Earnings call transcript: FSCC AG reports strong Q3 2023 growth

FSCC AG reported a robust performance in its third-quarter earnings call, showcasing significant revenue growth and strategic expansions. The company, which has a strong presence in the aerospace sector, highlighted its achievements and future plans amid a backdrop of increasing aircraft demand. According to InvestingPro data, FSCC’s market capitalization stands at $331.43 million, with the stock delivering an impressive 21.27% return year-to-date. Analysis from InvestingPro suggests the stock is currently undervalued based on their proprietary Fair Value model.

Key Takeaways

• FSCC AG’s Q3 revenue grew by 25% year-over-year, reaching €204 million.
• The company is focusing on expanding its product line, especially in the Airbus A320 family and Urban Air Mobility.
• FSCC is transferring production to new facilities in Croatia and China to enhance efficiency.
• The firm’s order backlog remains stable at $5.8 billion, indicating sustained demand.
• FSCC aims for a 10-20% revenue growth for the full year, with EBIT margins expected to improve by 2027-2028.

Company Performance

FSCC AG demonstrated strong performance in Q3 2023, with a 25% year-over-year revenue increase, consistent with the company’s trailing twelve-month revenue growth of 23.35%. This growth aligns with the company’s strategic focus on expanding its footprint in key aerospace programs, such as the Airbus A320 and Comac 919. The firm’s operational improvements, including the establishment of new production facilities, are set to enhance its competitive edge. InvestingPro subscribers can access detailed financial health metrics, which currently show a GOOD overall rating, supported by strong growth and momentum scores.

Financial Highlights

• Q3 Revenue: €204 million, up 25% year-over-year
• Year-to-date Revenue: CHF 642.6 million, a 25.1% increase from the previous year
• Year-to-date EBIT: CHF 28.8 million
• Full Year Revenue Guidance: €810-€885 million, reflecting a 10-20% growth
• Full Year EBIT Guidance: €24-€35 million, with a 3-4% margin

Outlook & Guidance

FSCC AG provided optimistic guidance for the coming years, expecting a 10-20% revenue growth for the full year. The company plans to achieve 7.5-10% EBIT margins by 2027-2028, driven by productivity improvements and supply chain stabilization. FSCC is also focusing on enhancing its workforce efficiency to support further growth without significant hiring.

Executive Commentary

CEO Robert Marklinger highlighted the strong demand for aircraft, stating, "The demand for new airplanes is more than the current supply can fulfill." He also emphasized the company’s strategic focus, saying, "We are looking to execute the next 10% to 12.5% of revenue growth with the workforce we have on board." CFO Florian Heindler added, "Our goal is not only to reduce inventory figures but to change and improve our business processes."

Risks and Challenges

• Supply Chain Issues: Ongoing disruptions could impact production schedules and costs.
• Market Saturation: Intense competition in the aerospace sector may pressure margins.
• Macroeconomic Pressures: Economic downturns could affect airline orders and profitability.
• Workforce Management: Balancing workforce efficiency with growth targets poses challenges.
• Regulatory Changes: New regulations in key markets could affect operations and costs.

Q&A

During the Q&A session, analysts inquired about FSCC’s conservative revenue guidance and inventory reduction strategy. Executives detailed plans for potential free cash flow improvements and emphasized the importance of patience regarding 2025 guidance, indicating a strategic approach to future growth.

FSCC AG’s Q3 2023 performance underscores its strong position in the aerospace market, driven by strategic expansions and operational efficiencies. Trading at a P/E ratio of 15.41 and receiving a unanimous Buy rating from analysts, the company’s forward-looking guidance reflects confidence in its ability to navigate industry challenges and capitalize on growth opportunities. For deeper insights into FSCC’s valuation and growth prospects, InvestingPro offers comprehensive research reports with expert analysis and over 30 additional financial metrics not covered in this article.

Full transcript - Facc AG (VIE:FACC) Q3 2024:

Franziska, Moderator, FSCC AG: Welcome to the FRCC Agis Earnings Call for the Q3 of 2024. I’m pleased to introduce you to the CEO, Robert Marklinger CFO, Florian Heindler and Michael Steiner from the Investor Relations Relations Management team. They will lead us shortly through the presentation. And after the presentation, you will have the time to ask all your questions in the Q and A session. And with this, let’s start.

Mr. Steiner, the stage is yours.

Michael Steirer, Investor Relations Management, FSCC AG: Thank you, Franziska, and hello from my side as well to everyone. Welcome to FSCC’s earnings call for the Q3 of the fiscal year 2024. As already mentioned, my name is Michael Steirer and with me today are Robert Markling, our CEO and Florian Handel, our CFO. As always, we have already provided some detailed information, financial information in our press release issued earlier today. And if at the end of our session, there are any open questions remaining, which cannot be covered on today’s call, we will be happy to schedule any additional 1 on 1 meetings afterwards.

In this case, please let us know. I would now like to hand over to Robert Marklinger, our CEO. Many thanks.

Robert Marklinger, CEO, FSCC AG: Michael, thank you for the introduction. Francisco, thank you for organizing. And hello, everyone. A warm welcome from my side too for the FVCC Q3 earnings call of FVCC AG. Next (LON:NXT) page, please.

As always, we start with a quick review of the Aviation Industry. And well, I think, as you all know, and we can watch nearly on a daily and weekly basis from the industry, media and the information from our customers. The good news is that the aircraft build rates for all major aviation programs are still increasing here and there with a little bit of a slower pace than expected at the beginning of the year. But overall, if we look into our forecast for 2024 and what we see right now is pretty much aligned, I would call it. As you also know, there have been a couple of announcements from major OEMs, especially Airbus in June when they dropped the forecast from SEK800 1,000,000 to SEK 770 1,000,000.

This is all factored into our planning and had no impact to our guidance we have given early in the year. Very promising and still even if it’s a little bit of a slower pace, the step up increase of short and mid haul aircraft is progressing. Also business jets is doing quite well. We’re expecting a strong delivery in the Q4 for all of our major customers, especially, of course, Airbus who is our most important customer, which with a volume share of close to 60%, but also business jets, namely Embraer and Bombardier (OTC:BDRBF), we’re expecting a very strong Q4 delivery opportunity. We also see a continuous demand in wide body aircraft.

As you all know, this wide body aircraft families have been a little bit slower in development compared to the singlet airplane. But also here the forecast from our customers and we are quite strong on the Airbus A350 as well as on the 787. Those airplane programs are coming back nearly close to the numbers we have in Troy before the downturn in 2020, whereas Airbus is asking for a rate significantly above

Florian Heindler, CFO, FSCC AG: 10

Robert Marklinger, CEO, FSCC AG: on the A350 and the Boeing (NYSE:BA) 787 with the forecast in the next 3 years to be around 10 airplanes as well. So this will give us another natural growth because as you know, those contracts are in FVCC, long term contracts. The equipment is in place. We are running those programs currently in a 1 shift environment with the growing rates. We already see and we see in the years to come, the utilization of that equipment will further improve in the next 3 years.

Comac 9/19, serial production ramp up is ongoing very well. Especially yesterday, I think good news from China, Comac has sold 130 additional airplanes for the A321, which is right now recalled Comac 909, but also the 919. So this 130 new orders, fresh orders is increasing the order backlog for efficiency by roundabout 100 and 20,000,000, which is of course good because those contracts also are long term. And revenue mobility is developing as expected. I think it’s more and more evident who will have a stronger saying on that market.

I think a couple of dropouts that are happening and happened also in the last quarter is natural. With those customers, we are working closely, which is mainly Aoife, but also Archer and to other customers. We are watching very carefully. We are well aligned and the progress we see here is certainly also helping the growth of FVCC. With all the good news, the operating environment remains a challenge.

This is not different for FVCC and it’s also quite well expressed, I think, by our OEM customers. Supply chains, at the time being, and this is not the Tier 1s as FSCC is 1 besides a couple of other ones, it’s more the lower tiers that are causing the 1 or the other issue. I would say it’s not chronic. Situation is improving, but it’s a handful of supplies that are still not stable, that are volatile and that are impacting efficiency to a certain degree, not in terms of delivery to our customer. Here we are well aligned, but of course, and that’s the second point in operational efficiency.

On top of that, and supply chain is certainly something which is like a chain. If the one or the other supplier has a problem, it might surface with our customers, then our customers need to adjust their demand, which again is certainly impacting also FSCC’s operational performance to the one or the other degree. On the other hand, and that’s the good side of the coin, we see a continuous improvement. And once we are back in the industry and also efficiency to stable processes, efficiency will pay back and we see this one in the Board as an opportunity for margin growth. Next page, please.

Well, in terms of delivery, quick summary. Airbus are pretty much to the same level as last year, a little bit higher with strong expectations for the last quarter to meet the forecasted airplane deliveries. Boeing also driven by the strike in the last couple of weeks, not at the level we have seen last year. Right now, operations is restarting, but this will certainly drag into Q4, but also into the next quarters of last year. The Boeing impact to us, well, we have compensated what was caused to Boeing over the last couple of years with other projects.

The good thing here is, if Boeing ramps up, we are ramping up and any volume that comes from Boeing Airplanes is an add on to the FHCC business. In terms of airplane sales, net orders, well, last year 2023 was extraordinarily strong with 3,400 airplanes ordered by Airline customers. This of course is unbeatable. Nevertheless, the book to bill ratio, especially for Airbus, is at the rate of 1.3, so more airplanes are in terms of net orders added to the order book. With Boeing, it’s to the opposite, hardly any sales.

But still, the order backlog is there, which is close to 17,000 airplanes in the industry, I think today is more focused on delivering on the order book instead of adding new orders, which of course is good like the Cormark orders, but that’s not the main focus of the industry at the time being. Next page, please. So overall, I think pretty unchanged in terms of the order book by itself. So as said before, close to 17,000 airplanes are ordered with our customers, 51% Here’s with Airbus, the strongest market player for this year, but also in the past years. 36% are Boeing and the rest spreads between Comac, Embraer and the others.

In terms of market and the airplane markets and portfolio, no change, roughly 80% is the single aisle airplane category. So short and mid haul airplanes and the rest 14% is white bodies, namely the A350, the 787, the A330, but also the 777 and 5% is regional jets and turboprops and the market view where are those airplanes ending up also pretty unchanged with a big share in Asia and the second 2 big markets is unchanged North America and Western Europe. Next page please. And the next page, how does that translate into FACC? Overall, the positive thing, order backlog is stable at USD5.8 billion.

So just by the announcement of yesterday, we could add another US120 million dollars which is nice and certainly helps us. So the market recovery is constantly continuing. Aircraft production rates are raising, but the ramp up environment is improving, but still has the one or the other challenge. In terms of FXC, CHF 642,600,000 revenue over the 1st 9 months, which is a CHF 25.1 increase compared to last year. I think we are benefiting from all aircraft ramp ups at the time being because we are represented on all airplanes with all OEMs.

And of course, and I would like to mention that the ramp ups and the development milestone payments we are getting from the urban air mobility market is quite sizable at the time being. And you might remember, we have booked €90,000,000 in development costs between 2024 or contracts between 2024 and 2027 are constantly growing. And the good thing is, on our 3 programs, we are currently also in the cereal production start. So we are producing the 1st cereal production components with a ramp up to come in the years 2025 to 2027. CHF 28,800,000 operating EBIT, well, at least I think the trend was in the right direction.

It’s significantly higher than last year, but not at the level we would like to see our EBIT. And Florian will talk a little bit more in specific in his slides what we intend to do in the next periods to come and what we are currently doing. We added 335 employees in the 1st 9 months, hired locally but also internationally. Good progress made by our departments, good quality improvements by bringing the people on board, train them. And our new training center we have invested to in the last 18 months is right now up and running, again supporting the hiring process in FSCC and the qualification process we need in Aerospace.

Free cash flow was negative with minus CHF 22,400,000 mainly driven by working capital, but also here Florian will guide you through. And the 2024 guidance, we are able to be more specific. So we are looking into a growth that is between 10% 20%. So again, significant compared to last year. And the EBIT for the full fiscal year will range between 3% 4%.

Next page, please. In terms of revenue split, very stable, I have to say. The A320 family airplanes is still the backbone of our business, 36% comes from the A3192021, mainly 2021 airplanes because that’s the majority of the family at the time being and still growing, represented in all divisions in aerostructures with winglets, with wing to body fairings, with other Aerostructure systems, but also in interiors with the head track system, the ceiling panel at the entrance area, but also in the nacelle area with parts we are producing for the A320 nacelle system. Business rates round about 20% plusminus. I think at the end of the year, the ratio will slightly jump above 20% again because the last quarter always is a strong quarter for business jet deliveries.

A315 slightly picking up in rates and growing with the other markets, so are concurrent with the A320. The other markets in development pretty stable on the A321-nine nineteen with a 5% share as we see it right now. We are expecting a growth in the next 2 to 3 years towards 7% to 10% depending on the rate ramp up of the 9.19, which is in front of us. So very stable, still a significant amount of business linked to Airbus airplanes, which is not a bad thing as we speak. Boeing will pick up once the ramp up of the 787 and the 737 MAX and the other platforms are developing quite stable too.

Next page please. In terms of highlights, for us very important plant number 6, our Croatian facility which is mainly built to produce aircraft interiors in a best cost country for EFCC. As you know, 2022, we did a first installation, starting operation in 2022 as well. During the last year, 2020 3 until the mid of 2024. We tripled the size of the Croatian facility to the North and to the South expansion.

Facilities are available. They are certified. We are currently in loading work as we speak. We have a capacity of roundabout 1,000,000 labor hours with the current setup, which will be filled up in the next 24 months, of course, helping us to lower cost, especially in interiors and supporting the efficiency interior transformation process significantly. It’s not just a labor intensive facility.

We also have put in a quite nice automated paint line systems, replacing manual labor with fully automated paint line, not only because of saving costs, but also to improve quality and offering, let’s say, other surface opportunities in terms of customization to our end customers. So we are very happy with what we have. People onboarding runs very smoothly, great learning curves, good quality and as said before, one of the backbones of the FSCC interior transformation projects. Next page, please. Well, in terms of onboarding and hiring people, with the growing demand of customer requests and growing rates, we have strong demand of new employees.

Over the last 24 months, 1200 people have been onboarded, trained, qualified and moved into operations. Quality for us is not to be compromised at all. So we’ve opened up an FSCC Academy, a training center focusing on the onboarding and the training of new employees from the local area but also international hires, but also the retraining and continuous education of the current crew. The training programs are very wide from basic training quality down to process qualifications, quality trainings, safety and many other things. And what we also do there is language courses and onboarding support for all new international employees, including the families to work against the demographic change that we have in Europe.

I think at the time being, we managed it quite well and we bring the people on board we need to perform today and in the future. Next page, please. Comac 919, also important for us. As we all know, it’s a Chinese program with facilities in files in Shanghai. Development of the product was mainly done in Europe.

In Austria, We have produced the first 20 airplane sets in the Austrian facilities following with a planned offload into a China supply chain. The supply chain for us is a company belonging to our shareholder. It’s a blueprint company we have developed following the principles of the efficiency production system. In the first half year and 1st 9 months of the year, we have offloaded all of the Aerostructures programs from the COMAC 919 from Austria to China. We have offloaded half of the interior scope of work as well.

The second half is currently ongoing with the completion of the offload in the 1st 2 quarters of 2025. Ramp up in the new facility is also progressing very well. Well, what is the strategy objectives behind it? Of course, local for local production, close to our customers’ assembly lines. We are changing the supply chains from European supply chains to Chinese supply chains to lower material cost and process cost.

And of course, the in loading to the facility in China helps to reduce cost, not only labor, also material, but also logistic costs. And it’s another push for our interiors business to increase our margin in that segment. So overall, we are quite happy with what has been done. Still progressing, but progressing very nicely as planned. Next page.

That was my last one. So Florian, it’s yours right now. Florian, it’s yours, please.

Florian Heindler, CFO, FSCC AG: Thank you, Robert, for handing over to me. Good morning, everyone. Hello. I will now guide you through the financial part of the presentation, starting first with revenue and EBIT. What you can see in this slide is solid revenue year date with 25% growth year over year with a quarterly revenue in Q3 of €204,000,000 mainly driven by a very strong September that compensated for weak July numbers.

Overall, that led to a slight adaption of the revenue guidance, as Robert already mentioned, for the full year. So now we expect the revenue growth of 10% to 20%, giving us a range, if you calculate, of roughly €810,000,000 to €885,000,000 Shifting to the right side of the presentation, we see our EBIT recovery in place with an expected more or less flat Q3 EBIT, slightly a red number with minus €800,000 providing us with a year to date EBIT of €21,800,000 So going into the year end race, we also specified our guidance. Robert also mentioned that before. Now expecting a 3% to 4% EBIT margin, providing us with a range of around €24,000,000 to €35,000,000 A little dependent, of course, and also Robert mentioned that on the December year end deliveries raised the final NRC milestones and customer settlements that we may can achieve in the year end run. Next page, please.

Looking on our divisions on the next slide. On the year over year comparison, we see the strong growth rates for all three divisions. Quarter over quarter, we have a little bit of swings. That’s naturally, as you know, from FCC (BME:FCC) in the past, specifically with the weaker Q3s that we always expect. What we can also see here is that in absolute terms, Aerostructures division is gaining ground again against Cabin Interiors division.

Depending on next year’s product mix and spares demand from our customer side, it possible that Aerostructures will be again our biggest division in terms of revenue. Next slide please. And this is something that we also talked in the half year presentation already. Here you can see one of the current pain points of the company as we have already outlined before. The weak free cash flow remains a concern for the management board and is a key topic on our agenda for the transformation process that we are working on.

Free cash flow in Q3 is again impacted especially by working capital with a reduction on the one side affected receivables, so a lower number of affected receivables and another inventory buildup that we can see on the next slide. Next slide please. Here I want to focus on the right side of the slide where you can see the inventory buildup over the last couple of years. For Q3, we are now at around €190,000,000 So this is around about another €10,000,000 increase from Q2 reporting end of June. So, management board already reacted to this development and we put the project in place or a project team actually in place that tackles the topic together with an external consulting and interim management company.

This is one of our core projects moving forward because we expect to free up cash in the amount of at least €50,000,000 until the end of 2025. And in the short term, out of this €50,000,000 improvement, we want to raise €10,000,000 until the end of this year. Investments on the left side, just a quick word, are more or less stable, very well managed and controlled by the management board. So we are spending what we need to spend because it’s also, of course, a careful item in terms of free cash flow. Next page, please.

So, this is also a very familiar slide. And net financial debt is also, of course, one of our key items that we want to address in the future. Why is that? An improvement is definitely necessary as we want to delever the company going forward. 2025 will be a more or less standard year in terms of refinancing.

I don’t want to call it easy because there are a couple of refinancings, but we cannot we generally can use the time for next year to do our homework, reduce our costs, improve our cash flows and delever the company again. Robert already mentioned a couple of items myself. I also mentioned a couple of items. And if you put everything together, I think we can say we are in the management board right now tackling 4 major pillars of a kind of a transformation process within FSCC, which are the first pillar, the transfer of work, specifically described by Robert in terms of moving work from Austria to Croatia and to China. The second pillar is a reduction in general costs and in general costs and general expenses, also a little bit streamlining our headcount and we need to bring down our material costs as well.

3rd pillar and I already talked about that before is the reduction of the working capital, specifically the inventory levels, meaning that if we can bring inventory down, direct impact, of course, in terms of cash flow, but also a direct impact on EBIT in terms of less material consumption, less storage costs, less funding costs, etcetera, etcetera. And the last, but not least, pillar of our recovery process is, of course, productivity gains that we have to achieve to cope with the ever growing cost environment in Europe and especially in Austria. Last word on the leverage ratio on the right side of the slide. So for Q3, we ended up with around 3.3, which is definitely also the figure we are aiming for the end of the fiscal year. We have certain KPIs with the banks in place.

The leverage ratio for end of 2024 must be below 4.25. So, this should be no issue at all. With that said, I will hand over to Robert for the outlook and the final wrap up for the remainder of the year.

Robert Marklinger, CEO, FSCC AG: Thank you, Florian. Next page, please. Well, market outlook, I think everything is said. And Florian, thank you, you specified the range of the top line 10% to 20% compared to last year, 3% to 4% EBIT expectation based on current forecasts. Well, we are extremely focused on a couple of things.

All in above, our customer expectations have to be met. We are ramping up as we speak. We are not the pacing factor with anyone. So we are holding up, which is unfortunately also a little bit the price we pay on the inventory because we are buffering in order to have security. But that pays back, of course, with, let’s say, a well trusted customer pay customer base because they know that we can deliver.

Safety and on time delivery is, of course, not to be compromised. Implementation of cost reductions, again, Florian summarized, I will not repeat. I think it’s a quite comprehensive well performing project. In terms of productivity gains, what does it mean? A little bit more specific.

As you know, we have onboarded more than 1,000 new people to ramp up our operations. This is certainly linked to learning curves. Those people are getting better trained every week we speak. And what we are expecting is that those learning curve effects will pay back right now because our hiring curve is already going down. It’s not 20 people every day, we have to every week we have to bring on board.

So it’s less, significantly less. And what we are planning and expecting is that the next 10% to 12.5% of revenue growth is executed with the workforce we have on board. So we see volume gains by productivity increases by having better trained people, people that have been on boarded 18 months ago and we already see the positive effects. The remaining portion of our efficiency is stabilizing supply chains, stop and go is still here and there. If supply chains again are stable, this will again help us in efficiency increases.

Altogether, I think we are looking into EBIT margins that will continuously raise not in, I would say, steps of many, many percentage. So this is a program we will execute in the next 24 months. Again, then meeting our guidance of 7.5% to 10% EBIT potentials starting in 2027, 2028. Reduction of inventory are also everything said. This is the focus points we’re having.

We are progressing as we speak together in the management board. The roles are defined, people are working on it. And so far, I just can say, we are progressing, we are going in the right direction. Lots of work in front of us, but opportunities are definitely significant based on what we have seen in the last 24 months. So there is room for more.

And I think our teams are working hard on it and very much committed and also convinced that what we have rolled out will deliver results in the next periods to come. In saying that, thank you for your attention and the floor is right now yours. We are available for your Q and As.

Franziska, Moderator, FSCC AG: Yes. Thank you so much for the insightful presentation. We are now moving forward with the Q and A session. And to keep the conversation engaging, we kindly ask you to pose your question via the audio line. To do so, just use the raise your hand button.

If you dialed in via phone, you can do this with the key combination star 9 followed by star 6. And of course, you can also use the chats. And we have a first question from Bastien Brag. Hello, Bastien. You could speak now, please.

Bastien Brag, Analyst: Thank you very much. So my two questions are for Florian. So the lower end of the revenue guidance seems very conservative implying negative year on year growth in the Q4 after 3 great quarters. So what is factored in, in reaching only the lower end of that guidance? And then the second one, could you expand and elaborate a bit on the planned inventory reduction of at least €50,000,000?

What are the building blocks there? And how do you, yes, want to achieve this? Thank you.

Florian Heindler, CFO, FSCC AG: Okay. Thanks, Bastian, for the question. With regards to your first question, in terms of our new guidance of the revenue stream, 10% to 20%, and you are reflecting on the lower end certainly. What we see and also what you can see from FSCC in the last couple of years that December, especially December, November December are all very intensive months. This is not only valid for FSCC, but for the whole industry.

And talking about the year end races that we have so far is not specific of FSCC, but we are also dependent on our customers, on our majority customer, so to speak, in terms of Airbus. We know all the supply chain restrictions that we have. And in the end, we’ll have to see also thinking of NRCs, so meaning the development costs or the development projects that we have, what we are able to invoice in the year end, RACE. And this is also sometimes a little tough to forecast. And therefore, we are a little bit on the conservative side in providing you a little bit of a broader range.

In terms of the inventory question, we will we are really reflecting on a very broad approach. So it’s not a minor operation, so to say, so tasking a little bit of bringing our raw material down. It’s really the whole process chain, meaning we are starting at the customer order intake. We are starting at the planning or we are looking at the planning process. We are looking at the operations process and also packaging and delivery process inside.

And of course, material consumption and material purchasing, the whole procurement part. How we do it is that we set up a team of 10 internal people from a in a cross functional approach, assisted by an outside consulting group that also has interim management capabilities. So, bringing an outside manager in to guide our team in terms of all the value streams that we are right now tackling. And the interesting thing is, and Robert also mentioned that in the last couple of years, of course, there were tremendous frictions in the supply chain and they are to a certain extent still valid in today’s supply chain environment. But the situation is getting better and better and we have to harvest on those improvements.

And the goal with this operation in terms of bringing our inventory down is not only to reduce our figures, but also to change and improve the processes how we are doing business in this company. So, I would say the majority of the tasks that we are tackling is really under the control of FSCC. So, there is no need for customer or supplier involvement, of course, to a certain extent also might be in question. But there are really huge opportunities in our company to do things differently, recreate our processes, be more efficient, reduce idle times over the whole value chain. And of course, this is not something that you do overnight.

So, changing processes take some time. And therefore, we kicked off the project in September with the first results that we expect by the end of this year. But the major results, you will see during the next year, 2025.

Bastien Brag, Analyst: Thank you.

Franziska, Moderator, FSCC AG: Yes. Thank you so much for the question. Also answering the question, this is a reminder for you to ask a question via the audio line. You can use the raise your hand button. You can also

Nick Brunnath, Analyst, Kepler: It’s Nick Brunnath from Kepler. Just a follow-up question on the guidance for Q4. Your yearly guidance indeed assume a material slowdown and point to some destocking by OEMs. So how long do you expect that destocking phase to last? And you guided for EBIT obviously, but what would be the implication for free cash flow in terms of sensitivity to the various points of the range?

And do you see in this context your OEM customer a bit more supportive in terms of giving you cash early so that it doesn’t impact your balance sheet too severely to start next year in good condition? That would be my main question. And perhaps on 2025, I don’t know if you’re able to provide a guide for the type of growth rates you would anticipate in light of the current supply chain issues that you saw in the second half?

Florian Heindler, CFO, FSCC AG: Maybe take a a couple of parts of that question and maybe Robert also wants to add on some issues. In terms of your free cash flow part of the question, of course, we are aiming for you see in the Q3, we have a double digit negative free cash flow. So depending on the year end race, of course, we are aiming for at least, let’s call it, 0 or even positive free cash flow, but we will see how this will manage out also in terms of the impacts of our inventory reduction program that we have. In terms of customer support, of course, also valid that we are in close contact with our customers and discussing especially when it comes to the payment of invoices. We have our factory programs in place.

So, this is no issue in the end. So, prepayments in that regards are not needed because of the factoring. But of course, we have other customers not in the factoring program. And therefore, we of course have a close eye on the cash intake of open invoices, especially for the year end race. In terms of the guidance for next year, we are right now in the process of putting our budget together, finalizing it, discussing, of course, a little bit.

And we also have to see or get a better feel, I would say, for some OEM developments that we have. And this will be incorporated into next year’s budget. And as soon as we are, I would say, fixed and firm enough to communicate to the market, we will let you know. Robert, maybe from your side something to add?

Robert Marklinger, CEO, FSCC AG: Well, I can add very briefly. I think we see from the market by itself that the ramp up is stabilizing. So I think the more stable the OEM demands are and they are quite stable, still there is some volatility. I think our working capital will further reduce. So it’s pretty much a joint effort we have to go through together with our suppliers, ourselves and customers.

So overall, I think we shall have peaked, I think, inventory as Florent said. For the next year, I’m asking for being patient. I think after with the Q4 results, I think we have a very good insight on 2025. But as you watch the industry very carefully as well, I think the ramp up is continuing especially on the wide body airplanes where efficiency is benefiting. But details, please be patient once we have our figures put together and with the Q4 results, I think we can be more specific.

Nick Brunnath, Analyst, Kepler: Thank you.

Franziska, Moderator, FSCC AG: Yes. Thank you so much, Mr. Apollon, for your question and also for answering. As no further questions have come in, this is the last chance for you to ask the question. We’re going to wait one moment.

So no further questions have come in. So I thank you dearly for your attention. And should any questions arise in the future, please do not hesitate to contact us or the Investor Relations Management team. And with this, I hand over for some final remarks to the CEO.

Robert Marklinger, CEO, FSCC AG: Well, thank you again for being with us today. Thank you for dialing in. Think of Florian, you are abroad, you are in New York, so it’s quite international right now. Again, I think we’re heading in a good direction. The market is behind us.

People are flying. The demand for new airplanes is more than the current supply can fulfill. That’s good, I would say. This is not the case in the one or the other industry. That’s the momentum we are using with the activities we have launched, not only Croatia and China, but also those ones Florian has guided you through.

In saying that, again, thank you for your participation. Thank you for your interest. And I wish you a great day and talk to you very soon. Thank you.

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