shipbuilding crews is at almost 50%, 48%. In the offshore and specialized vessels, we keep growing, plus 25.7% vis-a-vis last year. And this is thanks to the very strong order intake of last year and the contribution of the wind offshore orders acquired last year, most notably in the last quarter of 2023. In this business, we are a leading player for the construction of vessels for the offshore wind sector. Equipment Systems & Infrastructure recorded a 5% increase in revenues. This is thanks to the consolidation of Remazel Group, EUR 40 million in the mechatronics subsegment, I would say. On Page 17, EBITDA, EUR 100 million, up 16% year-on-year, EUR 87 million as of the first quarter of 2023, with EBITDA margin that stands at 5.7% and margin improvements across all the segments, shipbuilding and EUR 84 million with an EBITDA margin of 6.2% versus 5.4% of first quarter of 2023. EUR 13 million in the offshore with an EBITDA margin of 4.3%. And this is pretty much in line with the margin recovering path of ARD and the business plan and the targets that we set in our business plan. Equipment Systems and infrastructure stands at EUR 16 million, in line with our expectations with a margin of 5.8%. Of course, we have also here the contribution of Remazel Group, which is roughly EUR 3 million as we consolidated Remazel starting in February. On Page 18, we are perfectly on track with our deleveraging path. Net financial position is slightly more negative with respect of the end of last year, but dramatically improved quarter-over-quarter last year in the first quarter of 2023, we were at roughly EUR 3 billion. Right now, we stand at EUR 2.4 billion. Of course, you know very well that the net financial position is affected by the delivery dates of cruise vessels in which we have a large cash inflow. Of course, we still have in our books, noncurrent financial receivables granted to clients in the COVID aftermath of roughly EUR 633 million. And we are working towards cashing in this money. Net working capital is negative at EUR 245 million, pretty much in line and thanks to higher trade receivables due to the delivery of a cruise ship in April and the related increase in trade payables. Now back to our CEO.

[Pierroberto Folgiero, executive]

Thank you, Guiseppe. We want to touch base on the market developments on the market expectation. I just mentioned that cruise is back to the level before COVID, even better than the level before COVID in any respect, in terms of number of passengers, revenue per passenger, cash generation. In terms of expectation, the cruise market is envisaging 32 million passenger in 2023, but it's envisaging this number to become 39 million passenger in 2027 and 46 million in 2030. So there is a lot of space to go. In the first quarter, we're also seeing a significant revamp of new orders, and we are best positioned to capture the opportunity offered by this market growth. And we are also more than prepared to address this market, thanks to the green transition of the whole cruise market, sticking to the new thinking to the new solutions for the energy transition, but also for the digital ship. Moving to the naval business. As anticipated before, growth in naval expenditure is expected either in our captive clients, such as the Italian Navy and the U.S. Navy and for export purposes in key markets such as Southeast Asia and Middle East. Underwater, we repeated several times, it's a macro trend. We are in, and we are ready to push hard. Offshore, again, it's in front of everybody. It's multi-geographical. It is driven by a strong positioning of the company. According to the recent metrics, we account for approximately 1/3 of the market. So we enjoy a dominant market share also in this respect. Market, which is experiencing not only wind farms, not only this kind of business but also oil and gas recovery and "renaissance". At Page 21, a few words about ESG. We confirm our relentless commitment to drive sustainability in our sector, industrially with new solutions with new vision of the future. In this respect, we are setting the target of a 0 emission ship import in 2035. With this in mind, with this in our targets, all ratings are being confirmed in early 2024. -- with Sustainalytics also including Fincantieri in its list of top-rated ESG companies. To conclude, we are very pleased with our performance in this first part of 2024, and we perceive that the positive momentum of 2023 is continuing also in 2024 and forward. We are fully committed to our deleveraging process going in the right direction and growing better than expected. The backlog is very strong, and the commercial pipeline is very robust. Our business model is truly unique with distinctive competitive positioning with cross-fertilization among the 3 different core businesses and on top of it, with the vision of the group to expand in the underwater domain with a dual perspective. We remain very focused on the higher priority strategic initiatives envisaged in our 2023/2027 business plan targets focused on the evolution of the operational systems working on how to valorize the human capital, how to increase our capabilities and expand our employees to take advantage of this big wave of growth to take advantage of those tailwinds that we are experiencing every day more. Execution is key in a market like ours. We confirm 2024 guidance in any respect, and we are fully committed to reach all the targets of the business plan, not only 2024, but also beyond. This concludes my presentation, and we are now open to take your questions.

[Operator]

[Operator Instructions] The first question is from Alessandro Pozzi of Mediobanca.

[Alessandro Pozzi, analyst]

Questions, both on the acquisition of the underwater system from Leonardo. And I think it makes a lot of sense for a manufacturer of submarines to have expertise to manufacture torpedoes as well, but I suspect the transaction is a lot more than that. And I think there are skills in war that maybe were not fully utilized within Leonardo and can be very synergetic to the vision that you have for Fincantieri to grow in the underwater domain. Can you talk about which skills or which system do you think can have a much greater potential potential in Fincantieri compared to Leonardo. And how do you expect this business to evolve in terms of EBITDA over the next few years? What is the potential opportunities that you see to grow top line and to grow EBITDA margins within Fincantieri?

[Pierroberto Folgiero, executive]

Well, I'm very happy that you are appreciating the strategic rationale of the transaction. It's important to ask your feedback. It's a company with long, long routes, a very strong legacy in the torpedo business, i.e., in the present business. So the beauty of this transaction is that, first of all, it's in its core business already very effective. The current defense situation. It's a situation that is calling for "ammunitions" as the first need as the first reaction to the current scenario. But on top of it, what is truly driving our interest, it's not only this, but it's the possibility to evolve the sonar and the acoustic adds of this company. Italy has very, very long routes in the sonar. I don't know if you know, but the La Spezia Center of Excellence, December Tomeo, the center of technological excellence of Maria Italiana used to be an international center of excellence for the Western navies well before NATO creation. So the tradition, the legacy, the strength of the Italian "acoustic" engineers, it's a very, very, very long story and has long, long routes in the industry. So the first strategic rationale is to take advantage of this technology and evolve it. Those kind of applications will be not only in submarines, but will be in all the new underwater vessels, including unmanaged drones. So all these new inhabitant of the underwater ecosystem will have to be equipped with active defense measure and passive defense measures. So the possibility to grow is evident and is there. On top of it, we believe that there is the possibility in the medium, long term, not only to evolve this current technology, not only to apply in a brand-new market products such as drones, but it will be also part of the underwater infrastructure. So the doctrine of the underwater defense, it's a doctrine whereby you will have to build underwater telecommunication infrastructures, you will have to create shock points in key hot spots in the geopolitical seabeds and those hotspots will have to detect what is happening and also communicate accordingly. So it's a very short-term vision, i.e., torpedos cross-fertilization, defense to civil expansion to new vessels, unconventional vessels, but also underwater infrastructure as a new ecosystem to be mapped and defended with a totally different doctoring, as I was telling you before. We are not today in the condition to give specific guidance on WAS for sure. Qualitatively, I hope I've given a clear and strong rationale for a big growth was once it is incorporated in Fincantieri frame ecosystem and once it is evolved with a new entrepreneurial vision which is typical of our company and typical of what is happening in the underwater domain.

[Alessandro Pozzi, analyst]

Just maybe a follow-up on the guidance side. Can you give us a qualitative maybe a guidance for WAS in 2024? We haven't seen numbers from Leonardo because it was inside the defense systems. And in '23, margins look very healthy. You mentioned 21% EBITDA. Was there a year that was particularly strong for WAS 2023 or is this something that we should expect going forward, so high EBITDA margins on end-up top line growth in the next few years on let's say, on a stand-alone basis even before assuming the synergies with the rest of the group?

[Pierroberto Folgiero, executive]

There will be time for details at the right moment. What I can tell you today, it's a very positive outlook. So we believe for the reason I was mentioning before, that there is in front of WAS a lot of growth. So the qualitative guidance is positive.

[Operator]

The next question is from Renato Gargiulo of Intesa Sanpaolo.

[Renato Gargiulo, analyst]

Well, my first question is still on the acquisition. I was wondering if you can give us any more details about the potential synergies with the rest of the group. From a geographical standpoint, are there any international markets where the acquired activities are present where we could leverage on it and to cross-selling with the other synergies? And also with Remazel, if you can give us an update about integration and what could be the potential opportunities for synergies? Are they more from a technological standpoint or commercial side, meaning that you're offering an integrated offer? Then the second question I was trying to understand the competitive scenario with the acquisition of Leonardo Petites, Remazel and the other commercial agreements. Do you think your positioning in the underwater segment should be now okay also from a technological standpoint, or you think you will need more deals ahead to acquire the new capabilities and technology. And then the third question is more on the results and on the guidance. Your full year guidance on net debt, clearly, precapital increase is implying at the midpoint of the range, and a debt EUR 2.9 billion. Taking into account the first quarter results with season improving operating performance in the advanced payments on new orders, you have already announced several new orders also on the offshore side, on the top of the Indonesian contract, is there a room to potentially over-deliver on your target for the full year on net debt?

[Pierroberto Folgiero, executive]

Thank you for your different questions. First of all, the synergies of WAS integration is in commercial field. It's very clear because the penetration of WAS in the different navies in the world will be a potential entry point and for sure, a potential source of distinctiveness of Fincantieri offering. So this is something basic and at the same time, very, very clear. In terms of other synergies, is obviously the synergies in the current submarine market, not only because it's obviously the submarine is sold along with the ammunition with the torpedo but also because it will help the process of creating an 100% "Italian supply chain" kind of vessel. This is a target of Fincantieri according to a project that we launched in 2022, so how to procure that we become fully autonomous in all the key components of the submarine. And the key component of the submarine is the bar of the submarine, which is the launching platform of torpedo. And by having our own torpedo business, we can accelerate the, let me say, self-sufficient approach in terms of engineering and production of submarines. Obviously, this is the initial synergy then it's a matter of scaling up the same kind of launching technology to the different vessels I was mentioning before. With with respect to Remazel, so the integration with Remazel, Remazel is already active, for example, in what are called LARS, L-A-R-S, that are the infrastructure and the equipment that you need to launch drones. And again, LARS is very active in the propulsion system, obviously, of small items or small vessels. So all those companies in the medium term will contribute to the definition, construction and implementation of new solutions, solutions that are highly remarkably requested by the market. And by cherrypick in those 2 companies, we are securing ownership on the key components on the key subsystems. With respect to your third question, do we have in mind other acquisitions? I believe that with this acquisition, we are achieving, for sure, a Phase I stage of the underwater project because we are creating this platform of agreements with the provider of the key components, and we are also going for our internalization through M&A of the QSub systems. There is another item, which we didn't mention in the presentation and your question is a location to mention, which is the battery package. So if I have to think of the key items of an underwater vessel is obviously, the armament part, the proportion part and then the optronic 3, which is another story. But on the battery pack, we are remarkably happy to achieve not only the proof of concept, but the industrialization of lithium battery pack for the Italian Navy with a solution that is a proprietary solution of Fincantieri developed along with other Italian SMEs. And this is the answer once we have our own battery package as we have we are completing the Phase I of the underwater project. And apart from small details, we are truly okay. On your last question related to the net financial position dynamics, you are right, the number of the first quarter are encouraging in terms of financial performance. There are other developments that are expected to happen throughout 2024 that can lead us to overperformance and overachievement. That's what we are working on relentlessly. You know how much we are focused on financial discipline. And you know how much we know how the market is appreciating the speed and velocity of the leveraging. So rest assured that our target is to go better and do better than the guidance on the ratio between the financial position and EBITDA. And yes, I agree with you that the first quarter is encouraging, and we are on the right path to do even better than that

[Operator]

The next question is from Martino De Ambroggi of Equita.

[Martino De Ambroggi, analyst]

The first question is on the EUR 115 million additional cash out in case you achieve certain targets. I don't know if you are willing to share just what are the items you refer for these targets? And just to have an idea, if it's just a matter of execution of what is already in your backlog or is something that has to materialize? This is my first question. The second one is again, on bus. I clearly understand no quantitative guidance going ahead. But just to have an idea, in the past, the 20% EBITDA was recurring or maybe it was up and down during the years. And just a clarification, if I understand correctly, you are not actively looking for additional acquisitions in anything else.

[Pierroberto Folgiero, executive]

So on the earn-out mechanism, you should imagine something, I would say, ordinary, I don't want to disclose what we didn't disclose in agreement with Leonardo. But again, it's not rocket science. Obviously, we are more than happy to recognize this extra value if and when the performance is growing as it is expected to grow. You are, at the same time and equally right, when you imagine that this performance is driven by backlog dynamics, existing projects in the backlog and expected new acquisitions. So it's something ordinary. So I'm not in the position to disclose, but I'm sure I can tell you it's nothing weird. There's nothing unconventional on auto looks. That's your first question. The second question is?

[Martino De Ambroggi, analyst]

Is on vast performance.

[Pierroberto Folgiero, executive]

Yes. Again, it's a company with longer history. The performance is stable. The EBITDA is solid. The quality of earnings is good. And for sure, there is stability in the percentage marginality with with some movements that are physiologic of a company driven by project dynamics. So you can go better, depending on how you somehow manage your contingencies. This is the ordinary business in a project-driven kind of business, but 21% is not a marginality that is abnormal not recording at all.

[Martino De Ambroggi, analyst]

And on M&A, I clearly understood in the previous answer. You are not looking anything else.

[Pierroberto Folgiero, executive]

No, no. I made it clear in the previous question. So again, we wanted to create a rock bottom of competencies. And then we want the market positioning and market entry, very "synergic and synergetic" with our summary business. So our underwater division is the combination of our submarine business, WAS, Remazel, creating the internalized competencies, and then commercial alliance, CABI Cattaneo with Saipem with WSense with Leonardo for sensors and electronics, and I believe is a kind of parted being a very good starting point.

[Operator]

The next question is from Gabriele Gambarova Banca Akros.

[Gabriele Gambarova, analyst]

Basically, the first one is on the Constellation program. In your press release, you mentioned lower production volumes. So I was wondering if you could comment a little bit on this specific program that was the key link in Q1 and so on and so forth. So any color on this front. The second one is on pricing for cruise ships, if I understood well, in the oil and gas world, the clients are not only, let's say, willing to pay more, but also somehow willing to take more risks. There is a parallel my understanding. So I was wondering what's going on, on this front of pricing for cruise ship both in terms of price per se and maybe adjustments on pricing and possible cost swings. And the last one, regards Pierroberto, you mentioned, if I'm not wrong, negotiations for jambo cruise ships, I've read something in the news. So I was wondering if you get, let's say, a new order for jumbo ships, I guess, 200,000 tons. Are your yard, let's say, big enough or you should maybe invest something more to increase the capacity in to widen the dry docks and so on?

[Pierroberto Folgiero, executive]

I partially take the the point in your question. So pricing is the result of an estimation process. Estimation process is based upon the experience of the company, offers collected from suppliers, vendors and subcontractors is the, let me say, the core competencies of a company like this. So in the cruise sector, more color on the pricing is basically kind of a conceptual one, i.e., if there is a lot of demand, you have probably more burgaining power. If the demand is very limited, you have less bargaining power. So let me say, the level of "health" of a price is depending on your historical and industrial capability to manage the estimation process according to all the gold rules of the estimation techniques plus the bargaening power, depending on the contingent moment of the market. So in this second respect, it is very clear that the market is very solid. The demand is very robust. So I believe that the ability of Fincantieri in this very sparkling commercial environment will be to cherry peak to be selective in terms of clients and opportunities and at the same time, to be very disciplined in terms of estimation process of the technical cost, which is more or less what happens also in the offshore market, which was another side of your question.

[Gabriele Gambarova, analyst]

The second question was on the jumbo, let's say, cruise ship. If you get, let's say, a contract for a 200,000 ton ship poetically, you should invest on your infrastructure or you're already, let's say, rightsized to deal with something like this.

[Pierroberto Folgiero, executive]

On the second question, the answer is that our shipyard are prepared to accommodate this kind of sites. You know that at the same time, we are working on the modernization of the all the equipment. We are working on enhancing all the cranes all the uplift capacities, and we are working also on the maintenance of our dry docks. So let me say with some specific interventions along those lines, we are ready and equipped to accommodate these kind of sites. So that's why we are addressing the market. Otherwise, it would have been impossible for us to start the negotiations. Your last question on constellation class, I don't have any special disclosures to give. It's a very key program for United States because 3 gates are somehow kind of backbone on top of her carriers and submarines of a very large and complex fleet as the U.S. one. It's a key program. U.S. is experiencing lack of workers. But at the same time, it's also pushing hard in order to find workaround solutions. You know the shipbuilding is the key priority for U.S. Navy and also for the U.S. defense system. So I believe there is a lot of alignment of interest between all the key shipyards of U.S. and the Navy in order to cope with the scarcity of resources, find fast-track solutions and push hard for the progress of the fabrication of this key component of the U.S. defense base.

[Operator]

There is a follow-up question from Renato Gargiulo of Intesa Sanpaolo.

[Renato Gargiulo, analyst]

Very quick one on the infrastructure business. In the first quarter, you reached 5% EBITDA margin, and in particular, breakeven for the Miami terminal project. I was wondering if you expect now to remain structurally at this level going forward. And if you can give us an update on the Miami project and confirming that it will be delivered by year-end.

[Pierroberto Folgiero, executive]

So if I understand correctly, some details on Miami project and more in general on the infrastructure business. The infrastructure business is after 2 years of "cure" is performing better and better. This is the result of new processes, new procedures and also new management. So it's the typical Virtu circle that is translating into progress. In Miami, it's a different story. It's a project that was difficult and suffering from the very beginning. Nevertheless, the terminal is there. It's a unique infrastructure. It's truly a big achievement that the infrastructure is there. The marine works are moving forward let me say, expediously. There are milestone of completion according to which the marine works are expected to be delivered, let me say, within the end of the summer, so that the autumn will be dedicated to the finalization of the big terminal. Whoever will be Miami will be impressed despite the economic frustration of myself and of the company. By the way, whowever, is going to Mariama will be impressed by the sights, by the complexity, by the architecture, by the technology. And so again, despite of the dates of the past that as you know, we have already acknowledged and embedded in our accounting of the project. But autumn will be dedicated to the finalization of the terminal itself. Again, to build in U.S. today is not easy, but our team is focused relentlessly to work on this schedule, and this is what we are able to disclose today.

[Operator]

Mr. Folgiero, there are no more questions registered.

[Pierroberto Folgiero, executive]

Thank you.

[Operator]

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