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Edited Transcript of FCT.MI earnings conference call or presentation 8-Nov-19 8:00am GMT

Q3 2019 Fincantieri SpA Earnings Call

Trieste Nov 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Fincantieri SpA earnings conference call or presentation Friday, November 8, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Alberto Maestrini

Fincantieri S.p.A. - General Manager

* Giuseppe Dado

Fincantieri S.p.A. - CFO

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Conference Call Participants

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* Alessandro Pozzi

Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst

* Arturo Lòpez

* Gabriele Gambarova

Banca Akros S.p.A., Research Division - Analyst

* Matteo Bonizzoni

Kepler Cheuvreux, Research Division - Equity Research Analyst

* Monica Bosio

Banca IMI SpA, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good morning. This is the Chorus Call Conference operator. Welcome, and thank you for joining the Fincantieri 9 Months 2019 Results Conference Call. (Operator Instructions)

At this time, I would like to turn the conference over to Mr. Maestrini, General Manager. Please go ahead, sir.

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Alberto Maestrini, Fincantieri S.p.A. - General Manager [2]

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Thank you. Good morning, ladies and gentlemen. Let me start this conference call by providing you with some highlights on the fiscal period results for the first 9 months of 2019. If we move to Slide #3, I will comment.

Over this month, we have confirmed our revenue growth trend with an increase of almost 10% compared to the same period of 2018. EBITDA stood at EUR 287 million with an EBITDA margin of 6.7%. This reflects the positive trend in the Shipbuilding segment and the negative margins of the Offshore and Specialized Vessels segment. The Shipbuilding segment EBITDA notably increased by an impressive 30% if compared to the same period of 2018 despite a negative contribution of our cruise business unit.

The positive operating performance that the group recorded in all areas was limited by the negative contribution of Vard, which is currently undergoing a reorganization process. We will provide some additional details on this later on. I would like to stress that the negative contribution is limited to Vard only. All the other areas are performing very well.

Net debt increased at EUR 904 million, in line with the expectation and consistent with cruise delivery schedule. We have delivered 3 units in October.

With regard to the order intake, it stood at EUR 6.8 billion at September 30 with 7 unit -- 17 units ordered so far, including 11 cruise ships for 5 different brands and an additional unit for the LCS program of U.S. Navy. Our cooperation with U.S. Navy was developed for an almost EUR 4 billion contract for a total of 16 FREEDOM class LCS units, of which 9 delivered and 7 under construction.

The relationship with the U.S. Navy is further broadened through our involvement in the sizable U.S.-Saudi Foreign Military Sales program and our participation to the FFG(X) standard as prime contractor. As you may remember, the Saudi-U. S. deal was signed under President Trump a couple of years ago and now it's going into the execution phase, and we expect soon to be able to record our order.

Fincantieri competitiveness in the U.S., specifically in the FFG(X) tender, has been recently confirmed by the statements of Mr. Spencer, Secretary of the U.S. Navy, the interview with the Financial Times. And we are very proud to be a strong competitor in the FFG(X) standard.

Our total backlog with 106 units stood at EUR 32.3 billion. Development of this exceptional level of workload engages not only 19,600 direct employees of the group, but also more than 80,000 subcontractors around the world. In Italy only, we can count on over 9,045 employees supporting our operations.

In the first 9 months of this year, we have delivered 18 ships from 11 different shipyards, among which 2 cruise vessels, 3 expedition cruise vessels and 3 naval units.

As for the group strategy, in the context of the creation of an IT and electronics excellence center, in July, we (inaudible) the acquisition of 60% of INSIS Group, a company operating in the system integration industry with a specific expertise in developing cutting-edge technological solutions. This is consistent with our strategy of controlling the key technologies that go onboard our ships to make sure that we have the full and complete management of the key technologies that make our ships so competitive.

In this first month of 2019, we progressed on the French-Italian cooperation with the signing of an Alliance Cooperation Agreement between Fincantieri and Naval Group for NAVIRIS, a 50/50 joint venture that is planned to be incorporated before the end of the year.

We are continuing our interaction with the EU Antitrust Authorities for our acquisition of Chantiers de l'Atlantique. The commission announced on October 30 the opening of an additional investigation phase and may last for up to 90 working days.

Additional and other comments. During these first 9 months, we have found significance in the construction of the bridge over the Polcevera River in Genoa, the first section of which was installed at the beginning of October and the second one has been raised yesterday.

We're also maintaining our integrated sustainability strategy. To better support our business, we signed important agreements in the field of innovation, security and education, among which the agreement to setup a company together with Eni, Terna, and CDP, Cassa depositi e prestiti for development and manufacturing of wave energy power plants. We always want to be in the cutting-edge of technologies.

I will hand the floor to our CFO, Guiseppe Dado, who will guide you into further recent details of the group 9 months results.

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Giuseppe Dado, Fincantieri S.p.A. - CFO [3]

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Hello. Good morning, everybody. I guess we can jump to Slide #6.

And as the order intake are pretty stable with respect to June of 2019, it is at EUR 6.8 billion, mainly coming from Shipbuilding that achieved an order intake of almost EUR 6.5 billion with new contracts signed for 11 units with 5 different ship owners. Among those orders, there are a few very innovative units such as the 2 ships for Princess Cruises that will be equipped with LNG propulsion. Of course, as a consequence of the record levels of order intake, the soft backlog decreased at almost EUR 4 billion with respect to the EUR 8.3 billion that we had at the end of last year.

Total backlog is at EUR 30.3 billion. That equals approximately to 6x of fiscal year 2018 revenues.

As with the backlog deployment on Page 7, so far this year, we have delivered 17 units as of the end of September. Of course, you have to also add the 3 units that we delivered in the month of October, 2 of which in Italy, 2 weeks, mid-October and end of October. And of these, there are 8 -- including these, there are 8 further units scheduled for the remaining part of the year. And this contributes to a backlog of 96 ships, 106 including the soft backlog.

Out of these ships, in fact, 47 are cruise vessels with deliveries up to 2027 and 13 which up to 2023, 29 naval vessels with deliveries up to 2026, and 20 offshore and specialized vessels with deliveries up to 2024. The ship in 2024 is the last OPV for the Norwegian Coast Guard.

Moving on to Page 8, revenues. They were up almost 10% versus the first 9 months of last year. And we closed the books at 4.2 -- in excess of EUR 4.2 million, confirming the growth trend for 2019 for the Shipbuilding and Equipment, Systems and Services segment.

In further detail, the Shipbuilding revenues were up in excess of 11% with Cruise revenues increasing due to the bigger size and higher value of the units under construction. And of course, the Naval revenues are increasing as well thanks to the Qatari and Italian naval programs' progress. In Offshore and Specialized Vessels segment, revenues were down 17% versus last year due to the basically total lack of new orders in the Offshore business. Equipment, Systems and Services revenues increased by 27%, and this is thanks to the development of the backlog that's tied to the services within the Naval business and also to the higher volumes of the ship repair and conversion activities. This year, of course, we also benefit from the significant contribution of the Fincantieri infrastructure activity, namely the construction of the new bridge in Genoa.

Let's comment on EBITDA at Page 9. We are at EUR 287 million, the total margin of 6.7%. And this, of course, reflects the positive performance of the Shipbuilding segment. EBITDA in the Shipbuilding segment has increased by 30% with respect to the first 9 months of last year, and this is despite the negative contribution of the Vard cruise shipbuilding business and, of course, the negative impact of the performance of the EBITDA for Offshore and Specialized Vessels.

We can move -- to get us in further detail, we can move to Slide 10 and speak about Vard a bit more as it is the critical area of our group. As you all know, since the end of last year, we started the full integration process of the subsidiary's operations. And since then, we changed the top management of the company and starting -- started the reorganization process. And this entails both a resizing of production capacity and as well as the alignment of Vard processes and industrial and project management and economic timing for the projects to the practices -- to the best practices of the group.

The first and most critical initiatives taken by the new management, mostly fellow Italians that have a long-standing experience in the cruise sector, were aimed, let me say, at guaranteeing the timing of the deliveries for the 2019 projects, both in cruise and offshore. And of course, this effort entailed a more intensive workload in the final outfitting phases of production and led to some cost overruns.

The unsatisfactory performance of the ships being delivered this year not only required us to allocate additional resources from other projects in order to guarantee the deliveries. As you all know, on-time delivery is a must in our business so we have to guarantee the on-time delivery of the critical projects, but it also led us to make the necessary cost revisions for other projects which were acquired and managed before the change of management.

Now the completion cost of 2019 deliveries, of course, had an impact on 9-month results, and we are further carrying on an in-depth analysis of the impacts on other long-term projects, and by that I mean projects being delivered after 2020 that -- for which we have barely started production. So we are carrying on this analysis in order to assess the robustness of the full life cost of these projects.

On the other side, the execution of medium- and long-term projects acquired by Vard with the support of the new management is expected to be performed in a stabilized production environment, resulting from the reorganization that we are actually currently carrying on in Vard. Of course, we are planning to present the reorganization plan for Vard together with the year-end 2019 group results.

Very important that -- as with the initiatives that we already put in place so far, we have approved and started the exit from the small fishery and fishing farms support vessels for the aquaculture business, which impacted negatively on the EBITDA for EUR 19 million in the first 9 months of 2019, and the disposal of the Aukra shipyard. We also decided to dismiss the Brevik yard, that means reducing the number of yards in Norway from 5 to 3.

And many times I've said, talking to the financial community, how difficult it is in our business to make such a decision to resize and downsize production capacity because once you close a yard, it's impossible to reopen it. I want you to appreciate the effort and the decision that has been taken, and that means we are acknowledging and moving to a new role. In this perspective, we think that the current production capacity that we had in Norway was not feasible and consistent -- or let me say coherent with the market demand for the vessels, notably for the Offshore vessels.

As with the Romanian operations, the conversion of the Tulcea yard, the main yard here in Romania, is almost completed and the yard is currently working at full capacity to support the Italian Cruise business in developing the substantial workload levels and the substantial backlog that we have in the Shipbuilding segment.

Moving on to Page 11, net working capital and net debt levels. Net working capital increased to EUR 250 million from EUR 44 million at the end of last year and net debt increased to EUR 904 million. These numbers are both in line with the expectations and with the increased production volumes as well as the cruise delivery schedule with 3 units delivered in October. Having had 3 units delivered in October, it means that the net debt levels as of the end of September included, I would say, 100% of the net working capital funding for those vessels.

Let's move on to Page 12 on the outlook. The conclusion is, in this 9 months, positive group performance related to the favorable dynamics of cruise and naval projects in all geographies. Of course, it was limited by the negative performance of Vard, both in cruise and offshore operations. The initiatives that we have taken and we are taking to align the industrial management and the planning of 4 Vard projects to the group's best practices continue and may result in additional reviews of the cost estimate for the medium- and long-term projects that will be mirrored in the group results. As I said before, we're planning on presenting a reorganization plan for Vard together with the group results of fiscal year 2019.

Net financial position is expected to slightly improve following the delivery of the 3 cruise units in October, but of course, financing needs will remain high due to the need to finance working capital for the units due for delivery in the first half of 2020, which I believe are at least 4.

In the Shipbuilding segment, following the delivery of the last 3 units for the year in October, we are now focusing on the production of the units that will be delivered next year. For the naval sector, we are working [at full capacity] for the production activities related to the order for Qatar and the (inaudible).

In the Offshore and Specialized Vessels segment, we expect to -- we are going to focus on the execution for the development of the current backlog with a view on -- a relentless effort to margin recovery. We will also focus on the commercial activities, aiming at developing innovative products and cutting-edge solutions for the oil and gas sectors with a very, very, let me say, careful eye in the acquisition of new projects.

As for the Equipment, Systems and Services segment, we confirm the revenues growth trend, thanks to the backlog development of the naval contracts, the higher volumes for the production of cabins and public areas for cruise vessels as well as all the infrastructure activities with a significant advance of the production for the bridge over the Polcevera River in Genoa.

And now we are happy to take questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Monica Bosio with Banca IMI Intesa Sanpaolo.

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Monica Bosio, Banca IMI SpA, Research Division - Research Analyst [2]

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The first one is with -- referring just to the third quarter and to the Shipbuilding division, could you please quantify the negative contribution of Vard cruises? I was expecting an EBITDA for the Shipbuilding in the region of EUR 140 million, and it has been much lower obviously due to the higher estimated compression cost, but it would be very useful if you could give out a range of the negative contribution.

And then, obviously you -- the company did not confirm the flat margin target, the EBITDA margin target for 2019 because you are still expecting to account further completion costs related to the reorganization of Vard. Can you please help us to give a measure of the potential cost in the fourth quarter? Would it be lower than in the third quarter?

And lastly, given the announcement of the closure of the shipyard in Norway, this is a very good news, could we expect a breakeven for the Offshore division in the last quarter of the year? Or is it more likely in the fourth or in the second quarter of 2020?

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Giuseppe Dado, Fincantieri S.p.A. - CFO [3]

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Monica, this is Giuseppe speaking. So first question, negative contribution of Vard shipbuilding to the Shipbuilding segment. Let me put it this way, without Vard cruise, the EBITDA of the Shipbuilding segment would be easily, easily in double-digits, okay? And I'll stop here.

As far as expectations for the fourth quarter, of course, current results will reflect our current estimate of the full life cost of the projects. As we continue -- before, as I was speaking, we are communicating, there are 2 areas. There are the projects that we are, let me say, in the final stage of production in 2019, 2020, some of which have already been delivered, and I did comment on those before, and there are the projects that have a more, let me say, medium- to long-term production time. Of course, the short-term, the ones that we are -- we have delivered, of course, and bound to deliver in a couple of months are -- have incurred some extra costs and some extra cost estimates, which are fully reflected in the numbers. For the projects that have, let me say, that will be delivered in the longer term, we said that we are assessing the full life budget. And we said that something may arise, but the point is that all of these projects do not contribute materially and substantially to the numbers as of September 30 and into the numbers as of the end of the year. So I do not expect any further major deterioration in the margins.

But bear with me, we have to be careful and conservative in this, okay? As I -- as we are carrying out an in-depth analysis, we are changing the organization, we made some critical, substantial [staff we booked], very, let me say, tough decision. And you know how many times I said during our meetings and during the meetings with investors how difficult it is for -- in our industry to take the decision to downsize production capacity.

Back in the -- during the down phase of the cycle, starting from 2008, in Italy, we decided to keep our production capacity intact, expecting a recovery in the Cruise business and in the Naval business. And we were right at that time. In Vard, we went through a diversification strategy that paid off in a way, but we think -- I mean, the decision we took of closing 2 out of 5 yards in Norway is a very, very important and, sorry to say, positive decision in terms of the future prospects of the company, okay? And you see how much the Aukra business has weighted in our results.

As far as expectations, reaching breakeven in the last quarter for Offshore. Of course, we expect a stabilization of the situation, but let me be careful -- carefully conservative, let me say, in selling the last quarter. I am more optimistic when it comes to 2020, let's put it this way.

And please note, as with the resizing of the production capacity, we closed 2 yards, but we will see if the 3 yards in Norway -- the production capacity in Norway fit the current business environment, okay?

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Monica Bosio, Banca IMI SpA, Research Division - Research Analyst [4]

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Okay, clear. Giuseppe, maybe just a follow-up, do you expect restructuring charges for the Brevik shipyard? The other one is -- was on (inaudible) if I remember well.

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Giuseppe Dado, Fincantieri S.p.A. - CFO [5]

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Yes. There will be some cost, but single digits, EUR 4 million, EUR 5 million.

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Monica Bosio, Banca IMI SpA, Research Division - Research Analyst [6]

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Okay.

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Giuseppe Dado, Fincantieri S.p.A. - CFO [7]

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Nothing [significant], let me say.

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Operator [8]

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The next question is from Matteo Bonizzoni with Kepler Cheuvreux.

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Matteo Bonizzoni, Kepler Cheuvreux, Research Division - Equity Research Analyst [9]

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As regards to 2019, I would like to know -- so we have seen basically 60 basis point erosion of the margin in the 9 months from 7.3 to 6.7. We see that you are not mentioning anymore the target to have a similar margin compared to last year, so 7.6. Can you a little bit comment about the margin expectation for the full year?

Second question. You have already commented about the shortfall in the margin [in the cruise] building segment in Q3. Also, the System division posted a quite, I would say, significant margin erosion compared to the historical standard. Can you comment also on that?

And final question is on the net debt evolution. So we understand that from this level, the net debt should improve due to several large deliveries of cruise ship over the next few quarter. Nevertheless, your business plan target for 2020 is to have a net debt between EUR 200 million and EUR 400 million, excluding IFRS 16, so quite a large improvement. I would like to know if this target, for example, incorporates some percentage or probability to have [naval] contracts and related advanced payments, so U.S. or other contracts, or not? And in general, how you feel confident to hit that range for the net debt in 2020?

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Giuseppe Dado, Fincantieri S.p.A. - CFO [10]

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Okay, Matteo. First question on guidance. Of course, the comments I gave before tell you that guidance for -- we gave guidance by reference last year. And of course, given the results and what I said, it would be very difficult for me to confirm that guidance. We maintain a very, let me say, conservative stance on this.

And I go back to what I said before. We are pursuing improvement. We are doing things. We have done things. We have to do some more. And again, we will give you a full disclosure, let me say, of what we are doing during the final part of this year. Whenever we'll have some sensitive information to communicate in terms of what we are doing, we will do that. And then with the fiscal year 2019, we will present a business plan that will guide you to the future.

What I want to stress here, and I want to put the performance into a long-term perspective, since the fourth quarter of 2016, so 12 quarters, 14 quarters, including results up to June, we have shown consistent, positive -- consistently shown positive results. And of course, 9 months 2019, it show a change in this positive growth trend, but the fundamentals of the group, the strategy of the group, the force, the power of the group remain intact. I mean, we still have EUR 32 billion of backlog to execute. We still have -- as Mr. Maestrini said, we still have several options and opportunities in the naval segment that we are pursuing. So there are a lot of factors that tell us that the group maintains intact its leadership and its force and future prospects. Of course, we are perfectly aware, and I believe we are showing to the community this, that we need to take actions and we need to take, let me say, tough decisions. And again, I make reference to the closing of the yards.

On systems and components, the significant margin erosion is a bit strong. We expect -- of course, it's numbers. We were double-digit, 11% last year, 9.5% now. This, of course, reflects, as you know, the systems and components -- this a bundle of -- this is a basket of different businesses ranging from the cabin, now the bridges, the naval services, the after-sales services, ship repairs, conversions and refurbishments.

Right now, we are in the middle of the execution of a very important project, I believe we mentioned that in June also, a very important conversion project for a new client, Windstar Cruises. And these projects, compared to the, let me say, the other businesses of the systems and components segment, of course, have somehow lower margins. And therefore, let me say, the 9.5 suffers from the current mix of revenues and projects that we have in the segment and also the bridge that we are executing.

Windstar, of course, somehow has lower marginality with respect to the average of the other's businesses in the segment, but it's a very important project because it's a new client. These operators started to work -- to operate in the luxury segment of cruise business. They bought used ships. They're asking us to lengthen those ships and change the engine. And it's important for us to execute well on that project because it's potentially a new client also in the OEM business, okay? So I understand where you're coming from, but we cannot simply stop to numbers. From a strategic standpoint, this is a very important project for us.

Question number 3, net debt improvement. I said before, net debt levels at the end of September are a buffer, are -- you have to take into consideration the fact that we cash in, I would say, almost EUR 1 billion from delivery payments of the cruise -- 2 cruise -- bigger cruise vessels in Italy. We are guiding for net debt levels at the end of this year, which will be slightly worse than the level of September. But if you look at the backlog deployment towards 2020, you will see that next year we are bound to deliver a total of 8 cruise vessels, 5 of which from Fincantieri yards. Four of these 5 will be delivered in the first 6 months of next year. So of course, you know what that means in terms of net working capital funding for the next 6 months, so we need money.

On baseline targets for 2020, yes, we guided for net debt levels at EUR 200 million, EUR 400 million. That's the guidance we gave on the occasion of the presentation of 2017 results. At that time -- I mean, what has changed from that time? Of course, we have had -- compared to the business plan expectations, we have had -- we grew more than we expected in the order acquisition in cruise. And again, that has -- will have an impact on debt levels for 2020. And of course, we had a few -- in our assumptions, we had the acquisition of some naval -- big naval projects in those numbers, acquisitions that has not yet been perfected. And I'm not -- if it will not be perfected, of course, the numbers include the assumptions on the advanced payments. But again, when 2019 financial statement will be presented, we will guide you through the guidance for 2020 onwards.

Any other questions?

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Operator [11]

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The next question is from Alessandro Pozzi with Mediobanca.

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Alessandro Pozzi, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [12]

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I have a few questions. The first one is on Vard cruise. What I'm trying to understand here is -- I appreciate your guidance for the remaining -- for the rest of the year. But as we look at 2020, I know that you are going out with a business plan early next year, but should we expect that Vard cruise remains a bit of a drag for the Shipbuilding division as we go in 2020 as well? Or we should expect potentially the Shipbuilding to revert to a double-digit -- towards a double-digit profitability in the coming quarter -- in 2020 is what I mean.

The second question is on the Saudi [and Brazil]. You alluded to it during your opening remarks. I was wondering when are we going to see impact on the income statement for Fincantieri?

And the final question, on the Romanian shipyard upgrade, is that instrumental to increasing revenues in Shipbuilding in 2020?

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Giuseppe Dado, Fincantieri S.p.A. - CFO [13]

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Okay. Expectations on Vard cruise for 2020. If I look at the lead baseline, we have 3 cruise vessels to be delivered in 2020 from Vard, 3 in 2021 and 1 in 2022. Of course, as far as the expectations that we have, I make reference to the comments I made before. What I can tell you, the current estimates fully reflect -- the numbers, of course, fully reflect the current estimates that we have. And again, we are tackling issues both in organizational terms. And right now, the whole of the cruise business in Vard report to the Cruise business division in Italy, okay? So despite the fact that they are located in a different legal entity, from a business and organizational perspective, the Cruise division in Italy is responsible right now for the Vard cruise operations, okay? And they have full control there.

As far as the expectations, it's -- again, considering what we are doing, considering the analysis that we are carrying on and considering the changes that we are making, it's -- let me be conservative. It's too early to say whether we will see further deteriorations or not. My personal belief is that -- we'll work on improvement, let me say, okay?

On the Saudi, on the naval projects, I'll leave the word to Mr. Maestrini, and then I'll take the third one.

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Alberto Maestrini, Fincantieri S.p.A. - General Manager [14]

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Okay. In very simple terms, the -- we can assume that the U.S.-Saudi deal is sort of G2G agreement between the 2 countries, and that has been finalized. And then, as you know, the main contractor for the development of the ships is Lockheed Martin, which is our partner. In the past, we have received already a preliminary contract to start the provision of the long lead items. And we expect it to -- we've been discussing and negotiating with them in the past weeks, and we expect to be able to finalize a deal before year-end.

In terms of impact on our figures, I expect it to grow in -- to start and then ramp up from the -- mainly the second half of 2020.

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Giuseppe Dado, Fincantieri S.p.A. - CFO [15]

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With the Romanian shipyard, of course, I believe I mentioned this in the past, but the contribution of the Romanian operations to the deployment and to the construction of the Italian backlog, let me say, is fundamental, I would say. By no means we would have been able to acquire such a high number of ships to be delivered in Italy by [timing] yards without the Romanian operations. And we estimated that the contribution of the Romanian shipyard in terms of tonnes, that's, of course, not an estimation, it's in the range of 40,000 to 50,000 tonnes of steel being worked out in Romania, but maybe more -- okay, we are not -- I don't have the metric that's more understandable for you.

The contribution in terms of Romania was roughly EUR 0.5 billion per year in terms of revenues of the Italian operations. Without Romania, our revenues in Cruise Shipbuilding would have been EUR 0.5 billion lower for -- in the current revenue development, okay?

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Alessandro Pozzi, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [16]

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Just going back to the U.S.-Saudi deal, I was wondering, what would be the -- could be the contribution to the backlog?

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Alberto Maestrini, Fincantieri S.p.A. - General Manager [17]

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I think the impact will be important, but it's -- I prefer to talk about it when we can announce it.

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Operator [18]

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(Operator Instructions) Your next question is from Gabriele Gambarova with Banca Akros.

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Gabriele Gambarova, Banca Akros S.p.A., Research Division - Analyst [19]

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My first one is again on the restructuring of Vard. You mentioned Norway, but you have another yard in Vietnam and another one, the original one in Brazil. Do you think that they may be involved in the restructuring? Or do you see a future for these yards?

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Giuseppe Dado, Fincantieri S.p.A. - CFO [20]

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Okay, Gabriele. On Vietnam, probably we should talk a bit more about this now. We don't -- we haven't neglected the yard, neglected operations. The problem is -- let me put it this way. They are neglected because they work very well. No, the Vietnam yard is a very important yard. It's working. They are working on the construction of very small cruise vessels for Coral Cruises, which is an Australian owner. And therefore, we do not have any, let's say, bad news and we have only good prospects there for Vietnam.

As far as Brazil, the yard is idle. We have reduced the workforce down to 55 people there. We are starting some options to, let me say, to utilize a portion of the land that we have there that, at this point, is not utilized through the -- through some agreements with some offshore operators, but that's -- I'll stop here. I can't comment anymore. We will see whether we can pursue some opportunity there. For the moment, we haven't taken into consideration -- we do not have, let me say, an active strategy for Brazil. But again, we have reduced the cost impact of these idle operations to the bare minimum, okay?

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Gabriele Gambarova, Banca Akros S.p.A., Research Division - Analyst [21]

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Okay. And listen, regarding the, let's say, the extra cost you incurred in -- on Vard cruise, is it possible to have an idea -- I mean, can you tell us how much of these costs were related to prototypes? And is it possible to know if you are going to deliver other prototypes? So you mentioned 3 deliveries in 2023 and 2021 and so on.

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Giuseppe Dado, Fincantieri S.p.A. - CFO [22]

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Yes, it is possible from a, let me say, qualitative standpoint. The 2 major projects that the Vard carried on and is carrying on in the Cruise business are one for PONANT, the French yard, and the other one for Hapag-Lloyd, a German owner. And for PONANT, the ships were prototypes for Vard. They were not prototypes for Fincantieri, let me say, because PONANT is a -- was a client -- is a client of Fincantieri group, but for -- as Fincantieri, we have built, in the past, 4 vessels for them. Last, we cannot say the same for Hapag-Lloyd, which was a new client with new projects -- with a new project that has proven to be far more complicated than expected. And speaking of the management change in Vard, I can say that on the PONANT projects, we're -- considering the fact that it was our client, we had -- no, we gave -- we were asked and gave stronger support in the acquisition phase. We cannot say the same with Hapag-Lloyd, let me put it this way. After this, after 2021, so we have another Hapag-Lloyd vessel to be delivered in 2021, which is the third. It's a sister ship of the prototype. And that's it for the moment. Again, very important.

Let me go back to what I said before. As with the future, of course, let's see when we present the reorganization plan in '20 -- sorry, for the financial statements of 2019, but of course, whenever we will do something that we need -- that we deem or we have to -- which we have to inform the market, we will do in -- from now on. And I repeat what I've said before. From now on, very, very careful consideration will be given to the acquisition of, let me say, good projects and to the rapid and quick de-risking of the Vard portfolio. And that, in this perspective, the fact that Vard has very short -- somehow shorter production times compared to the business that we have in Fincantieri, it will occur, let me say, in a faster fashion with respect to what we could do in Fincantieri.

And again, the closing of the yards is very important. And what I said before, the fundamentals of the group remain intact, both from a strategic standpoint, from a financial standpoint, from a commercial standpoint and so on and so forth, okay?

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Gabriele Gambarova, Banca Akros S.p.A., Research Division - Analyst [23]

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Okay. Sorry, Giuseppe, to go a little bit in the detail, if I can, a very short follow-up. You said that you are going to deliver -- that Vard cruise is going to deliver 8 ships in the next 3 years. Can you remind me how many of these ships related to the PONANT contract and with Hapag?

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Giuseppe Dado, Fincantieri S.p.A. - CFO [24]

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Did I say 8? But if I said 8, it's 7 actually: 3 in 2020, 3 in 2021 and 1 in 2020. As far as PONANT goes, it should be -- 2 plus 2 should be 4, okay? Let me be more precise. So it's 2 PONANT in 2020, it's 1 PONANT in 2021, and this is fit within the business plan range, up to 2022. Then we have one Hapag-Lloyd in 2021. And we have 1 Viking high-class exploration vessel in 2021 and 1 in 2022. And this is it for Vard at the moment.

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Gabriele Gambarova, Banca Akros S.p.A., Research Division - Analyst [25]

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Okay. Very last question, if I may, on the near future summary, this contract for the Italian Navy, which was expected to be signed by year-end. Do you confirm you are closer to the signing?

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Alberto Maestrini, Fincantieri S.p.A. - General Manager [26]

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Yes, we can confirm we are closing -- we are close -- we are discussing. We cannot confirm that we will be signing it by year-end. It is possible, but we are not positioned to confirm it now. But we are in the -- we have started the discussion with the Italian Navy.

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Giuseppe Dado, Fincantieri S.p.A. - CFO [27]

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And of course, let me add, Giuseppe here. The Italian Republican government have passed not the funds, but this project. This is public information. So we do expect to close sooner rather than later.

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Operator [28]

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(Operator Instructions) Your next question is from Arturo Lòpez with CL&AR Value Advisors.

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Arturo Lòpez, [29]

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I just have a very quick question, if I may, which is a follow-on. Could you remind us what is the book value of Vard business unit? And if you could share with us if you plan to do any impairment of the goodwill on that?

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Giuseppe Dado, Fincantieri S.p.A. - CFO [30]

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Book value of Vard is roughly EUR 600 million. Whether we will -- of course, planning an impairment is difficult to do, by the way. We will see when we come out with the new business plan, okay?

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Operator [31]

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(Operator Instructions) Gentlemen, there are no more questions registered at this time.

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Giuseppe Dado, Fincantieri S.p.A. - CFO [32]

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Thank you very much.

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Operator [33]

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