Good morning, ladies and gentlemen, and a warm welcome to today's earnings call of FACC AG following the publication of the half-year financial figures of 2025. I'm delighted to welcome CEO Robert Machtlinger, CFO Florian Heindl, as well as Michael Steirer from Investor Relations, who will start the presentation shortly. After the presentation, we will move on to a Q&A session in which you all will be allowed to place your question directly to the management. We are looking forward to the numbers, and having said this, Mr. Steirer, the stage is yours.
Thanks a lot, Ingmar, for the introduction. Good morning, everyone, and thank you for joining us today. Again, a warm welcome from FACC to our earnings call for the first half, fiscal year 2025, as well. My name is Michael Steirer, and as already mentioned, I am joined today by Robert Machtlinger, our CEO, and Florian Heindl, our CFO. As usual, detailed financial information has been made available in our press release, which was published earlier today already. As always, should we be unable to address all possible questions during today's call, we would be glad to arrange follow-up one-on-one discussions in order to clarify everything necessary. In this case, please feel free to contact us in our investor relations department. With that, I would like to hand over to our CEO, Robert Machtlinger. Thank you.
Thank you, Michael, for the introduction. Good morning, everyone. From wherever you are dialing in, it's a pleasure to have you here again today for the FACC First Half- Year 2025 Update and Earnings Call. Before we end into the details, a few remarks on the overall global situation. I think we had the pleasure to meet with some of you during the FACC Capital Markets Day earlier in the year, where we already have provided some insight on the market's development. Nevertheless, I think it's worthwhile to talk a little bit about the global situation, where we as a company, but the entire aerospace industry is progressing in a quite fast, challenging, but also complex environment. I think especially in the first half year, there was some concern in regards to global trade and tariffs.
I think it's not disabling, also good news for the aerospace industry, that the European Union and the United States of America governments have reached a principal agreement that aerospace products will not be handicapped by tariffs. This is good news because since 1979, as we all know, the strongly connected global aerospace world is free from tariffs. This is certainly good news. Further details to be seen from the final papers, but I think this is giving us some planning security. Nevertheless, even if this was a situation that was causing some investigation, as you all know, FACC is quite widely spread globally with operational setups, of course, in Europe with Austria and Croatia. Over the last couple of years, we are actively working out of the United States, in Wichita, as well as Canada, and we have a strong global presence in the Asian markets as well.
Overall, the business is developing good, even in this complex environment. Our customers are heading in the right direction, so are we. Nevertheless, I think it's also important to state here that the stability of the one or the other supply chain is not at the pre-2020 level yet. This is well known to all of us in the industry that certain products, namely engines, are a bottleneck for the time being. Also, we have seen even the order book is strong as forecasted, and we informed you and we guided you that we have seen certain harmonization effects from our customers. There are performing supply chains and there are lagging supply chains. Most all of our customers have harmonized the demand signal.
We as FACC have been always on time on quality, so we have seen certain adjustments, especially in the month of March and April, by moving demand to the right. We have been flexible. We can deal with those kinds of subjects. However, once moving demand on short notice, this has an impact, and of course, Florian will elaborate a little bit more on what this impact was. Next page, please. Overall, and even in this quite challenging environment, FACC was again benefiting from a resilient aerospace industry. As I said before, even in this challenging environment, aerospace has grown, so have we grown. The growth rate in the first half of the year was a 10.6% revenue increase, driving our revenues to EUR 484.7 million in the first half of the year.
Florian will guide you through the details, but I want to mention here that in the first half year, we have moved out around about EUR 35 million of revenues because of our order signal harmonization, which was causing us to keep around about 150 people in the company not utilizing well. This was an ongoing thing for four months, impacting our profitability of around about EUR 2.5 million, besides a couple of other effects. In this environment, the EBIT developed as expected, and with the Paris Air Show orders coming into the market and a couple of program extensions we have lined up and signed with our customers, the order book of FACC, first time in the history, went to slightly above EUR 6 billion, which of course is a positive signal.
Based on the orders and the stabilization of the industry, and this is certainly since May ongoing, no delay since May reported to us, and this is good. I think we can precise our guidance a little bit more at the end of the presentation, but already at this time, I can say we can confirm our guidance given earlier in the year. Next page, please. Quick spotlight on the markets. The market is doing well. 2.5 billion passengers in the first half of the year, pretty much underpinning the forecast of ICAO that in the year 2025, first time in history, more than 5 billion passengers will use an airplane. 84% seat utilization globally on the global feed. This is the highest value in the industry ever.
We have seen an 18% increase on commercial aircraft delivery from Airbus and Boeing, mainly driven by the return of Boeing to the market. This is also good for FACC because, you know, we have a strong player on the 787. The firm order backlog on firmly ordered aircraft further increased after Paris to 17,539 airplanes. Next page, please. In terms of deliveries from our two main customers, Airbus and Boeing, 18% increase. Looking into Airbus, pretty flat, even a little bit lower than last year from 323, 2024 to 306. I think it's fair to say that Airbus produced more airplanes. They're currently having around about 60 airplanes finished and produced, just waiting for engines. Once engines are coming, the airplane can be finished, finally inspected, and handed over to customer.
I think a good indication was from Guillaume Faury , the Airbus CEO, that he sticks to his guidance for 2025, which of course is also important for FACC. Strong signal from Boeing with a significant ramp-up during the first half of 2025, which is a little bit of a continuation of the last quarter of 2024. Boeing is making ground again and is closing the gap to Airbus, which is of course good for the industry, but also good for FACC. The 17,539 aircraft order backlog, very unchanged. 50% of the orders are going into the Airbus camp. Also good for FACC because, as you know, Airbus is our strongest customer. 37% Boeing, 9% Comac, who is picking up over time, and 4% is the rest of the market. Next page, please. In terms of order intake, it's very hard to beat the 2023 record year of 3,400 airplanes.
However, comparing the full year of 2024 with 1,439 new orders booked into the system for the first half year of 2025, actually, 81% of the last year's booking already has been achieved in the first six months of the year. You are watching the industry, and even in July and August, further orders already have been booked by the industry. Also noticeably is that there is a stronger demand, besides the anyhow strong single-aisle market like the A320 and the 737 MAX, visible on the wide-body airplanes, namely the A350 and the 787 airplane. Also here, it's noticeable that on both platforms, FACC is holding a noticeable volume per airplane. On the A350, it's more than EUR 2 million per airplane we are delivering to Airbus.
On the 787, it's a little bit less, but also here, 242 aircraft sold to the market, which is refilling the order backlog to the levels we already enjoyed before that. It seems to be that the year 2025 will be a good year in terms of order intake. Nevertheless, the focus of the industry currently is focused on the delivery of the demand. Next page, please. A few highlights on FACC, and we talked about it in press releases. Very positive that the EUR 10.8 million of the frozen funds finally have been transferred to the accounts of FACC. This is a long process, was a long process, especially connected to the complex legal environment in Austria. Nevertheless, EUR 10.8 million booked as a financial position. It's not EBIT because it was never written off. A tick in the box and a long thing we can call history right now.
Next page, please. During Paris, we had quite good success. Noticeably is that we have extended our 25-year relationship with Rolls-Royce by another contract extension until 2032. This is around about EUR 350 million contract extension, which is securing our position on the engine nacelle portfolio we're having. As you know, engine nacelle is a very healthy, well-performing portfolio for FACC. We also have further engaged with our Indian partners, namely with Tata, where we have a 15-year partnership ongoing. Already, we have entered a new supply chain contract where Tata is producing, besides engine parts, also aerostructures components with an offload value at the time being of around about EUR 100 million. The tendency is even growing. We have set up a second supply chain in India with Kineco, also in regards to the production and offloading from Austria to India on aerostructures products.
Also here, this is a very strategic move of FACC into a very fast growing and interesting market in India. Next page, please. Just for your information, I think it's important for you to know, Andreas Ockel , our CEO, has left the company with TRUMPF . The Supervisory Board, in alignment with the Management Board, has decided not to backfill the position. The Management Board is right now three members, with Mr. Xu as the CSO, Florian as the CFO, and myself as the CEO. We reshuffled some responsibilities in terms of functionality. Overall, I'm focusing on the sales, on the business development, marketing, the research and engineering and technology, but also I take on board, as I headed before, the operational and quality responsibility. Florian is taking over the human resources, besides his previous assignments, but also sustainability. Mr.
Xu will heavily engage with his experience, besides his previous assignments in procurement and logistics. We are following a strategy of widening our procurement strategy, being more global in various markets, not only Asia, but also other best-cost countries. We are focusing on profitability. We are focusing on cash flow, on dividend policy, but also our strong focus is on growing the company sustainably and to prepare the company to be in the top 50 ranking in the aerospace world by 2030. We are well aligned, I think, more lean, and we are going forward in this setup, and I think it's a smart move to do this. Next page, please. Just for information, and this is not a big change, where is our revenue coming from? A320 still is the strongest platform, doing very well on the markets with 36% of our revenue share, slightly going down.
If you remember, some three years ago, the A320 family was more to the area of 40%- 42%. I think we are de-risking a little bit from the one platform. Boeing is starting to pick up. I think more momentum to be seen in 2026 and beyond to have a more leveraged portfolio again. This is what we want to see in ones going forward. In saying this, I would like to hand over to Florian, giving you more insight on our financial details.
Thanks, Robert, and thanks, Michael, for the introduction. Good morning, everyone. I will now guide you through the financials of the first half of year 2025. Next one, please. Overall, most of it already said by Robert, starting at the top. As Robert mentioned, the market recovery, if we still can call it that way, continues heavily. Rates are rising.
As Robert explained, we had some shifts in the first half year, which were definitely impacting our EBIT. Robert already stated it. I will give you some more insights on the slides to follow. Revenue at EUR 484.7 million, a 10.6% revenue increase over the year already. Engine and nacelles and cabin interiors grow significantly. We will see that on the next slides as well. EBIT has a little bit of a backdrop, which was expected, to be honest, in the first half year with EUR 18.4 million compared to last year. That was a slight backdrop, as mentioned, because of certain issues that we had in the first half year, as mentioned, especially impacted by the 150 employees that we kept on board for the second half of the year, despite those demand changes that we have experienced.
In the last 12 months, we onboarded 123 additional employees, bringing the number up to 3,843 employees, full-time equivalents. If you compare that to the figures by year end, you will recognize that we decreased the number of full-time equivalents by seven, meaning that we are now in a position of increasing revenue by keeping our people stable, which is one of the first positive impacts of our core initiatives that we will later talk a little bit more. Inventory reduction program also successfully working. We started that initiative, as you might remember, in October 2024, and the first results can be seen in a significantly increased free cash flow by June 2025 with EUR 31.7 million. Next one, please.
Overall, in terms of revenue, all said before, so FACC is still experiencing strong growth, and you see the last couple of years, and the first half year is perfectly in line with that, coming later to the outlook. As Robert already mentioned, outlook is basically confirmed. We will narrow it down to a certain extent, and we are expecting around EUR 1 billion of revenue for the full year. On the right side, EBIT, the roller coaster ride from the past as well, can be seen here for the first half year, as I said before. A little backdrop with the EUR 18.4 million, giving us a margin of 3.8%. For the full year, we are expecting an EBIT improvement compared to the last year, which was 3.2% on full year, with EUR 28.3 million. For the full year, we are still expecting an improvement. Next one.
As stated before, in terms of revenue growth on our divisions, we had strong growth in engine nacelles and interiors. As you can see here, engine nacelles grew by EUR 20 million compared to the first half year 2024. Cabin interiors by EUR 30 million. We had a little backdrop in aerostructures coming down from EUR 178 million to EUR 174 million in H1 2025. Where's that coming from? It's basically a reduced amount of development work/engineering work that we have performed in the first half year of 2025. We are expecting to recover that in the second half year of 2025. Next one. In terms of EBIT, also starting in the middle, engine nacelles, as Robert already stated. Engine nacelles is basically, for the time being, our strongest division in terms of EBIT, with solid double-digit EBIT margins, as you can see here. Interiors on the right side, noticeable improvement.
For the first time in a couple of quarters, we managed to have a solid EBIT performance with EUR 4.1 million of EBIT, giving us 1.9% of EBIT margin for the first half year in cabin interiors. Jumping to the left side again in aero structures, as we have seen in the revenue slide, also a backdrop in cabin interior in aero structures in terms of EBIT margin, still positive with EUR 2.8 million, but only a modest EBIT margin of 1.6% compared also to the last year of 2024. Where's that coming from? Basically from material price increases that we were not able to compensate for. We are working on that for the second half year in 2025, but we are expecting a big improvement in 2026 when we can hand over certain parts of that material price increases to customers. Next one.
Free cash flow, as I stated in the beginning, EUR 31.7 million. You can see the improvement compared to the first half year in 2024, where we ended up with EUR 7.4 million. Positive free cash flow, heavily influenced, of course, by changes in working capital, especially by inventory decrease, but also by our strong, I would say, control in terms of investments. Net investments for the first half year stood at EUR 9.2 million compared to the EUR 13.9 million last year. We are still, I would say, very much looking at what we are expensing and handing out cash. Very, very tight grip on our pockets. As stated in the headline, free cash flow is, of course, + EUR 31.7 million. Is it enough? Again, repeating my statement from the previous earnings calls, it's not enough. We have to focus on the core initiatives going forward.
2025 and 2026 will be the years where FACC AG significantly has to improve its financial performance in terms of EBIT and free cash flow. Next one. Investments on the left side, I just stated, you can see the comparison. We are standing at half year at EUR 9.2 million. For the full year, we expect to be in the range of the last couple of years. On the right side, inventory, you see the backdrop by year end, EUR 178.3 million. By December, now going back to EUR 172.9 million. You cannot see that on the slide, but if you remember the figures from Q3 2024, when we started that operation, inventories, we are standing at approximately EUR 192 million. Since then, we had a significant reduction already achieved. The program that we initiated in our company is working.
The target that I presented to you in the last calls and meetings that we had of EUR 148 million for the year end in terms of inventory by December is still sticking, and we keep that upright. Next one, please. A couple of words to our core measures. As we informed you also in the last calls last year, we started the core initiative, corporate reshaping, in four basic areas: costs down, organization streamlining, return on capital, and efficiency. If you have a closer look at our numbers for the half year, you will recognize that the measures are starting to work. Are we finished? As I said before, no, we are not yet finished. We are in the middle of 2025, and there is lots to come from this program, but the first impacts are visible already.
We had a reduction in general expenses that helped us partly compensate for ongoing inflation effects. As you have seen before, we have a first noticeable and sustainable reduction of inventories that also is bringing down inventory costs in terms of storage, etc., etc. Organizational streamlining, the expansion of Plant 6, is making a significant contribution in the transformation of cabin interiors. As we have stated multiple times, we are in the middle of the process of bringing work from Austria to Croatia in terms of cabin interiors, impacting, of course, massively the profitability in cabin interiors. Not only Croatia is worth mentioning here, we are also, or we already have successfully transferred work for our Chinese platforms that we were providing in the cabin interiors environment. We offloaded that to China as well, also contributing to the improvement in cabin interiors.
On the return on capital section, I think worth mentioning, and as stated before, all three divisions for the first, I would not for the first time, but since a longer period of time, with positive EBIT contributions in H1 2025. We also increased our equity ratio to 33.2%. We stated at our Capital Markets Day and also in certain one-on-one discussions with you that we have the target in medium term to bring back up our equity ratio to levels of 40% that we enjoyed before the COVID crisis. Also stated already, efficiency increases also start to work. As we have seen, we reduce the number of FTEs in our companies and are able to harvest a higher output. This is definitely something that we will push very heavily going forward in 2025 and 2026. This will contribute also to the well-being of the company.
On the bottom of the slide, also worth noting, we have seen it in terms of free cash flow, but not only the free cash flow improved massively, but also operating cash flow. This is also impacted, of course, by efficiency and all the measures that we are taking already. This is not the end of the road, but I would say we are making good progress on our activities, also reflected that we brought down the net debt by half year compared to the December levels of 2024. With that, I'm handing back to Robert to precise our outlook for you. Robert, thank you.
Thank you, Florian. Next page, please. On everything that has been said, I think even in this complex and rapidly changing environment, we are dealing with the environment. I'm happy to say that we can precise our outlook and narrow the guidance down.
As you know, at the early phase of the year, we guided the revenue increase between 5% and 15% because we knew there will be some hiccups here and there. Right now, we can narrow it down. FACC will grow definitely to a company size above EUR 1 billion, which is giving us a growth rate in 2024 of a little bit above 10%. Overall, and Florian mentioned, the EBIT expectation is that we see a further improvement and step up compared to the next year. I'm very happy with the core initiative. Lots of work done. Company wide, everyone is engaging. That's very positive. We see the first KPIs turning around. That's good. The program is still running for the next one and a half years. We are rather at the early phase and not at the end of the phase. Most of the internal things already take momentum.
We have still some challenges in front of us in terms of material and supply chain restructuring. As Florian mentioned, big impact on the market on material costs are hitting aero structures, but also here, contracts are aligned with our customers, compensating us already starting in January 2026. EBIT will improve as well. Some other measures, what we are focused on is to ensure and guarantee to ramp up to all of our customers. That's key because reliability, quality, and higher safety is a prerequisite in the industry, and we are doing well here. Core efficiency, we are on track by the end of 2027. We are convinced that the EBIT will be between 8% and 10%. More to the higher end on engine nacelle and aero structures again, and in the middle, 7.5% - 8% in the cabin interior leverage ratio.
Target is to be below 2.5% in the same period. We are still focusing and pushing on our globalization strategy for good reason. This is not happening right now as a new initiative because there is some global discussion ongoing. We do this since many, many years because a local presence in Europe, in the United States, but also in Asia for us was a key for the last couple of years and will be a key element to develop FACC going forward. Quality and safety without compromise. As already said, we ensure highest quality and provide safety to our customers, our people, but also to our shareholders and people. In saying that, I thank you for listening, and the floor is yours for your questions. Thank you.
Yes, thank you very much for the presentation, and we now move on to the Q&A session. To keep the conversation engaging, we kindly ask you to place your question via audio line. To register your question, please click the Raise Your Hand button. If you've joined via 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 question in our chat box. We already received some questions. Mr. Brach, you should be able to speak now.
Hello, and good morning. Two questions for me. The first one is more of a clarification because I didn't fully get it. You said the EBIT was weaker because of some demand changes, and despite that, you kept 150 employees. Can you expand on that a little bit and clarify it further?
Yes, I can do that, Mr. Brach. What happened is we had a very strong order book in the first two months of the year, pretty much laying over from last year. To be precise, with this order book, FACC would have grown by around 20% in the first half of the year. Starting in early March, some of our customers told us they are full of inventory with FACC products. They are lagging on some other commodities, and they need to harmonize. They slowed us down, especially in the months of April, May, June, and also July, asking for lower deliveries. We had to slow down our output and adjust. Because we prepared for the 20% revenue increase, we had an overhang of around 150 people that have been trained over the last couple of months. We decided not to take any measures.
We kept them in the company, we further trained them, and we used some flexible work time to let them consume vacation, but we had to pay their salary. The impact over those four months was around EUR 2.5 million personnel costs we had to carry because we wanted to keep, and we will keep, the people because we need them in the second half of the year. It is more a shift of demand from the first six months to later periods because of global supply chain issues impacting us at a certain point. We have seen this in a slightly lower EBIT in the first six months of the year. Nothing lost, nothing terminated, just shifting because of level loading with all of our customers, I have to say. It is not one specific. Nearly everyone shifted a little bit here and there. Okay, this is answering your question.
Yeah, very detailed. Thank you for that. The second and third question is more on the segments. A very strong engine nacelles segment, not only revenues, but also the EBIT margin. Was that increase mainly due to the advanced air mobility business? Was that a strong driver there? The second one is on aero structures. Could you elaborate a little bit more on the revenue decrease? You said some engineering work was done. What was the details there?
In engine and nacelles, I think the engine part is picking up. That's good because that's the most valuable business we are having. There is a good pickup also in the urban air mobility demand. It's not one thing like urban air mobility or the core business. I think it's a pickup across the portfolio in engine and nacelles. We also have to say the contracting we have in place in this portfolio is favorable for us. We have some services revenues here as well, which is highly paid. It's a continuation of the transformation process we have successfully executed in the engine and nacelle environment over the last year. It's a mix of various things. In terms of aero structures, Florian mentioned last year there was a high single-digit revenue booked in service revenue, engineering, and selling services.
This is not the case in the first half of the year. However, we also have to say a big amount of the shift of demand also was impacting the aero structures environment because we have ramped up nicely and we have been slowed down. What we already see for the second half of the year, the demand is coming back and some of the revenues we could not deliver in the first half of the year, we see coming in the second half of the year. Also, I can give a little bit of a heads up, in 2026, the demand signal for aero structures is growing. Why is it growing? Because the wide-body airplanes, A350 and 787, are picking up in rates again. This is strong platforms benefiting our aero structures business.
Okay, thank you very much, Mr. Machtlinger.
Maybe one more word on the impact of material. Where is it coming from? It's coming from exotic materials like nickel, like cadmium, like other alloys. The industry, it's not we alone, FACC. The industry needs for certain mechanical fasteners. There was a strong increase in pricing all over the world because of high demand and, let's say, not a lot of mills qualified for the aerospace business. This is an impact of a high single-digit million on aero structures only. What has been done? We have renegotiated pricing with supply chains, and we have been able to upflow this kind of event to our contract pricing with customers. Not immediate, as Florian elaborated, but already contractually agreed starting on the first day of 2026. A big appeal we have to take this year, but pretty much mitigated for 2026 already.
Okay, thank you.
You're welcome.
Thank you very much. We move on to the next participant, Mr. Hettich. You should be able to speak now.
Good morning. Thanks for the presentation. I would like to ask several questions. The first one is on cabin interiors. I was wondering if the segment has benefited from some one-off effects in the quarter or if you believe that the current margin level is sort of a sustainable level going forward. This would be the first one. I'm not sure if we should answer the questions one by one or if I should pose all of them at the same time.
We can do it one by one. Maybe I start on the cabin interior question. As always, I think in each and every division, we are having, of course, certain one-time effects. This is the important question here in cabin interiors. If you look at the basic development of cabin interiors over the last couple of quarters, you have a steady upward trend. That means, and this is heavily influenced, as I mentioned before, by the offload to Croatia. We are really benefiting from that business case that we have set up in Croatia in terms of our margin improvements. Bringing work from costly Austria to a better cost country in Croatia is really the key driver in the cabin interior division going forward. As I have said also before, it's not only Croatia, but we are also looking at supply chains in general that we are having.
We have a strategic manufacturing partner in China, where we offloaded cabin interiors work in the first quarter of 2025. That will also heavily or significantly benefit cabin interiors going forward. We do not expect, I would say, for the full year a turnaround of this development in cabin interiors. Of course, there is the one or the other one-off effect, as we have in all divisions in terms of, I would say, certain material price compensations by customers, as Robert mentioned before. In general, we have a steady and sustainable improvement development in terms of cabin interiors.
Okay, thanks a lot. Coming to the aero structures segment, can you update us a bit on what you currently see with fastener prices? Did prices continue to increase in the recent months? I'm talking July and August. Did they remain stable? Did they decrease? In connection to that, you said you can pass on some of the price increases starting from 2026. Does this occur through the additional price increases that you might be seeing in the future, or is this a compensation for past price increases that have already pushed down your margins this year?
On the pricing, I think we have peaked. I think the situation over the first couple of months was pricing and demand as well. There were some issues on fastener supply as well. This is all covered for the rest of the year. We know exactly what the impact for 2025 is. As I said before, the impact is in the range of this high single-digit impact in terms of fastener pricing. What does it mean going forward? The market is the market. We have harmonized some certain demands with our customers. We are going for a joint procurement with our customers. What we had as a pricing in 2024 was the baseline. In 2025, FACC needs pretty much to step in and compensate for that starting in 2026.
We have agreements in place that, using the baseline of 2024, ups and downs to that baseline will be compensated by our customers. We can adjust the pricing based on the market pricing of fasteners. It is a back-to-back, I would say, contractual agreement we have signed up with our biggest customers, mitigating, let's say, the impact to FACC in 2026 going forward.
Can I ask an additional one on that? You're saying that you can recoup in 2026 the entire high single-digit hit that you experienced in 2025?
No, we will not pay. It's not a retrospective payment. 2025, we have to digest likely ourselves. 2026, the impact, if there is an impact, is compensated by our contracts. 2025, there will be an impact to FACC. 2026, going forward, because we have readjusted our contracting, the contract will carry about fastener price fluctuation in terms of cost.
Okay. Understood. Maybe one more question, if I can. I mean, you updated your EBIT margin guidance. You're now talking about, yeah, that you see an improvement in the EBIT margin, not in the absolute EBIT anymore. Why did you specify this so conservatively, given you have a 3.8% EBIT margin in the first half of 2025? To reach the target, you could even deliver a lower EBIT margin in the second half. I was just wondering why this is so conservative and why didn't you aim for something a bit more challenging, I would say.
Thank you for the question. As we have discussed, Philippe, also on prior occasions, in terms of specifying our EBIT margin, I think for the last year, 2024, we have been at 3.2%. We said multiple times, with the increase of revenue, we are also expecting a stronger improvement in terms of EBIT margin. We are not going specific into any number here. Why is that? Because for the time being, and Robert just said it also in the beginning, we just had the trade agreement between Europe and the U.S. We have the fastener issue where we are in contractual negotiations, etc., etc. There is still uncertainty in the supply chain, which makes us, at least for us, a little bit uncomfortable to go into specific numbers. What we can say is that there will be an improvement compared to the 3.2% EBIT margin of last year.
I'm not seeing it as super conservative. We tried to be a little bit more precise in the still volatile environment that we are in. You will not hear a number from us this time. We are sticking to the guidance as presented before. There will be an EBIT improvement in absolute figures, but also in percentage margin.
Okay. Thanks a lot. That would be it from my side.
Thanks for your questions.
Thank you. We move on to Monsieur Poulain. Monsieur Poulain, you should be able to speak now.
Good morning. I'm sorry. I'm going to go back to this question on the margin guidance. Given that you gave some quantification of the cost pressures experienced in the first half, just to be clarifying this cost pressure, is it right to assume that the overstaffing effects won't recur in the second half? When it comes to the material cost pressure, you effectively say that they are still going to be there in the second half, but there are some mitigation effects that you are trying to get on the cost side. At next year, with pricing effects, we should see that cost pressure disappear effectively or offset by the higher pricing. Is that what you said?
Yes. On the second one, I think it's perfectly summarized by yourself. On the second question you had on the overstaffing, for the second half of the year, we are perfectly staffed in the meantime. The people we kept on board because, you know, training aerospace workers is a big effort. It's costly. It's time-consuming. We decided to keep them because we need those people. For the second half of the year, we are already perfectly staffed and the orders are in, and there is no overstaffing cost applied on the second half of the year.
Okay. On the free cash flow guidance, there's clearly a progress in the first half. There are some benefits obviously from that one-off payment, but the progress on inventory management, I didn't get the exact amount that you were able to achieve in the first half. For the full year, can you repeat again the amount of inventory reduction that you would target just to get that clear? On the free cash flow guidance.
Yes. If you take a look at the December 2024 figure, inventory stood at approximately EUR 178 million. In June, we have been coming down to EUR 172 million, and the target for December 2025 is EUR 148 million. From EUR 172 million to EUR 148 million is the task for the second half year of 2025 in terms of inventory.
Great. Okay. That's very clear now. The last question is more kind of a strategic and, of course, the opportunity on the urban air mobility and drone programs in the United States in particular. Do you have any update on the various milestones that were given by the FAA on this industry and when we should start to see this industry moving to the full in terms of growth?
At the time being, those customers we are engaged with are driving certification programs. Archer, for example, is flying with the vehicles, doing test flights, and certifying the vehicle for revenue and passenger service. EVE, the Bombardier spin-off, is doing the same thing. We have two other customers, one in the passenger environment as well, but we cannot announce the name at the time being. On the logistic drone, we are producing serial production units. This year, it was around 300. Next year, the forecast is producing 1,000. Here on the material logistics, we are already picking up in serial production demand. What would that mean? 1,000 next year means, let's say, a remarkable revenue that will come in already as a serial production product. We see that the industry is heading in the right direction.
It's a complex environment, I have to say, with lots of certifications to be done. On the platforms we are, we clearly are of the opinion that we are established on the right platforms. Giving you a date when they're entering revenue service, we are expecting 2026 late in the year. That seems to be reasonable. However, test plans must be fulfilled. Test flights must be done. We are in very close cooperation with all of our customers here. The momentum is there.
Thank you.
You're welcome.
Thank you very much. We move to a participant dialed in by phone. Unfortunately, I don't have the name, but you should be able to speak now and place your question. Please use the key combination star six, and then you should be able to speak and place your question. This seems not to be possible at the moment, and there is no further participant with a question. I'll wait a few seconds if the participant on the phone is able to speak. Yes. We should be able to hear you. Yes, please.
Hello. This is Jorge González from Hauck & Aufhäuser . Two questions from my side, please. First one on the strength of the euro. I was wondering if you can remind us how your hedges are set at this point and how you see these levels for the development of your cost in the following quarters. If I'm not wrong, you have most of the cost in euros. I'm wondering if you can update us a little bit on how you are covered at this point and what this means for your business. The second question on the conversation regarding margins, I am really positively surprised by the interiors margin and obviously the contrary with aero structures. If I'm not understanding it wrong, please correct me.
You are basically saying that aero structures maybe need a little bit more time and going to 2026 to see the profitability recover, potentially at previous levels. I don't know if you can give us some color there. Interiors is the other way. Interiors, you had some one-offs and we saw more cases for the second part of the year. I have understood this correctly. Thank you.
Okay. Thank you for your question. Starting with the first one in terms of our euro-dollar exposure. Very basically speaking, we have 100% of our revenues in U.S. dollar. Of course, we are trying to apply a natural hedging as much as possible, meaning that we try to have as much costs as possible in U.S. dollar. Your first statement is not really correct that most of our costs are in euro. It is vice versa. We are trying to have our costs mostly in U.S. dollar. Of course, this is not possible when it comes to taxes, wages, and salaries in Austria or in the European area, etc., etc. Most of our exposure is hedged away in terms of turning our costs into U.S. dollar.
The big rest is hedged by derivatives, especially FX forwards, where we try to cover at least, or on average, 80% of that cost via FX forwards. For 2025, I would say the majority of our exposure is perfectly hedged with rates around 1.10. For 2026, we are planning with an average hedge ratio for the time being of 1.14. The average U.S. dollar rates that we have seen recently with the uptick because of all the uncertainties in terms of the ongoing tariff discussions we have globally. With rates around 1.16, a stronger U.S. dollar is beneficial for FACC as well as for any other European-based aerospace company. As mentioned before, for 2025, we are pretty safe. For 2026, also, our hedging program is well underway, securing rates around 1.14. Beyond that, we have to see what euro-dollar is doing.
On average, we have a constant hedging program in place. We are not speculating on the development of U.S. dollar rates. Even if U.S. dollar is weak or strong, we are constantly hedging. We are not speculating on this one. On your questions on cabin interiors and aero structures, I want to start with aero structures. With the impact on margin, as Robert elaborated before, margin on aero structures was impacted by a lower revenue that we experienced, but mainly by the material cost increases of this, especially fastener issues that we are experiencing. We are not, as we also mentioned before, expecting to compensate that fully in the second half year of 2025.
We are expecting an uptick of EBIT margin again in aero structures in the second half year, with a stronger recovery in 2026, as also Robert elaborated before, where we can, I would say, hand over some of the cost impacts to our customers. In cabin interiors, as you stated, there was, of course, a certain one-time effect, but that was not the big impact on our, I would say, recovery in cabin interiors. What we are experiencing there, and again mentioning or restating my statement from before, we are on a steady improvement path in cabin interiors. That is sometimes in certain quarters, I would say, supported by one-off effects to a certain extent. Overall, we are experiencing a steady improvement. This is because of the successful offload to Croatia and the successful process improvements that we are having in cabin interiors.
We are expecting a steady margin increase in cabin interiors.
Thank you very much for the color. Allow me two quick follow-ups on the dollar. Do you have any flexibility or any clauses in the book orders for increasing prices in relation to the dollar fluctuation? My second question is on the interiors. Do you think we can see break even at the end of the year for the first time? Thank you.
First question, U.S. dollar in terms of our contracts. All our contracts with our customers are in U.S. dollar. There is no change to euro or something like that, and there is no specific compensation clause in our contracts in terms of euro-dollar fluctuations. As for pretty much everyone in the aviation industry or aerospace industry, you have U.S. dollar contracts with your customers and you have to cope with it. We are doing that via extensive hedging programs. In terms of the margin for cabin interiors, and as I've stated before, we have in the half year 2025, we have all three divisions in positive EBIT margin territory. Of course, we are expecting that to have that same situation by the end of the year.
Thank you very much for your answers.
Thank you.
I will go back to the line.
Thank you very much. In the meantime, we have received no further questions. We therefore come to the end of today's earnings call. Thank you for your interest in FACC and your questions. A big thank you to the gentlemen for the presentation and the time you took to answer the questions. Should further questions arise at a later time, please feel free to contact investor relations. I wish you all a lovely remaining day. Thank you and bye-bye.
Goodbye, everyone.
Thank you.
Thank you, everyone. Bye-bye.
Bye.