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

Hello, everyone, and a very warm welcome to the Austrian Air Conference. It is a pleasure to have you all here today for this special roundtable session. This session is dedicated to the FACC AG. We are truly delighted to have the chance to hear from their leadership. It is my honor to introduce their CFO, Florian Heindl, who will share some insights with us today. And without further ado, let me hand over to you, Florian. The stage is yours.

Thank you very much. Hello, everybody. Thank you for attending today's call. I will just browse quickly to a couple of slides that we prepared. And then afterwards, we have a Q&A session where I can answer all the open and remaining questions. So very quickly, FACC, the headline you see here, Unleash the Potential, and this is the basic line, I would say, that is currently driving us for the moment, much of potential in our company, and I will quickly guide you through a couple of insights. Overview, what we will talk about today, company presentation, the global market in terms of Civil Aerospace, the financials of FACC and a short outlook for the rest of the year, but also in medium term. Very briefly, because it's a recent change in our Management Board structure of the company. On the right side, you can see that the former COO, Mr. Andreas Ockel, resigned from the Management Board of FACC on 24th of June 2025. So this summer, around about a couple of months ago. And the Supervisory Board of FACC took the decision to reorganize and restructure the FACC Management Board, essentially reduced the number of Board members from 4 to 3 persons. You can see the current Management Board on the left side with the CEO, Robert Machtlinger, myself as the CFO and our Chief Strategy Officer, Mr. Xu Tongyu, a Chinese person. Marked in green are the -- sorry, marked in green are the new assignments in this new management Board. So Mr. Machtlinger took over the area of operations, facility management, occupational safety and the whole quality area from the COO. Myself took over human resources and sustainability and Mr. Xu took over the procurement and logistic responsibilities and the corporate strategy of our group. So this is the new setup going forward. I think it's a very good signal also for the whole organization that the Management Board was reduced because we are in an era of cost or an era of cost saving, and it starts at the top. Where are we coming from? From skis to the sky. So maybe some of you know our origins. We are a spin-off of a company called Fischer. You see in the front of this slide, Fischer is a ski manufacturer located in Upper Austria, which was the birth site of FACC. FACC was a spin-off in 1989 when the company was founded, so 36 years ago. And we took the technology from the ski industry, the lightweight composite technology into aviation, and we are very successful in doing that as our revenues and results are showing. We are still neighboring the Fischer manufacturing plant here in Reed, where the headquarters is located. But besides that, on a legal perspective, we have nothing to do with our former mothership anymore. FACC at a glance. So a brief overview on the left side, starting on the left top, who we are. And I just briefly mentioned it, we are an aerospace technology and composite lightweight company who tries to serve all OEMs on the market. And what you can get at FACC are turnkey capabilities, and you will see that on the next slide where I briefly explained that. Right now, we have around about 3,850 full-time equivalents in our group, where the majority is currently located in Austria, where we have our majority manufacturing footprint. Worth noting is also that we have employees from over 50 nations in our group in the meantime, so rapidly growing and sourcing people from all over the world. What we are doing is we are serving the whole civil aviation market, meaning the whole commercial aviation, but also advanced air mobility, for example, the drone segment that we are entertaining, and we are also looking at the space environment as a potential future market. We have a global network. As I said, although our heart is pumping in Austria in terms of our manufacturing footprint with around about 80% of the manufacturing still located in Austria, we have a global setup with 15 development and production sites worldwide. Worth noting is, for example, Croatia, our newest manufacturing footprint with around about 1 million of labor hours capacity that we have in Croatia. We are a publicly listed company, obviously, with 55% majority shareholder from China, AWI Corporation, the rest is in free float listed on the Vienna Stock Exchange. On the right side, very briefly, an overview of our impressive customer landscape, starting with our most important customer for the time being, Airbus with around about 55% of our total revenue generated with Airbus. But also Boeing and the Chinese OEM, COMAC are very important for us as well as Bombardier and Embraer, especially in the business jet segment that we are serving. In the middle segment of this chart, you can see the engines manufacturers, which are also our core customers, GE Aerospace, Pratt & Whitney, Rolls-Royce and Collins Aerospace, which we are serving in the Engine and Nacelles division. And jumping to the bottom of the slide, you see our, I would say, most prospective customers of the future. It's Archer in the drone environment, also Eve drone environment and the single space project that we are currently entertaining is with Ariane Group. So a full customer landscape for you to review. What you can get at FACC, and I mentioned it before, and this is the most important thing to know about FACC is triple competence and turnkey solutions in composite manufacturing, meaning it starts with design, moves over to production ending up in maintenance. So as a customer, you can get everything at FACC if you choose to or you can only choose to take a part of this full circle of capabilities and for example, just have your products manufactured at FACC. But we are also, of course, only designing certain products or also doing certain repairs for certain products. So it's really a full competency that we are offering to the market. And of course, as usual, in civil aviation, you need certificates and approvals from local authorities for that. And of course, we are having that as well, and it's the most precious thing for us having as a company. What is our business? Jumping into our business segments. On the left side, you see the core business, as we call it, 3 divisions, Aerostructures dealing with everything that is outside of the plane, most notably movables, farings and wing elements. The middle section, engine and nacelles. So everything that is related to engines in the not heat-exposed area of the engine and nacelles, meaning the coverings of the engine, for example. Cabin Interiors, we have 2 major sections that we are serving. For example, the commercial aircraft like Airbus A320 as the bread-and-butter business for FACC. So for example, as a signature product in this division, every overhead in every flying A320 is coming out of FACC. And the second section is business jets, and I mentioned it before, where we are doing business with Embraer and Bombardier, most notably. On the right side, what we call new business are the prospective future revenue and earnings generators of our company, which is the MRO segment, meaning maintenance, repair and overhaul, which we are doing together with our OEMs, but also with certain operators, meaning the airlines. Middle section, advanced air mobility. This is currently the most driving environment that we are engaged in is the drone environment, meaning passenger transportation and goods logistics. So very important story. I have another slide very soon. And on the right is the space environment. As I just said, currently, we are only entertaining one project, which is a launcher system for the Ariane rocket. So space is definitely something that we are watching also with regards to what is happening in the U.S. with the privatization of space like Blue Origin or SpaceX and all those companies alike. But for us, it's mainly important to learn from a technology side it will definitely not be a business segment that we will heavily invest in. Again, it's for us learning by using and applying technologies from space. Advanced Air Mobility, this is the slide. So the drone business. As I said in the beginning, it's a very growing business at FACC and also globally, very important one. We are dealing essentially with 4 projects, 2 of them are in the passenger transportation environment, Archer and Eve, both companies from the U.S. And on the right side, we are entertaining a project with Drone Logistics. We are not allowed to announce the customer yet, but it's a very big multibillion U.S. dollar company. And also another logistics project, which is not for the small parcels, but for bigger ones, which we are also not allowed to announce the customers. Both of them -- both of these projects are also located in the U.S. So very interesting business. FACC entered this business in 2018 with a company or a partner back then called EHang, a Chinese drone manufacturer. So this was the entry in the market of drone manufacturing. Since then, and as you can see in that portfolio, the cooperation with EHang came to a standstill also as a result of COVID. But nevertheless, we managed to in load for other projects that you can see here that are in various stages of pre-serial production already. By far, fastest advanced projects are Archer and the drone logistics company, which are already in a very extended pre-series production mode. So here, we are really talking about volume already, for example, the drone logistics company from the U.S. has ordered around 1,000 drones for the business year 2026, which we will, of course, happily manufacture for them. And for example, with this regards, we are really manufacturing the whole drone. Of course, we are sourcing the electronics, et cetera, from other suppliers, but the customer in the end gets the fully assembled drone and only needs to do some, I would say, final assembly by himself. The global market in civil aviation, and I think this is the most important thing to know. Global aviation is very resilient. And you can see it on that chart. You see the chart starting in 1990. You have several crisis in there, Gulf crisis, Asian crisis, 9/11, financial crisis and most notably, the last crisis was, of course, COVID, which had the biggest impact over decades on the global aviation environment. So -- but, and this is the most important thing to get away here is that, the market very quickly recovers after each and every crisis. And especially looking now at the industrial environment in Europe and most notably also in Austria, we are one of the very few industries that is enjoying double-digit growth rates. FACC had growth of 20% last year, 23% the year before. And for this year, we are looking for growth at over 10% per annum. So this is the most important thing to know about the civil aviation business. It's a growing market. The medium-term growth rates in the industry are between 4% to 5%. So this is something that Airbus and Boeing, of course, are constantly analyzing. So underlying growth rate of the market, 4% to 5%. FACC is growing usually more than that because of our diverse portfolio and the add-on business of, for example, the drone environment. The demand in terms of new aircraft that are needed by the market until 2043. So this is the one of the latest analysis from Airbus. Boeing is also doing its own analysis. The number is not different. So also Boeing is looking at around about 43,000 new airplanes until 2043. You can see here on the left side, the distribution. So currently in service in 2025, around about 25,000 airplanes. From this 25,000, around about 6,000 will stay until 2043. 18,500 round about will be replaced and 24,000 additional airplanes will be needed to cover the market demand. So a very interesting market environment FACC is operating in. To break that down a little bit for you, you can see on the right side, the aircraft production rates per month and the future forecast by the OEM. So what does it mean for FACC? You can see here the platforms on the left. So all platforms that are also entertained by FACC, starting at the wide-body aircraft, meaning the big ones like the A350, a current manufacturing rate at FACC, 6 airplanes per month. This is to be forecasted to double in the next couple of years. Exactly the same is true for the Boeing 787, which is [indiscernible] to the A350, also from rate 6 currently to rate 12. And the interesting thing to know is that we already have been at these double-digit rates before COVID. So these are airplanes that are not fully recovered yet, but are expected to recover until 2027 roundabout. What does that mean for FACC in that specific regard? We do not need to invest anything because all the capacity is already here that we need. We only need to do additional shifts in personnel. Jumping down to the single-aisle environment, which is the bread and butter business for FACC. So most important platform is the A320 family with 62 aircraft produced currently per month. Airbus is forecasting an increase until 2027 of up to 75 airplanes per month. [indiscernible], the Boeing 737 currently produced at rates around, I would say, 35 for the time being. They also have a production cap currently from the U.S. government, meaning that they need to solve all the quality problems that they had in the past. So once this cap is lifted, Boeing is looking also, of course, to increase their production rates in the future. And we are here looking at the forecast of around about 55 airplanes also somewhere in the years 2027 to 2028. And the last one is COMAC, the C919, the I would say, upcoming star from China. Currently, if you compare it to an A320, of course, very limited production rates with around about 5 per month. The long-term forecast, of course, also almost tripling. So also a very interesting business for FACC. Currently, we have around about USD 1 million of production volume on every C919 that is produced. Financials of FACC, and this is something where we are currently working on. I will come to that in a minute. So market, we already heard about market recovery continues. I would not talk about the market recovery anymore because we are already enjoying market rates and production rates that are overwhelmingly higher than we had before COVID. So we are fully back on track. FACC in the first half year of 2025 had a half year revenue of EUR 484.7 million. The EBIT was EUR 18.4 million. We in loaded in the last 12 months, 123 additional employees. So employee growth was still there. And most important, of course, for the CFO, what remains in the pocket, the free cash flow positive with EUR 31.7 million. So just to give you a couple of quick facts about our first half year of 2025. Longer-term view in terms of revenue, you see on the left side, where we already have been before COVID, EUR 800 million company. COVID, of course, gave us a severe hit. Since then, a rapid recovery with now in the half year, EUR 484.7 million. For the full year, we are expecting a revenue of around about EUR 1 billion for the first time. So another year of strong growth at FACC. The operating result on the right side, this is, I would say, the thing that we have to work on FACC, and I have a slide on that as well going forward. And this is a huge part from my perspective of our, I would say, beneficial equity story and the interesting equity story that we can provide. So you can see since COVID, we are on a recovery path. Year-over-year, we are increasing the EBIT and also the margin, 3.8% EBIT margin in half year. 18.4%, as I said before. The forecast for the guidance for the full year is to increase the EBIT margin even further. So you see last year, we had 3.2%. So of course, the goal is to extend that EBIT margin in terms of absolute and relative figures. Revenue distribution, I touched it before a little bit already when we talked about manufacturing rates. So what you can see here is the revenue distribution in Q1 2025. So it does not change much. Also if you compare it to the right side in the fiscal year 2024. Bread and butter business, as mentioned before, is really the A320 family, followed by the business jet segment and the A350 that we are providing parts for. So, looking down a little bit, you see the A220 and also the A330. And if we add up all those Airbus platforms, you see that well over 50% revenue share is generated for the time being with Airbus. The strategic goal of the Management Board is to decrease this relative Airbus share, meaning that we, of course, do not want to lose Airbus business. But relatively, we want to bring up Boeing business again, which will, by the way, happen automatically once Boeing gets back on track with the 787 and the 737. So revenue share automatically will increase with FACC again, but also we want to win new projects with Boeing. The revenue distribution in the past, so looking back 10 to 15 years was around about 1/3 Airbus business, 1/3 Boeing business and 1/3 the rest. And this is a structure that we are looking forward to getting back again. So for the time being, as I said, Airbus, the most important customer for the medium term, we are looking at a more balanced revenue distribution again. Free cash flow on the left side, first half year 2025, you see the EUR 31.7 million generated in terms of free cash flow, which was a huge improvement if we compare it to H1 2024 with EUR 7.4 million. Is it enough? No, it's not enough. And this is the pain point we are still working on, and I have an extra slide for you in a second. Also in terms of cash flow, the investments pretty much stable at FACC, always fluctuating between EUR 25 million and EUR 35 million a year. More important for the time being are -- is the development of working capital, most notably inventory. Inventory is currently a pain for FACC. So if you take a look at the inventory development over the last couple of years, of course, it rose again with the increasing revenue, but the problematic thing is the share of inventory compared to the total assets, where we are standing right now at 23.3% in half year 2025 with EUR 172 million. So the biggest inventory that we had at FACC was in Q3 2024 with around about EUR 192 million. So we already came down EUR 20 million and the target for the financial year 2024, the year 2025, the year-end is EUR 148 million. So another EUR 25 million to go from the half year figures. And this is, of course, one of the most important drivers in terms of optimization of free cash flow, bringing down our inventory numbers again. It's not a problem of lack in demand, I have to say. It's a problem in terms of supply chain. We still have frictions in the supply chain, and you might have read that Airbus has a problem in terms of getting all the engines that they need for the fully manufactured planes that they have sitting on their ground. So this is only one example of the problems in the supply chain. So they are still very relevant also as a result of COVID and of course, also as a result of the energy crisis out of the Ukraine war. What does that mean for FACC in a nutshell? And what is part of the equity story of FACC and why do I think that FACC is an interesting investment? So as I said before, we have a very strong market, and you have seen that in terms of revenue, but we have -- still have a problem in terms of margins and in terms of cash flow. And we are dealing with that with a program that is called corporate reshaping, making us fit for the future. So we call it core corporate reshaping. What's meant by that? Until 2026, we want to harvest EUR 80 million of result improvements. And those result improvements should be generated in 4 different sections. The first section is EUR 25 million in material cost saving, EUR 25 million in terms of increased efficiency, meaning more output with a lower amount of people. That also means, of course, or includes the white collar environment and the internal organization of FACC, EUR 20 million of price increases with our customers and EUR 10 million of reduction of other costs, general expenses, so to say, marketing costs, consulting costs, but also benefits that we had in the past for our employees. So this is really a big package that we have put together. We started working in the fourth quarter of 2024, and it's expected to end in 2026. And this will really provide the basis for our future success. So really bringing our cost environment back under control. The outlook for the company, and I said it in the beginning on the left side, so EUR 1 billion revenue for the fiscal year 2025, which translates in a growth of over 10% again, so very strong growth. And for the first time in history, we are aiming for the EUR 1 billion revenue mark. The EBIT margin, we want to improve further. 2024, we had an EBIT margin of 3.2%. So we are definitely expecting a strong increase for this fiscal year. And on the right side, you see the, I would say, medium-term outlook. So as you have seen, since COVID, the industry is in a strong ramp-up. FACC is for the most part for our OEMs, the Tier 1 partner, meaning we are crucial to securing their ramp-up. And this is something that we take very seriously and is on top of our agenda. The core efficiency measures we talked about are the baseline to improve our EBIT margins. The target EBIT margin by the end of 2027 on a group level shall be 8% to 10%. There will be certain differences when we look at the divisions. So Aerostructures and Engine nacelles will have double-digit EBIT margins. By the way, Engine & nacelles is already enjoying EBIT margins of around 12%. Cabin Interiors division will be a single-digit EBIT margin environment in the area of around about 7%. So in the blender, it will be around 8% to 10% on a group level. Company will be further deleveraged. We have around about a leverage ratio of 3.6 at the moment. We want to come down to a ratio again of below 2.50 that we also enjoyed before COVID. We will further push our globalization strategy, meaning the expansion of the global footprint, as I said before, currently, we have a very heavy focus in terms of manufacturing in Austria. We are looking now to a strategy being closer to the customer. Austria and Croatia is fine when we talk about the European Airbus business. But when we're talking about the U.S. customers like Boeing or the Canadian customers like Bombardier or our Chinese customers, the Austrian setup for the future might not be sufficient, and we will work on that. And last but not least, the most important thing for FACC is quality and safety. Everything we do is under these 2 premises. So we want to secure the safety of flying, and this is also one of our most important things to do. So thank you for your attention, and I'm now looking to a healthy Q&A session.

Yes. Thank you very much for your insightful and interesting presentation, Florian. Ladies and gentlemen, it is your turn now as we move on to our Q&A session. [Operator Instructions] One already has arrived, do you plan a capital increase in the near-term future to reduce the leverage?

Thank you for your question. A capital increase to reduce the leverage is very clearly not planned. What we see going forward is an increase in investments, and we have said that publicly already, if you check the news, FACC is planning to invest around about EUR 300 million in the next 5 years until 2030. Why is that? Or what are the contents of that investment package? One thing is definitely a new plant, so fresh capacity for FACC. If we talk about the full composite plant in terms of what FACC needs, we're talking about an investment volume between EUR 50 million to EUR 70 million. So this is one part of the equation. The second part is that we expect both Airbus and Boeing to launch new generation aircraft platforms by the end of the decade, meaning they will start development work. And this will mean for FACC that we need to invest again like we did for the A380, for the A320, for the A350 in the past. So this is the content of the investment package that we are looking at in the next couple of years. And to come back to the initial question, so capital increase to reduce leverage, no. Might there be a capital increase to cover certain future investments? That is, of course, part of the discussion how to finance those future investments. But of course, it's not planned yet.

Thank you very much. And ladies and gentlemen, this is your space for your questions. So let us know if you have any. We have already received a few questions ahead of the call, which we would like to start with. And Florian, you mentioned the drone business in connection with growth markets or new business areas. Can you explain the business model for passenger drones in more detail? What is the time line? And when can we expect to see drones in flight?

Yes. very good question. We are -- as I said, we are entertaining the drone environment since a couple of years. We are one of the companies in the civil drone segment. It's also worth noting we are doing no military business at FACC. So no military business in terms of planes, but also no military business in terms of drones. So really focused on the civil aviation. And in terms of drones, if we talk about the passenger transportation for drones, we have 2 projects. And one of the further advanced is Archer, which is a stock-listed company in the U.S. They are looking at their final certification, I would say, next -- sometime next year. And their concept is together with a strong shareholder base, one of their shareholders is United Airlines, for example, they are partnering up with United Airlines with an idea that if you buy a ticket for a United Airlines flight that you can also buy a ticket for the final transportation from the airport to the inner city, in the big cities, of course, with traffic problems. For example, New York or Chicago or whatever. So you can choose together with your United Airlines ticket, you can also buy a ticket for the last mile transportation with a passenger drone instead of a taxi, costing you around about the same with a fraction of the time needed. So that's the business model, for example, for Archer. Archer also has already certain contracts in their books with other applications, for example, the U.S. Army. U.S. Army wants Archer products not to use in combat, but for people transportation behind the front lines instead of helicopter. So that's the business idea largely for the passenger transportation in the drone environment. And of course, we are very happy to entertain that because our knowledge is very important for them. We are talking about lightweight composite components because all of those projects are battery powered, so fully electric. And their weight is really the key. So you cannot do it with metals. You must do it with lightweight components, and this is where FACC comes into play. When can we expect to see those drones flying? So looking at China, they are already flying. Our former partner that I mentioned, EHang is already flying in China, but only in a very, I would say, limited and controlled environment. The EHang drone will also be very difficult to get certified in the European or the Western world in general. So if you ask me, this -- as I said, Archer is expecting the final certification in 2026. If that happens, that would be really fine. Let's see how that works out. But definitely, very definitely, until the end of the decade, for sure, there will be people transported by drones, very sure.

Thank you very much. And one more question. What is FACC's market position in aviation? Are there many new competitors? Or are the barriers to market entry too high?

No. The competitor landscape for FACC is basically the same over the last couple of years because -- and you mentioned it, the entry hurdles for new competitors are very high. You have very high certification hurdles and you need much of investments to enter a business with very low volume. So it's very plainly speaking, a largely single source industry, meaning makes it very hard for new competitors to enter the business without taking huge investments and long time for certification. In civil aviation, you need to certify everything with the authorities and also the OEMs. Every process, all the people, all the plants, all the materials need to be certified, and this is very time consuming and very costly, and it's not easy to change. So for us, of course, it's a good situation because the amount of competitors that we are having is limited.

Thank you very much. And as no further questions have come in, we now come to the end of today's roundtable. Should further questions arise at a later time, please feel free to contact the Investor Relations team. Thank you, dearly, Florian and all of you for attending this call. We are happy about this ongoing Austrian Air conference and kindly invite you to our panel discussion at 1:00 p.m. with Vienna Stock Exchange. And with this, I hand over again to you, Florian, for some final remarks.

So thank you, Judith, for your closing statement, and thank you, everyone, for joining this call. As I said, I think FACC is an interesting investment story. There is much going on. We have a huge market in front of us. We have a very good diversified portfolio in terms of our customers, but also in terms of our products. And I think the most interesting thing looking at us is that we are currently in a transformation phase also with our core project in terms of bringing the cost basis down and securing a healthy and profitable future for FACC. So thank you for everyone joining this call. If you have further questions, please do not hesitate to contact our Investor Relations department. So thank you very much, and enjoy the rest of the day. Thank you, and bye-bye.