[audio distortion] Figures of 2023. The CEO, Robert Machtlinger, CFO, Aleš Stárek, and Michael Steirer from Investor Relations will speak in a moment. We're looking forward to the presentation. With this, I hand over to Michael Steirer.
Good morning and afternoon to everyone. Welcome to the FACC earnings call in regard to the first half year of the fiscal year 2023. As already mentioned, my name is Michael Steirer, and together with me today, Robert Machtlinger, our CEO, and Aleš Stárek, our CFO. As always, we have already provided some detailed information in regard to the financial performance in our press release issued earlier today. In case it shouldn't be possible to address all possible questions in today's call, please let us know, and we would be very happy to schedule some additional meetings afterwards in order to answer all your questions. Now I'd like to turn over the call to Robert Machtlinger, our CEO. Thank you.
Michael, thank you very much for the introduction. Dear ladies, dear gentlemen, welcome from my side as well, to today's earnings call of FACC. Well, let me start with a little bit of a market overview, which is certainly significantly important to FACC. If you can go to the highlight card, Michael, please. A little bit of a top level overview on the industry. The global recovery of air traveling continues. We have a few slides later on showing the individual markets. Of course, this is a positive news. I also would like to address a little bit of a feedback from the Paris Air Show that took place in June of this year.
I have to say, I'm visiting right now Paris for more than two decades, and this Paris Air Show was extremely powerful. There was good momentum in the industry, simply driven by the strong recovery of air traveling, but also by the fact that the airlines back to profitability. Record sales in the first four days during Paris, 1,300 new aircraft orders have been confirmed by airlines to the industry. Strong sales into India, starting at the first day, with one Indian carrier buying 500 airplanes from, from Airbus, followed by the second day, with a big order for Airbus and Boeing as well.
Of course, this is driving the order backlog of all of our customers, but mainly Airbus and Boeing, to close to 13,000 airplanes, which is a good indication. However, this will not change the short and mid-term perspective of the industry. As we all know, the industry is ramping up. Those are great sales. Of course, will not further increase the ramp-up curve as we are managing it today, but at least it gives a strong indication that new and fuel-efficient airplanes are requested and needed by the airline industry. Approximately 42,000 new and more efficient airplanes required in the next 20 years. This is a reconfirmation of the industry figures.
What you also see is a significant rate increase across the industry and across all aircraft models. If you might remember, the rate ramp-ups have been quite positive on the short and mid-sized airplanes, mainly the A320 and the 737 MAX, as well as the A220 and the Embraer E2 jets. This market started earlier in the recovery. The wide-body airplanes until a few months ago, was quite stable, but at lower rates. We have a good indication that also the wide-body market will start to redevelop with promising ramp-up figures on most platforms as well.
With all the good news, we also are currently managing a very complex environment, mainly supply chains across the world. It's not one element that the industry is chasing. It's various elements, they are changing from time to time. There is an industry consensus that this constraints will not go away within the next couple of months, so we are rather planning before a full stabilization of the global supply chains not happening within the next two to three years. We all are very focused, we are well-aligned, and we are managing the daily issues.
All in above, and this is probably a very long-term action, the entire industry, starting from airlines, through OEMs and the supply chain, is very focused on sustainability in aerospace, namely, CO2 neutral flying. You all know the target by 2050, this target shall be achieved. Overall, very positive takeaway from Paris, with big moments in front of us, but also the one or the other challenge we have to master jointly. Looking into the next page, on the global traveling development. Here the good thing is the markets, the regional markets by itself, have all been recovered to pre-COVID-19 levels.
Worldwide, the regional markets are already above the 2019 figures, and this is the one bar chart at the lower left of this of this slide. 108% is the worldwide regional market traveling, so 8% higher than before COVID-19. The international market is still below 2019. We are in May, the number was 89%. Also here, some markets like North America, like the Middle East, like Africa, have been fully recovered. Here, international traveling, intercontinental traveling is at the level or slightly above 2019.
There is a couple of markets like Europe, Asia, predominantly China, that is still lagging a little bit behind the pre-COVID-19 figures, but also ramping up and closing the gap. Expectation is that within the next 12 months, all markets will be fully recovered under today's environment and under today's circumstances. This is, I think, positive news going into the right directions. What it's, what is also, I think, pretty known already, airplanes are booked quite well. Load factors on the airplanes are significantly high, higher than before 2019, and the ticket pricing is not low at the time being.
People are willing to pay for air traveling in regional markets, but also internationally, which is certainly helping airlines being profitable and investing money into new fleets. What does it mean to the industry by itself? If we just compare the first half year of 2022 with the first half year of 2023, on the left side of the slide, deliveries went up by around about 14%. This is true for both Airbus as well as Boeing. There is another 71 airplanes delivered in the first six months, representing a 14% growth rate between the two, the two periods. Also, the net order intake is quite promising, which is shown on the right side of the slide.
Both Airbus and Boeing are, are selling airplanes more than in the years before. We have compared the year 2021, 2022, and the first half year of 2023, and we see, basically in the first six months of the year, nearly as many airplanes have been sold to the market compared to the full year of 2022. Again, this is a good long-term perspective. However, the short-term rate ramp-ups will not be impacted by those sales because some of the airplane models, especially the single-aisle airplanes, are pretty much sold out for the next couple of years. Next page shows again the order backlog of the industry.
Also here, order backlog increased by 8.6% overall in the industry. This is again a good indication. Airbus is a little bit leading, having a little bit more orders received than Boeing. Again, mainly driven by the significant orders Indian Airlines placed at Airbus, first of all, but also in the second phase with Airbus and Boeing. Overall, good market development, very stable, and giving us good visibility on how to plan the next years to come. Also not new, 80% of the demand is single-aisle airplanes, and the rest is wide-bodies and super large airplanes.
Well, in saying that, I would like to touch base on the key topics of FACC. We are benefiting from this positive market development. Since the market continues to recover, aircraft production rates are increasing. This is positive for FACC because programs we have engineered and we have produced before COVID-19 are further ramping up in demand, which of course is providing volume effect to FACC. Just taking the various orders, Airbus, Boeing, but also Embraer, and our other customers have received, this was resulting in a EUR 400 million firm order backlog increase also for FACC. Looking into the first half year, 31.3% of growth in output compared to the same period of 2022.
Group sales went up to EUR 354.7 million. Again, Aleš will talk about it, the growth came from every single division, so all segments of FACC are growing. EBIT doubled to EUR 14.9 million. Again, Aleš will talk a little bit more in details on the EBIT development, where it came from, and what we have to consider. Workforce, as we all talk about ramp ups in the industry, there is two things that keeping us busy. The one is supply chain, materials, on-time deliveries, and quality. The second portion, of course, is ramping up workforces, qualify them and make them ready to produce parts. Also here, we are quite successful.
We are following our demand, and within the first six months of the year, we have further ramped up our workforce by around about 200 people, following 400 people we have added in the year full of 2022. We are investing further into growth, and here we have released a EUR 20 million investment plan for the expansion of our Plant 6, which is our Croatian low-cost facility. As you all know, we have started operations last year with this brand new facility. The output, the quality, and the commercial filters are extremely pleasing for us, so we decided to triple the size of the company.
This is right now ongoing, of course, a major contributor to the future EBIT development of the company, especially Interiors. Next page, please. A little bit on the market. Positive development of all aircraft models. We talked about it already. Not only single-aisle airplanes are right now ramping up, also wide-body airplanes are ramping up, and I will have the slides for you later on. The ramp up is across all existing products in FACC. This, of course, is good because we are utilizing our facilities better compared to the last three years. We also see an increased demand in medium and long-haul airplanes.
Urban Air Mobility, one thing that was very transparent during Paris Air Show. This Urban Air Mobility business right now takes momentum. This was also very, very transparent during Paris, with all major OEMs working on Urban Air Mobility being a part of Paris Air Show. Also here, I need to name one new customer of FACC, who is Archer. We talked about Archer in the last calls. Archer, we think, is doing an excellent job. Just looking into the last couple of weeks, Archer received not only orders from United Airlines, with a target to start a revenue service in the first quarter of 2025.
Archer also received a military contract from the US Air Force, accounting for $140 million. Just last week, I think, Archer joined forces with Boeing, with another equity increase of around about $250 million. We as FACC are very happy to cooperate with Archer. We're doing the full fuselage, we're doing the wing structure for Archer, and we will do the Interiors. On the right side, you see a picture of the airplane as it will look like. Actually, the Urban Air Mobility segment and the contracts, besides Archer, we have, as you know, a few other contracts, are taking momentum.
If certification is progressing as our customers are working on, I think we have quite well-driven business on board for the second half of the decade. Next page. A little bit of input on Plant 6, our Croatian facility. As said before, we are investing further. We're tripling the size of the company. We are inloading work that is currently done by suppliers. We are also offloading product from FACC's Austrian facilities into that facility. We do this as we speak, and we will do more offloads and inloads once the extension of the facility is finished in June of 2024.
Basically, what we're also doing there is, we are adding some office spaces, and we also start to hire IT specialists, engineering, and purchasing management, because we have good access to excellent people in Croatia as well, helping us to build up our global footprint, helping us to reduce cost, and of course, helping us to have access to highly educated and motivated people. Also here we are on track, and this facility will do something great for FACC going forward. Next page, please. Well, I talked about sustainability in aerospace, and everyone is fully committed and knows the urgency. This starts with airlines, continues with all of our OEMs, and certainly Tier 1, as we are.
Lightweight solutions will be one key element of achieving goals. This is just a little bit of a summary what we are currently doing. We are collaborating with all of our major customers in specific development programs that are well lined up. What we are targeting jointly with our customers, having new technologies in terms of materials, processes, but also products that will allow CO2 neutral flying. We are currently investing in eight strategic research segments, which starts from material to process, digitalization, optimization, and various other things. We have 60 technology projects in these eight segments we are currently following up. Our target is to be ready for a full implementation of all those technologies by 2027. Why 2027?
We think by 2027, 2028, the next generation airplanes will be launched. We need to provide those technologies and readiness of those technologies by that date. At the time being, we are, we are greatly aligned with our customers, and we are following our roadmap. This was also recognized by the Austrian Institute for Management and Economic Research. FACC was named at the first half year, the most innovative company in the aviation industry, which is certainly a result of our innovation roadmap. Well, in saying that, I would like to hand over to Aleš, giving a little bit more insight on our financial figures. Aleš, please.
Thank you, Robert, good morning to everybody on the call from my side as well. Let's jump right into, into the numbers on, on the next page, Michael. Here, traditionally, you see on the left-hand side, the sales development, and on the right-hand side, the profitability and EBIT development. As Robert already mentioned, EUR 350 million in sales. Sales growing, the trajectory, when we look at it on, on, on the quarterly basis, this is looking upwards. Almost EUR 200 million turnover in Q2. Q1, traditionally, a little bit softer, weaker, weaker quarter after a very strong Q4 as, as, as, as it is every year. We are on a growing path in, in terms of revenues.
What we can see now, finally, we are in the position to translate the revenue growth also in the profitability growth. As we have been already indicating on, on, on the last probably two or three calls, the discussions with our customers on finding a way of transferring the increased prices on the material side, on the labor side, finding an agreement with customers on how to go forward on the sales price on the side. These negotiations have been finalized in Q2, as I say, as indicated. We see basically FACC turning profitable, very strong profitability in Q2.
Not all of this profit is attributable to Q2, part of this is also catching up from prior periods of. I'm, and I'm sure that you already have that question in your mind. It's approximately EUR 4 million-5 million of EBIT that we are showing in Q2 that is not attributable to Q2. When we look at that, and then, then we look, and we would pull the line there, so we see basically a nice upwards moving trend. The growth of the top line on the sales side is nicely translating in the growth in profitability as well.
When we go to the next page, a little bit more details on, on, on the top line per division. The picture here is, let's say, projecting and developing as, as is already indicated a couple of times in our calls. Aerostructures, the strongly growing division with 25% CAGR, followed by Interiors, that, as, as you remember, have not suffered so much in terms of top line during the COVID time. Engine Nacelle, basically, a little bit flatter, that the least growing division so far, with still 12% CAGR, when we look at it from a 2021 point of view.
All divisions growing, and also on the EBIT side, the growth is translated in all divisions into profitability. On the next slide, Free Cash Flow. A pretty much similar picture in compared to last year. The the the cash flow, the negative cash flow, negative Free Cash Flow that we see in both half years, driven mainly by Working Capital. This year, the picture is a little bit different, though, to last year. Last year, the negative cash flow has been driven mainly by, by inventories.
This year, the negative cash flow is driven mainly by receivables, and that's related, if you remember, when we discussed the year 2021, then we mentioned some customer payments, transfer payments that were due actually in Q1. This year, they were paid already in Q4 last year. Due to these customer payment shifts, the cash flow is negative in the first half of the year. Most of negative cash flow, as I said, is coming from Q1. That is not to say that inventory is in perfect shape. It's not. You will, you will, you will hear it probably from others as well. The ramp up of the business is still a topic in the industry.
It's still causing inefficiencies on inventories. We were able to kind of stop the bleeding on the inventory side. We are, we are kind of coming to the point where I would say, we are reaching the pinnacle of inventory inefficiency, working capital inefficiency. You see it also on the next slide, we will see it in, in, in, when we look at the working capital development in the timeline as well. Before we go there, however, a quick, a quick note on in, in, investments. You see still, first half of the year, a little bit low on investments in the same way as it was last year. If it's EUR 4 million or EUR 3.1 million, pretty much doesn't matter.
It's the investment activity is pretty much on the same level as last year. Looking at investments and working capital in more details on the next slide. We see investments, as I say, same development as last year. However, we will see increased investment activity in the second half of the year, which is basically due to the expansion of the Croatian plant. Out of the EUR +20 million that we are expecting or budgeting for that plant increase, probably half will be spent in the next half of the year. Approximately EUR 10 million will flow out from Croatian expansion this year.
The rest, for the rest, the investment will be probably on the same level as it was in, in, in, in, in last year. No special items here. On here, on the right-hand side, Net Working Capital, as I already said, the increase is coming in the first quarter of the year, now basically flattening out. I would expect that, in terms of, cash flow development, we will continue on, on, on that, on that level also for the remainder of, of, of the year. Which basically bring us, to, Net Debt and leverage.
Net debt, after the increase in the net debt in Q1, now we could reverse the trend, came down to EUR 225 million in net debt, and I would expect that for the next... Let's say, Q3 will probably be a weaker quarter, as it always is. Maybe a slight increase in net debt in Q3, but Q4, again, is a strong quarter. Overall, I would expect a flat development in the net debt going forward for the next two quarters. In terms of leverage, all in check, 4.43, below the 4.5 threshold. We came close to the threshold in Q2, that was expected.
We knew that this is going to be the case. Nevertheless, we managed to basically satisfy the covenant, the leverage covenant from the bank funding. No issues here, and also going forward for the next half of the year, we do not expect any, any, any issues on that front. I would hand over back to Robert and for the outlook.
Thanks, Aleš, for the for the guidance. Let's go into the market outlook very quickly. I think, if you look into the airplane developments, this is just a summary of pretty much public domain, and I think you have all insight to it. But just looking into main platforms of FACC, the A320 family, which you know and we know, is the most dominant airplane platform in FACC. Round about 40% of our revenue comes from the A320. Here we see an increase in demand and build rates from today's rates to the end of 2026 by another 35%. It's a continuous step-to-step ramp-up we are working on.
I have to say, on all programs, we are on time and on quality, so we are not those guys causing our customers pain in that respect. A350, and this is very positive, and also the 787. Aleš talked about Aerostructures and Engine Nacelle was the most impacted divisions in FACC during COVID-19. Why? Because, in Engine Nacelle and Aerostructures, we have quite a big amount of wide-body programs, namely A350, 787. Rates have been stable in the last two years, but low. Right now, we see a continuous ramp up on those platforms as well. The A350, from today's rate, will increase by another 60% in the next four years to come. This is on and above the ramp ups we are managing on the A320 family.
Also the 787, as we know, there have been some issues in terms of deliveries, of the airplane. Also, this the airplane has a great place in the market. It's a well-performing airplane, and rates will significantly increase in the next four years as well. The Airbus A220, where we got some significant programs in 2021, namely the rudder and the elevator, the body fairing as well, is ramping up as we speak. A 50% increase between today's rate in Q4 2024, so within the next 14 months. And the rate will double from today's rate to Q4 2026.
Also here, we are on the right platform, with good organic growth potential in the years to come. Business jets are high demand, are reconfirmed over the last periods. We have 70% of FACC sales comes from business jet applications. And currently in the mid-size business jet segment, which is the Challenger 350, which is the Praetor 500, 600. FACC, in terms of cabin supply, is the market leader with a 57% market share in this market, and we are working on it to further extend it. Start of a serial production on the C919 is ongoing as we speak as well. The first two airplanes are handed over to Chinese Airlines, their revenue service.
The airplanes are doing quite okay, so no surprises. Also here, we are right now ramping up our production volume, which is around about $1 million PS7, by Comac 919 airplane. Next page, please. Our main key priorities for 2023, we're expecting a sales growth of 12%-16%. Why is the spread that wide? Well, the there is still some volatility in the market, so we still see the one or the other adjustment, not only in one directions.
On some platforms, we see higher rates, on some platforms, we see a little bit of a slower rate, but overall, year-on-year, we see a double-digit growth in terms of output. Gradual increase of earnings power is stated by Aleš. Negotiations are completed, new programs are stabilizing. The new workforce starts the momentum. We see a gradual increase in earnings as well. Inventory management and cash flow is key to the management. Also here, Aleš has a task force working on it. Supply chains still are critical. We need to protect us and our customers by a little bit of extra inventory we are holding for the time being.
Also here, with our procurement and program management departments, we are on site of critical suppliers, and we see a step-to-step improvement also here. Another point is workforce expansion to secure growth beyond 2023. All following our plans, we are able to attract people. Just alone last year, 1,800 job interviews, and we can select those people we need. FACC is a great employer. Which is also on our rudder screen is, of course, strengthen FACC's market position. We want to win new business in our core business, which is the civil aviation industry. Here I can say, we see a very strong RFQ and dynamics in the market.
This is also driven by the one or the other geopolitical discussion between East and West. There is customers on both sides who are setting up alternative supply chains, and we are a part of those RFQ processes on both sides of the world. The opportunity for FACC is there, and we are definitely going for getting more market share on current airplanes in order to grow FACC beyond the normal natural growth rates. In saying that, I would like to thank you for listening, and we are ready to answer all of your questions. Thank you.
Thank you very much for the presentation. We will now move on to the Q&A session. For a dynamic conversation, we kindly ask you to ask your questions in person via audio line. To do so, click on the Raise Your Hand button. If you're dialed in by phone, please use the key combination star nine, followed by star six. If you do not have the opportunity to speak freely, you can also place your questions in our chat box. I already received the first hands. With this, I hand over to Miguel Lago. Please go ahead. You can unmute yourself now.
Yes. Thanks, and good morning, everybody. A couple of questions from my side. First would be on the EUR 400 million orders you received in context of the Paris Air Show. Can you put this maybe into perspective with your with your order backlog, let's say, before the Air Show, and how is it now as of June 30?
Miguel, yes, I can do that. The EUR 400 million basically is just taking the orders, this 1,300 orders. The good thing is FACC has the one or the other piece on every airplane that was sold. If you take our contracts, if you take the order, the firm orders received, and we just do the mathematics, every single program with every single-aisle airplane, then there is a firm order backlog increase of EUR 400 million research. Again, I think majority of the firm order backlog come from the A320 sales, A320 family sales, including A321s, of course, going into India. 500 airplanes ordered by IndiGo, adjust with Airbus.
There is another big order that was received from Airbus and Boeing from another Indian carrier. I cannot go into every single piece, but most of the $400 million, I would say $250 million, is order backlog increase on the single-aisle platforms. We just take the order backlog before Paris with an order backlog of around about $5.4 billion, in this right now is $5.8 billion. This is good, this is nice, because we know we are working on the right platforms. Overall, this is also no secret, most of the single-aisle airplane platforms are sold out for the next four to five years.
These sales are, are definitely extending, the long-term perspective of, of, of, those airplanes, giving us good visibility on the demand. Short term, no trumps in further rate increases.
Okay, quick, quick follow-up, on this one. This 4.5 or 4.8, is it over, over lifetime, platform lifetimes, or is it?
No.
over the next three, five years?
No. If we talk about firm order backlog, we have a contractual backlog. Let's put it that way. If we say, we have a contract on an airplane, and the airplane market is just a proper number, 2,000 airplanes. We could calculate the contract value with the 2,000 market demand for the airplane. Well, which is nice, but has, if there is no customer behind, it has no, no real value. The firm order backlog is for FACC, if we have a contract and if an airline or airlines order the airplane. If we take the, if we take, for example, the A320 family, we know that 5,000, 6,000 airplanes are on firm order backlog by various airlines.
If you take all of our contracts, multiply it with the firm order backlog, where a customer, an airline customer, has committed to buy the airplane, this is driving the firm order backlog. In terms of the A320, the firm order backlog right now, is going forward by around about seven to eight years.
All right. Got it. Thanks. You mentioned, I guess, a one-off effect in EBIT. It was hard to understand at this point. Can you maybe repeat this?
Yeah. Basically, what we are showing is a EUR 14.9 million EBIT in Q2, out of that, approximately EUR 4 million- EUR 5 million is attributed to prior periods.
Prior periods. Okay. Can you elaborate a little bit on this?
What, what means prior periods? Aleš discussed on certain cost increases we've seen from the market in terms of material, labor, energy costs. There was discussions with the market, with our customers on how to pass on some of those inflation-related increases. This was a fair and a good discussion. We settled in the second quarter, but the settlement was also,-
Okay
... considering some deliveries we had in the first quarter of 2023 as well.
Okay. Understood. On your guidance, you, you narrowed now down the, the guidance, but the sales development implies a slowdown of, of sales development in the following quarters. Can you maybe elaborate a little bit on this? Also, EBIT, EBIT wise, what, what this would would imply for H2.
Well, on the, on the top line, I, I can answer. I think, we know that the industry adjusted some of the, of the ramp-up curves, for various reasons. Basically, what we see is, FACC is very much in break with the customer demands. There is some inventory build up here and there, and, and our ramp-up curve is a little bit slower than what we see. Overall, there is a ramp-up also in revenue, but a little bit slower, because our OEMs need to level load supply and demand and harmonize, I think, their working capital as well. This good growth, step-to-step growth, also in the next months to come, this will continue.
In terms of EBIT development, very strong Q2 because of a couple of one-offs. There was also a couple of development costs we have invoiced to our customers. Still, the environment is not easy. Just said before, material, and it's not one element, it's various, it's keeping us busy, not only us, the entire industry. We see a positive development in EBIT as well, but the EBIT development in the second half of the year is a little bit lower, and we need to consider that Q3, July and August, is weak month in terms of delivery because of company shutdowns with our customers as well.
Okay. Got it. Thanks. That's it from my side.
Thank you, Miguel.
Thank you very much for your questions. With this, I hand over to Sebastian Martin. Please go ahead. You can unmute yourself now. Mr. Martin, unfortunately, we cannot hear you right now. Might be an option to check your microphone you've chosen. In the meantime, you are checking your microphone, I will head over to Ian Douglas-Pennant, Panmure. Please go ahead.
Hopefully, this works.
Yes, we can hear you very well.
Yeah, it's Ian UBS. Thanks for taking my question. Sorry. Does the Airbus has shifted away from or stopped talking about the rate 65 guidance that they were giving on the A320 before? Does this impact your guidance or expectations for this year or for next? Secondly, in terms of the production rates that you gave on the outlook slide, on, sorry, slide 19, the numbers seem to be, you know, the increase in build rates seem to be consistent with what the OEMs are saying, but the timelines are not. What should we read into that, if anything?
Ian, thank you for the questions. On the first question on the guidance of the 65, this is not impacting our guidance for this year. What Airbus and all, all of our other customers are telling us is pretty much part of our of our reviews. Basically, what's out there on the market as of today, as we speak, is pretty much part of our guidance. No negative, no positive effect from what we heard is the last statement from all of our customers.
On the overall rate guidance, I think also here, our customers are pretty much telling us in the industry what they are expecting in terms of again, the most sold airplane today is which 20 family. The rate will continue to ramp up to a rate of 75% and not higher. I think there was times in the past when there was a rate of even %75% under discussion. We think, and this is what we took away from Paris as well, the rate maximum rate will be %75. We think the demand, and this is not only for the A320 family, this is also true for the MAX, 737 and for some other platforms. The market is there.
Well, I think at the time being, the drum beat of the rates is pretty much controlled by the weakest chain in the supply chain. We know that a big portion of suppliers are delivering to the end customers' demand, some of them are not, and they are drum beating the rate. We are expecting in FACC, at least it's 24, maybe 36 months, over demand, compared to supply opportunity or, or, supply capability. This is why we see the ramp up as we've put it into our, into our charts.
Very clear. Thank you very much.
You're welcome, Ian.
Thank you very much for your questions. With this, I hand over to Miro Zuzak. Please go ahead. Mr. Zuzak, you can unmute yourself now.
Okay. Can you hear me?
Yes, we can hear you very well.
Okay. Good morning. Congratulations. I have a couple of follow-up questions regarding this one-off payment. What I understood so far is that you have, like, EUR 4 million-EUR 5 million attributable to prior periods which were invoiced, and you say this was compensation for Q1 and Q2. Is it fair to assume that your run rate is roughly half, like the quarterly run rate of additional EBIT going forward is roughly half of this EUR 4 million-EUR 5 million per quarter because you were able to increase prices? Is this how we should read that? That's the first one. I take them one by one, if that's...
Yeah, if you take it question by question, I, I think that, that would, that would not be, that would not be fair. As, as, as Robert already mentioned before, it's not only a question of the, of the prices, it's also a question of the volumes. What, what we basically expect is, and, and especially the, the, the July and August are very, very low months. Basically, the prices are helping us, right, but the volumes is hurting. We expect a, a kind of very weak Q3, and then again, a strong, a strong Q4. That's why we're basically saying that in the second half of the year, the EBIT will not be as strong as it was in, in, in the first half of the year.
This is basically what we are saying.
Okay. The second question is like, the invoicing of the R&D cost, which you said was also kind of one-off. Can you please explain, firstly, why is this one-off? Because I think R&D is typically also invoiced by your, your customers or paid or at least supported by your customer. For which period was it, and where was it booked, in which, in which segment? What was the number roughly? Was it also around two-... ... EUR 4 million-EUR 5 million? Was it EUR 10 million? Was it, can you clear, please, some, some light on this?
Mm-hmm. No, I think, R&D cost, well, there is a few, a few, a few different agreements that could be, that could be taken. One could be that we're investing and we are amortizing over time and over shipsets we are delivering. Another one is milestone payments. I think in the first, in the second quarter of this year, we have concluded a couple of development milestones with the one or the other customers. Here we are not pre-financing any program we are developing, but based on certain milestones, we get certain payments paid.
The volume that has been invoiced was in the area of EUR ±1.5 million. This was not a huge amount, but of course, was a contributor to the EBIT as well. Well, once going forward, there is a further NSE developments because we are currently developing product for customers, and at the time being, we are more focused on, let's say, on earlier payments of development costs versus amortizing over many years.
Okay, in which segments have, like, the two one-off payments been booked, like the EUR 4 million-EUR 5 million we talked about before, and the EUR 1.5 million of development milestones?
This is, this is, this is more contributing to the Engine Nacelle business.
Both? Both, the EUR 4 million-EUR 5 million and the EUR 1.5 million?
No, no, the EUR 4 million-EUR 5 million, let's say price compensation, is across all segments, because there was price increases and inflation cost across the across the business. The EUR 4 million-EUR 5 million is across all of them, spread out. The one-offs in terms of NSE, the EUR 1.5 million, is more contributing to the Engine Nacelle business.
Okay, thank you. Another one, the financial result was EUR -4.2 million in the second quarter. It's, let's say, worse than the EUR 1.8 million one year ago. Is this due to the rising interest rates? Is this like a new flight level that we can expect going forward, like the EUR -4 million per quarter, or how should we think about this financial result?
Yeah, it's, it's exactly that. Yeah. Basically, not all of the funding that we have is, is, is fixed. A smaller portion is fixed, a bigger portion of the funding is floating. As you see, in the course of last year, the Euribor has increased, by, yeah, by, by a certain margin. The increase is, it's not an increase of the, of, of, of the margin that we are paying on the funding, it's an increase of Euribor that is basically the one translated into, into the financial result. Going forward, and that's probably a more philosophical discussion, what is going to Euribor gonna do.
I would expect that in the course of next year, maybe Q1, Q2, we'll, we'll, we'll see the highest levels. From there, probably the easing will start. At the same time, we are expecting to start to deleverage FACC from, let's say, second half of the year next year. With the deleveraging, the margins on the funding will go down as well. Yes, for the next couple of quarters, maybe three quarters, plus minus, I would expect the interest rate expenses to be on the level of Q2, and from there on, I would expect them to slowly basically ease and, and, and go down again.
Hmm. Okay, thank you. Maybe a last question from my side, regarding salaries and wage increases. In, in some, you know, German companies, we can hear, a lot about like the timing was now, beginning of July, but they had to face... basically, to pay, quite a, a large increase in, in, in salaries. Was there such an effect also with you and, and in, in Austria, or, or, or was the timing a bit different, you know, of the, of the wage increase? Was it already earlier at the beginning of the year?
No, we are, we are negotiating, our, not we as a single company, it's our collective, agreements, we are, we are signed up to, and negotiations normally take place, between the month of March and April. There was a settlement, in April, on the, on the payment increases for 2023, and we started to pay, the, to the new contract, in, starting with, May of this year. It's basically always, always in May of the year, where we have to adjust.
Okay. Thank you.
You're welcome.
Thank you very much for your questions. With this, I hand over to Christian Ulbs. Please go ahead.
Yeah. Yes, hello, good morning.
Good morning.
I have a question, I have a question concerning deleveraging second half of next year. Of course, that makes sense, and as you always stated. How about growth? Should this deleveraging come from only normalizing Net Working Capital, or what can we expect there? This is the first question.
Yeah, I think it's both. On the one hand side, it's the improvement of the balance sheet, for sure, and an improvement of the working capital, as I say, for the next two quarters or three quarters at least, as we expect, the ramp up will still impact the industry. I do not expect a major improvement in working capital. That will probably kick in in the course of next year. The second level on the leverage is, for sure, EBITDA. With the expansion of the business, with the expansion of the EBIT, the EBITDA will also increase, and that will contribute to the deleveraging of the company.
Short term, it is more driven by the EBIT expansion. Medium term, let's say, starting sometime next year, it will be driven by both working capital and EBIT expansion.
In addition to that, do you have some kind of a normalized Net Working Capital to sales ratio in mind? What you'd like to achieve or can achieve in the current structure?
We are, we are looking at it. We are looking at it more from a day sales and, and, and inventory days, because on the, on the payables, we are not really optimizing that. This is, this is pretty much driven by the special discounts that we are kind of having with our German, Austrian, and Swiss suppliers. We are not really, really optimizing. On the Days Sales Outstanding, I think we are in the area of 90 days or a little bit higher than that. I would not expect major improvements on here.
, we are in the area between 110 inventory days and 120, fluctuating month by month. Then definitely, where we want to go, we want to go below 100, and then the ultimate target, but that's really medium term, would be around 90 days.
Okay. Thank you. Another question is, if I got it right, you talked about growing further in Interiors. Of course, you are investing in Croatia and the new plant. Are you also in talks with possible M&A activities in, in that area? Can we expect something there, maybe in the longer term?
I can answer that one. We are constantly looking into opportunities, and I think there is, as mentioned before, a dynamic in the industry right now, by changing supply chains because of the geopolitical discussions that are ongoing, both sides of the world, I have to say. We also see that some very large corporations are releasing a scope of works which is not considered a key business for them in the long run. We're looking into those opportunities, but nothing is completed at the time being. We are watching it. We are trying to align well with our strategy in terms of our, our core business, which is Aerostructures, interiors, and Engine Nacelle .
Well, we are looking into the market, and if something fits and makes sense for it, which is also from a global production and networking standpoint, opportunities will be taken once they are here and reasonable for us.
Of course. Maybe a last one on that. I think you have a 5% target margin on interior. When do you expect to achieve that in the current structure?
Mm-hmm.
Yeah. Basically, the Croatia facility is actually the biggest driver on the margin expansion, as I already explained a couple of times. Now we are starting the expansion of the facility. That will take for the next 12 months. Basically, the ramp-up of the transfer of business into the newly expanded facility will take another 12 months. Probably the target, the target EBIT is, is, is a matter of the next 24 months.
Okay. Thank you very much. All the best.
Thank you. You're welcome. Thank you.
Thank you very much, Mr. Ulbs, for your questions. Due to the limits of time, we therefore come to an end of today's earnings call. A big thank you also to the gentlemen for your presentation and the time you took to answer the questions. Should your question haven't been answered or further questions arise at a later time, please feel free to contact Mr. Steirer . With this, I wish you all a lovely week. Goodbye.
Thank you.
Thank you very much.
The recording has stopped.