FACC AG (1FC.MU) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and a warm welcome to today's earnings call of the FACC AG following the publication of the half year financial figures of 2025. I'm delighted to welcome CEO, Robert Machtlinger; CFO, Florian Heindl; as well as Michael Steirer from Investor Relations, who will start the presentation shortly. After the presentation, we will move on to a Q&A session in which you all will be allowed to place your question directly to the management. We are looking forward to the numbers and having said this, Mr. Steirer, the stage is yours.

Thanks a lot, Ingmar, for the introduction. Good morning, everyone, and thank you for joining us today. Again, a warm welcome from FACC to our earnings call for the first half fiscal year 2025 as well. My name is Michael Steirer. And as already mentioned, I'm joined today by Robert Machtlinger, our CEO; and Florian Heindl. And as usual, detailed financial information has been made available in our press release, which was published earlier today already. And as always, should we be unable to address all possible questions during today's call, we would be glad to arrange follow-up one-on-one discussions in order to clarify everything necessary. In this case, please feel free to contact us in our Investor Relations department. With that, I would like to hand over to our CEO, Robert Machtlinger. Thank you.

Thank you, Michael, for the introduction. Good morning, everyone, from wherever you are dialing in, it's a pleasure to have you here again today for the FACC first half year 2025 update and earnings call. Before we enter into the details, a few remarks on the overall global situation. I think we had the pleasure to meet with some of you during the FACC Capital Markets Day earlier in the year, where we already have provided some insight on the market development. Nevertheless, I think it's worthwhile to talk a little bit about the global situation where we, as a company, but the entire aerospace industry is progressing in a quite fast challenging but also complex environment. I think, especially in the first half year, there was some concern in regards to global trade and tariffs. I think it's noticeable and also good news for the aerospace industry that the European Union and the United States of American government have reached a principal agreement that aerospace products will not be handicapped by tariffs. This is good news because since 1979, as you all know, the strongly connected global aerospace world is free from tariffs. So this is certainly good news. Further details to be seen from the final papers, but I think this is giving us some planning security. Nevertheless, and even if this was a situation that was causing some investigation, as you all know, FACC is quite widely spread globally with operational setups, of course, in Europe with Austria and Croatia over the last couple of years, we are actively working out of the United States, Wichita as well as Canada, and we have a strong global presence in the Asian markets as well. Overall, the business is developing good even in this complex environment. Our customers are heading in the right direction, so are we. Nevertheless, I think it's also important to state here that the stability of the one or the other supply chain is not at the pre-2020 level yet. This is well known to all of us in the industry that certain products, namely engines is a bottleneck for the time being. Also, we have seen even the order book is strong as forecasted, and we informed you and we guided you that we have seen certain harmonization effects from our customers. There is performing supply chains and there is lagging supply chains. So most all of our customers have harmonized the demand signal. We at FACC have been always on time on quality. So we have seen certain adjustments, especially in the month of March and April by moving demand to the right. We have been flexible. We can deal with those kinds of subjects. However, once moving demand in short notice, this has an impact. And of course, Florian will elaborate a little bit more on what this impact was. Next page, please. So overall, and even in this quite challenging environment, FACC was again benefiting from a resilient aerospace industry. As said before, even in this challenging environment, aerospace has grown, so have we grown. And the growth rate in the first half of the year was a 10.6% revenue increase, driving our revenues to EUR 484.7 million in the first half of the year. Again, Florian will guide you through the details, but I want to mention here that in the first half year, we have moved out around about EUR 35 million of revenues because of order signal harmonization, which was causing us to keep around about 150 people in the company not utilizing well. This was an ongoing thing for 4 months, impacting our profitability by around about EUR 2.5 million besides a couple of other effects. In this environment, the EBIT developed as expected. And with the Paris Air orders coming into the market and a couple of program extensions we have aligned up and signed with our customers. The order book of FACC first time in the history went to slightly above EUR 6 billion, which, of course, is a positive signal. Based on the orders and the stabilization of the industry, and this is certainly since May ongoing. Nonetheless, since May reported to us, and this is good. I think we can precise our guidance a little bit more at the end of the presentation. But already at this time, I can say we can confirm our guidance given early in the year. Next page, please. A quick spotlight on the market. Market is doing well, 2.5 billion passengers in the first half of the year, pretty much underpinning the forecast of ICAO that in the year 2025, first time in history, more than 5 billion passengers will use an airplane. 84% seat utilization globally on the global fleet. This is the highest value in the industry ever. We have seen an 18% increase on commercial aircraft delivery from Airbus and Boeing, mainly driven by the return of Boeing to the market. So this is also good for FACC because you know, we have a strong share on the 787. And also the firm order backlog on firmly ordered aircraft further increased after periods to 17,539 airplanes. Next page, please. In terms of deliveries from our 2 main customers, Airbus and Boeing, 18% increase. Looking into Airbus, a pretty flat, even a little bit lower than last year from 323 2024 to 306 but -- or should we think it's fair to say that Airbus produced more airplanes. They are currently having around about 60 airplanes finished and produced just waiting for engines. Once engines are coming, the airplane can be finished, finally, inspected and handed over to customer. I think good indication was from Guillaume Faury, the Airbus CEO that he sticks to this guidance for 2025, which, of course, is also important for FACC. Strong signal from Boeing with a significant ramp-up during the first half of 2025, which is a little bit of a continuation of the last quarter of 2024. So Boeing is making ground again and is closing the gap to Airbus, which is, of course, good for the industry, but also good for FACC. The 17,539 aircraft order backlog, very unchanged. 50% of that orders is going into the Airbus camp, also good for FACC because, as you know, Airbus is our strongest customer. 37% Boeing, 9% COMAC, who is picking up over time and 4% is the rest of the market. Next page, please. In terms of order intake, well, it's very hard to beat the 2023, a record year of 3,400 airplanes. However, comparing the full year of 2024 with 1,439 new orders booked into the system for the first half year of 2025, actually 81% of the last year's booking already has been achieved in the first 6 months of the year. And we are watching and you are watching the industry and even in July and August, further orders already have been booked by the industry. Also noticeable is that there is a stronger demand besides the anyhow strong Single Aisle market like the A320 and the 737 MAX, visible On the wide-body airplanes, namely the A350 and the 787 airplane. Also here, it's noticeable that on both platforms, FACC is holding a noticeable volume per airplane on the A350, it's more than 2 million airplane, we are delivering to Airbus. On the 787, it's a little bit less, but also here, 242 aircraft sold to the market, which is refilling the order backlog to the levels we already enjoyed before that. So it seems to be that the year 2025 will be a good year in terms of order intake. Nevertheless, the focus of the industry currently is focused on the delivery of the demand. Next page, please. A few highlights on FACC, and we talked about it in press releases, very positive that the EUR 10.8 million of the frozen funds finally have been transferred to the accounts of FACC. This is a long process, was a long process, especially connected to the complex legal environment in Austria. Nevertheless, EUR 10.8 million booked as a financial position. It's not EBIT because it was never written off. So a tick in the box and a long thing we can call history right now. Next page, please. During Paris, we had quite good success. Noticeable is that we have extended our 25-year relationship with Rolls-Royce by another contract extension until 2032. This is around about EUR 350 million contract extension, which is securing our position on the Engines & Nacelles portfolio we're having. And as you know, Engines & Nacelles is a very healthy, well-performing portfolio for FACC. We also have engaged -- further engaged with our Indian partners, namely with Tata, where we have a 15-year partnership ongoing already. We have entered a new supply chain contract where Tata is producing besides engine parts also aerostructures components with float volume at the time being of around about EUR 100 million, but the tenancy is even growing. We have set up a second supply chain in India with Kineco also in regards to the production and offloading from Austria to India on aerostructures products. Also here, this is a very strategic move of FACC into a very fast growing an interesting market in India. Next page, please. Just for your information, I think it's important for you to know Andreas Okcel, our CEO, has left the company in June 24. The Supervisory Board in alignment with the Management Board have decided not to backfill the position. So the Management Board is right now, 3 members with Mr. Xu is the CSO, Florian is the CFO and myself is the CEO. We reshuffled some responsibilities in terms of functionality. But overall, I'm focusing on the sales and the business development, marketing, the research and engineering and technology, but also I take on board as headed before the operational and quality responsibility. Florian is taking over the human resources besides his previous assignments, but also sustainability. And Mr. Xu will heavily engage with his experience besides his previous assignments in procurement and logistics. So we are following a strategy of widening our procurement strategy, being more global in various markets, not only Asia but also other best cost countries. We are focusing on profitability. We are focusing on cash flow, on dividend policy, but also our strong focus is on growing the company sustainably and to prepare the company to be in the top 50 ranking in the aerospace world by 2030. So well aligned, I think, more lean, and we are going forward in this setup. And I think it's a smart move to do this. Next page, please. Just for the information, and this is not the big change, where is our revenue coming from? A320 still is the strongest platform, doing very well on the market with 36% of our revenue share, slightly going down. And if you remember, some 3 years ago, the A320 family was moved up to the area of 40%, 42%. So I think we are derisking a little bit from the one platform. Boeing is starting to pick up. I think more momentum to be seen in 2026 and beyond to have a more leveraged portfolio again. And this is what we want to see in grounds going forward. In saying this, I would like to hand over to Florian to give you more insight on our financial details.

Thanks, Robert, and thanks, Michael, for the introduction. Good morning, everyone. I will now guide you through the financials of the first half year 2025. Next one, please. So overall, most of it already said by Robert, starting at the top. So as Robert mentioned, the market recovery, if we still can call it that way, continues heavily. So rates are rising. As Robert explained, we had some shifts in the first half year, which are definitely impacting our EBIT. Robert already stated it. I will give you some more insights on the slides to follow. Revenue at EUR 484.7 million at 10.6% revenue increase over the years -- over the year already. So Engines & Nacelles and Cabin Interiors grew significantly. We will see that on the next slide as well. EBIT has a little bit of a backdrop, which was expected, to be honest, in the first half year with EUR 18.4 million compared to last year. So that was a slight backdrop, as mentioned, because of certain issues that we had in the first half year, as mentioned, especially impacted by the 150 employees that we kept on board for the second half of the year despite those demand changes that we have experienced. In the last 12 months, we onboarded 123 additional employees, bringing the number up to 3,843 employees full-time equivalents. If you compare that to the figures by year-end, you will recognize that we decreased the number of full-time equivalents by 7, meaning that we are now in a position of increasing revenue by keeping our people stable, which is one of the first positive impacts of our core initiatives that we will later talk a little bit more. Inventory reduction program also successfully working. We started that initiative, as you might remember, in October 2024. And the first results can be seen in a significantly increased free cash flow by June 2025 with EUR 31.7 million. Next one, please. Overall, in terms of revenue, all said before, so FACC is still experiencing strong growth, and you see the last couple of years, and the first half year is perfectly in line with that coming later to the outlook. But as Robert already mentioned, outlook is basically confirmed. We will narrow it down to a certain extent, and we are expecting around EUR 1 billion of revenue for the full year. On the right side, EBIT, the roller coaster ride from the past as well can be seen here for the first half year, as I said before, a little backdrop with the EUR 18.4 million, giving us a margin of 3.8%. For the full year, we are expecting an EBIT improvement compared to the last year, which was 3.2% on full year with EUR 28.3 million. So for the full year, we are still expecting an improvement. Next one. As stated before, in terms of revenue growth on our divisions, we had strong growth in Engines & Nacelles and Interiors. As you can see here, Engines & Nacelles grew by EUR 20 million compared to the first half year 2024. Cabin Interiors by EUR 30 million. We had a little backdrop in Aerostructures coming down from EUR 178 million to EUR 174 million in H1 2025. Where is that coming from? It's basically a reduced amount of development work/engineering work that we have performed in the first half year of 2025. We are expecting to recover that in the second half year of 2025. Next one. In terms of EBIT, also starting in the middle, Engines & Nacelles, as Robert already stated, so Engines & Nacelles is basically for the time being, our strongest division in terms of EBIT with double-digit -- solid double-digit EBIT margins, as you can see here. Interiors on the right side, noticeable improvement for the first time in a couple of quarters, we managed to have a solid EBIT performance with EUR 4.1 million of EBIT, giving us 1.9% of EBIT margin for the first half year in Cabin Interiors. Jumping to the left side again, in Aerostructures, as we have seen in the revenue slide, also a backdrop in Cabin Interiors -- Aerostructures in terms of EBIT margin, still positive with EUR 2.8 million, but only a modest EBIT margin of 1.6% compared also to the last year of 2024. Where is that coming from? Basically from material price increases that we were not able to compensate for. We are working on that for the second half year in 2025, but we are expecting a big improvement in 2026 when we can hand over certain parts of that material price increases to customers. Next one. Free cash flow, as I stated in the beginning, EUR 31.7 million. You can see the improvement compared to the first half year in 2024, where we ended up with EUR 7.4 million. So positive free cash flow heavily influenced, of course, by changes in working capital, especially by inventory decrease, but also by our strong, I would say, control in terms of investments. Net investments for the first half year stood at EUR 9.2 million compared to the EUR 13.9 million last year. So we are still, I would say, very much looking at what we are expensing and handing out cash. So very, very tight grip on our pockets. And as stated in the headline, free cash flow is, of course, positive, EUR 31.7 million. Is it enough? Again, repeating my statement from the previous earnings calls, it's not enough. We have to focus on the core initiatives going forward. So 2025 and 2026 will be the years where FACC significantly has to improve its financial performance in terms of EBIT and free cash flow. Next one. Investments on the left side, I just stated you can see the comparison, we are standing at half year at EUR 9.2 million. So for the full year, we expect to be in the range of the last couple of years. On the right side, inventory, you see the backdrop by year-end, EUR 178.3 million by December, now going back to EUR 172.9 million. You cannot see that on the slide, but if you remember the figures from Q3 2024, when we started that operation inventories were standing at approximately EUR 192 million. So since then, we had a significant reduction already achieved. So the program that we initiated in our company is working. The target that I presented to you in the last calls and meetings that we had of EUR 148 million for the year-end in terms of inventory by December is still sticking, and we keep that up right. Next one, please. A couple of words to our core measures. As we informed you also in the last calls, last year, we started the core initiative, corporate reshaping in 4 basic areas: cost down, organization streamlining, return on capital and efficiency. If you have a closer look at our numbers for the half year, you will recognize that the measures are starting to work. Are we finished? As I said before, no, we are not yet finished. We are in the middle of 2025, and there is lots to come from this program, but the first impact are visible already. We had a reduction in general expenses that helped us partly compensate for ongoing inflation effects. And as you have seen before, we have the first noticeable and sustainable reduction of inventories that also is bringing down inventory costs in terms of storage, et cetera, et cetera. Organizational streamlining. The expansion of Plant 6 is making a significant contribution in the transformation of Cabin Interiors. So as we have stated multiple times, we are in the middle of the process of bringing work from Austria to Croatia in terms of Cabin Interiors, impacting, of course, massively the profitability in Cabin Interiors, but not only Croatia is worth mentioning here. We are also -- or we already have successfully transferred work for our Chinese platforms that we were providing in the Cabin Interiors environment, we offloaded it to China as well, also contributing to the improvement in Cabin Interiors. On the return on capital section, I think worth mentioning and as stated before, all 3 divisions for the first -- not for the first time, but since a longer period of time with positive EBIT contributions in H1 2025. And we also increased our equity ratio to 33.2%. We stated at our Capital Markets Day and also in certain one-on-one discussions with you that we have a target in medium term to bring back up our equity ratio to levels of 40% that we enjoyed before the COVID crisis. And also stated already, efficiency increases also start to work. As we have seen, we reduced the number of FTEs in our company and are able to harvest a higher output. And this is definitely something that we will push very heavily going forward in 2025 and 2026. So this will contribute also to the well-being of the company. On the bottom of the slide, also worth noting, and we have seen it in terms of free cash flow, but not only the free cash flow improved massively, but also operating cash flow. So this is also impacted, of course, by efficiency and all the measures that we are taking already. This is not the end of the road, but I would say we are making good progress on our activities also reflected that we brought down the net debt by half year compared to the December levels of 2024. Next one. So with that, I'm handing back to Robert to precise our outlook for you, Robert? Thank you.

Thank you, Florian. Next page, please. So on everything that has been said, I think even in this complex and rapidly changing environment, we are dealing with the environment. I'm happy to say that we can precise our outlook and narrow the guidance down. As you know, at the early phase of the year, we guided the revenue increase between 5% and 15% because we knew there will be some hiccups here and there. Right now, we can narrow it down. So FACC will grow definitely to a company size above EUR 1 billion, which is giving us a growth rate in 2024 of a little bit above 10%. Overall, and as Florian mentioned, the EBIT expectation is that we see a further improvement and step up compared to the next year. I'm very happy with the core initiatives. So lots of work done company-wide, everyone is engaging. That's very positive. We see the first KPIs are turning around. That's good. The program is still running for the next 1.5 years. So we are rather at the early phase and not at the end of the phase. Most of the internal things already take momentum. We have still some challenges in front of us in terms of material supply chain restructuring. As Florian mentioned, big impact on the market on material costs hitting Aerostructures, but also here, contracts are aligned with our customers compensating us already starting in January 2026. So EBIT will improve as well. Some other measures. What we are focused on is to ensure and guarantee industry ramp-up to all of our customers. That's key because reliability, quality and higher safety is a prerequisite in the industry, and we are doing well here. Core efficiency, we are on track by the end of 2027. We are convinced that the EBIT will be between 8% and 10% more to the higher end on Engines & Nacelles and Aerostructures again and in the middle, 7.5% to 8% in the Cabin Interior. Leverage ratio target is to be below 2.5% in the same period. We are still focusing and pushing on our globalization strategy for good reason. This is not happening right now as a new initiatives because there is some global discussion ongoing. We do this since many, many years because a local presence in Europe, in the United States, but also in Asia, for us, was a key for the last couple of years and will be a key element to develop FACC going forward. Quality & Safety without compromise, as already said, we ensure highest quality and product safety to our customers, our people, but also to our shareholders and people. In saying that, I thank you for listening, and the floor is yours for your questions. Thank you.

Yes. Thank you very much for the presentation. And we now move on to the Q&A session. [Operator Instructions] We already received some questions. Mr. Brach, you should be able to speak now.

So 2 questions for me. The first one is more of clarification because I didn't fully get it. So you said the EBIT was weaker because of some demand changes and despite that you kept 150 employees. Can you expand on that a little bit and clarify it further?

Yes, I can do that, Mr. Brach. So what happened, we had a very strong order book in the first 2 months of the year, pretty much laying over from the last year. To be precise, with this order book, FACC would have been grown by around about 20% in the first half of the year. So starting in early March, some of our customers told us, they are full of inventory with FACC products. They are lagging on some other commodities and they need to harmonize. So they slowed us down in especially the month of April, May and June and also July asking for lower deliveries. So we had to slow down our output. We had to adjust and well in doing so because we prepared for the 20% revenue increase. So we had an overhang of around about 150 people that have been trained over the last couple of months. And we decided not to take any measures. We kept them in the company. We further train them. We used some flexible work time to let them consume vacation, but we had to pay the salary. So the impact over those 4 months was around about EUR 2.5 million personnel cost. We had to carry because we wanted to keep and we will keep the people because we need them in the second half of the year. So it's more a shift of demand from the first 6 months to later periods because of global supply chain issues impacting us at a certain point. And we have seen this in a slightly lower EBIT in the first 6 months of the year. So nothing lost, nothing terminated, but shifting because of level loading with all of our customers, I have to say. It's not one specific. It's nearly everyone shifted a little bit here and there. Hope this answering your question.

Yes. Very detailed. And yes, the second or the second and third question is more on the segment. So very strong Engines & Nacelles segment, not only revenues but also the EBIT margin. And was that increase mainly due to the Advanced Air Mobility business? So was that a strong driver there? And then the second one is on Aerostructures. Could you elaborate a little bit more on the revenue decrease? You said some engineering work was done. So yes, what was the details there?

Well, in Engines & Nacelles, I think the engine part is picking up. And that's good because that's the most valuable business we are having. There is a good pickup also in the Urban Air Mobility demand. So it's not one thing like Urban Air Mobility or the core business. So I think it's a pickup across the portfolio in Engines & Nacelles. And we also have to say the contracting we have in place in this portfolio is favorable for us. We have some services revenues here as well, which is highly paid. And it's a continuation of the transformation process we have successfully executed in the Engines & Nacelles environment over the last year. So it's a mix of various things. In terms of Aerostructures, Florian mentioned last year, there was a high single-digit revenue booked in service revenue, engineering and selling services. This is not the case in the first half year. However, we also have to say a big amount of the shift of demand also was impacting the Aerostructures environment because we have ramped up nicely and we have been slowed down. What we already see for the second half of the year, the demand is coming back and some of the revenues we could not deliver in the first half of the year, we see coming in the second half of the year. Also, I can give you a little bit of a heads up in 2026, the demand signal for Aerostructures is growing. Why is it growing? Because the wide-body airplanes, A350 and 787 is picking up in rate again, and this is strong platforms benefiting our Aerostructures business. Maybe one more word on the impact of material, where is it coming from? It's coming from exotic materials like nickel, like cadmium, like other alloys. We -- the industry is not we alone, FACC. The industry needs for certain mechanical fasteners. There was a strong increase in pricing all over the world because of high demand and, let's say, not a lot of mills qualified for the aerospace business. This is an impact of a high single-digit million on Aerostructures only. What have been done, we have renegotiated pricing with supply chains, and we have been able to upflow this kind of event to our contract pricing with customers. Again, not immediate as Florian elaborated, but already contractually agreed starting on the first day of 2026. So a big appeal, we have to take this year but pretty much mitigated for 2026 already.

Thank you very much, and we move on to the next participant. Mr. [ Hete ], you should be able to speak now.

I would like to ask several questions. First one is on Cabin Interiors. I was wondering if the segment has benefited from some one-off effects in the quarter or if you believe that the current margin level is sort of a sustainable level going forward. So this would be the first one. I'm not sure if we should answer your questions one by one or if I should pose all of them at the same time.

We can do it one by one. Maybe I'll start on the Cabin Interiors question. As always, I think in each and every division, we are having, of course, certain onetime effects. But -- and this is the important question here in Cabin Interiors. If you look at the basic development of Cabin Interiors over the last couple of quarters, you have a steady upward trend. So that means -- and this is heavily influenced, as I mentioned before, by the offload to Croatia. So we are really benefiting of that business case that we have set up in Croatia in terms of our margin improvement. So bringing work from costly Austria to a better cost country in Croatia is really the key driver in the Cabin Interior division going forward. As well as I've said also before, it's not only Croatia, but we are also looking at supply chains in general that we are having. We have a strategic manufacturing partner in China where we offloaded Cabin Interiors work in the first quarter of 2025 also that will also heavily or significantly benefit Cabin Interiors going forward. So we do not expect I would say, for the full year, a turnaround of this development in Cabin Interiors. So of course, there is the one or the other one-off effect as we have in all divisions in terms of, I would say, certain material price compensations by customers, as Robert mentioned before. But in general, we have a steady and sustainable improvement development in terms of Cabin Interiors.

Okay. And then coming to the Aerostructures segment. Can you update us a bit on what you currently see with fastener prices? Did prices continue to increase in the recent months? I'm talking July and August. Did they remain stable? Did they decrease? And then in connection to that, you said you can pass on some of the price increases starting from 2026. Does this refer to the additional price increases that you might be seeing in future? Or is this a compensation for past price increases that have already pushed down your margins this year?

Well, on the pricing, I think we have peaked, I think, the situation over the first couple of months. It was pricing and demand as well. So there was some issues on fastener supply as well. So this is all covered for the rest of the year. We know exactly what the impact for 2025 is. And as I said before, the impact is in the range of this high single-digit impact in terms of fastener pricing. What does it mean in going forward? The market is the market. We have harmonized some sort of demands with our customers. We are going for a joint procurement with our customers. And what we had as a pricing in 2024 was the baseline. 2025, FACC need pretty much step in and compensate for that starting in 2026. We have agreements in place that using the baseline Of 2024, ups and downs to that baseline will be compensated by our customers. So we can adjust the pricing based on the market pricing of fasteners. So it's a back-to-back, I would say, contractual agreement we have signed up with our biggest customers, mitigating, let's say, the impact to FACC in 2026 going forward.

So -- can I ask an additional one on that. So you are saying that you can recoup in 2026, the entire high single-digit hit that you experienced in 2025?

No, we will not be -- it's not a retrospective payments. 2025, we have to digest likely ourselves. 2026, the impact that if there is an impact is compensated by our contracts. So 2025, there will have an impact to FACC 2026 going forward because we have readjusted our contracting, the contract will carry about fastener price fluctuation in terms of cost.

Okay. Okay. Well understood. And maybe one more question, if I can. I mean, you updated your EBIT margin guidance. You're now talking about -- yes, that you see an improvement in the EBIT margin, not in the absolute EBIT anymore. Why did you specify this so conservatively given you have a 3.8% EBIT margin in the first half of 2025. So to reach that target, you could even deliver lower EBIT margin in the second half. And I was just wondering why this is so conservative and why didn't you aim for something a bit more challenging, I would say.

So thank you for the question. And as we have discussed, Philip, also on prior occasions, in terms of specifying our EBIT margin, I think for the last year, 2024, we have been at 3.2%. We said multiple times with the increase of revenue, we are also expecting a stronger improvement in terms of EBIT margin. We are not going specific into any number here. Why is that? Because for the time being, and Robert just said it also in the beginning, we just had the trade agreement between Europe and the U.S. we have the fastener issue where we are in contractual negotiations, et cetera, et cetera. So there is still uncertainty in the supply chain, which makes us at least for us, a little bit uncomfortable to go into specific numbers. What we can say is that there will be an improvement compared to the 3.2% EBIT margin of last year. And I'm not seeing it as super conservative. We tried to be a little bit more precise in the still volatile environment that we are in. So you will not hear a number from us. This time, we are sticking to the guidance as presented before. There will be an EBIT improvement in absolute figures, but also in percentage margin.

And we move on to Mr. Poulain. Mr. Poulain, you should be able to speak now.

Yes, I'm sorry, I'm going to go back to this question on the margin guidance, given that you gave some quantification of the cost pressures experienced in the first half. And so just to be clarifying this cost pressure, is it right to assume that the overstaffing effects won't recur in the second half? And then when it comes to the material cost pressure, you effectively said that they are still going to be there in the second half. And there are some mitigation effect that you are trying to get on the cost side. And then next year, with pricing effect, we should see that cost pressure disappear effectively or offset by the higher pricing. Is that what you said?

Yes. On the second one, I think it's perfectly summarized by yourself. On the second question you had on the overstaffing, for the second half of the year, we are perfectly staffed in the meantime. So the people we kept on board because training aerospace workers is a big effort. It's costly. It's time consuming. We decided to keep them because we need those people. And for the second half of the year, we are already perfectly staffed and the orders are in. And there is no overstaffing cost applied on the second half of the year.

Okay. And so then on the free cash flow guidance, there's clearly progress in the first half, some benefit obviously from that one-off payment. But the progress on inventory management, I didn't get the exact amount that you were able to achieve in the first half. And again, for the full year, if can you repeat again the amount of inventory reduction that you would target just to get that clear. So on the free cash flow.

Yes. So if you take a look at the December 2024 figure, inventory stood at approximately EUR 178 million. In June, we have been coming down to EUR 172 million. And the target for December 2025 is EUR 148 million. So from EUR 172 million to EUR 148 million is the task for the second half year of 2025, in terms of inventory.

Great. Okay. So that's very clear. And then on the last question is more kind of strategic and of course, the opportunity on the Urban Mobility and drones in the United States, in particular. Do you have any update on the various milestones that were given by the FAA on this industry and when we should start to see this industry moving to the full in terms of growth?

Well, what we see at the time being is that those customers we are engaged with are driving certification programs at the time being. [indiscernible], for example, is flying with the vehicles, doing test flights and certifying the vehicle for revenue and passenger service. If the Bombardier spin-off is doing the same thing, we have 2 other customers, one in the passenger environment as well, where we cannot announce the name at the time being. In a logistic drone, we are producing serial production units. This year, it was around about 300. Next year, the forecast is producing 1,000. So here on the material logistics, we are already picking up in serial production demand. What would that mean? 1,000 next year means, let's say, a visible remarkable revenue that will come in already as a serial production -- product. So we see that the industry is heading in the right direction. It's a complex environment, I have to say, with lots of certifications to be done. But on the platforms we are, we clearly are of the opinion that we are established on the right platforms. Giving you a date when they're entering revenue service, well, we are expecting 2026 late in the year. And that seems to be reasonable. However, test planes must be fulfilled. Test flights must be done. And we are in very close cooperation with all of our customers here. But the momentum is there.

And we move to a participant dialed in by phone. Unfortunately, I don't have the name, but you should be able to speak now and place your question. [Operator Instructions] Well, this seems not to be possible at the moment. And there is no further participant with a question and wait a few seconds if the participant on the phone is able to speak. Yes. We should be able to hear you. Yes, please.

This is Jorge González from Hauck Aufhäuser. Two questions from my side, please. First one on the strength of the euro. I was wondering if you can remind us how your hedges are set at this point? And how do you see these levels for the development of your cost in the following quarters. If I'm not wrong, you have most of the cost in euros. So I'm wondering if you can update us a little bit on how you are covered at this point and how this -- what this means for your business? And the second question on the conversation regarding margins. I am really positively surprised by the interiors margin and obviously, the contrary with Aerostructures. So if I'm not -- I don't understand if it wrong, please correct me. You are basically saying that the Aerostructures maybe need a little bit more time and going to '26 to see the profitability recover potentially at previous levels. I don't know if you can give us some color there. And Interiors is the other way. Interiors, you had some one-offs and we should be more cases for the second part of the year, I have understood this correctly?

Okay. Thank you for your question. Starting with the first one in terms of our euro-dollar exposure. Also, very -- basically speaking, we have 100% of our revenues are in U.S. dollar. And of course, we are trying to apply a natural hedging as much as possible, meaning that we try to have as much cost as possible in U.S. dollar. So your first statement is not really correct that most of our costs are in euro. So it's vice versa. So we are trying to have our costs mostly in U.S. dollar. Of course, this is not possible when it comes to taxes, wages and salaries in Austria or in the European area, et cetera, et cetera. But most of our exposure is hedged away in terms of turning our costs into U.S. dollar. The big rest is hedged by derivatives, especially FX forwards, where we try to cover at least on average, 80% of that cost via FX forwards. For 2025, I would say the majority of our exposure is perfectly hedged with rates around 1.10. And for 2026, we are planning with an average hedge ratio for the time being of 1.14. Of course, the average U.S. dollar rates that we have seen recently with the uptick because of all the uncertainties in terms of the ongoing tariff discussions we have globally. So with rates around 1.16. Of course, a stronger U.S. dollar is beneficial for FACC as well as for any other European-based aerospace company. But as mentioned before, for 2025, we are pretty safe for 2026. Also, our hedging program is well underway, securing rates around of 1.14. And beyond that, we have to see, of course, what euro-dollar is doing. On average, we have a constant hedging program in place. We are not speculating on the development of U.S. dollar rates. So even if U.S. dollar is weak or strong, we are constantly hedging. So we are not speculating on this one. On your questions on Cabin Interiors and Aerostructures, I want to start with Aerostructures. With the impact on margin, as Robert elaborated before, margin on Aerostructures, of course, was impacted by a lower revenue that we experienced, but mainly by the material cost increases of this, especially fastener issues that we are experiencing. We are not -- as we also mentioned before, we are not expecting to compensate that fully in the second half year of 2025. But of course, we are expecting an uptick of EBIT margin again in Aerostructures in the second half year. But with a stronger recovery in 2026, as also Robert elaborated before, where we can, I would say, hand over some of the cost impacts to our customers. In Cabin Interiors, as you stated, there was, of course, a certain onetime effect, but that was not the big impact on our, I would say, recovery in Cabin Interiors. What we are experiencing there and again, mentioning or restating my statement from before, we are on a steady improvement path in Cabin Interiors. That is sometimes in certain quarters, I would say, supported by one-off effects to a certain extent. But overall, we are experienced a steady improvement, and this is because of the successful offload to Croatia and the successful process improvements that we are having in Cabin Interiors. So we are expecting a steady margin increase in Cabin Interiors.

Allow me 2 quick follow-ups on the dollar. Do you have any flexibility or any clauses in the book orders for increasing prices in relation to the dollar fluctuation? And my second question is on the Interiors. Do you think we can see breakeven at the end of the year for the first time?

First question, U.S. dollar in terms of our contracts, all our contracts with our customers are in U.S. dollar. So there is no change to euro or something like that. So -- and there is no specific compensation clause in our contracts in terms of euro-dollar fluctuations. So as for pretty much everyone in the aviation industry or aerospace industry, you have U.S. dollar contracts with your customers, and you have to cope with it. And we are doing that via extensive hedging programs. In terms of the margin for Cabin Interiors, and as I've stated before, we have for -- in the half year 2025, we have all 3 divisions in positive EBIT margin territory. And of course, we are expecting that to have that same situation by the end of the year.

Well, thank you very much. And in the meantime, we have received no further questions. And we therefore, come to the end of today's earnings call. Thank you for your interest in FACC and your questions. And a big thank you to the gentlemen for the presentation and the time you took to answer the questions. Should further questions arise at a later time, please feel free to contact Investor Relations. I wish you all a lovely remaining day. Thank you, and bye-bye.

Goodbye, everyone. Thank you.

Thank you.