Palfinger AG (PAL) Earnings Call Transcript & Summary

Thank you for standing by. Welcome, and thank you for joining the PALFINGER AG Conference Call. Our today's hosts are CEO, Andreas Klauser; and CFO, Felix Strohbichler of PALFINGER AG. [Operator Instructions] I would now like to turn the conference over to Andreas Klauser, CEO. Please go ahead.

Yes, good morning, everybody here from Vienna. Welcome to our 2023 results publication. And I'm very happy to state here that this was a record year, a record year in terms of revenue, EBIT and consolidated net results. It was a mixed bag to 2023, so we had to face inflation, high interest rates slow down in the order intake in -- especially in EMEA. And we had to deal with high inventory levels still caused by the supply chain. But at the end of the day, in Q4, we managed quite well to reduce this significantly, no doubt and difficulty. Next slide here, 2023 was an eventful year. We had different major events. We had the opening of the PALFINGER Campus. We had introduced the PALFINGER World in Lengau, the customer touch point. We had a further growth in North America, a major step forward when we opened as well our new headquarters in Schaumburg, Illinois. We developed certain partnerships, and one to mention is the Aker BP. Then we had as well, a strategic partnership with Steyr Automotive, where we are producing our track-mounted forklift here in Austria. And we had a change in the executive board. We brought Alexander Susanek onboard as our COO; and Maria Koller as our CHRO. And as you can see here, many things took place, but even more important, and if we go to the next slide, we are still #1, and we will be #1 in the lifting solution world. And this is also important when you introduce many changes, when you have many things on your plate. I'm happy to report here that as well, the revenue which grew significantly as well in North America. I think Felix Strohbichler will tell us a bit more in a minute. We managed to have more than 12,000 employees. Revenue distribution, as I said already, was further growing. So we are 25% in North America, 60% in EMEA, and 5% equally between LATAM, CIS and the APAC region. If we go to the next slide, quite important here that looking at our product portfolio, it's still very powerful, it's very innovative. We have 9 different product lines in the segment land and 6 on the marine side. Here, no change. Everything is now even further connected with digital solutions. I think this is also quite important here to mention this. So that this is the backbone of all our activities we are having here. On the next side, and this is also important looking forward. We have quite high resilience throughout different industries. And I think it's important always to mention where most the PALFINGER is doing its business. No doubt construction business is the most important one, where we have a bit limited visibility than the forestry side, not to forget about waste management, recycling, even further improving transport and logistics here, talking about the track-mounted forklift. The public sector, which is kicking in quite well. Offshore, coming back and still quite stable, our railway business. Coming now to the regions, and I think as well here, it's important that you see where this growth is coming from in terms of revenue development. So certainly marine, as you have already seen in our figures, not to forget about region APAC, which also grew by plus 25%, and North America, which already has seen some significant growth in 2022, was further growing, plus 17%. So overall, quite a story of success. Then there was always a question mark, mostly from our investors here on the marine side. And here, we can report that we had in 2020, significant order intake increase and as well launched different partnerships. Here, are just a few of them. Just to mention where PALFINGER is quite successfully dealing with. Yes, as a premium supplier, the next slide, I think it's important that our customers are recognizing, not premium products as well, premium services. This is guaranteed throughout 300 distributors with more than 5,000 service partners all across the world. So PALFINGER is really dealing in all the regions with the proper support. On the other hand, also quite important is spare parts business. And here, I'm happy to mention that we have now fully functional 3 different service hubs, 1 in Lengau, 1 in Bremen and 1 in Toulouse, France. And yes, everything is connected, as I mentioned earlier, by Smart Control. So quite important in terms of digitalization of PALFINGER moving forward. And on my last slide here on the introduction, I think it's also important to comment a little bit sustainability, which is key to our business. There are 3 different areas where we are in. So one is certainly for the planet itself, for the people on it, but as well for our business. And here, I just wanted to mention that in terms of energy, we are now covered 75% by renewable energy sources. I think also quite important as well, our emissions went quite down. So I think all in all, a good picture. Also happy to report that in terms of internationalization of employees or headquarters, we are currently at 26%. I will hand over now to Felix Strohbichler to see our financial results and then come back to you later on the closure. Thank you very much.

Thank you, Andreas Klauser. Good morning, ladies and gentlemen. I'm very happy to be able to present once again a set of record financials to you. Starting with the segment Sales & Services. Most of you already know we have 3 segments. One segment is covering all the Sales & Service activities of the Group. If you go to the next page, you can see some highlights of this segment in the year 2023. First of all, as Andreas Klauser already mentioned, North America is our biggest growth market. We had a revenue increase of more than 17% in 2023. And what is even more important, also a continued positive earnings development. Latin America, we could strengthen our market position despite of the fact that the environment in Latin America is getting increasingly difficult even more so if you talk about Argentina. Coming to APAC. We have seen a very good order intake, especially for loader cranes. And what is a key market of the future, clearly for PALFINGER globally is also India. And here we have seen very good growth rate last year. And what is also key is that, here, revenue and profitability [Technical Difficulty] a good volume of invoicing. We had a lower order intake due to the macroeconomic development, especially the [ contract ] in Central and Northern Europe has been depressed over the last year. However, if you look at the output, as already mentioned, we have seen a significant increase in revenue across all product lines and also an improved profitability due to the fact that all the price increases we had implemented became fully effective in Q1 2023. Last but not least, we were faced with quite high inventory levels of finished goods due to the fact that the delivery reliability of the truck manufacturers was not good. And this also led to bottlenecks in the installation network so that in the end, we were faced with the fact that we had to buffer, so to say, finished goods which could not be installed on trucks because they were not available and because the available equipment from PALFINGER did not match with the available trucks. Luckily, we could achieve a reduction of inventories in Q4 2023. However, the process of optimizing the working capital is by far not completed and will be one of the major action items in 2024 as well. If you go to Page #15, you see the set of KPIs for the segmentation service. So the external revenue increased almost 14% to EUR 2.24 billion. EBIT of EUR 207.7 billion is an increase of 38.6% and an EBIT margin of 9.3%. And clearly, this revenue has been driven by price increases on the one hand and also by some growth markets, as I mentioned before, APAC, Marine and North America and EMEA the growth was clearly based on the price increases. Below you can see a set of KPIs we did not provide earlier, but we have reacted to the request of some investors to be here transparent also in terms of order book development and share of service business with clear KPIs. So here, you can see the development of the order book in the segmentation service. So obviously, due to the fact that the order intake in our home market, EMEA, decreased last year, we have also seen a decrease in order book from more than EUR 1.5 billion to a bit above EUR 1.2 billion at the end of 2023, which is a decline of around 20%. However, still a good order book to start with in 2024. The share of service business is around 15%. You can see that the share of service business went down compared to 2022. The reason for this is that, we implemented quite some price increases over the last years due to inflation. And whereas for the new products that price increases had a certain delay because we had long delivery times and the effectiveness of the price increases in most cases did not match with the year of the cost increases, it was not the case for the service business. So the price increases we implemented for the service business took effect earlier compared to the price increases on the product. So the share of service business has actually rather slightly increased. But due to these effects of different effectiveness of price increases, you see here quite the fluctuation and a reduction even compared to 2022. Having said this, let's go on to the segment Operations. So this segment covers all the activities of [ bulking in fabrication ] and assembly. On Page #17, you see some highlights of the segment Operations for the year 2023. So we had, first of all, reduced external revenue in manufacturing for third parties because obviously the difficult economic environment also had an impact on our customers in the third-party manufacturing. You will see the figures in a minute. What was positive is that, due to the improved supply chains and the increased delivery reliability of our suppliers, we could reduce the production backlogs. On the other hand, of course, those improved supply chains are simply an indication that the overall economic environment has deteriorated quite a bit. From September onwards, we had the weakening -- impact of the weakening demand in Vienna and LATAM also had an impact on production. So we have to adjust capacities in some plants in the second half of the year. Due to the fact that supply chain constraints were not the main topic anymore, in 2023, the focus in production was clearly on optimizing processes and increasing the productivity. And there we still have big potentials because the supply chain stability is still not fully there and there are still many things we can do here. And last but not least, we had our groundbreaking ceremony in Nis in Serbia in September 2023 for our new production plant. Serbia offers quite attractive wage cost levels and what is as important nowadays is that, there is a very good employee availability in Serbia. On Page #18, you can see the KPIs. First of all, if you have a look at external revenue, this, of course, does not reflect the net sales or the production volume for our factories. It simply reflects the sales of segment Operations to third-party customers. So not what has been produced for the segment Sales & Service, which is obviously the most important -- by far the most important part of the output of our production plants. So this is only saves the third parties, mainly from our factory in Romania, which is doing chrome plating for cylinder tubes. You can see here a reduction of almost 24% in this manufacturing for third parties. The EBIT of the segment Operations went quite up by 36.4% despite of the decrease in external revenue. The reason is simply that we adjusted the transfer prices based on the cost developments, which led to an improved profitability in this segment. Moving on to the next segment, Other Nonreportable segment. So this is actually a new segment because, in 2023, we had spun off the product line tail lifts from the GLOBAL PALFINGER ORGANIZATION. Tail lifts ran into difficulties due to difficult market environment. So we decided, due to the fact that there are also very low synergies with the rest of the product lines to spin it off, to restructure it, to implement a new organization structure, and we have implemented in the meantime a comprehensive cost cutting measures, which also are leading now to a breakeven already after a few months. In 2023, in the set of KPI, you can only see the tail lifts business from EMEA, not yet North America. So this will follow in 2024. So only from 2024 onwards you will see the full tail lifts business in this segment. And, of course, there is still another very important part of this segment. In the past, we always talked about the unit holding, which covers the cost pool for administration and strategic projects. And, of course, those 2 parts tail lifts on the one hand and the holding unit are now bound in this segment, Other Nonreportable segments. On Page #21, you can see external revenue of tail lifts EMEA, EUR 53 million. Obviously, holding has no external revenue as mentioned, next year or this year also, North American revenues of tail lifts will be added to this number. In terms of EBIT, you see a decline of around EUR 60 million. There are several reasons for this. On the one hand, we had a one-off effect of the re-segmentation of tail lifts. We had currency effects which were negative in 2024, whereas we had positive currency effects -- sorry, in 2023, whereas we had positive currency effects in 2022. And it's also higher holding costs for several reasons, due to investments in strategic projects and also due to rising labor cost. Coming now to the PALFINGER Group KPIs on Page #23. So as Andreas Klauser mentioned, a set of record numbers. First of all, the revenue increased by 10% to EUR 2.45 billion. What is more important is that, for our result, that the profitability increased by far over-proportionately to almost 40% in the EBIT line to EUR 210 million. And most important for our investors, the consolidated net result increased to almost 51% to EUR 107.7 million, which will lead to by far the best dividend ever, which will be paid by PALFINGER for the year 2023 of EUR 1.05. On Page #24, you see our investment levels of the past 3 years and obviously, 2023 was a year of heavy investments driven also by major projects. This level probably will go down in the coming years, however, not dramatically, because we still have some projects which are already in the pipeline, still ongoing. So the level of investments has increased, will go down, but will still be high for the next 2 to 4 years. On Page #25, you can see some KPIs regarding our financing, and happy to have here a lot of interested investors for our promissory note loan, which we're issuing at the moment. So we have, at the moment, a net financial debt of EUR 668 million, which is an increase of around EUR 60 million compared to the last year due, of course, mainly to the fact that we have, on the one hand, a high investment level, but especially also another increase in working capital, as already mentioned. You can see the average interest that has gone up dramatically, no news. Everybody knows what the development was. We believe that in 2024, we will reach a peak now, and then we will see, from a level of around 4%, a slow decline in the average interest debt rate. And if you look at the remaining term debt, we are now issuing the promissory note loan. So this will substantially change and improve here the average remaining term debt to by far more than 3.5 years. On the next page, again, some KPIs regarding our balance sheet. Most importantly, the return on capital employed in the last line increased to 11.5%. So not far away from our communicated target level. Net debt/EBITDA also improved due to the very good EBITDA from 2.66 to 2.21. Of course, we are not happy with this. We want to reach again our target level of less than 2.0, but important that we are now, again, close to this target level. If you look at the equity ratio at 34.7%, please take into consideration that we have also our treasury shares of 7.5%. As soon as we would issue those treasury shares, for example, in accelerated book building, this would lead to an increase, of course, depending on the share price of around 2.5% to 3% of the equity ratio. So we have to keep this in mind when we talk about the stability of our balance sheet, which is very, very solid. Last but not least, I want to point out the cash flow development on Page #27. So those who have followed the last quarterly calls know that we said we have a clear target to reach a positive free cash flow -- a clear, positive free cash flow at the year-end 2023. The first 2 quarters were heavily impacted, on the one hand, by further increases in working capital, but also by our heavy investment program. But in the end, we managed in Q3 to turn around the cash flow, to have a positive cash flow from Q3 onwards. So in the end, we could reach a free cash flow of EUR 46.5 million. And if you look to line #3 and 6, you can see still another increase in working capital of EUR 40 million. And, of course, the big impact of the investment programs with around EUR 166 million of cash impact. With this, I would like to hand over to Andreas Klauser for the outlook.

Yes. Thank you, Felix. I think quite interesting, impressive numbers. Yes. Now, let's look into 2024. And if we go to the first slide here, I think what we can mention is that, H1, we expect seeing a stable revenue and really good profitability. However, full year, we have to deal with a quite weak economic environment here in EMEA, partially will be offset by the positive developments we can currently see in North America and our Marine sector. On the other hand, as well, we have put some quite important measures in place to counterbalance any upcoming downturn which might happen. So this means in terms of capital, working capital as well, in terms of CapEx investments as well, by increasing the productivity and certainly targeted cost reduction, increasing productivity means as well that we can deal and secure that we have maximum flexibility in terms of any changes which might happen in H2. Again here, up to quarter 2, we see quite strong order backlog, which is fully in line, what we expect fully, and I think we need to be quite clear here. We have limited visibility. We can balance this out, no doubt, but for the second part of the year of 2024, we expect a slowdown, which will be difficult to offset, but still staying the course. If you go to the next slide, and I think it's also important for midterm here that we fully stick to our financial targets for 2027. The famous EUR 3 billion, 10% EBIT margin, 12% ROCE. And as well, quite important to remain the #1 and the market leader for crane and lifting solutions in the entire industry. This concludes our presentation here. Thank you for attention, and [ with that, ] we'll take the questions.

[Operator Instructions] The first question is from Markus Remis with Raiffeisen Bank International.

Congrats to the results. Few points I want to address. Firstly, looking at Q4 and reading the notes in the report, it seems that you have sold some chassis. Can you elaborate maybe the reasoning behind? Does it mean that [ clients ] have ordered -- sorry, have canceled orders and they've become kind of obsolete? Or was this purely a working capital optimization measure? And it seems that you've booked something like EUR 4 million in the other income, as well as some cost of around EUR 4 million in the other expenses. If you can maybe shed some light here?

Yes. So in fact, we had a situation in North America in our aerial work platform business, where truck availability was a huge problem. So we were forced to place a lot of orders, and then at the end of the year, more or less, we were really filled up completely with chassis, which were far too much to be handled in a reasonable period of time. However, the power to refuse to take over those chassis is not there if you deal with those large manufacturers in the U.S. So in the end, we had to take the chassis, but sold off the excess volume to other customers and dealers of those trucks. So this was, in fact, the story behind.

Right. And is it then a neutral effect because you've had income and expenses? Or was there a net...

I think there was even a small margin, but actually it was just getting rid of the trucks and there is no significant credibility. The main target was clearly to reduce here excess working capital and it's also not good to store trucks for several months. This does not really increase the value.

And you said it was for aerial platforms.

Exactly, in North America.

Okay. Then I'd be interested to get a sense of the order development in the first quarter. So thanks for sharing the backlog figure. Is there, how should I say, any noteworthy change in the first month of 2024? And maybe you can also break that down Europe and share some granularity also on a country basis and eventually also give some color on the product-specifics, so which ones are, how should I say, more impacted than others?

I think in general, as we said already earlier, it's slowing down in EMEA, which -- as well EMEA is a mixed bag. We have Germany, which has a more negative impact. Other ones are developing quite positive, like Spain, Italy as well. The Northern camp is a little bit suffering. So we're closely monitoring this. And as said for H1, we still expect to be absolutely in line what you expect from us for the second half of the year we have for limited visibility and therefore, we can't give you any clear guidance.

So the first month of 2024, there were kind of a continuation of the trends that you've seen in the second half of last year already. Is that...

Maybe different countries and as well, still North America kicking in quite well and as well Marine and APAC, whilst as I said, as well in Europe there's a quite mixed bag. I mean, luckily, we are very well balanced across Europe. So the impact maybe which we might see from Germany or places like this is not fully kicking in.

Right. And I think on recent occasions you've always indicated that pricing should be pretty stable for 2024. So I just wanted to hear if that is still the perception and also is there, I should say, general price discipline in the market? Or are you seeing trade local peers getting a bit more aggressive to safeguard volumes?

To be quite frank here, we had to be more aggressive in terms of pricing as the cake is shrinking their competition, as well as protecting their turf. We are not losing deals, we are not losing any kind of business currently. Might be that profitability is a bit suffering and this mixed bag. Therefore, we don't want to give here too much of a guidance for H2 2024, I think, which is fair to the market [Technical Difficulty]

Right. So on the Group level, it's now rather the assumption that pricing will be a bit lower negative impact from the pricing side. [Technical Difficulty] what you're saying, as opposed to the former indication of [ stable development ]?

Sorry, we cannot hear you. The connection is extremely bad. So it's very difficult to understand.

Okay. Sorry. So is it fair to say that the pricing environment has deteriorated compared to your, say, to the statements from the Q3 release so that pricing will be a headwind in the current year?

I think that in the end, the situation has not changed dramatically in the marketplace since the last -- for the last months. What has changed, of course, is that, today, we are talking about the full year and we don't have the visibility for the full year anymore. So today, we have high volatility, we have chances in some regions we see once again also positive surprises, but again, EMEA is weak at the moment. It could recover, but it's, of course, unclear when. And this simply means that the main difference compared to the last year is that, the visibility is not as much given as it used to be. So now we have a visibility for 2 quarters and what happens in Q3, Q4. Of course, at a certain point in time, probably with the publication of the quarterly results for the first quarter, we will give you an indication or a guidance. But at the moment, we decided it's not serious to shoot out any figure because today there are too many variables and too many possibilities in both directions.

But what you can take with you that all the measures, as I mentioned on my closing slide here, I think all the measures are in place that we can deal with any kind of upcoming challenges, opportunities we will see.

Yes, that would be my final question. If you are kind of accelerating cost savings to counter the pressure, any plans in the drawer regarding, say, amendments, capacity adjustments, amendments to the industrial footprint, anything you can communicate?

Absolutely. We have this flexibility, but as well, on the other hand, we have flexibility when the market is coming back that we can deal with any kind of opportunity which comes back. So it's not just only saving, it's maximum flexibility in terms of workforce. We have very flexible workforce. We agreed here as well with the unions in Europe, all across different counties, that we can deal with any further impact we might see from the marketplace in both directions.

The next question is from Patrick Steiner with Kepler Cheuvreux.

Patrick Steiner from Kepler Cheuvreux. A few questions from my side. First of all, I mean, the first one has been partially answered already, so sorry for that. But basically my question would be, what kind of events drove your decision to not issue a guidance? I mean, you have visibility until the end of H1. So roughly 4 months, that's actually usual visibility range, I would say. What were some kind of specific events? I mean, do you see any order cancellation? Or can you give us more information on that?

No. So in the end, there is not the specific reason for this. It's just that at the moment, we have an order book, and the order book is decreasing, as you can see. And, of course, in theory, the order intake is not as bad that we couldn't fill this year up in any case and say we will keep a similar level as last year. However, if the order intake remains at the low level in EMEA, if some chances wouldn't materialize, we still would have to adjust capacities because it doesn't make sense to completely empty the order book. So in the end, the question is, with further developments, we will have to take certain decisions which will impact then what can be the output in the second half year. And it's too early today to take decisions because the order book is still that full.

Maybe to give you -- from the marketplace itself. So we heavily reduced as well our dealer inventory. So let's say, the dealer pipeline is not overstocked. So whatever is coming in on fresh orders will kick through as well into our production. So all these measures are taken. And -- but in terms of visibility we have, we have to balance this out, and therefore, we don't want to stick here to any strict guidance at this point in time. On the other hand, I think what you have seen, what happened in the last couple of years, what happened last year, what will happen in H1 2024, I think considering these numbers which you have seen, we are positively -- still positively looking forward.

Can you give us a bit more information on regional differences in pricing and volume expectations for 2024, maybe to touch a bit on your main end markets?

I think what you have seen here, the balance goes to 55% coming out of EMEA. And as I mentioned earlier, even EMEA is now quite the mixed bag between countries which are very well performing, like, as I said, Spain, Italy, construction business is quite well sitting there, whilst Scandinavia, Germany, France is more suffering. So I think that's in the scope of our business, that we have to balance this out. North America, currently, there's a big logistics fear going on in Indianapolis. We see that orders are coming in slower, but still in terms of offers, we are at the quite high range. So in terms of offers which are out in the marketplace globally, there is no delta to previous year, but we have to materialize, and this is the point where we said we have limited visibility.

And maybe last question, working capital development throughout 2024. Can you give us a bit of more info on what you -- what's your kind of target for the end of the year?

So we set ourselves a target to reduce inventories by at least another EUR 50 million. So this is the main driver. Of course, there is also certain seasonality. So it's always in the fourth quarter where we see a decrease, and the first quarter always shows an increase. So in terms of historic development, Q1 is always under pressure in terms of cash flow and development of working capital. But we expect that until year end we will see a significant improvement here in working capital. And the main driver is, on the one hand, still the finished goods inventory, which is still at the [ too high ] level you mentioned trucks before. So even if we sold off 4 million of trucks, this is just a small part of what we still have on stock. So there is a huge potential here for finished goods, for trucks. And also in Operations, we still see major potentials to further reduce the inventories due to the fact that the stability of the supply chain is given nowadays.

The next question comes from Tore Fangmann with Berenberg.

Only one from my side. If we look at the quarter-on-quarter development, well, revenue has increased, profitability has decreased quite substantially. And are there any particular reasons for this? And how do you expect this to develop going forward?

I think it's important here that, yes, the cake is shrinking already since Q4 2023. Nevertheless, with the good order book, and that's a significant part of PALFINGER is still on the lifting solutions market. I think we could still continue in terms of profitability, but the run rate will slow down, there's no doubt, as the cake is shrinking. I think this is an overall comment, and maybe Felix.

Yes, but you also have to consider, and I think we also announced this in the last call we had, that in Q4 typically you make provisions for the coming year, and obviously you have a certain bandwidth here. But in 2023, having in mind that 2024 could be more challenging than 2023, we also made sure that we have proper provisions in place for any things we could see at the end of the year. So there is a certain level which is not operational, but provisions which have been built up in Q4. And this is, in effect, you don't see in Q3.

The next question is from Daniel Lion with Erste Group.

I would like to further touch upon the working capital issue. Obviously, in a decreasing market, you always release some working capital. So would you see the, like, the EUR 50 million on top of an eventual slowdown in the second half year? Or rather as a ballpark figure also already assuming some weakness in the second half?

So the EUR 50 million is a figure which is based on a stable development, more or less. If we would see a slowdown, working capital would reduce further. However, probably not in 2024, because half year 1 will not show any decrease of volume. So this means that if we would have to reduce the volumes, the impact of the working capital decrease is not following immediately, but with a certain delay. So this would probably lead to a further decrease in working capital in Q1, partially, perhaps in Q4, but this is not factored in, in the EUR 50 million.

Okay. And how's the regional split currently of inventory? Obviously, North America seems to be high, especially when it comes to [ perhaps the seas ]. Have you already managed to somewhat bring it down in Europe, given the current situation? Or is there any imbalances that you're still working off from a regional perspective?

So if you talk about the inventory and production, it's more or less a good picture in Europe, where we still have potentials, as I mentioned. But there are some substantial improvement potentials in North America. So we mentioned the trucks for our aerial work platform business in the U.S. This is by far the highest working capital of all businesses we have. So this level needs to be decreased. And here, we have a clear program in place to address this topic. We are talking here about a high number, a double-digit number of millions just from this one entity with a revenue of around EUR 100 million. So this is a very big impact. Also, in Europe, we still have a lot of finished goods and also some complete trucks with equipment. So also, this is a major part. So if we take those 2 factors, only finished goods in Europe and trucks, on the other hand, inventories in North America are a workplace and big business, we are not far away from the improvement potential of EUR 40 million to EUR 50 million.

Okay, understand. And also coming back to the pricing issue, do you see, actually, if not cancellations, negotiations of already signed orders in the light of the current price pressure on the market? Or does the pricing issue only affect new orders coming in?

Well, I think we did not see any cancellation so far and we don't expect this. On the other hand, as I said earlier, we managed to quite heavily decrease our dealer inventory. So the dealer pipeline is quite empty. On the other hand, as I said, one piece is the cake is shrinking, no doubt. Still the offers which are out in the marketplace are nearly at the same level as a year ago, but related as well to the truck business, and I think it's also important to mention here is that, our customers at the market expects a further decrease in terms of truck prices. And since our equipment is related to trucks, we are a little bit depending as well what's happening in the truck business. And since customers are expecting that the market price for all different [ WAMS ], for all the different brands, MAN, Scania, whatever, the prices are expected to go down. So everybody doesn't want to closure now at the high price. This is a little bit adding some uncertainty in the marketplace.

And how does it actually work? When you place an order for a truck chassis, I guess, you also sign a certain price, right? So until delivery, and related also to the client, you don't have some kind of risk for the pricing development, especially now expecting prices to go down. Or can this be passed on either to the client or to the truck chassis producer?

No, I think to be clear here, I mean, we are not talking about the units which PALFINGER is purchasing. I mean, the PALFINGER units, couple of hundred units. We are talking here in the marketplace, the chassis which are provided by our customers, by our dealers. So the customers which are ordering on their own the chassis and then coming with the chassis to mount the truck, they are still a little bit hesitating to close the deal because they expect the prices would go further down. For our fleet, I mean, since we have guaranteed minimum prices and best price, I don't expect any impact to our own fleet, which is currently in a year, maybe 250 and 300 units.

Sure. Can you -- what's the reason for the negative operating results in the Operations segment in the fourth quarter? Is this something that we should also expect now in the coming quarters? Or does it rather have to do with the provisioning that is reflected there?

No, what you can see in the Operations result is clearly that the utilization, and this is what I mentioned also for the segment that in Q4, utilization in some factories went down due to the order intake and also in third-party manufacturing, which is a very profitable business historically. So of course, this also had an impact on the profitability of operations. And we also expect that operations will be a bit under pressure in the coming quarters.

Okay, understand. And finally, on the CapEx, you mentioned that, of course, CapEx will remain some kind of elevated, maybe not as high as the EUR 170 million we've seen in '23, especially now in '24. Is it still fair to assume a level for this year between EUR 130 million and EUR 150 million, which would increase, then again, once the market recovers, especially in Europe going forward?

So 2x no. I think that EUR 130 million would be too low for 2024. I think it's rather the other end of your bandwidth, which is a realistic number. And it's not that it would go up if we have to increase capacity, because our target is to increase capacity in the future more through outsourcing, trying to do investments in our own factories. However, we have especially 2 major outstanding investments in our production. The one is the ramp up of our plant in Serbia, which has already started with the groundbreaking ceremony in September. But, of course, the major spending will be this year. And then we have in front of us the new painting facility in Slovenia, which will kick in probably in 2026 and 2027 to a large extent. And here, we are talking about an amount of EUR 70 million plus in total. So this will be a burden for the years 2025, 2026, 2027 split in equal parts between those 3 years. And, of course, this will lead again to an elevated level due to this major investment.

The next question comes from Lars Vom-Cleff with Deutsche Bank.

Only one little question left. You said on the Q3 call that order intake -- when we look at the order intake, order intake you received from the timber industry was worse, down more than 30% and then followed by construction. And that this will also affect the current or running business here. I guess, this is still the case, right? Timber worst followed by construction when you look at your customer groups.

I would say, timber was a little bit recovering. I think if you look at the timber price, you see the positive trends. Still construction business as well, where timber is used is down. But as I said, on the timber business, we see some positive sign. Whilst the run rate here in terms of construction business is still low. Nevertheless, the orders out. It's now just quite important to make sure that we are properly able here to close these deals and to have all the actions in place, what we are currently doing here.

The next question is from [ Natasha Ferruja with POV ].

It's Mark, because Natasha was unavailable, so I'm speaking on her behalf. First of all, thanks for giving us the opportunity to ask questions. Maybe just some more information on the points you mentioned in the Risk section of the annual report regarding the deconsolidation of the Russian business, sort of what's the plans going forward? And also the point on impairments. Maybe if you could give us some more information than what they're currently on the annual report?

So first of all, talking about Russia, we have around 5% of our revenue and around EUR 140 million of assets in Russia. At the moment, as you know, this is completely ring-fenced. We comply with all sanctions, which is, in any case, without any option. So it's a matter of fact that nobody knows what's going to happen there. So there is a risk that, on the one hand, there could be nationalization of the business. It could be that we lose control. It could be that also the [ IAS Board ] decides that they have another view on how to consolidate such entities. Today, it's fully consolidated, and there is even not an option not to fully consolidate this business. So these are the risks we have with our Russian business. However, at the moment, there is no indication of a change. So we are not faced with any approaches from any authorities or whatever indicating that there is a threat to PALFINGER, to nationalize the business or to do any harm to the business. So at the moment, we just let the business operate completely independently. And our clear strategy is to count on an end of the war in some time, hopefully as soon as possible, and hopefully also, then there will be a possibility to once again get full control over the business. But the risk exposure is clearly, in the worst case, the EUR 140 million of assets which we have today in Russia. And if you talk about impairment risks, you always have impairment risks. You always have impairment risks in terms of asset impairment tests for individual entities. You have asset impairment risks, or you have impairment risks for activated development costs. But we don't see any major specific impairment risks here. This is more general remark in the risk section to point out that this is always a risk because you have a lot of positions, so to say, in the balance sheet, which can be subject to an impairment. But the wording here has also not changed, because I would see that today there is, for sure, not a larger risk for impairments than it used to be. So it's a similar situation as always.

We have a follow up question from Markus Remis with Raiffeisen.

It's getting now a bit nitty-gritty, but I have to come back to the Operations. I mean, just looking at the quarterly change here now, with an EBIT loss in Q4 compared to something like EUR 19 million of profit in the third quarter. That all comes on the heels of just EUR 10 million lower revenues. I mean, can you help us understand what has happened here? Was this also -- I mean, I can see you there were a few impairments also in the final quarter, if I'm not mistaken, EUR 2 million and the provision. Can you help us understand the earnings development here because it's extremely volatile from one quarter to the other? Yes, any help on Q4 would be helpful.

So as I already mentioned earlier, we have here mainly the factor of lower utilization in the plants and also versus profitability in the first part manufacturing. If we want to make a deep dive, we would have to provide this later on as a follow up because I don't have here the analysis of the quarter result Q4 for the Operations segment isolated in front of me.

And one question regarding truck-mounted forklift. Just to have a comparison base to the target that you mentioned in the presentation. What was the kind of the production rate in '23? And maybe you can give us an indication of where you expect it to be [indiscernible]?

I think the good thing is that, this equipment is now provided by a third-party. So any kind of flexibility we need fit the Steyr Automotive, they are quite flexible. And we are still keeping our run rates because this is mostly driven by North America. But for competition reasons, we don't want to disclose this number.

There are no further questions at this time. I hand back over to Andreas Klauser, CEO, for closing comments.

Yes. I think thank you for attention. I think we gave further clarity to the questions you asked and what you had on your mind. I think it's important here that PALFINGER was delivering in the past quite positive and quite good results. I think the commitment here from my side, from the Board is that, we stay on this course. Stay with us as well, your trust, your support. Thank you very much.

Ladies and gentlemen, the conference is now concluded and you may now disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.