FACC AG

VSE:FACC

Earnings Call Transcript 2022-Q2

[Operator]

Good day, and welcome to the FACC AG H1 2022 Results Conference Call. Today's conference is being recorded.

At this time, I would like to hand the conference over to Michael. Please go ahead.

[Michael Steirer, executive]

Thank you for the introduction, and good afternoon to everyone. Welcome to FACC's earnings call in regard to the half year financial report 2022. I'm Michael Steirer, and with me today are Robert Machtlinger, FACC's CEO; and Ales Starek, FACC's CFO. As always, we have already provided detailed financial information in our press release issued earlier today. And shouldn't it be possible to address all possible questions in today's call due to time constraints, we are very happy to schedule additional one-on-one meetings afterwards. In this case, I'd ask you to contact our IT department, Daniel, or even myself to coordinate any appropriate appointments.

And now I will turn the call over to Robert Machtlinger, our CEO.

[Robert Machtlinger, executive]

Michael, thank you for the introduction. Dear ladies and gentlemen, thank you for your time and participation during this conference call. Well, let's go into the slides. We have distributed them online on our web page.

Overall, a quick snapshot on our first 6 months of our fiscal year 2022. Overall, we have delivered on the growth as planned, especially driven by more and more stabilizing aerospace market. Very positive is the continuous ramp-up of various production rates, where FACC is producing and delivering components to our worldwide customers. So I think very important for us is the continuous ramp-up of the Airbus A320 family airplanes, which are doing quite well, and which, as you know from previous calls, is a very essential platform for FACC.

In line with passenger traveling demand, increasing demand of new and more fuel-efficient airplanes, the FACC revenue grew by 12.4% in the first 6 months of the fiscal year, whereas in the second quarter, the growth rate was 16% and the first quarter was 9%. So consolidated, the growth overall was 12.4%, pretty much in line with our management expectations, slightly better than what we have thought at the beginning of the year.

Also positive is the strong increase in our Aerostructure segment. Why is this important? As you also know from our previous calls and report, the FACC Aerostructure segment is the most profitable segment in FACC. And since rates are picking up here again, this growth is helping twice. First of all revenue, but also in stabilizing our profitability. Also Interiors is continuously growing because of production ramp-ups of existing business, but also the entry into service of new programs we brought on board during the course of last year.

EBIT development is also in line with our expectations. We have more than doubled the EBIT compared to the KPIs of 2021. I also would like to express at this point that we had a couple of headwinds during the first 6 months, which we have been able to compensate with our operational performance and deliveries to our customers. I think significantly was the energy cost increase we all have experienced due to the Ukraine-Russian conflict that is still ongoing.

To give a little bit of an insight, FACC, of course, is hedging the energy supply, whereas we never have hedged 100% of the supply. Depending on the market situation between 50% and 75% of the energy supply is based on long-term contracts. To remind, it is pretty much based on spot price supply costs. So in the first -- in the last 4 months, we have recognized around about EUR 350,000 cost increase because of energy supplies. However, we have been successful to compensate with other measures.

Also important in the first 6 months was a new contract we have signed up with Archer for the development of a passenger drone. And I will be a little bit more specific in a later slide. Also promising and as a result of the well progressing recovery of the Aerospace market is the firm order backlog, which is right now back to USD 5.5 billion. And again, I want to repeat this only counts of products where the airline customer has placed a firm order with one of our customers.

Ales will be specific on working capital, where we have increased the working capital over the first 6 months. [Technical Difficulty] has to stay because we wanted to care about our supply chain risks we have recognized over the last couple of months. So we have built up critical materials by extra inventory simply to protect FACC's production lines and to protect our customers with on time and on quality deliveries.

Plant 6, which is the FACC production facility, we have set up last year with EUR 15 million investment, has started its operation in early 2022. We are right now employing 170 people there. And the operations in Croatia is running as planned, on time and on quality. And also, we'll have a few specific slides for you later in my presentation.

And very important, in March of this year, very close to the breakout of the Ukraine-Russian dispute, we have done an investment in FACC to be independent from Russian gas supplies. Investments are released. We are in the middle of executing those investments. And by the end of the year, FACC will be independent from Russian gas supplies. And there's a slide to you a little bit later as well.

Coming to the next page with KPIs. Revenue in the first 6 months was EUR 270 million, a growth of 12.4% compared to last year. EBIT is in line with FACC's management plan was EUR 6.1 million, pretty much doubled compared to last year. Investments also as planned, EUR 11.8 million in the first 6 months, mainly investment into new technologies, new programs and cost reduction initiatives.

New orders with the value of EUR 0.5 billion has been turned up in our core competence area, aerospace, but also the urban air mobility together with Archer. Order backlog, again, back to pre-COVD-19 levels. And we also have ramped up our crew size by 200 people. We're right now employing 2,732 people in the FACC group.

I want to go to the next slide. A plant opening at Croatia. As mentioned before, a USD 15 million investment. Went into operations in December 2021, with first production run. Since the early days in 2022, the plant is fully in operations with currently 170 people employed. We are producing curated parts in this new facility. We are ramping up the plant to 250 people by the end of 2022. And because of the performance we see in the facility and the delivery cost reductions, which are again very much in line with our expectations, the management board has released the planning execution for Phase II and Phase III, meaning that Croatia will be tripled in size by 2024.

So planning currently is ongoing. We are in loading work from the Austrian operations into Croatian within the next 2 to 3 years. The Austrian operations will be used for higher technology components in Aerostructures as well as Engines & Nacelles and our urban air mobility initiatives.

In saying that, I would like to share with you one slide concerning the FACC energy supply. FACC over the last 15 years was very focused on the energy management, stepping away from fossil energy supplies to renewable or other energy supplies. Basically, in the chart, you see that a big amount of our thermal inventory -- and if we will need to heat up our places in the plant to produce composite product is mainly on geothermal energy, which is hot springs. We have in our upper Austrian region, 14% is by district heating that is also based on non-fossil energy supply, and 44% is based on electrical power, which we mainly gain from a hydro power plant in the surrounding of upper Austria. 18% of the total energy supply was up and is pending on natural gas or in the future oil consumption. So what we have started in 2007, transforming the energy to more sustainable energy supplies, right now is paying back a second time.

In the last years, we have benefited from low energy costs. Right now, we are still benefiting from fairly low energy costs, but we also will benefit from independence from Russian gas supplies by the end of the year. So the 18% natural gas supply will be replaced by oil. And within the next couple of years, where we are transforming that energy supply to non-fossil supplies. Again, this will take us a couple of years, but we are well prepared to do so.

For the positive takeaway from the trial, we have launched our processes already in March. We're in the middle of the transformation process within the next couple of months. We still need fossil energy, but with more excess not depending on Russia.

A few slides on the market development. On page -- the first page in the market segment, you see the development of revenue [Technical Difficulty] in the overall market, basically Europe, U.S.A., China and the Middle East. And you see a couple of ring charts here. On the upper end, this is the domestic and international utilization, or revenue utilization as compared to pre-COVID. The inner circle obviously is the domestic development compared to 2019. And the outer circle is the international development of revenue utilization as compared to 2019. The upper row is the traffic we have seen in week of February 24, 2022. This first week before the Russian-Ukraine war did start. And in the lower portion of the chart, you see the traffic as we see it in the week of July 13.

There was a concern -- it is estimated with the outbreak of the war in Ukraine that European traveling might be impacted, which was not the case. So just comparing the 2 charts for Europe, domestic traveling in Europe between February and July 13 increased by 20%. Internationally, the market developed positive as well. International traveling increased by 13%. So overall, Europe right now domestically is close to 90% compared to pre-COVID numbers. Internationally, we are at 76%. U.S.A. is very similar in comparison to Europe. China is heavily leaking or lagging behind international traveling because of the ongoing COVID-19 shutdowns and regulation. Domestically, they are pretty much in line with U.S. and Europe. And the Middle East is pretty much fully recovered. In domestic, they already have a breakeven point. So domestic traveling in the Middle East is above COVID-19 already. And internationally, the region is at 94% compared to COVID-19, also strongly improving within the first 6 months of the fiscal year.

So overall, people are more and more traveling. We see every day fairly booked flights, but also, I would say, quite significant increases in ticket pricing which is, of course, an indication that the demand is there and that airplanes are filling up nicely.

On the next slide, you see the development of production rates on single-aisle and wide-body airplane. Starting in 2019 -- from COVID-19 was a big reduction in output in deliveries in 2020 and 2021, and a clear indication that the market is recovering. The dark gray area is the Airbus single-aisle development, which is the A320 family. Again, the A320 family for FACC is a very important platform. 35% of our total revenue coming from the A320 family. Necessarily that family is picking up on rates at the time being very nice, and we are benefiting from that ramp up.

I also would like to quickly address the Airbus 220 airplane family, a platform where we have signed a major contract last year and we announced it with the [Technical Difficulty] forecast is very promising. Rates will significantly increase over the next period into 2024. The Airbus 220 will generate a revenue of roughly EUR 100 million per year based on the risk forecast we see today.

So overall, a promising market forecast from our major customers, not only on the larger airplane, but also in the business trip environment. We see a significant increase in production rate, especially in the second half of 2023 and beyond the date.

The order backlog with our customers, in the next slide, is also increasing. And here we have, again, a few data [Technical Difficulty] development from 2021 February to February of this year and the end of July. So both Airbus and Boeing are picking up on order backlog simply because of a higher airplane demand from the airlines. Again, the single-aisle market, the Airbus A320 family and the Boeing 737 market are the most dominant platforms being responsible for 80% of new business. Again, FACC is strong on the mid- and short-term airplane. Again, we're benefiting from those ramp-ups the most.

How does this airplane market spread around the globe? Overall, Airbus and Boeing forecast is around about 40,000 airplanes within the next 20 years. Again, 80% of the demand comes from short and midsize airplane, A320, 737 platform and 20% is wide-body market like the Airbus A350 and Boeing 787. All platforms for FACC has significant market share.

Overall, the Asia Pacific market, this has contributed 30% of the demand, but also the North American and European markets are remaining very, very strong. On the upper left, we have expected…

[Operator]

Excuse me. Pardon for interruption. I'm sorry, there is static coming from your line. And if you have any electronics near you or the speaker, please just move those away. You do have static coming from your line.

[Robert Machtlinger, executive]

We removed all our mobile, it could be better right now. And so sorry for that one. I thank you for letting us know.

So on the Russian market, we have extracted that market from the published number. So in the 8,140 airplane demand we see in Europe, 1,440 is for the Russian market, which is 2.85% of the total demand. Overall, we at FACC think that the Russian airplane demand will not be accessible to Western markets like Airbus, Boeing and Bombardier. I think the demand must come from Russian installing and manufacturing. Again, 2.85% is the total market demand for the region. So the impact, as we see it, we think is insignificant because most of the airplanes that are ordered right from Russian Airlines is A320 and 737s and those airplanes easily can be sold to the remaining worldwide market.

A few words on our latest customer, Archer, who is producing urban air mobility vehicles. Archer is a company in the United States, being engaged with the development and production of passenger drone. Archer is partnering with United Airlines who have already ordered 100 of Archer's inventory for their own demand. Archer is also partnering with Stellantis, a well-known car manufacturer. And basically, the partnership between Stellantis and Archer decides the cost and producibility and long-term product support worldwide. FACC is part of the partnership, is responsible for the design manufacturing of the fuselage and the wind components.

So overall, the cost of this lifetime contract is a couple of EUR 100 million in size. As of today, depending on market development, the objective of Archer is to complete all ground and flight tests with the FAA during the course of 2024, achieve type certificates in the same year, and start operations together with another airline in the later phase of 2024, early 2025.

For FACC, that contract is important. It's our third contract in the urban air mobility environment following EHang, where we had a partnership since 4 years, A customer where we are doing logistic drones for materials we deliver or they deliver. And right now, Archer is our third customer in the new segment, which for us has a strategic importance for revenue growth in 2025 and beyond.

In saying that, I would like to hand over to Ales, giving you a few more insights on the financial KPIs.

[Aleš Stárek, executive]

Thank you, Robert, and good afternoon to everybody on the call. I'm going to guide you through the numbers. As usual, we start with the turnover and with the EBIT.

As you see over the trend line, we are coming from where we are today. So basically, on a company level, you can see a positive trend, slightly positive trend, recovering from the lows of around EUR 100 million in the early quarters of the pandemic, then coming to around EUR 120 million. And by now, we are moving around EUR 140 million turnover in quarter.

In the same way as the turnover and the sales recovering, also EBIT is increasing. So the restructuring that we have performed in 2020 looks as delivering the appropriate results and we can benefit and yield from the increasing volumes. So overall, in the last 6 quarters, we have delivered a positive operating result. The Q4 2021 has been impacted by the one-offs related to our legal dispute, and then we see an increasing profitability on the EBIT.

When we look at the individual segments, Aerostructures, probably here you will see the biggest increase over the last 6 to 7 quarters, currently, around EUR 50 million turnover on a quarterly basis. So here, last year was pretty much a breakeven year and then in every quarter. Q4 2024 was then again impacted by the lawsuit that was attributable to the Aerostructure business 100%. And since then, Q1, Q2, steady increasing EBIT profit in Aerostructures. Aerostructures is recovering profitability as the volumes in Aerostructures are recovering.

Then we switch to the next slide, and then we look at Engines & Nacelles. We see a pretty stable turnover. Q1 2021 and Q4 2020 was a little bit higher than the rest, but the rest is pretty much moving around EUR 22 million to EUR 23 million. So that's basically due to the fact that -- and we know Engines & Nacelles, they are basically depending on the 787 translating sleeve, which is basically the main story, and it has been the main story for a couple of quarters. And that's the case also continuing in Q2, as there were no delivers on the 787 translating sleeve. Now deliveries will start, will pick up, so we will be able to benefit from the new contract.

Looking at EBIT, you see a little bit of erratic movement here, and it's a little bit of a tricky situation relating to the 787 and relating to the old versus new contract. The best way to describe it probably is to basically look into the old contract that was on the recurring price, a loss-making contract. However, there was a volume independent and fixed payment related to spare parts that was in the old contract, and that went out in Q1 2022, which was the last quarter when we invoiced that fixed fee to the customer. The new contract doesn't have that fixed fee and it's basically relying only on the profitability of the recurring revenues, and the price has been adjusted accordingly.

So this is basically where you see Q2 2021 versus Q2 2022, the Q2 2021 is still basically depending on the fixed fee, still reflecting the fixed fee to a certain degree. Q2 2022 is not reflecting that fee. And the rest of the fluctuations is pretty much then a function of the A350 translating sleeve, lower profitability versus the engine components, high profitability. And as the mix is changing, then basically on these low volumes, there are things basically around, I don't know, a couple of 100,000 up and down. So that's pretty much the profitability in the Nacelles.

And I would expect that as now the 787-sleeve production is picking up and the volumes are picking up, you will see in the quarters to come, we will see basically similar picture in Engines & Nacelles as we see in Aerostructures. The volume increasing impact will be then basically translated into profitability.

When we look at Cabin Interiors, on the sales side, a similar picture we see as in Aerostructures, slightly increasing. The rate of increases in Aerostructures, the recovery in Aerostructures is faster than in Interiors. But then again, Aerostructure suffered more decrease during the pandemic than Interior. So this is pretty much in line with what we have seen. The profitability situation in Interiors is still kind of fluctuating. Q2 2022 was positive, but that's pretty much a project mix issue. As I say, a long-term return into profitability implies that we will have Croatia facility fully ramp up. Also Q3, Q4 in the 2022 may show fluctuations around the 0 line, only impact from 2023 onwards when Croatia is fully ramped up. Then we may see a stable quarter-by-quarter profitable situation in Interiors.

Free cash flow, pretty much straightforward with respect to EBIT depreciation. EBITDA, the EBITDA is following the improvement of the EBIT. Then what we see in others is pretty much a gain of capitalization of engineering, engineering expenses into contract costs, which always happens when we have SOPs for the production on one of the programs or when we are ending in the period shortly after the SOP. We have done basically some engineering works related still to the development phase or the development of the project, adding through contract costs. So we had a little bit more capitalization in last year than we have in this year.

And then basically, working capital is again then a function of how we judge and how we estimate the supply chain. So here, I probably need to go a step back into 2020 when we have increased inventories in the beginning of the pandemic in order to safeguard deliveries to our customers. And from there, as we saw that the supply chain is stabilizing, we have started optimizing and improving inventory management and using inventory, which helped then basically in the first half of 2021, a positive impact on nonworking capital.

And in this year, we are swinging back as basically the supply chain is as unpredictable or risky as we've seen in 2020 for different reasons. But in order to safeguard delivery to the customers, we are, let's say, in a targeted way and in a managed way, increasing inventories on building inventory buffers, risk buffers in order to be able to have the parts when we need them for production, which again then leads to inventory increases.

So out of the EUR 50 million that you see as a cash out, out of working capital, EUR 20 million is attributable to these inventory increases. Another EUR 10 million is attributable to, let's say, regular increase in receivables. Receivables are pretty much optimized in FACC. So as the volumes are increasing, receivables are increasing. So there's EUR 10 million out of that. And you're also seeing there is another EUR 10 million in receivable increase. That is an impact or a result of the lockdown in Shanghai in May and June, but basically, the Chinese customer was not able to pay off since there was nobody in the office.

So that impact will fade out over time as we are now basically starting collecting money from COMAC. It's basically production and payment, and all the process system basically that you have in an operation are basically coming back. So July and August, September will be a recovery month, and this impact will be paid out over time.

In terms of net investment, pretty much similar level. EUR 4 million versus EUR 5.7 million in last year. And you'll see that, I would like to go on the next page, we'll see basically here on the left-hand side when we look at investments and working capital, the beginning of the year is usually low investment cash out, and in the Q3 and Q4 are usually then stronger in investment cash out quarters. And this is basically also repeating itself in 2022. So no extraordinary issues on the investment side.

Looking at working capital, and I've been -- when we think about inventory here, which is a major driver for working capital, as I said, 2020, we have built up inventories in order to safeguard delivery. Then we started reducing them. And in the middle of 2021, the working capital was EUR 140 million. Then we've seen another drop to EUR 100 million. And since 2022, we have started building up inventories to provide security for customer delivery. So working capital is increasing again. But still, when we look at it today, at EUR 190 million, it's far below the EUR 140 million that we still carried around in the middle of last year and then even less than what we have carried on the balance sheet before.

Closing the financial section with the last slide on net debt and leverage. We see a slightly decreasing tendency and trend in net debt coming from EUR 225 million 1 year ago to EUR 211 million in June of this year. December 2021, and if you recall what we have discussed back then, then we had a couple of extra payments from customers. The Airbus, especially, conducted some prepayments from receivables that were actually due in January-February. So we have shown an extraordinary low net debt. And I have already indicated back then that we will see a normalization and this is what we see. But still overall, on the 1-year level, we see a decrease in tendency and net debt. So slight deleveraging over time.

When we look at it from the leverage perspective, as you all remember, 5.25 is the threshold that we have with the banks. And we have been well below the threshold in Q1 and Q2. So basically here, we are moving on the safe side. And the financing of the company is guaranteed. To spend maybe 1 or 2 more minutes on this. The COVID portion of the funding that we've taken on in 2020, the EUR 60 million is expiring in March next year. The whole clubbed loan is expiring in August of next year. We are now well ahead of the expiry and then we have started discussions with the bank so that basically the plan would be to close or renew the funding deal by the end of this year. And as I said, discussion has already started, and we will spend the next 4 months negotiating with the banks on an extension or, let's say, a new syndicated facility that will replace the currently outstanding subsidized government loans and provide also a flexibility for FACC for future growth.

With that, I would like to hand over back to Robert for the outlook section of our presentation.

[Robert Machtlinger, executive]

Thank you, Ales. Well, last but not least, a quick outlook on the business, how we see it. First of all, on the market, based on the inputs from the market we have collected, we see another increase on A320 ramp-ups in the next 12 months to 16 months by another 20% compared to current rates, bringing the output close to the point as we have seen rates before the COVID-19 reductions. The same is true on the A350, where FACC has quite significant volume. There is a 25% rate increase, pretty much in front of us to be executed between today and the end of 2023.

As Ales already described, the Boeing 787 is restarting deliveries to airlines. American Airlines received the first 787 last year. FACC is relaunching production of significant work for the 787 as we speak. So based on contracts we have developed in the past, which have seen some downturn, significant downturn in the past 2 years, those rates are again picking up and generating additional revenues for FACC.

The Airbus 220, we had a couple of statements before. Contracts signed in last year, we are currently ramping up production on the new contract. Overall, the Airbus 220 for FACC is a very important platform. Based on the rate expectations we see in the market, the Airbus 220 production volume for FACC will increase from around about EUR 30 million per year last year to EUR 100 million per annum between today and 2024. So the Airbus 220 will be another important platform for FACC next to the Airbus 220, the 787 and A350 platform, but also business jet.

Business jets, also here the market has fully recovered over the last year in August. Trends are further positive. The business jet market is currently larger than before COVID-19, especially in the United States. Also here, on major platforms where we supply product to mid-sized business jets, rates are ramping up around about 15% to 25% depending on the platform, higher than what we have seen before COVID-19. So also in the business jet market, for FACC is a growing market and well doing market.

And last but not least, COMAC has completed their ground and flight test program for the COMAC 919. The industry is expecting the type certificate to be awarded within Q3, latest Q4 of 2022, and in line with type certification production handover to the airlines will start. The COMAC 919 has an order backlog of around about 800 airplanes. The FACC volume per airplane is around about EUR 1 million per aircraft. So also here, we are currently in the production ramp-up phase of the interiors and the wing components we are producing for COMAC. And also here, we're expecting a continuous growth in output between today and the next quarters to come.

A quick look on if we have a certain focus on supply chain. We are considering and expecting that the raw material supply will stay difficult within the next 12 months. So our part for stock strategy will be kept and adjusted if the risk adjustment is necessary. Overall, we have full control on materials simply because we have considered extra inventory to protect FACC's production but also our customers.

We also are continuously restructuring supply chains. We are focused on local principal product we need or materials we need for European products. We have pretty much consolidated in Europe. Products we need for the U.S. market, we are still consolidating supply chains in the United States, and we are currently setting up supply chains in China for future demand of the COMAC 919.

We also are pushing forward on vertical integration. As you know from previous calls, a couple of operations have been brought inside FACC. One example is the manufacturing of metal components, which was 100% procured from the market, which is right now partially produced in FACC. We will do some more investments in the next years to come because the cost benefits and the logistic benefits we are currently already seeing from what we are doing are slightly better than what we have expected. So also here, we will continue to make FACC more independent, more flexible and less in cost.

Energy supply, we already discussed previously, I will not repeat the statement from before.

Last page, on key priorities. First of all, we as the management, we are again reconfirming the guidance we have given at the start of the year. We're expecting a 10% growth in revenues during the course of 2022. Even if some of our customers slightly adjusted the rate forecast in the second half of the year, we already have considered one or the other issue in the market once we meet our target. So the latest announcements from some of our customers are not impacting our guidance.

The EBIT target, we're still focused and still our guidance is intact and reconfirmed. So our focus will be on the ramp-up of our personnel staff in order to deal and cope with the ongoing ramp-up of major platforms. Plant #6 in Zagreb, we will ramp up to 250 people before the end of 2022. And ground breaking for Phase II and Phase III will be in early '23 with -- the construction is being finished by the end of 2023, and volume in loads in the new facility and the ground facility to be done starting in the second half of 2023 and going into 2024.

Liquidity and cash flow, Ales I think already explained, strong focus there. And we are definitely working on the expansion of our market position with all of our customers in the business jet area, in the civil aviation, but also in urban air mobility and space.

In saying that, this is pretty much what we wanted to share with you. Thank you for your attention, and we are right now available to answer your questions.

[Operator]

[Operator Instructions] We'll take our first question from Bernd Maur from RBI.

[Bernd Maurer, analyst]

2 questions, please. First, talking about segment profitability. You said before that Interior segment despite breakeven in the latest quarter under review, if not sustainably high positive territory, how does it look like for Engines & Nacelles? Do we expect here in your calculations a clear positive EBIT contribution for the full year '22 now looking at the second half with ramping up B787? That's question #1. And question #2, how do you think about restart of dividend payments? Can you give here some mid-term guidance at which profit level, which calendar year you might think of restarting payouts for your shareholders?

[Robert Machtlinger, executive]

Well, Bernd, this is Robert speaking. First of all, I think on the Interiors profitability, I think we stick to our plans as published in the investors market day presentation on 2019. We are transforming the business. We have launched a EUR 30 million transformation program, which is hinged on setting up Croatia, reducing material cost, vertical integration of business jet interiors and material supplier changes. I think we're in the middle of this transformation phase, still on track.

I think COVID-19 had a little bit of an impact in delaying at least Croatia by 1.5 years. But the Interior turnaround program is progressing. And as stated in previous statements, we are expecting Interior to be sustainable and profitable starting with the full ramp-up of Croatia.

In Engines & Nacelles environment, definitely, we have -- with the 787, we have a production pause for the last couple of months, impacting our fixed cost spread in plant #4 with the production ramp-up of 787 based on the new -- and as Ales stated -- terms and conditions of the contract. Engines & Nacelles is profitable -- sustainable and profitable with growing volume. Profitability will further increase. So also here development as planned. I have to say, however, the 787 delivery interruption, as we've seen it over the last 12 months, definitely was impacting our output of plant #4.

In terms of your second question, I think, Ales, if you could please answer.

[Aleš Stárek, executive]

Yes. So looking at dividends today, we have the situation that basically we have 2 restrictions. So 1, the waivers that we have agreed with the banks are restricting us from paying dividends. And secondly, the COVID-19 financing that we have taken on in 2020 is restricting dividend payments as well. The goal, the target from the renegotiations, or say, from the refinancing negotiations with the banks that we have now started in June, July of this year, but target is clearly to get those dividend restriction payment out of the way. I think the understanding from the banks is there.

So I would expect that once the resigning is concluded, the dividend payment restrictions will be lifted. And so from 2023 onwards, we should be, again, then able to pay our dividends. So then basically, we will be able to go back to our usual payment policy, a dividend payment policy, 20% of net profits, and this is something that we will stick to.

[Operator]

We'll take our next question from Peter Rothenaicher with Baader Bank.

[Peter Rothenaicher, analyst]

Firstly, on the COVID-19 trend. I think in the amendment, it's written that EUR 5 million from that are included in other operating income. So is this true? And to what extent has this been the case in the second quarter? And do you expect here another profit for the second half of the year?

[Robert Machtlinger, executive]

Yes. It's true that we have realized other profits from the loss compensation, the governmental loss compensation program that we have applied for. So basically, the loss is incurred in Q1 and Q2 that then basically partly compensated by the government. That's right. We have realized EUR 5 million. But this is basically ending. So there's no further loss compensation coming from the government.

[Peter Rothenaicher, analyst]

Then looking into 2023, you have here clearly argued that you expect a strong increase in production rates, particularly for the A320 family, A220 and the other programs. So what would then be your expectation on sales growth in 2023? Looking purely on these statements, then sales growth should be in the magnitude of 20% as well?

[Robert Machtlinger, executive]

Well, I think we need to ask for your patience. I think we are currently consolidating the budget figures for next year. We are revising our guided business plan. I think we still would like to give our customers just a little bit time to stabilize. Overall, I think we see a positive trend. We see a strong market recovery. And you're right, we see further growth in 2023 and 2024. Again, reconfirming that FACC will be back to the company size we have enjoyed before COVID-19. So we think it's reasonable, it's doable. But given the guidance for 2023, we look to closing after fiscal year. But the overall perspective and what we are currently seeing on the market is definitely a positive trend.

[Peter Rothenaicher, analyst]

Then with regard to the payout -- with regard to the legal case, can you give us here an update? Do you expect here payout for the fourth quarter or generally for the year 2022?

[Aleš Stárek, executive]

Yes. So we are now basically getting into situation where [Technical Difficulty] what we have known in November last year was basically base amount that amounted to approximately EUR 14 million, that we have partly contested. Some of them we have accepted, some of them we have contested. And then basically, we have made some estimations for interest rate and legal fees, resulting then in the provisions of EUR 25 million approximately and a cash out of EUR 20 million.

Now the interest rates have been pretty much also settled between the parties, between us and the tribunal. And then also, we have achieved agreement on the legal fees. So that's now basically concretized and decided. Still, the portion of the face amount that we have contested is still not decided. So what I expect is that we will have a partial cash out in this fiscal year, depending on how quickly the finalization of the document goes. It may be in Q3, in September. Approximately, I would say, EUR 7 million to EUR 10 million cash out in September is basically for whatever formalistic reasons. Q3, if it will not be possible, then in Q4 I would definitely expect a partial cash-out from the settlement that I say, in the amount of EUR 7 million to EUR 10 million. And the rest of the amounts we disputed will be basically then carried forward.

[Peter Rothenaicher, analyst]

And taking into consideration this cash out, what would then be your expectation for free cash flow in the current year?

[Aleš Stárek, executive]

Again, here, I think we need to do a little bit of thinking where we can end up. As I say, from inventories, that's for sure, we will not have any improvements there. The business is growing in Q3 and Q4. There is little we can do about improving receivables, so they will grow as well. So probably -- and on the payable side and then also normal leverage here, there will be some cash out from investments in Q3 and Q4, probably in the same amount as we've seen in 2021. So yes, I would need to sit down and do a little bit of more thinking to give you a clear guidance range, whatsoever.

[Peter Rothenaicher, analyst]

And then with regard to seasonality, normally, Q3 is always weaker than the second quarter due to the vacation time. Will this also be the case or do we have to expect for the third quarter, lower sales and profitability than in Q2?

[Robert Machtlinger, executive]

I think you already answered your own question. I think it will be. Q3 is a little bit weak because August is lower demand from our customers, but a stronger demand in Q4 in every year. That's not different this year.

[Operator]

We'll take our next question from Harry Breach with Stifel.

[Harry Breach, analyst]

Maybe can I ask a couple -- maybe a little bit more for Robert rather than giving Ales a hard time about cash flow. A couple of things. Just on commercial angles really. Firstly, when we think about the business, particularly from your [Technical Difficulty], are we seeing stability and regularity in purchase orders and how they're taking shipments? Or are we seeing some unevenness as we particularly look at the narrowbody ramp up?

Second question is thinking about work packages and opportunities. I think, if I remember well, I think Spirit recently mentioned that one of their suppliers had unfortunately become bankrupt and I'm sure they won't be the only supplier unfortunate that doesn't make it through. Are you guys seeing any opportunities, any increased RFQ activity either from Tier 1 like Spirit or directly out of the air framers themselves?

And then maybe sort of final commercial question, if I can. Congratulations on the contract from Archer, and clearly adding EHang and the unnamed airfreight UAM operator. When we think about UAM revenue, I think early you kind of gave us a number potentially on the A220 revenue looking out for 2 or 3 years. When we look at new UAM revenue, when we put together the potential volumes from Archer, from EHang, from the one that is unnamed, what sort of number are we talking about maybe in 5 years' time in 2027?

[Robert Machtlinger, executive]

First of all, on the order stability, I think overall, the demand signal and the deliveries are quite stable. So on the wide-body, anyhow because it's following a drum beat, as said before. On the 787, there was no deliveries because it was paused. It's ramping up again. The 50 A330 was very stable. And also on the A320, a very continuous ramp-up. And to be fair to say, there was one or the other short-term reallocation from expediting one airline configuration in favor of an earlier configuration. So there was some real shifting on allocation of the product, pretty much driven, I think, by the handover slot to the airline. But I think that was what many expected, it was not too different to what we have seen in the environment for 2019. That's pretty much lower.

What we have recognized from time to time was a little bit of a slower return of shipping containers, which is an indication to us that the production sequence was not fully harmonized, but this was a 1- or 2-week event and it was stabilized again. So overall, I think, considering the noise we see globally in global supply chains, logistics, I will summarize it. There is some volatility. Some of it we already expected, but it's good right now.

On the second question, work packages. We currently see quite a lot of RFQ activity from all of our customers. There is many packages that are out on the market where we are quoting and others are quoting. For the one reason you already expressed, Harry, that suppliers are failing. All the suppliers cannot deal with the future market demand. We are working on packages in Aerostructures, but also Engines & Nacelles. Currently, a little bit less in Interiors to bring market share into FACC on work that currently is produced to somebody else.

So there is an increasing, I would say, RFQ activity on the market. I can confirm that, Harry. And this is certainly giving us but also other companies I think the opportunity to bring in work that is currently produced to somebody else.

On the urban air mobility market and revenues, we are expecting a revenue out of the contracts we have today. It's EHang, it's the unannounced customer, and in the future, Archer, which pending still on certification, entering to service and ramp-ups, which could range between 80 and -- sorry, for the widespread -- USD 80 million and USD 140 million of revenue per year in 2025. So still, I think some uncertainty on certification, completion, entering to service and rate ramp up, but we are expecting USD 80 million to USD 140 million a year in 2025.

[Harry Breach, analyst]

Robert, if I can add, are you responding to any RFQs and other UAM programs?

[Robert Machtlinger, executive]

Well, we are currently working with a few other ones. We have selected, I would say -- well, as you all know, there is many, many programs out in the market. Many people try to enter that market. We try to make our selections whom we think will play a major role in this growing market. We are currently working with 3, and the risk engagement with another 3, we are currently working and discussing potential cooperations between FACC and those potential partners.

[Operator]

And we'll go ahead and take our last question from George Mcwhirter with Berenberg.

[George Mcwhirter, analyst]

I have a question on the revenue guidance for the current year. The guidance implies we see a slight slowdown in growth in H2. Is this a bit of conservatism in the forecast? Or can you give us -- sort of talk to the reasons behind where you might see slowdown given you've mentioned that we might see steady increases on the key programs like the A320 and A220?

[Robert Machtlinger, executive]

I think there was a few statements made by 2 of our main customers on how they see the rest of the year. They slightly reduced the production output. Again, what they have currently announced on their reductions. We didn't know, I have to say, when we did our planning for 2022. We think what they currently have announced they will deliver all of them and that's still inside our market assessment. So again, as I mentioned before, Q3 will be a little bit weak in production demand. Q4, again, will be strong. Basically, we think the 10% revenue increase is what we are expecting based on what the market knows today and what we know today.

For 2023, I think our customers are pretty much open. They made certain announcement. That's the numbers we are working as well. I think the industry will further stabilize. This year definitely was a year of a ramp up with the one or the other challenge. I think Ukraine speaks for itself and other issues, I think next year could be a little bit more stable and better predictable. So I would say the 10% we have forecasted, we are very confident. And again, I think for next year, we will work with our customers in the next couple of weeks and months, and we will come out with our guidance as always at the end of the year. But the indications from the market are fairly positive because the platforms we are on are developing very nicely at the time being.

[Operator]

And with that, that does conclude our Question-and-Answer Session. I would now like to hand the call back over to our speakers for any additional closing remarks.

[Robert Machtlinger, executive]

So I think we are finished right now. If there are any questions open, then please get in contact with our IR team, as already mentioned initially. Many thanks for joining our today's conference call, and have a good day so far. Thank you.

[Operator]

And with that, that does conclude today's call. Thank you for your participation. You may now disconnect.