FACC AG (FACC) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. A warm welcome to today's earnings call for the FACC AG following the publication of the Q1 figures of 2025. I'm delighted to welcome the CEO, Robert Machtlinger; the CFO, Florian Heindl, as well as Michael Steirer from Investor Relations, who will start with the presentation shortly. After the presentation, we will move on to the Q&A session in which you will be allowed to place your questions directly to the management. We are looking forward to the numbers. And having said this, Mr. Steirer, I hand over to you.

Thank you, Jana, and good morning to everyone again. So welcome to FACC's earnings call for the first quarter of the fiscal year 2025. As already mentioned, my name is Michael Steirer, and today with me are our CEO, Robert Machtlinger; and our CFO, Florian Heindl. And as always, we have already provided some [ of the ] information in our press release issued earlier today. And in case that we cannot cope with every potential question raising during the session today, we will be happy to schedule additional one-on-one meeting afterwards. In this case, please let us know, my colleague, Tanja Maisenberger or myself, and then we will arrange appropriate. Now, I would like to hand over to Robert Machtlinger, our CEO, in order to start this presentation. Thank you.

Michael, thank you very much for the introduction. Good morning, ladies and gentlemen, from wherever you are dialing in. Pleasure to talk to you and giving you together with my colleagues a quick update on our first quarter 2025 results. Next page, please, Michael. So overall, a few highlights we would like to address on and above the financials. As we all know, technology and innovation is very key to the development of FACC. This was the case over the first 35 years of our existence, but also is very key for FACC in -- going forward. As you know, we have very strong R&D capability, and we are today working with our teams to define the technology for the future. We are very proud to say that during the JEC Composite exhibition that took place in Paris early in the year, which is the most important composite trade event, that we have been selected to be one of the 3 finalists of the JEC Composites Innovation Award. So big honor for us and what the innovation was. It was a joint development with one of our engine customers where we have developed a high-performing turbine blade out of composites of the materials which will make it, as we see it today on the next-generation [ engine ] platform. So very key for us in order to have a technology [ step ] advantage compared to some of our peers. So, well done to our teams. I think we also have been engaged with 2 customers, Collins and Airbus in a new standard, which is called the Aero Excellence. Aero Excellence is a new requirement that was implemented where manufacturing processes and quality standards are reviewed to new standards. Also here, we have been one of the top 5 worldwide suppliers to the aerospace world where we have been qualified to these new processes. So this is an indication that what we do and how we do it can guarantee a safe and environmental protected manufacturing processes. On and above, safety is a big word in the aerospace industry, as we all know. And also here, we have shown as a frontrunner how stable and resilient FACC is. Then, the CEO contract was extended by another 5 years. We published that talk, which, of course, is a big honor to me and being able to support the FACC in the next 5 years together with my colleagues running the business, changing the business in a very dynamic, challenging, but also, I would say, a promising environment. And a little bit more to this point right now, this is why we need the company development. On the top line, I think we are very much in line with our guidance still in the first quarter to the upper end of our guidance. As you all know, we are guiding this business year on the top line with a 5% to 15% growth for the first quarter, is pretty much to the upper end of the guidance. I, however, would like to elaborate a little bit on the industry dynamics. So we are still in the entire industry are working in a very dynamic environment. It's not only, I would say, the geopolitical discussions. We will have a slide for yourself later on in the presentation talking about tariffs and what does it mean to us. But it's still supply chains, it's still cost pressure from various angles we are managing every day. We also see quite a dynamic with the customer input signal. So there were adjustments made that are very much in line with the outlooks our main customers have provided to the public. So we have seen a shift in demand. I would not call it, let's say, too much cuts, but it's definitely shifts from periods to the other. We have seen one or other working capital reduction program with one or the other customer for efficiency where they are confronted with the same issues we are having. Our working capital is high. We all know there is a couple of flagging supply chains in the industry. And what we see at the time being is that all of our customers are adopting plans to make them [ executable ], considering the one or the other issue that cannot be solved within weeks or months. And what we see at the time being is still a very stable ramp-up, but a little bit of a lower speed. Still what we see from the order intake is fully in line with our overall guidance. But this short-term adjustment we've seen in the first quarter is -- has to be managed and was managed with one or the other extra cost we had to carry. Of course, I think Florian will talk a little bit more during his presentation on the financials. Next page, please. A little bit insight on the market, as we always do. Next page. So overall, we have the input from the 2024 deliveries. This is not new to you. We shared with you, I think. A pretty much repeating statement from FACC. We all see that there is room for more in the industry because 2024 total output was even slightly less compared to 2023, driven mainly by one major OEM. On the next slide we will see how the 2 big OEMs are more converging. Nevertheless, looking into the 2018 figures, there is a 400 to 500 airplane gap that has to be filled up in order to have the same output we enjoyed already in the past. So the momentum is there, we all know demand is there. Airlines are asking for airplanes and the industry has to manage the demand. Overall, the firm order booking from the 2 main OEMs is at 14,800. No change to what we have already shared with all of you during the last call in March. Next page, please. A little bit of insight to the first quarter with 2 main customers in the industry or OEMs. We see 266 airplanes have been delivered in the first quarter. We always know that the first quarter of the year is a little bit weaker with both our customers. So there is a momentum in the industry in the next quarters to come in order to pick up on deliveries, but also production. And we all know, I think the guidance that has been provided by the industry. Looking a little bit into a comparison between 2024 first quarter and 2025 first quarter, it's getting very evident that Boeing is picking up. So in the last years, Airbus was leading in terms of output and delivery. We are expecting this will still be the case, of course, during the full year of 2025 because the gap that has to be closed is certainly significant. But in the first quarter, it's getting evident that Boeing is ramping up its production and it's pretty much equal in terms of deliveries between Airbus and Boeing. So that's indicating that I think the direction is good, also good for the industry and also good for efficiency. Next page, please. In terms of the long-term forecast, also no change. I will not talk about the 20-year forecast. This is many times reconfirmed and is proving to be right. Still interesting, I would like still to have a quick review on the midterm forecast of the major platforms in the industry where we are having significant share on it on the A350, which we confirmed that the production rate will double in the next 2 to 3 years from currently 6 airplanes to 12 airplanes a month, which is doubling the requirement and also the business model FACC has on the platform. Again, FACC has quite significant amount of value on the A350 depending on the configuration, it is between EUR 2 million and EUR 2.5 million per airplane. So we see there is natural organic growth with the investments we have made in the past, which will come back over the next 2 to 3 years, again, helping FACC to be well utilized. 787, pretty much the same, doubling the size of the demand in the next 3 years. Volume of the airplane is not as big as on the A350, it is a little bit less than half. But also here, nice organic growth potential without further investments. 777 is a little bit late in entering into the market. But also here we see a slight increase in rates, not as big in requirement to the other 2. Hence the single-aisle airplanes, which is 80% of the market, still continuous growth as I said before, at a little bit slower pace as we have received the latest updates from all of our customers. But again, the top line numbers where we are targeting to be in the next 2 to 3 years are unchanged. A320 Family, as you all know, most important platform for FACC, 36% of the revenue. We will see another 21% growth potential in the next 3 years. The 220 with a 30% potential in organic growth. On the 737, this airplane is again picking up in monthly production rate increases, targeting a rate of [ 55 ] in the next years to come. And also the Comac 919, the Chinese platform where we have roughly EUR 1 million of revenue per airplane is also stepping up quite significantly between 2024 deliveries in the next 3 years. So overall, we see a very intact demand signal from all of our customers. Again, a little bit normalized compared to previous forecast, but still in a very stable ramp-up scenario. Next page. And saying that, I would like to hand over to Florian to fill more details on our financials.

Thank you, Robert. Thank you, Michael. I will now go into the details of our financials in Q1 2025. Next page, please. So overall, in a nutshell, and Robert just touched it a little bit, the market recovery for FACC continues. We have followed our planned development in our core business and also in our new markets business, especially the AAM business, the drones business. In terms of revenue, Robert also just mentioned before, EUR 231 million of revenue, a 14% increase compared to Q1 2024, spread across all divisions that we have in our company. The operating EBIT, EUR 4.3 million in Q1 is, of course, a setback compared to the EUR 9.9 million that we enjoyed in Q1 2024. Reasons for that, of course, the challenging environment in the supply chain coming together with material cost increases that are hitting us right now. In Q1, we have grown our employee base by another 46 FTEs for the ongoing ramp-up and a big difference compared to Q1 in 2024 was a free cash flow -- positive free cash flow of EUR 3.5 million. Next one, Michael. This slide you all well know. On the left side, we have the revenue compared to the last couple of years in the Q1 with EUR 231 million. I think enough said about that. And on the right side, the EBIT for Q1 with EUR 4.3 million, which equals a 1.9% EBIT margin. Next one. In terms of our divisions, as I said before, the revenue increased spread across all divisions; Aerostructures, Engines & Nacelles, and Interiors. Next one. And the EBIT development as well, Aerostructures and Engines & Nacelles with positive EBIT, of course, a setback in Aerostructures division with EUR 1.5 million EBIT in Q1 compared to EUR 6.7 million in Q1 2024. Reason for that is a material price issue, especially in the fastener environment, currently very dynamic and challenging in the Aerostructures business. Interiors in Q1 with a negative minus EUR 3.5 million. So of course, we are still working on the recovery plan, which is in place, and we should see a continuous improvement over the next couple of quarters going forward. Next one. Free cash flow, as I said before, an improved picture compared to Q1 2024. We have enjoyed a positive free cash flow of EUR 3.5 million in Q1 compared to minus EUR 37 million in Q1 2024, so an improvement on that side as well. Next one. Investments, pretty much nothing surprising here, very well controlled investments that we are taking also in connection with our core efficiency program that we are right now running. We really have to control the investments that we are doing and always spend the necessary yield that we really, really need. On the right side, the inventory, which is still our biggest pain in the company, which now has a slight increase compared to Q1 2020 -- full year figures 2024 with EUR 178 million going up slightly to EUR 185 million roundabout. Reason for that is, of course, and again, challenging supply chain environment, but also some kind of shifts, and maybe Robert will touch a little bit later in the outlook in the first 2 months, January and February on the customer side, where we had causing up some inventory issues. We expect still sticking to our target for year-end, a very big improvement in terms of our inventory going down to EUR 148 million for the year-end. Next one. With saying that, handing back to Robert for the final outlook.

Thank you, Florian. Outlook, next page, please. Well, overall, I think as we already said and you know, the aviation industry, I even would not say it's recovering because on the top line I think we are doing well better than before COVID. Still, I think on the airplane deliveries there is a gap to be closed. So rates are ramping up. So recovering maybe still a fair statement. We will increase the build rates for short to midterm medium haul aircraft. And what we see and I already touched a little bit before, we see a ramp-up curve that is slightly reduced, at a slightly lower speed as we have been told during 2024. I think this is a necessity to harmonize the global supply chain because there is a couple of lagging supply chains impacting the industry. I think by level loading and harmonizing and going in the same speed overall is not a good thing to do because we need to have stability again and not signals that are ramping up and then slowing down again. So overall, we see this not negative. I think it's helping to stabilize cost and it's also helping, I think, the overall supply chain. And as Florian said, we always have to prepare for higher rates. If a rate is slightly postponed by a couple of weeks or months, the material inflow is already ongoing, cannot be stopped because it's either on the ship or it's a long lead item, which is then driving our inventory levels to the levels we're having. So I see this not always positive, but overall, I think if we are stabilizing the industry in the month of -- 2025, this might have a positive impact on the efficiency of how we run the overall business, not we as FACC, but the entire industry. We're still sticking to our guidance, which is a 5% to 15% growth. Again, I think we will be more specific after the second quarter. We see some dynamics still in the second quarter, but the one or the other shift already planned also in the material inflow, and we see a more stable ramp-up in the second and third quarter. So overall, we will grow in this spread again, more specific guidance and please be patient with us after the second quarter. Our priorities are very unchanged, continue to ramp-up in line with our build rates of our customers. We are very well aligned. We also can state here our customers are very helpful if the change in demand is too significant. They are willing to take some of the inventory earlier in order to help efficiency in managing inventory. We are maximizing our focus on CORE. This is the key project we are working. And I think the good news in the first quarter, significant improvement in the cash flow, as Florian already mentioned, from a significant negative cash flow last quarter 1 to a positive cash flow in Q1. So overall, 80 million efficiency project is fully up and running in all areas in terms of material, internal efficiency, cost savings, but also inflation, cost compensation request with our customers. So up and running for the next 2 years and progress made as we speak. And overall, the challenges very much unchanged. Supply chain stability remains an issue for the entire industry. We see less critical supply chains, but those ones that are still critical need special attention. Where the rising cost is normalizing, I have to say, even in Europe and Central Europe. So the years of 7%, 8% inflation with significant personnel cost increases is behind us in Austria and in our industry are applicable for FACC. We just finished the labor increase negotiations for 2025. I would say it's very fair conditions for us as a company, but also for our employees. And the increases we are seeing this year is back to normal in the years before 2020, and this increases FACC was able and will be able to compensate with efficiency increases from 1 year to the other. Geopolitical situation, we all know it's still dynamic. And this might -- pretty much brings us to the last page, Michael. The biggest challenge in the industry worldwide, not only aerospace, in general is the tariff discussion that is ongoing between United States and the Rest of the World. We did a deep dive into the subject what tariffs means to FACC directly in terms of our contracts. And here, I think our contracts have been set up over the last years and decades that any customs that are related to import tariffs is not the responsibility of FACC, it is the responsibility of our customers. So directly, I would say, if we deliver product, and this is again impacting our deliveries to the United States, which is round about 15% of our revenue, our customer has the obligation to pay for those duties. So far so good, I would say, in the short-term. So no, let's say, surprises in terms of our cost structure. However, we are aware about that one, the products we are producing for our United States customers, of course, from a pricing standpoint is getting less favorable. Also here, we looked into it and we are in very good and open discussions with our customers. And there should be no fear because there will be no change in the setup. Our products are qualified to specifications and locations where we are producing today. So there is switching cost and time that is not at all yet considered. So based on our IPs and our production setup for the current product portfolio, we are well aligned with our customers. In the long run, of course, this is also what we have considered in our overall long-term strategy, our global manufacturing footprint. And you might know about it. We have a strong footprint, of course, in Europe because of our Austrian and Croatian facilities. However, we are actively having set up organizations in all the other markets like the United States, in Wichita, in Florida. We also have set up Canada in Montreal many years ago to be local. And we also have set up operations, of course, in China, the biggest market at the time being in terms of airplane demand, but we also are very active in India since 15 years. So this strategy will pay back also in the next-generation airplane manufacturing. So tariffs still remain an issue going forward. Our strategy long-term is definitely producing components where it makes [ best ] sense. In the midterm, and I need to have a statement here as well. We all know that political uncertainty is not welcome in the overall capital market area. So there is some adjustments made as we all watch them. But also the aerospace industry is very sensitive in terms of political instability. So we are watching the booking behavior in the markets very closely. In the short-term, all is as it was. In the longer term, however, there is a slight reduction already visible that business travelers between certain markets are booking less. At the time being, not too big of a concern because there is an over demand compared to the supply capability the industry currently has. But again, we, together with our customers, we are watching the situation very carefully. We're not yet concerned because the slight reduction in demand would not impose a reduction in supply signal because, as we said many times before, we could deliver more airplanes to the market if we could in the long run. And again, I talked already, we have a very solid plan, not set up yet, but already set up in the last 5 to 10 years. So we are close to this subject. We are watching it. And as of today -- there are changes every day, and we are at the time being on the top of the issue. In saying that, that's what we can tell you about tariffs and impacts to FACC. Again, no impact as we speak. In the long run, our global strategy already takes care about it. In saying that, I would say thank you for listening to us. And right now, the floor is yours for raising your questions to us.

[Operator Instructions] Mr. Poulain, I will give you the permission to speak now. You may ask your question.

The question is on the guidance for sales because you -- I think you highlighted some of the question mark that you have, but you started the year on a strong note regarding sales. So is it because you have more pricing effect and the volume is closer to the lower end of the range? And do you expect this pricing effect to be less pronounced in the coming quarter? Or is it because you still see some risk of disruption in the supply chain and you want to be prudent? Or based on the start, should we assume that you'll be closer to the higher end of the range as suggested by the -- also your peers who seems to be a bit more confident in their ability to deliver higher volumes? Safran last week, for example, already commented on that, and they were quite confident in the track that they currently see for the ramp-up. So could you elaborate on that, please?

Yes, of course. So overall, this is not a pricing discussion here. So the spread would be simple too much, I would say. So the pricing, some elements in there is, as Florian said, is fastener pricing and availability is a discussion at the time being where we have secured supply, but at a certain cost and here we are engaging with our customers to find pricing agreements in compensating for that. So the spread was what driven by the demand signal, as you just said correctly. I am also in line with the judgment of Safran and many other ones. We see a stable ramp-up in the industry. I think the adjustments we have seen on certain projects and platforms, I think is harmonizing the supply signal across the industry. It doesn't make any sense to go for a very high rate already knowing that the one or the other supply chain might not be able to deliver. Because what would that mean if 95% of the supply chain is working to this higher demand and a few parts are missing, the airplane will not take off. This will drive inventory and cash outflow in the entire industry. And as always, at a certain point, also our customers have to readjust the inventory level and that comes normally with a slowdown of demand. So by harmonizing the signal and working on this few critical supply chains, I think this is doing very good to the industry. And again, I'm fully supporting the statement made last week by Safran and others that we see a very intact ramp-up also in 2025 and beyond. More harmonized, more considering the last critical issues, which all should help us to build down inventory because buying inventory for high rate and then keeping it for another 2 months because we are postponing delivery, is cash consuming. So overall, I see the trend is very positive. And for the full year, the growth we have seen in the last 3 years will continue. Again, the spread will be narrowed down after the second quarter.

Maybe a follow-up on the inventory reduction drive. Just to be clear, if you are cutting inventories to improve your free cash flow, it doesn't compromise the growth rate for the year. You would be able still to achieve the year-on-year growth rate at the high end of the range if indeed there are no supply chain disruptions?

No. I think in everything we do as a strong partner to our customers, we have to secure delivery because we are the only supplier partner who delivers the product. So not delivering because we have ramped down material below the need is nothing we ever do because that will trigger other costs in terms of liabilities. So we do this very structured. I think the more a normal drumbeat comes into place, the better we can claim and the less critical supply chains we see and that's what we are already recognizing, the less safety buffer we have to put in place. So we all need to recognize if there is instability, we need to secure our business and our customers by putting a little bit more inventory into our stocks. And the reasons could be many, it could be logistics, it could be transportation, it could be, well, a raw material that might be critical in the months to come. So this was the dynamics we have seen over the last few years that's normalizing everything we do. And ramping down our inventory is very much in line with our customer demand signal.

We are waiting for another question. It seems that we may not have another question. And therefore, thank you very much for your interest in FACC and your questions. A big thank you to all of you, the gentlemen for your 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 goodbye.

Thank you, everyone. Bye-bye.

Thank you, everyone. Take care. Goodbye.

Bye.