Palfinger AG (PAL) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the PALFINGER AG Q1 Conference Call. Our today's hosts, our 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.

Thank you, operator. Yes. Good morning, and welcome to our Q1 results presentation. We go to the first slide on our Q1 2024. It was an outstanding first quarter. First of all, record EBIT and a quite strong consolidated net results. Still, we are facing a continued low order intake in terms of European core markets and as well quite strong and heavy inventory still sitting at the plant and at our dealers yard. If you go to the next slide, and I think here it's important to understand how PALFINGER has started into Q1 2024. We managed here to get quite significant product awards, Product of the Year for our electrified access platform, it's quite an innovative and leading technology for PALFINGER, which was awarded here. We also were awarded a quite strong deal here for a wind farm in Hai Long, Taiwan, on the Siemens Gamesa flagship project. So also in terms of sustainability, in terms of technology, PALFINGER is always here in the loop. On the other hand, we had to make an ad hoc announcement on March 29, which we're reporting the first quarter expectations and the adjustments we had to do for full year. Last but not least as well, the 36th Annual General Meeting of the PALFINGER AG on April 10, where we got approved a record dividend of EUR 1.05. If you go to the next slide, so some of you already know this overview here. And the key facts, so nothing really changed here in terms of market position. So PALFINGER is the market leader in crane and lifting solutions globally, the revenue of EUR 2.45 billion in 2023, strongly supported by the overall all regions covering product sites and service centers. Currently, employing 12,800 people. In terms of revenue distribution, still EMEA is very strong, more than 60%, 62%, North America followed by 24%, and then Lat Am 4%, CIS 5%, and the APAC 5%. In terms of product portfolio and if we move to the next slide, I think I can still reconfirm, reassure that product portfolio of PALFINGER is quite unique. We have 9 different product lines on the land segment, 6 on the Marine side. And for altogether, it's quite important that we have and can provide digital solutions. So in terms of connecting our equipment, sensor technology, communication, et cetera. If you move to the next slide, and I think it's important here as well for the entire group of people joining this call this morning. This strong product portfolio make sure that we have a quite significant strong resilience for this industry diversity. So this means we are carrying many different industries. This means there's always something, which might slow down, which might still see some positive signs, and this is as well the case at the moment. Without construction -- construction equipment business accounts for more than 40%. But as well here, we need to divide between private housing and infrastructure projects. Still quite strong force to recycling, not to forget about transport logistics. Need to mention our truck-mounted forklift, which is quite strong here in U.S. market. The public sector also not to forget about the rental, offshore cranes, which I explained already a couple of minutes ago and our entire Marine portfolio, which is now paying off quite well. And we are seeing not only positive signs in terms of revenues, but as well profitability and business growth. If you go to the next slide here in terms of sustainability, I think, there's no doubt, it's very important to focus on that and important we thoroughly explain it. So we are here having 3 main pillars. There's one in terms of the planet, and in terms of emissions. Just wanted to reference here to the electricity from renewable energy. It's nearly 75%, which is quite significant. And as well for the people on the planet here, just to mention the accident rate, the TRIR 7.34 also quite positive development, which we can see here as well. Diversity in terms of international employees at headquarters, et cetera, so quite a good move forward. And not to forget about being strong and future-oriented entrepreneur. And here as well, we announced that we have no corruption cases, for example. We are quite looking forward and we are fully committed here to our values. Now I think it's even more important to see the figures, to see the financial results and at this stage I'm handing over to Felix Strohbichler, our CFO. Please, Felix.

Thank you, Andreas. Good morning, ladies and gentlemen. I'm happy to be able to present once again very good financial KPIs. As probably all of you know, we are steering the company in 3 segments. The first segment is the segment Sales and Service, which comprises all the activities of PALFINGER in terms of sales of our products and also our service activities as the name says. On the next page, you see some highlights of our developments in the markets, especially in North America, I would like to highlight once again that the market environment is still very positive. We see high growth rates in service cranes and access platforms. And what is even more important is that the earnings development has further improved so we are really here in a very healthy earnings level. In the meantime, in North America, a very strong contributor to the overall results. Also in APAC, we have seen high growth. There is a strong demand for loader cranes, especially in India. We have won some offshore wind farm projects in Japan, the nature of this is rather Marine. So it's in the wrong line here. However, we also have to state that there is no improvement in China, still low actually at the moment, rather trending downwards than upwards. In Marine, and Andreas Klauser has mentioned it, we have seen a strong growth, 30% of revenue growth and, more importantly, a significant increase in profitability. The growth is coming mainly from, on the one hand, servicing cruise ship equipment, but also a very important offshore and Marine cranes. In EMEA, on the other hand, we have been faced now for several quarters with a lower order intake due to the macroeconomic and geopolitical developments. This is particularly true for Germany, France and Scandinavia. Other European markets like Southern Europe, for example, or Italy are actually performing quite okay. But of course, Germany and Scandinavia and France are very important for PALFINGER and big markets for us. Another topic in Sales and Service EMEA, especially is the ongoing high finished goods inventories, also especially here at our own dealers in Germany, Spain, but also in the U.S. If you go to the next slide, you see other KPIs. So in the segment Sales and Service, we see a slight decrease in external revenue of around 3%; however, a substantial increase in EBIT of almost 34% to almost EUR 60 million with an EBIT margin of 11.6%. The reason for this is, on the one hand, that we have seen the full effectiveness of the price increases, whereas in the first quarter last year, we still had some old prices, so to say, in our invoicing. The mix was also very good in the first quarter and especially on the contribution -- positive contribution of Marine and tail lift -- sorry, not tail lift is not in this figure, but last year, the tail lift was with a negative figure in there, whereas in the first quarter 2024, tail lift is in the segment, other non-reportable segments. So there was also a positive impact of not having the losses of tail lift from last year. On the lower part of the slide, you see the newly shown KPIs, order book development and share of service business. So the order book is further declining due to the order intake development in EMEA, but still with more than EUR 1.1 billion of order book. This is still a very healthy basis and covers us for the next months very well. The share of the service business is close to 18%. Of course, we see an opportunity to grow this further. But as you can see, this is a very interesting and important share of our business. Coming now to the segment Operations, which comprises all the activities in manufacturing and assembly. Of course, the market situation in EMEA also led to a lower production volume in EMEA already in the first quarter. We have also seen a reduced external revenue in production for third parties for the same reason economic environment, also an impact, of course, on our activities for other manufacturers. On the other hand, we have seen due to the improved supply chains, increased delivery liability and our production backlogs could be reduced quite significantly. In Vietnam region, the production output could be increased, especially for service cranes and for access platforms. What does this mean in terms of KPIs? As I mentioned, external revenue for manufacturing for third parties decreased by around 20%, mirroring the economic development. And also, the EBIT went down not only driven by the external revenue, but also by the fact that the capacity utilization was reduced compared to the previous year. If we then go to the next segment, other non-reporting segments, which includes now also tail lift North America, not only tail lift EMEA, like in the last year, plus the former holding unit where we bundled the cost for strategic projects. On the next page, #17, you see the figures, but please don't look here as the development of the external revenue. The reason for this is that we could not normalize the turnover of the North American tail lift business. So the turnover in 2023 only shows EMEA tail lift. Rest Q1 2024 includes tail lift North America and EMEA. And as tail lift North America was a carve-out where it was quite complex here to adjust the figures. We just kept this integration of EMEA in the retrospective adjustment, but not for North America. So we look at the EBIT line, this is much more important here. As you can see, there was a slightly higher negative EBIT. The reason for this is, on the one hand, that we had positive earnings contribution from tail lift, which was a positive effect. We have some negative onetime effects in the holding of about EUR 3 million, which led to this deterioration compared to Q1 2023. Coming now to the overall PALFINGER group KPIs on Page 19. Revenue went down by around 2%; however, EBIT improved significantly by almost 12% to EUR 54.7 million with an EBIT margin of 9.5%, so significantly higher than the EBIT margin in the first quarter of 2023. The reason for this is that we had, as I already mentioned, full effectiveness of the price increases. We had a significant improvement of earnings in North America in Marine and also in Tail Lifts. And of course, last but not least, also the consolidated net result, which is, of course, key for our investors, has also significantly improved by 27% to EUR 32.5 million. On Slide #20, you see our CapEx volume compared also to the level of depreciation. And clearly, we are still investing substantially more than our depreciation part. The level of investments has come down from EUR 45 million last year to around EUR 40 million and we plan despite of the fact that we have quite a few big investments in front of us to keep the figure clearly lower than in the year 2023, not only for 2024, but also for the years to come. On Page #21, you see development of our financial liabilities and of our net debt. Obviously, the net debt has further increased from EUR 641 million to EUR 698 million. I will come to the reason in a few minutes, but it's, I think, very obvious for those who are following our quarterly calls regularly that the development of the working capital was here the major lever to lead to this increase. You can see, obviously, the debt development in terms of interest of 4.2%. We are reaching now the peak in terms of interest of our financial liabilities. The average remaining term debt has significantly improved more than 4 years. And the reason for this is that we have recently issued a promissory note loan. On the next slide, you see some facts about this promissory note loan, it was EUR 160 million, which we could successfully place. We had a significant oversubscription due to the high demand of our investors. So obviously, PALFINGER is very sought after if there is a possibility for investors to get the promissory note loan from PALFINGER. We had 4 tranches, 5 and 7 viable and fixed interest rates at very attractive conditions. It's sustainability KPI-linked CO2 emissions on the one hand and accident rate on the other hand, and we will use those means to refinance our maturing promissory note loans. We have used this already for this and we will finance the investment plan for this year. On Slide #23, you see the development of equity, EUR 740 million of equity, very healthy equity ratio of almost 34%, slightly improved compared to last year. Please consider that we still have treasury shares, which account for around 3% of equity ratio. If we would issue them or if we would sell them, you might recall that we did the reversal of the gross shareholding with Sany, when we took our treasury shares into our book, so to say, which reduced our equity ratio by about 3%. But of course, this is a potential for the future. Looking at the net debt EBITDA development, we have come down once again a bit, and we are now at 2.25, so a very healthy ratio, and the ROCE has further improved to 11.5%. Last but not least, I would like to highlight the cash flow development. Obviously, the very good earnings are a very good starting basis in our cash flow statement. However, we see, again, the seasonal increase in working capital. So we had a major positive impact in Q4 in working capital. Obviously, payables at the end of the year always have a positive impact. And also it's possible to really clean out, so to say, the factories from stock. And there is always a seasonal increase in the first quarter, which will then level out over the remaining quarters until the end of the year. So whereas we see now a free cash flow of minus EUR 60 million roughly, you can expect and we clearly expect a clearly positive free cash flow until the end of the year and this continues to improve over the next quarters. Having said this, I would like to hand over back to Andreas Klauser for the outlook.

Yes. Thank you, Felix. And let me share our outlook for 2024. If we go to the slide here where you can see the overview in terms of expectations. So we expect still a quite solid result in 2024 despite some headwinds we are facing in EMEA especially. But what I can tell you at this point in time, still quite positive development in North America in the Marine sector. Here, really, business is going -- heading in the right direction in terms of profitability, in terms of revenues and as well in terms of volumes, still facing some headwinds in EMEA due to the weak economic environment here, especially driven by Germany, France and as well as Scandinavia, while some other markets like Spain, Italy, Portugal are really quite on good track and recovery. Yes, due to this lower order entry, which we are phasing out of EMEA, we had to adjust our production, which we did. And therefore, we expect the EBIT, which will sit around 20% below previous year. In terms of revenue also, we will see a slight decline. But the most important thing is that to keep up on outlook. Where do we focus on our strong countermeasures here. One thing is, as Felix already mentioned, is optimizing the working capital here. We are really using all the tools we can find in terms of CapEx here to be quite at a minimum level setting. In terms of productivity, quite important here, still when the volumes are going down, we can still increase productivity at our plants. And last but not least, the strong focus on cost of product reduction. So in terms of targeted costs to make sure that we are avoiding any kind of spending, which we can avoid at this point in time. If you go to the next slide, and I think also here, as a conclusion, it's quite important that we are still setting ambitious financial goals for 2027. On one hand side, in terms of revenue, profitability, and the ROCE is EUR 3 billion, 10% EBIT and 12% ROCE. But also not to forget that we need to aim as well and be the market leader as well in the future. So being #1 and the market leader in crane and lifting solutions. So this concludes here my presentation. And I'm handing over back to the operator. Thank you for attention.

[Operator Instructions] The first question is from the line of Markus Remis from Raiffeisen Bank International.

A few questions. Maybe we can start with North America. I was wondering if you could maybe shed some light on where this growth is coming from? Is that you kind of taking market shares from the others? Is it more kind of the general -- how should I say, the general market growth that you're capitalizing on and maybe also a bit of granularity on the truck-mounted forklift, so how is the volume progressing there?

Yes, maybe I may answer. First of all, yes, North America is quite stable in terms of market environment itself. And we managed as well to get some market share from high up in terms of converting them to PALFINGER products, PALFINGER truck-mounted forklifts, but its performance is quite well. So customer is more and more trusting that even if it's a new product. It's reliable and has the proper performance. So this is going quite well here. I am talking mostly about United States. We also managed to get here some new key accounts like Home Depot, Walmart and some of these guys. On the other hand, yes, there are also some mergers going on in the marketplace, which is significant on logistics. But overall, we see still a positive trend. We still have to see how it evolves towards the elections, which are later on. So let's see how this goes. But for the time being, we still see growth rates and we still see quite positive volumes, especially coming out of United States and [ other ] market.

All right. Okay. Then turning to Europe, 2 questions here. Firstly, you recently noted that you would reduce the production volumes in Europe, if you could probably break that down a bit, which products are mostly related and -- or maybe it's across the board. And also how we should think about that regarding the kind of earnings development into the second quarter? And maybe you can add if there is already a, how should I say, a time line for how long this production cut will persist?

I might answer to the first part of the question, and I'll let Felix talk to the financial impact. I think what's important here is to note that even Europe is divided in 2 parts. So one part is let's say, Germany and France and Scandinavia, as I mentioned here, we see a quite significant slowdown whilst other markets like Spain are really recovering. And Portugal, there also the construction sector is quite strong, mostly driven by tourism. So it seems that they are spending the money received either from European Union or from their tourism business quite well now into construction. This is one thing. On the other hand, yes, we flattened most of the product lines out. It's impact a little bit on loader cranes, a little bit on everywhere quite because of the products. As I said earlier, in terms of Marine business, which is not a part of it, we still keep the traction up. But we flattened this out as well to make sure that we have constant run rate in terms of cost. This is what I can tell you at this point in time, and I'll let Felix talk on the financial impact.

Yes, as we also mentioned in our guidance, we expect for the full year reduction of our overall earnings of about 20%. So it's quite obvious that we are talking about, let me say, roughly EUR 170 million of expectation. And if you break this down to the quarters, obviously, the first quarter is a record quarter. So we have been able to exceed the first quarter of the last year, the second quarter last year with EUR 62 million of EBIT was quite strong. So we do not expect that we can match this number again in Q2. So you should expect that the first half year is probably not matching the profitability of the last first half year. And then we see some deterioration in the second half year, which will be around 1/3 compared to the earnings of last year in the second half year. So this roughly the trend you will see. So the first quarter will be the best one, and then we see a slight deterioration in the second quarter and then another step down in the third and fourth quarter.

All right. Okay. And last -- sorry, last question would be on the order activity, as you perceive it at the moment in Europe, I mean, is it sort of bottoming out at low levels? Or do you perceive more downside in terms of the demand as we talk?

It's very -- it's a high volatility. That's the headwinds we are seeing here. Customers are waiting on one hand side in terms of development of prices of trucks, okay? It's a carrier equipment on one hand side. And on the other hand as well, we are looking into interest rates, inflation stuff. So there are many things, which makes them still waiting. The good thing is that in terms of offers, the number of offers reach out in the marketplace are nearly the same as a year ago. So it's just not a question, how and when they will conclude. No doubt order intake is shrinking in terms of volume. This is why the market is more tense. But as mentioned before, we are quite confident that we can stick to the targets, which we have announced.

Okay. Very clear. And if you could maybe finally specify the CapEx guidance. You said it would be below 2023, which I think had to be expected, but can you maybe put some brackets around the investment volume?

Well, in the end, we are always depending on how many of the planned investments really materialize. So my expectation would be slightly below EUR 150 million. But of course, there is quite some corridor of what is possible, but this is roughly what we are intending.

The next question is from the line of Daniel Lion from Erste Group.

I'd like to follow on some topics that Markus has not raised yet. Maybe starting with the cost cutting. Could you attach a volume to this cost cutting? Or is it just -- should we just think about it as optimizing the current capacities because obviously, once the market starts to rebound, you will meet them anyway going forward.

One measure, if I may, start here, and then I'll let Felix conclude here. Cost cutting as well or cost adjusting as well will flatten our production, so we are having great flat run rates to avoid overtime stuff like this, but still making sure the market would come back that we've seen in certain time frame, we could adjust our capacity again to avoid losing volume. And as you -- some of you might remember, we did quite well after COVID [indiscernible] some other things which happened. But I'll let Felix talk now to the numbers, please.

Yes. I think we clearly have to divide between capacity adjustment on the one hand and efficiency measures on the other hand. So clearly, we do some capacity adjustments and capacity adjustments only take effect if it's real capacity adjustment and not just a reduction of output. So this means, yes, we have to reduce sometimes the number of people and to bring down capacity; however, if we would have to go up, it's not to a level that we wouldn't be able to react to the market development. So we are not cutting our hands and legs, and we are not talking about substantial decreases. So we also guided that in 2024. We expect a turnover which is slightly below the record year 2023. So it's not that we are talking here about very, very substantial decreases and dramatic cuts in terms of personnel or capacity adjustments. On the other hand, we have put together quite a significant program in terms of efficiency gains. This is not only concerning productivity gains in operations, but of course, as well by the few measures in terms of administration, bringing more people to our business service center in the low-cost market in Bulgaria, in Sofia, also streamlining processes, automation, also, et cetera. So this will be something which will partially have a positive impact in 2024, but especially also for the years to come, and this is actually a program for several years, how to streamline our cost in terms of administration and how to streamline our processes.

And how much of this cutting are you expecting from the transition or from the transfer of production to Serbia now that the new plant should be up and running or gradually increase capacity as well?

We need to balance out. We need to balance out components, low profitability components, which are maybe currently produced here in the Western part of Europe, when we will shift this gradually to Serbia. And we need to make sure that with all the costs which might drive, we can counterbalance until we have a solution. So we have seen in the plants on the Balkans, in Bulgaria. We have now this assembly plant in Serbia. So we can -- I would not say it's easy, but if we can somehow shift progressively capacity into these countries, if needed and if the costs in Austria, let's say, going out of a certain frame.

And in terms of -- what does it mean in terms of profitability, if I may add. Obviously, there's a ramp-up curve for a new plant. So you cannot expect a positive impact in profitability in 2024, 2025. So clearly, this will be starting from 2026 then.

Okay, understood. The tail lift business that you shifted now to fully to the holding segment, how does it develop there? What are the measures you are taking? How do you expect this to be turned around? What impact do you expect from there?

Well, last year, we had quite a significant loss in the tail lift division, overall. In the first quarter, we are at about 3% EBIT margin, so this is not yet great. But clearly, it's a positive contribution. It's not loss-making anymore. So we clearly stopped the bleeding and turned it already around. We have implemented the cost measures, which is the weakest fix, of course. And we also implemented pricing measures. We selected the profitable clients, and we stopped deliveries to clients where we lost money. So there are very obvious things. Of course, now we have some additional measures to further improve the profitability, and this is mainly related to the supply chain. So on the one hand, it's some cost cuttings in the product design. On the other hand, it's also changing the supply chain to some low-cost markets to source, for example, in the U.S., not anymore from U.S. suppliers, but from a Mexican supplier to bring components from low-cost countries more and more into tail lift where we had still suppliers from high-cost countries. So the 3% EBIT margin should not be the end of the journey, of course.

And what would be the trigger to again shift the business into the operating divisions?

This is not planned because the tail lift business is quite different from the other product lines in terms of synergies. So it's a commodity business. The customers are different. The supply chain is different. So in the end, the decision was not only based on the fact that this was a restructuring case. It was also based on the fact that the synergies with the rest of the group are extremely limited. So it's a noncore asset and this is why it's in the holding unit and not in the chain.

Sorry, as Felix mentioned here, I think, it's important that we recognize, yes, it's a commodity business. We have the flexibility within the organization to deal with this shift, to support this from different functions like procurement, [indiscernible], but we can keep all the elements, which are relevant to this commodity business separate. This is a little bit, let's say, a mixture of both sides of the solution.

But this somehow sounds as if you prepare this business to be sold going forward once it's profitable again.

To be honest, at the moment, there is no need because it's a good contributor now to our overall results. But if an opportunity would come up a certain time, we need to discuss this and we need to review this. But for the time being, it's not planned.

Okay. Can we maybe spare some words on Russia, I know, of course, business ring-fenced, but now also reflecting on the pressure that, right, as we get in to leave Russia, is there any pressure put on you to exit the Russian business or to get rid of it? What's the developments there?

I think, look, I can comment here, the general comment, we are following here all the rules. It's not only ring-fenced, it's completely separated, and we have to see what's coming up. We don't feel any pressure, but I'll let Felix talk about this.

I can only confirm. So on the one hand, investors clearly underline that we should in no way leave the strategic path we have decided for. So we are rather pushed to keep this strategy and to continue to hold our operations, and we do not expect, for the time being, major changes here, also not from the Russian sides.

And business is developing flattish or any negative impact from the Russian business?

It's still a very profitable business; however, the timber industry is under pressure and, obviously, also under pressure in Russia. So the contribution of timber recycling cranes is not as great as it used to be, but it's still very positive.

Okay. And one last question to working capital and targets. Obviously, when the market goes down, it's positive for working capital. But do you still confirm the targets that you softly laid out for this year towards the end of the year to get some EUR 50 million to EUR 100 million out of working capital. Is this realistic?

So what we said is that we set ourselves a target to reduce the working capital by more than EUR 50 million, and we are still working on this target, and this is a commitment of the organization to get there, but it's not so easy because it's not just volume driven as you can read in our guidance. And as I mentioned before, we will have a revenue, which is not so significantly below the previous year. So it's really hard work. It's especially also linked to truck supplies. This is a major level we have here. So we are talking about a high double-digit number of millions of euros just for trucks in the supply chain. And here, we also, to a certain extent, depending on the overall development with the drug suppliers. But we still believe that this EUR 50 million plus are realistic targets for 2024.

So in the end, the profitability decrease comes actually with a lower sales mix or the weaker sales mix and additional cost pressure you face, especially for stuff?

No. It's several topics. On the one hand, it's the lower utilization in the factories. So you don't see this as much in the turnover because we are also destocking. So there is, so to say, a compensation in terms of bringing down the stock and still keeping the volume on a reasonable level. But of course, this leads to a lower utilization in the plants and the result, especially, in operations will therefore go down. This is the one effect. And the second effect is also that we have some cost increases from personnel, but this is already right now the case, but especially in the fourth quarter, we'll have the next negative development in terms of cost of personnel. This is effect. And also what we can see is that there is no pricing elasticity that in the last quarter, there has been some more pressure on pricing, and this will also have a certain impact in the second half year.

The next question is from the line of Lars Vom-Cleff from Deutsche Bank.

You sharing your order backlog with us now is very much appreciated. Just some details. If I look at the development by region and the Marine business, am I right in assuming that the order intake in North America, Asia, in Marine are up and that the severe headwind is solely coming from EMEA?

Yes. You're absolutely right. What I said as well, EMEA has different gravities, as I mentioned. Germany and France is more of a concern, while Spain [indiscernible] especially is also important markets for PALFINGER or even Italy. It's showing some positive signs not always in the same product ranges, which we would sell in Germany. So the high-tech equipment and other stuff, so there's a mixed bag. But yes, you're right, the major concern currently is EMEA.

And from a customer sector point of view, it's still the timber, it's the timber and construction.

It's more, more construction, I would say, maybe than timber. And if construction business is restarting as well, timber will for sure come back. On the other hand, as well, as I mentioned earlier, it's a difference between infrastructure projects, which are still going on quite well. We see it even if you drive across here in Austria, there's a lot of roadwork in motorways. On the other hand, private housing is still cautious, but we as well see that it's coming -- slowly coming back, but still not recovering.

Okay. Perfect. And then now also reporting the share of your service business, let's see if I get an answer. Would I be totally wrong in assuming that profitability is 2 to 3x higher than it is for new equipment sales?

This is maybe an average altogether, right, yes. And as well here, we are counting on our service and parts business because usually when our customers not purchasing new equipment and they do a rework on the current PALFINGER product, and it's going quite well in terms of profitability, but also there's always a certain kind of delay until they finally decide to do so.

Perfect. And then I saw that your administrative costs went up both on an absolute basis as well as relative as a percentage figure of sales. Is that mainly due to wage increases? Or are there any other factors driving the increase?

The wage increases are, by far, the biggest level. So we have around 1/3 of our total cost is personnel cost and also in administration, it's even, by far, larger percentage. So in terms of structural costs, we are talking about around 70% personnel cost. And last year, we had more than 80% of increase -- compared to previous year, we had more than 80% increase in personnel costs, so this is a major level.

Okay. Perfect. And then I think Mr. Klauser, you already mentioned that in the site sentence. And you said so, I think, in the Q3 call that the market expects lower truck prices and, hence, also expect this for your cranes as those are mounted on the trucks. It seems that this assumption or this expectation is a headwind for your order intake? So it's not yet materializing, I assume. Everyone is expecting that. Customers are holding back orders? Or are you also already seeing price pressure materializing?

Not really in terms of price pressure, but people waiting and getting the best deal. The good thing is, on trucks, you have maybe 4 or 5 options to buy another -- a different truck brands. Luckily, especially on a crane when you go for a premium solution, luckily, you can only take a PALFINGER product. So this is what is helping us on one hand side. On the other hand, yes, the market is under pressure and as well, people are not concluding business. They are a little bit hesitating and waiting but that's the mixed bag between waiting and expecting maybe a better price, but it's more about waiting on a crane less than a price reduction as it's seen on the truck side.

Okay. Perfect. And then the last one quickly, just for me to be sure again. Net working capital inflated by the high number, high volume of finished goods in your inventory level, that is cranes waiting to be mounted on a truck, which is not there. It's not customers not taking the cranes, they've ordered correct?

No, it's actually 2 main levers. The one lever is trucks, which are finished trucks, but the customers are not taking over. This is one lever. Then another lever is, as you said, cranes waiting for trucks. However, in many cases, it's not just waiting for the trucks, it's also kind of a chain in the supply chain in installations. So we have a lot of installation partners in EMEA doing the installation for PALFINGER equipment. And if the trucks comes late or if the truck comes too early, et cetera, they have difficulties to plan their capacities and to plan or their installments. And in the end, we have now significant delays in some of the insulation workshops, which, in the end, leads to the fact that PALFINGER is also keeping the equipment not to overload our partners with working capital, which they couldn't cope with. So in the end, we are somehow balancing out the chain in the installation network by not imposing all the equipment on to our partners. So this is the reason why the equipment is sitting at PALFINGER, it's not unsold equipment. It's not equipment where we have a risk that nobody would take it off, it's all sold. All the trucks are ordered for all this equipment, but it's actually the supply chain in installation due to the fact that truck supplies have been so instable, which still has to work out and still has to normalize.

The next question is from the line of Patrick Steiner from Kepler Cheuvreux.

First one would be -- is the Q1 order intake now? Can we see this as a good run rate for 2024? Or was this a bit more front loaded for example, better January, February? And also can you already give me some feeling for April order intake? That would be the first one.

I think in terms of order intake, yes, it was still backlog, which we had still as well coming from last year. So where we had still quite strong orders, which we are completing now. And as we said before, mounting capacity has an effect here. Yes, now it is slowing down, no doubt. It's well somehow balanced off by some markets, as I said, like Italy or Spain, for example. Unfortunately, this is maybe less value products, it's a little bit of a mixed bag. But still, looking forward, the run rate we are currently seeing is matching the plans we have in terms of capacity and the numbers we have announced for 2024.

Okay. I guess the run rate going forward for the next quarter is a bit lower than Q1. Is this right assumption?

Absolutely, absolutely. But still matching these targets, which we had announced in our ad hoc message.

Okay, understood. Second question would be, can you give us more information on the structure of your current order book? I mean, how much service is included? How is the regional split between EMEA and North America, for example? Or also how much is -- if everything is for 2024 or if there's something for 2025 as well?

Well, it's already heading into the 2025 and I don't want to disclose here by product line. But what I can tell you here is that still North America is holding quite well up in terms of revenues and as well profitability as well as Marine side. And this is more, let's say, already for the last quarter of 2024, what we're getting now. So with this run rate, we can achieve this and for next year, I mean, we have to see how the election are going, how Germany is progressing in terms of market environment and economy. I think the expectations are quite high that something might happen here. So let's see how this goes. But with the current run rate, we can balance all that out, and we expect to stick to our target, which we've announced.

Okay. Okay. Sounds good. What's your view currently on European construction in markets? And -- which one are you exposed to the most in terms of like residential commercial infrastructure? Is it possible to divide this up in percentage figures or something like that?

Maybe not in percentage, but yes, we are strongly related certainly here to the housing market, private housing, which is still quite slow, even we hear from the banks and from our customers, which are in this business that they see business coming back. This is the good news. Infrastructure is going quite well. Then it's where we have to divide in our customer base between the more professional ones, which have a cash flow planning and they're really small ones. Luckily, the small ones since they are sometimes as well less professional, they are more orientated on other brands, maybe the PALFINGER and the professional ones, the big ones, the key accounts: Austria, Germany, France, they still stick to PALFINGER and they're just maybe a little bit postponing. And as well, they have been asking for some adjusted offers in terms of get a better offer. But at the end of the day, it's quite well under control.

Would you say, is there -- how does the dynamic work here, if like the housing market recovers, when does this trigger order intake on your side? Is there a specific lag of a couple of quarters? Or how would you -- how could you think about this best?

No, for sure, it will take a couple of months, no doubt. So it will not go overnight. But when the sentiment starts getting better, especially the smaller customers would immediately decide to buy a PALFINGER product. Then we have to see when the truck is available. The good thing is if you look at the truck industry, some of the major brands are now available within 3 months' time frame in terms of delivery time. So all this is considered here. As we said, we play maximum flexibility on one hand side, keep a quite flat run rate in terms of operation, and this makes me believe that we can resolve these upcoming challenges.

Last question from my side. Can you give us some more information on the development in North America? I mean how is revenue and the order intake performance for loader cranes compared to the other products? Because it seems like service cranes and access platforms are doing pretty well.

That's right. So regarding the loader crane, I would say, it's a little bit declining, but this can be offset by the truck-mounted forklift, service crane, service trolleys. Platforms where we might need even to further look into additional capacity. And as Felix mentioned earlier, we are looking now in the supply base of Mexico, as a possibility is considered. Mostly concerning the U.S. market, still towards the elections, and I think we might still see a slowdown. For 2024, I think, we have a quite stable environment where PALFINGER can count from in terms of business development in North America, especially United States.

The next question is from the line of Miro Zuzak with JMS Invest AG.

Congratulations to the stellar results. I have 2 questions, if I may. The first one is regarding April, now the current months. And the background is, I have heard from 2 other companies now that there was really a change in customer behavior noticeable in April. So basically, orders are really, since April, for some reason, declining steeply. The first question would be, is it the same in your book, can you see that as well that there seems to be a change in behavior?

I wouldn't say this. We see some -- even some positive signs after a couple of weeks, even on the month of April, which is more flattish. It's clearly seen that the market is not coming back, but it's more flattish. We don't see a steep decline. But maybe these guys are talking about, they're referencing maybe most about Germany. This is maybe not excluded here, but in the overall EMEA picture, that's not the case. As I said, we see recovery still in the -- in markets in the southern part of Europe, even Middle East is still quite solid.

Good. Then second question is regarding the material cost, mainly steel, you see the steel product indices coming down? Year-over-year, this helps probably your gross margin, as we have seen in Q1. You mentioned pricing pressure for the second half of the year. That's the negative side, right, is the pricing price or the positive side is that you have less material costs. Would you agree on that? But maybe on the gross margin, you will most probably be able to keep the gross margin on last year's level of 25.7%, also given the cost cutting measures that you take?

So the contribution margin you have seen in the first quarter has been extraordinarily high. So also compared to last year, we had here more than 2% higher contribution margin. So this will not be possible to sustain throughout the year. Because in the contribution margin, you have also included, of course, labor cost and here, we have, of course, also effects from the lower utilization. We have lower material costs. Yes, this is a positive factor, but also the higher labor costs are accountable as we mentioned this already. But overall, if you look throughout the year, you cannot expect that the contribution margin is remaining on this level or even on the same level as throughout 2023.

And maybe a comment on the steel. On the stell side, you are right, what you said about construction steel, okay? There, the price was significantly going down. And on the other hand, high performing steel on the [indiscernible] where they limited already availability, the market price was as well going down, but not that much as on construction steel. So that's also within the steel business, now different measures we can see.

Okay. And one last question, if I may regarding your administration costs. If I compare your EUR 182 million from last year and also the EUR 50 million now in Q1 with a run rate of more than EUR 200 million for the 2024. So compared with 2020, when your administration cost was EUR 110 million, I see a negative operating leverage. So the more sales you have, the higher your G&A cost in terms of sales. I mean you have EUR 1 billion in higher sales, but also like 30 bps higher administration costs in terms of sales. I would expect that it's the other way around, right? So if you grow, then probably you have some leverage on the administration cost. Can you please comment on this? And also what you do in order to change this?

Perhaps if I may comment on this. You're absolutely right that if you look at the development of the structural cost of PALFINGER over the last 5 to 6 years, you have to consider the PALFINGER was managed in a completely different way. This was not like a group or an integrated company. It was like a holding with completely independent structures. And this is a big transition we have been undergoing over the last years, where we had to implement, first of all, central structures to be able to get all the savings actually throughout all the processes and to turn this so to say, to the other direction. And we have now implemented a clear program where you will see the progress in terms of structural cost development. But if you compare PALFINGER, how it was 5 years ago to how it is set up today, it's just completely different in terms of how the processes are set up, the quality of the processes, what we are doing today versus what we did before. But of course, in the end, you're right. Structural cost ratios need to go down and we are expecting now to see the benefits of all the activities we have implemented in the years to come in terms of efficiency, and you can measure this clearly also in the structural cost development compared to turnover.

Are there any further questions?

Yes. So we do have a few questions. The next question is from the line of Lars Vom-Cleff with Deutsche Bank.

Apologies. It's me again, and I promise to be quick. Just a quick one. I mean you managed to increase your profitability, both on an absolute as well as a relative basis, while sales were falling. So there are definitely a better input cost sales price spread and you having implemented -- successfully having implemented price increases. I guess, stable supply chains play a role, but was a better product mix on improving product mix also a reason for the improving profitability?

So once again, we have several factors here. One factor is the full effectiveness of the price increases. A second positive effect is the mix. And another positive impact is that Marine, tail lift in North America have been performing partially significantly better than last year.

The next question is from Jorge González Sadornil from Hauck Aufhäuser Investment Banking.

Many questions have already been answered. So a very quick one on the guidance. If I remember well, you only had 2 years with declining sales in like 20, 25 years. That is amazing and it speak by itself about the penetration of your products. And I was wondering with your new guidance -- and I appreciate the effort to give us some -- already some indications. But I was wondering if you are managing a scenario where you manage to not see a decline in sales. Is there any room for improvement in the last quarter if we see maybe better financing conditions in North America or the fact that you -- with adjustment you are already implementing in the -- in your capacities is maybe going to be too difficult to see in '24?

If I may answer this, this was clearly the reason why we communicated this guidance as we did also atop because with the decision to adjust the capacities for the second half year and also to not only reduce the output, but to adjust capacities, which is a difference. So it's not just a decision to reduce the output but to adjust the capacity. It also means that this cannot be reversed within 4 weeks. So if there would be a better order intake, this would be an improvement of our starting point for the year 2025, and then we will start into 2025 with a healthy order book. And this, of course, is what we are intending. So if the order intake is improving, we have, in any case, still a supply chain in the installation network. So it's not an issue for us. If we cannot react immediately, we will just see then an improvement in the order book and harvest this in the year 2025. But for this year, I don't see that there was a major room to close the gap to the year 2023.

And as Felix said, it's even more important to have a good start into 2025 now. I mean, this is as well looking forward and then make the right adjustments that we can deal with it. But the -- let's say, main power and workforce we are currently having and in terms of technology and key people, they are still kept with the Fed run rate impact we are having, so there is no impact if...

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

Yes. Thank you for your attention, for your questions and as well for your support in understanding the PALFINGER way forward, counting on you, and we'll see you soon. Thank you very much.

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