Fincantieri: Influx of new orders for Europe's number one shipbuilder

Everything seems to be going well for Italy at the moment. Once the sick man of Europe, its economy is booming and the peninsula has become the preferred destination for the wealthy in search of a more clement tax haven.

Things are going so well that even Fincantieri is making a profit for fiscal year 2024. The Italian state-controlled group, number one in shipbuilding - both civil and military - on the Old Continent, won €15bn in new orders over the past twelve months.

This brings its order book to a total of €51bn, and sales to a new record of €8.1bn, with an EBITDA margin - assuming this indicator has any meaning in such a capital-intensive business - of 6%. By 2025, the group expects to achieve sales of €9bn and an EBITDA margin of 7%.

The expansion of Fincantieri - now number four worldwide - also continued with the completion earlier this year of the acquisition of Leonardo's submarine business. Over the ten-year cycle 2014-2024, which began with the acquisition and integration of Vard, Fincantieri thus managed to double its sales.

The problem is that, behind this expansion, profitability has hardly followed. Operating profit - after investments - will reach €246m in 2024, compared with €159m in 2014. In other words, the €3.8bn in additional revenues produced only a very marginal gain at this level.

The same applies to net income, which will reach €27m in 2024 - a mere hair's breadth from consolidated sales of €8.1bn. Admittedly, this is better than red ink - the Group has made five losses in the last ten years - but it's still not much, and it's lower than the 2014 net result.

All the more so as, in the meantime, the number of shares outstanding has risen by 15%, and the cost of debt has also soared. In other words, for the time being, the benefits of growth are struggling to materialize at the bottom of the income statement, as well as in hard currency for the Group's shareholders.

MarketScreener analysts also point out that the accounts are barely legible - due to the subtleties of the business - and that cash generation remains under pressure overall. Over the past ten years, Fincantieri has posted aggregate accounting losses of €715m, in addition to negative free cash flow.

The 2024 vintage has been better in this respect - although it is difficult to estimate precisely because of the various inter-subsidiary loans - but the priority has been to direct this cash flow towards the necessary start of debt reduction.