Good morning everyone and welcome to Konecranes Q1 earnings conference. My name is Kiira Fröberg and I'm the Head of Investor Relations at Konecranes. Here with me today I have our President and CEO Anders Svensson and our CFO Teo Ottola. Before we start, a kind reminder, this presentation contains forward-looking statements. Next, Anders and Teo will walk you through our Q1 results. Anders will start by discussing our group figures, after which Teo will focus on business segments. The presentation is followed by Q&A, as always. Anders, I think it's now your turn.
Thank you very much, Kiira. And welcome also from my side to this webcast for the first quarter of 2024. Our demand, or we can start with the headline of the quarter, actually, it's record high Q1 profitability. And our demand environment remained healthy in the first quarter, despite being down versus the previous year due to very strong comparables. Our sales were EUR 913 million, and that was up year-over-year 2.5%. And we posted a record high comparable EBITDA margin of 11.1% for the first quarter. I also want to mention an operational highlight here. We are releasing our new crane, the Konecranes X-series, in March in LogiMAT this year. And it's a new product that will then replace our CXT model cranes. And it comes with a full suite of smart services and is upgradable over the air.
We expect to see good demand of this product across different industries and also in general manufacturing. It will be a key product for Konecranes going forward. The product will be released in the EMEA during the autumn and then rolled out in other regions. In summary, we had a very good start to the year, and we believe it set us up for good performance for the full year. I will move into the market environment and starting with our industrial segments. Here we look at some key macro indicators. It's the manufacturing capacity utilization rate. You can see in the EU it was down year-over-year and also sequentially down. The U.S. is more flat year-over-year and also sequentially flat. If we look at the global manufacturing, PMI it was above 50.
That was the strongest reading since June 2022. The EU is still in contraction, but the U.S. is in expansion, just like China, India, and Brazil. If we then move into the macro environment for our Ports segment, here we look at the global Container Throughput Index. And as you can see, it's up 9% on a year-on-year comparison. And the positive here was also that we could see that the ports within the European Union are also improving in terms of container throughput. And that's very positive for our business, of course. Then I move into the financials. And we posted an order intake of EUR 909 million. And that was in line sequentially with the previous quarter. But of course, versus the record quarter of the first quarter of last year, we were down 29% on comparison.
We had a decrease in Port Solutions, in Industrial Equipment, but Service showed strength, and we had an increase year-on-year. We had a decrease in all the three regions on a year-on-year comparison. We posted a net sales of EUR 913 million. That was up 2.5% in comparable currencies versus the previous year. We saw an increase in both Service and Port Solutions, but a decrease in Industrial Equipment versus strong comparables. We saw an increase in Americas and a decrease in the other two regions, EMEA and APAC. The group order book is the next. If you look at book-to-bill for the quarter, it was basically one. We can see that our order book is now above EUR 3 billion, despite being down 7% versus the previous year.
We had an increase in our Service order book, but a decrease in Industrial Equipment and in Port solutions. Moving into the profitability. We posted EUR 102 million in comparable EBITDA. That is equal to a margin of 11.1%. That was up 50 basis points versus the previous year. The comparable EBITDA margin increase was in Service and in Port solutions, while we saw a decrease in Industrial Equipment. The margin increase is mainly attributable to improved productivity and pricing. The gross margin improved also on a year-on-year comparison. Next, we will look a bit about our performance towards our financial targets, starting with the group. The group had a stronger first quarter than we did in previous years. You can see the rolling 12 has an uptick to 11.5%. We are inching towards our profitability corridor.
On the Service side, we had a strong first quarter. Here we are now within our corridor at 20.1% on a rolling 12 basis. In Industrial Equipment, as I said, we had a tougher volume comparison. The volume was down due to a strong comparison last year, but also due to some delivery challenges in this year due to strikes in Finnish ports. Here we posted a lower margin for the first quarter, and then the rolling 12 went down to 6.8%. In Port Solutions, we had a good volume development and also posted a stronger result. Here we went up to 7.6%. All in all, we had good progress, and we are still confident about our communicated financial targets. Now we move into the demand outlook. Starting with the industrial customer segments.
Our demand environment within industrial customer segments has remained good and continues on a healthy level. Here we have seen some slight improvement, and that continues also in this quarter. Our sales funnel is good and healthy, and also in terms of number of cases, but also in terms of monetary value. Moving into our Port segments. Global container throughput continues on a high level. Long-term prospects related to global container handling remain good overall. Here our funnel contains both short-cycled products but also projects of all different sizes. As you know, by nature, this business is lumpy in terms of order intake. We should also remember here that in the fourth quarter, we mentioned some early order intake for the fourth quarter.
That was, of course, helpful for the fourth quarter but is then negative for the first quarter order intake in Ports. Moving then into our financial guidance for the year. Net sales, it's expected to remain approximately on the same level or to increase in 2024 compared to 2023. The comparable EBITDA margin is expected to remain approximately on the same level or to improve in 2024 compared to 2023. We continue to remain positive regarding the 2024 outlook. We think that it was a good start to the year with our first quarter. Now I invite our CFO, Teo Ottola, to go more into the financial details.
Thank you, Anders. Actually, before going into the segment financials, let's take a brief look at the Q1 comparable EBITDA bridge, as we usually have done. When we take a look at the Q1 profits and compare that to the situation one year ago, we actually have an EBITDA improvement of slightly more than EUR 6 million. This is clearly less than what we have had the monetary improvement, for example, during most of the quarters in 2023. There is one particular reason behind that one. It is coming from the two first columns, volume, price mix, and variable cost combination, because the net in this quarter, in comparison to the previous, is EUR 23 million positive, whereas when we take a look at the year 2023, basically we were EUR 35 million-EUR 40 million positive with this balance in the previous quarters.
There are, of course, a couple of reasons behind that one. The first one is the underlying volume. As Anders mentioned, our sales increased by 2.5%. The pricing impact was more than 3%. Actually, the underlying volume development in a year-on-year comparison has been negative, unlike during 2023, when basically during all of the quarters we had about 10% underlying volume improvement. This is one reason. The other reason is pricing. We do have and we continue to have positive net impact of pricing, so net of inflation pricing, but it is less than what it was on average during 2023, of course, as a result of partially as a result of catch-up and, of course, also the inflation slowing down. On the positive side then, when we take a look at this part, variable cost, so we actually had a good productivity development during the quarter.
Our operational efficiency/productivity was on a better level than a year ago. This created a positive impact into this comparison table. Also, mix was slightly positive, but this productivity impact was clearly more than the mix impact. When we take a look at the fixed costs in this slide, so the fixed cost increase in a year-on-year comparison is in line with what it was also during the third quarter as well as the fourth quarter. If we jump to the segments and, as usual, start with the service business. So Service order intake, EUR 388 million. That is up 3.7% in a year-on-year comparison. We had an increase in field service and parts in both of those. We had an increase in the Americas. Americas performance was very strong, actually. Also in APAC, a small decrease in EMEA.
Then when we take a look at the agreement base, so we had growth there as well, more than 5%. And Americas was very strong on the agreement base growth area as well. Sales number, EUR 367 million. That is up a little bit more than 5% with comparable currencies. We had an increase in field services, a slight decrease in parts. Normally, we would be saying that this would mean a negative mix in a year-on-year comparison. Now this time, modernizations actually compensated for that. And we believe that the mix was more or less unchanged in a year-on-year comparison when we then talk about margin later on. When we take a look at the sales increase in Americas and EMEA, but a decrease in Asia-Pacific. Order book, like Anders mentioned, slightly up. And book-to-bill, for example, now for the first quarter continues to be positive.
EBITDA, EUR 73 million, 19.9%, a very good margin. It's more than one percentage point up in a year-on-year comparison, coming both from productivity and pricing. So we had a smooth quarter from the operational excellence, operational performance point of view. This is partially also helped by the fact that the first quarter of last year was not particularly good. So the comparables from that point of view are maybe a little bit easier than usually. And then also net of inflation pricing helped us. Gross margins increased as a result of those things. And then, of course, also consequently, the EBITDA. Jumping on to the Industrial Equipment, our order intake was EUR 313 million. It's a clear decline, almost 30% year-on-year, but against very tough comparables, as we can also see from the picture. So Q1 2023, orders were on an exceptionally high level.
In a year-on-year comparison, we had a decrease in basically all of the major business units as well as in all of the regions. But then if we take a look at the Q and Q comparison, so we are actually compared to, say, Q3 and Q4, so we are on the same level or higher now in our order intake in the first quarter. And when we take a look at the business unit there, so particularly components, did very well. So we have a very high sequential increase in the order intake for components, whereas standard and process cranes were a little bit lower in a sequential comparison. Taking a look at the sales, EUR 283 million. This is down in a year-on-year comparison by 7% with comparable currencies.
Decrease in process cranes as well as standard cranes, increase in components, and decrease in basically all of the regions. A couple of reasons. One of them was that the first quarter of 2023 was pretty good from the sales execution point of view as well. We were still delivering so-called late backlog during the beginning of 2023. This impact we did not have this year, now in 2024. And then, of course, the strikes in Finland impacted our sales on group level, EUR 15 million-EUR 20 million, most of that actually in the Industrial Equipment. So these are then visible in the comparison when it comes to sales. Order book slightly down, but also here, book-to-bill on a quarterly level better than or higher than one. EBITDA, EUR 18 million, 6.5%. This is down year-on-year. The reason is lower volume, as discussed regarding the sales.
Gross margin actually increased thanks to the pricing, but thanks to also our optimization program. Also, mix was slightly positive as a result of the high share of components, so that those actually supported the margin, but the volume. Volume was the thing that then meant that the margin declined slightly. Port Solutions, order intake there, EUR 248 million. Also here, a significant decline year-on-year. And as in Industrial Equipment, against very, very tough comparables, Q1 2023 was excellent. Of the business units, we had basically year-on-year order intake decline in most business units except for mobile harbor cranes, which is mentioned here on the slide as well. Then if we take a look at the order intake in a sequential context, so we were between Q3 and Q4 of last year from the order intake point of view in ports.
And then if we take a look at the business units that one could consider being maybe more early cyclical, lift trucks did decline year-on-year, but sequentially went up. And then Port Service also was sequentially quite flat or on the same level. Sales, EUR 300 million. We had a good sales quarter, 10% increase. Most of the business units performed well from the deliveries point of view. And then order book still on a good level, even though down. Here, unlike in the industrial businesses, so here the book-to-bill is below one. Comparable EBITDA, EUR 21 million, 7.1%. This is an improvement in a year-on-year comparison, coming primarily from the volume. But also we have had an R&D support subsidy in the amount of slightly more than EUR 2 million, which is then impacting the numbers in the first quarter also positively.
Before going into the Q&A, a couple of comments on the net working capital, cash flow, and balance sheet in general. Our net working capital was EUR 374 million. That is 9.4% of rolling 12-month sales. We had an increase in comparison to the end of the year in inventories. Net working capital development from that point of view was a little bit in the wrong direction. However, we are still clearly within our target range of being below 12% of rolling 12-month sales. Free cash flow consequently went down also in comparison to the previous period and to the end of the year. EUR 49 million free cash flow. It's cash conversion of approximately 80%, given that we had an extremely good cash conversion during the whole of 2023. Still, this achievement, taking a little bit longer view, is very good.
And then on the next slide, we have the gearing, net debt as well. Net debt, EUR 335 million, 22% gearing. This is obviously now excluding the dividend payment. So that took place in April. So that has to be taken into consideration, of course. And then finally, return on capital employed on the right-hand side of the slide. Comparable return on capital employed, 18.9%, and good development there as well. This was the last slide of the presentation. And now we can move into the Q&A.
Thank you, Teo. Let's start our Q&A now. Operator, I would kindly ask you to open the line, please.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Johan Eliasson from Kepler Cheuvreux. Please go ahead.
Yeah, hi. This is Johan at Kepler Cheuvreux. Thank you for taking my questions. I'm starting just with Industrial Equipment. You mentioned that sales were impacted by the strikes, primarily Industrial Equipment of EUR 15 million-EUR 20 million. Will this imply that these lost sales you will get now in Q2 instead, and we should see sort of a sequential boost from this?
To some extent, that will be coming back to us in catching up with sales. Where you might not see the same full catch-up might be on the Service side that we lost some operations in some parts. But majority of that should be catch-up during the second quarter.
Okay, good. And then on pricing, you mentioned in sales it was above 3% if I got the details right here. How does it look like in orders? Are you still hiking prices and where if that is the case?
Yeah, so pricing effect, we say now is 3%-4% in the first quarter. And when we look at the order book, it should be on a similar level as we have now.
We have continued.
Thank you, John.
Yeah, sorry, we have continued to do price increases also this year so that inflation is on a lower level. Material inflation in particular, of course. But it hasn't meant that the overall price levels would have started to go down. But price increases are still being done. Of course, they are much more modest than what they were some time ago.
More driven by labor than material.
More driven by labor, obviously.
Yeah. Yeah, good. And then just finally on Port Solutions and your visibility here. Now you have a backlog that is almost 120% of last 12-month sales here. You had a very strong revenue development in Port Solutions last year. But do you think, looking at your backlog in Port, that you can match these sales? Or is it more longer lead times into 2025 here that we should expect for Port Solutions?
We normally don't comment on segment level, but we have actually commented on Ports due to our long visibility here. So the outlook is the same here. We expect the same level or improving versus 2023 in terms of sales for Ports.
Excellent. Many thanks.
Thank you.
The next question comes from Panu Laitinmäki from Danske Bank. Please go ahead.
Thank you. I have a few questions. First, starting from the outlook for demand, basically, how should we read these statements both in Industrial Equipment and in Ports? That industrial, you say that demand is healthy and you no longer reflect the sign of weakening that you had last year. Does this kind of imply sequentially stable orders or increasing? And basically, same question for Ports. So any kind of comments? What do your statements mean in terms of order for the coming quarters? Thanks.
Thanks. Yeah, so we don't give any order forecast. But when we talk about improving demand, that is, of course, a positive underlying driver for future order intake. So that is the way it should be read.
For the both divisions?
Yeah, we haven't really changed the comments on the port side. So there you can more see it as continuing on a good and healthy level as it has been during the previous year. So it's a similar sort of funnel that we see in short-cyclic products. It's coming back. It was weaker a bit, and now we can see it's bottom out and coming back. And then for project side, which is not driven in the same way by upturn or downturn in economy or interest rates to the same extent as maybe other order intake, more driven by long-term timings of these projects. So there you can see that we have similar amounts of projects of all different sizes also in our order funnel going forward for ports.
Okay, thanks. Then on margins, basically two questions. So firstly, can you talk about what are the main margin drivers for the rest of this year, for the coming quarters? So what are the main positives? What are the main negatives? And any kind of changes to what we saw in Q1?
Now, if we take a look at the rest of the year, as you pointed out, so I guess that, of course, volume development continues to be important. We have, to some extent, more order book now for the rest of the year than what we had a year ago at the same time. So this is kind of a positive. Of course, we also need in-and-out orders, a significant amount. But I mean, the order book situation is slightly supportive. Now we had very little or we had actually, let's say, declining volume underlining when we take a look at the Q1. So this, in a way, from the order book point of view, should be in a better situation. And then I guess that what we want to continue with is the operational improvements that we have been doing already now in Q1.
So the optimization program that we are doing in the Industrial Equipment will continue to give us benefits towards the end of the year as well. It has had benefits in Q1, but we are expecting that to continue through the coming quarters. Product mix is maybe something that we are now a little bit more positive than we were three months ago. We said three months ago that it would be flat to weaker. And now we are actually saying that it would be maybe flat to positive. So the product mix improvement can, to some extent, be there in comparison to what we are seeing, what we have seen in the previous year. And then, of course, we also, in a way, of course, as we are increasing prices. So the idea that we would be at least capable of compensating the cost inflation with price increases.
Okay, thank you. Then the second question on margins was on Port Solutions and maybe on a bigger picture. I mean, if I take out the R&D subsidy that you mentioned, the Q1 margin was pretty flat compared to last year and quite a bit below your target level, even though you had the highest Q1 sales in that business ever. So basically, what will it take to get to your target level? And could you also touch on kind of product mix? Because maybe some investors are anticipating that you might benefit from demand to larger cranes in the U.S. market, especially. So how would that kind of impact your margin target achievement, given that those products might have lower margin?
If we take a look at the situation currently and reflect on the, let's say, rest of the year, so we are expecting product mix impact to be slightly positive. Of course, then at the same time, one has to comment that this is primarily dependent on what is the share of Port Services of the total ports. There are other aspects as well, but there is a clear difference in gross margin and EBITDA margin between the Port Services and, let's say, the average of the rest of the business units within Port Solutions. Otherwise, what is needed and required for the margins to improve within the Port Solutions overall is, of course, pricing. We have talked about that.
It is project execution, project excellence, project management excellence that will be then driving the margins up on a, let's say, longer-term perspective when it comes to our project businesses within ports. That's, of course, a significant part of the ports businesses. Obviously, in those product categories, which are more like product rather than project type of activities. The underlying volume development, of course, continues to be important because we have a fixed cost that we will need to cover for.
Okay. Any timeline when do you think you could reach the margin in Ports? I mean, given you have a priced order book in that business.
So we have communicated the same timeline for all targets, that we should be there latest by the end of 2027. So that is also applicable here. But of course, our internal targets are to reach them much quicker. What should be considered in ports is also, as you mentioned, some of these are quite long lead times. So things we change in the way we offer, in the way we manage a project, etc., it takes time until it filters through to the actual result. So there are a lot of improvement initiatives ongoing in ports that have not yet yielded a result that we believe it will yield going forward. And we are still confident regarding the financial targets we have communicated in regards to ports.
Thank you.
Okay.
Thank you, Panu.
Thanks a lot.
Let's now take the next question from the line, please.
The next question comes from Mikael Doepel from Nordea. Please go ahead.
Hi. Hi there. Good morning. And thanks for taking my questions. I'm not sure if you said this there, but I just want to come back to your comment around the mix that you now see, overall product mix, a bit more positive than three years ago. Sorry, three years, three months ago. But I was wondering, what drove the change in the view here?
The biggest underlying reason is that we have a little bit, let's say, changed view on how big a share would service represent of the total. So this change in the commentary is more in relation to the mix between the segments rather than the mix changes within the segments. Even though, of course, now that we commented the order intake regarding Industrial E quipment as well, so that the component order intake that was very strong now in the first quarter, of course, drives also the mix within the Industrial Equipment to a better position.
Right, right. Okay. Well, that's very clear. And then coming back to the pricing, both your comment and your answer previously, so I think you said that the inflation is still there and the overall pricing has not gone down. So is it fair to assume that in some segments you have some price gains, in some you might have some price declines, but on average, pricing is stable and underlying costs are stable? Is that the way to read it, or am I wrong?
Yeah. Yeah.
There is fairly high inflation on wages and salaries, and we are not expecting that to go away. So from that point of view, the inflation is there. There is also inflation if we take a look at, for example, Q1 and compare to the Q1 last year. So there is inflation, but the percentage is much, much lower than what it used to be. But it does mean that we will continue to increase prices to be able to cover the inflation. And then in the big picture, like I said, the idea is that we would be at least able to compensate for the cost inflation, let's say, combined cost inflation that we have.
And yes, sure, it may be that in some product categories we would be gaining a little bit extra. In some product categories, we might be, in a way, losing a little bit. The overall target is that on average, at least cost inflation, hopefully a little bit more, would be coming through into the P&L.
What you're saying is that overall you see some cost inflation underlying and your pricing will, on average, be up a bit. Is that basically what you're saying?
Can you please repeat that? I'm not sure that I understood.
No, just what you're saying is basically that you see overall inflation, which means that you also see overall pricing up a bit for the full year and perhaps a bit more than the costs are going to move us.
Yes, we are seeing overall inflation, at least currently. And then, of course, the situation can change. But like I said, we do not expect that the situation will change regarding the labor. So that there will most likely be inflation throughout the year. Material inflation is on a lower level, but currently there is inflation. And if these circumstances continue, we will obviously need to and we want to increase the prices so that we are at least matching the cost inflation.
Okay, okay. And then just a final follow-up on this. So if I think about the process cranes, which are very heavy on steel content, for example, and steel prices are down. You're not changing pricing there. You're also hiking pricing there. Is that the case?
Could you, Mikael, repeat your question? We can hear you quite bad, unfortunately.
Okay. Sorry about that. So basically, I was asking on the process crane side, for example, the heavy cranes where you have a big steel content and steel pricing is down. Are you saying that also there you see pricing stable or up and not down? Just to be clear on the pricing point. Thank you.
Yeah. So those are more on a project basis. If you talk about really big installations where there is more steel. So of course, we price those on a project basis to the customer. And here we share the eventual gain of material prices because otherwise we wouldn't get the order. So that's how it works. We need to stay competitive in the market still. But on the main components, there is still inflation. So on those, there will also be inflation in the process crane area. So we are not reducing prices generally in the process crane area.
Okay. That's very clear. Thank you very much.
The next question comes from Antti Kansanen from SEB. Please go ahead.
Hi guys. It's Antti from SEB. A couple of questions both on the sales mix and if I start from the Services, you mentioned that that is the primary driver for improved sales mix outlook. And I imagine that means that you see higher growth for Services, not lower for other equipment businesses. So what is driving this view? Is it market-driven demand? Is it something that you have won yourself or what's the changed view?
So in regard to Service growth, and you are right, we are looking at hopefully planning for quite good growth going forward in this year within Service, as we have communicated earlier as well. And we have a lot of initiatives that we are doing. We have updated our offering. We are recruiting more service technicians to be able to service better our customers and to deliver better. And we have also improved our systems and how we support our technicians to be more productive. So a lot of this combined, of course, together with making some acquisitions that we have done, the Whiting acquisition, the Munck acquisition. And we are, as I said, activating ourselves in further acquisitions. So we see this as a growth engine for us going forward as well.
Here when we grow, we are not increasing the overhead at the same pace as we are increasing our top line. That is a positive leverage that we talked about also in the capital markets day that we have in Service growth. That's a key focus area for us.
All right. But nothing has kind of dramatically or less dramatically changed quarter on quarter on how you see the service demand if you now see kind of a higher share of service sales for this year?
Nothing dramatically has changed. But as we also commented, we see a slightly more positive outlook within the industrial segments than we did a couple of quarters ago. And that's, of course, also contributing to our overall picture and how we see the year for service.
Okay. And then on the same theme, kind of the improved demand sequentially for the early cyclical businesses on both markets. Can you provide a bit more color on that? Is this very much a U.S. phenomenon? Is this broad-based? And if you look at the demand in those businesses, components and lift trucks, where we are now, is it an early recovery where your volumes are still clearly below, let's say, a mid-cycle level or where do we stand right now?
Yeah. So like Teo mentioned, very good order intake on components. And in general, components are performing very well. And that is an early cyclical product. So that is normally the first one that goes upwards. Difficult to comment, of course, if that's sustainable or not. I mean, we don't know and we don't give those forecasts anyhow. So it looks good going forward within the early cyclical products within the industrial segment. And it also coincides very well with what we see in macro indicators, that they are turning upwards. Then when it comes to lift trucks, as I said, also in my presentation, we see that lift trucks, an early cyclical product, has also turned positively in demand on the Port side. So that is indicated in the same way.
We also saw on the macro indicators for ports that the container throughput index is improving and that is, of course, helping us. At the same time as lift trucks are also used on the industrial side, the industrial side improving would also help lift trucks. I would say it's in line with what you say, basically.
Okay. Is it the broad-based regionally or is it very much a U.S.-driven increase in demand?
U.S. has been strong basically throughout. I would say it's more an uptick what we see in EMEA if you compare to a quarter ago or so. So we can see an uptick in EMEA. And then APAC is still, for us, a more struggling and more competitive market.
Okay. And the last one for me is that is there kind of an inventory cycle also involved, especially on the lift truck side, but also on the components? And restocking or destocking? Yeah.
There can be, to some extent, because these are distributor businesses. And I think that when we talk about the components in Industrial Equipment in particular, so there is this price increase cycle. And, like mentioned, we have increased prices and the price increases usually come in force, for example, during the first quarter. And it means that the order intake before the price increases is high. And now lately we have been having this kind of a phenomena that the order intake for components is very good during the first half of the year and not as good during the second half of the year. And of course, that remains to be seen. And I guess that from the recovery or decline point of view, from the overall economic point of view, of course, these are the kind of things that we will need to follow up.
There is, of course, distributor impact in lift trucks as well. So it is possible that part of the demand is, let's say, managing the reservations that they have for their own customers and hence from their suppliers. So even though typically we do not have re and destocking, so in these two product categories, to some extent, it can exist.
I mean, hadn't that been a major headwind last year on lift trucks, exactly the distributor destocking, or do I remember it wrongly?
Sorry, I didn't catch the question.
No, I was just talking about the lift trucks that if I remember correctly, there was a kind of a major destocking headwind last year. Is that correct?
To some extent, there was a destocking, definitely. Maybe we're not as competitive as we should have been due to our longer lead times than we would have wished to have had. So I think it was a combination of several things. Now we see ourselves being more competitive in terms of output of our factories. And we also see that the general market seems to be picking up for lift trucks as well.
Thank you, Antti.
All right. Thank you.
Let's now take the next question from the line, please.
As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Tom Skogman from Carnegie. Please go ahead.
Good morning, Anders, Teo, and Kiira. I can see from your slides that fixed costs are up EUR 16 million. I just wonder within this, what is happening to SG&A costs given the changes you have done to the Demag distribution model? Are SG&A costs up or down?
Do you want to take it?
When we take a look at the change that we are doing, particularly in the distribution network, so of course we are, let's say, tightening the network. And from that point of view, the fixed cost, SG&A that is, has been decreasing as part of the optimization program. So if we take a look at the savings from that program, so obviously part of those are in relation to the SG&A. So then there is another part of fixed cost that is actually linked to the activities that take place above gross margin because those would be then factory-related. So there are actually both from the cost-saving point of view, both above gross margin and then also below. But if we take a look at the whole set in a way, so of course the efficiency improvements and activities, so they are impacting more gross margin than activities below it.
SG&A costs, are they up or down now year on year?
These fixed costs that we are giving in the slide, the EUR 16 million, so that is the fixed cost below gross margin. That is the delta.
Okay. Yeah, yeah. Sorry. But it's a bit strange that it grows if you have this program to do big changes to the Demag setup. I would kind of expect that you could, I realize there is a general cost inflation, but it would still be nice to see at least a flat number there.
It is correct that there is cost inflation. Of course, it is also correct that in addition to that, there is some underlying growth in the fixed cost. We feel that the growth as such is completely under control. One also needs to remember and take into consideration that when the volume started to improve in 2023, so we had very small fixed cost increases despite significant ramp-up in the production. What typically happens in this is that the operating leverage from that point of view in the beginning is very, very strong. Then later on, when the organization catches up to the level where it actually should be, so the operating leverage reduces. This is, of course, what you can see in the bridge as well now.
Even if the volume, the underlying volume is not growing, so the underlying fixed cost is still growing on this quarter at least because of the heritage from the 2023 where the overall volume output increased significantly in comparison to the previous year.
And if I should just make some other comments there as well. If you look at our total headcount, it's not really increasing year-on-year. We are up, is it 30 people, I think, year-on-year? Or 19, actually. And we are increasing our ratio of service technicians as we have talked about in the year. So other resources are actually down year-on-year comparison. So where you see the increase, it's in cybersecurity investments, it's in IT system support in that, it's in sustainability investments, etc. And those we need to do to be able to continue to be in the forefront of our business, basically. But we are not investing in a lot of admin central resources. Rather the opposite.
These fixed cost savings that you are guided for, it's still EUR 11 million for this year. Is that right, or?
That is right.
Yep.
Yeah. And then, I mean, Antti discussed this already. But really to push Service, I understand you need more technicians and you need acquisitions. But then you have this big install base of Demag cranes as well. I mean, do you have any kind of new thoughts or ideas how to sign service agreements with owners of those cranes or something that could make us believe that you could start to grow Service by rather more than 5% annually than less than 5% annually?
Yeah. We, of course, look into our installed base. Then we prioritize to see if we have big cranes that require a lot of service . That , and those are, of course, prioritized. But in general, we don't go to a customer to service one Demag crane. We go to a customer to service all cranes at the customer sites, be it Demag, Konecranes, or other brands. We never take only one crane at the site. So we rather target customers that have a large installed base of cranes that we can contribute with our knowledge and competence to improve productivity at the customer and help the customer to then renew their equipment, to increase their productivity in their manufacturing. So we don't, by default, target singular installed Demag cranes. That's not how we operate.
We rather target all cranes and rather look at customer sites where there are many interesting cranes that we can service. Then over time, if we do have the service contract at that site, of course, we are in a good position when they need to expand or when they need to reinvest in a new crane or upgrade.
Okay. Then you have said many times that you think that short-cycle products demand outlook has improved. Is that kind of based on your feeling or talking to your salespeople or data in your sales system? Or what is it based on? It was not seen in orders really this quarter. What is the really real reason for it?
It's based on order intake. We look, of course, both sequentially year on year. Then it's based on our monthly review calls where we talk to the people who actually are in the frontline, how they see and interpret the market conditions.
Thank you, Tom. Let's now take the next question from the line, please.
The next question comes from Erkki Vesola from Inderes. Please go ahead.
So he's not asking any questions this time around. Maybe we could take a couple of questions from the chat now. First, there is a question on the ports order intake. Could you take us through the reasons of your extremely deep dive on ports order intake? And I assume this is now the year-on-year decline.
What was the question?
Could you take us through the reasons of your extremely deep dive on ports order intake? So why did the orders decline so much?
A review on why it did decline?
Yes.
Okay. Sorry. I didn't get the question.
No problem.
So in the comparison period, we had several really, really big orders and strong orders. Not only the one that we talked about at EUR 150 million. That was by far the biggest one. But there were also other really significant order intakes that we had in the first quarter. And hence it's the all-time high quarter for ports order intake, of course. Then if we look at the current year, we had, as mentioned in the previous quarterly call, that we got early order intake into Q4. Something that we were expecting to come in Q1 actually came in the last day of Q4 last year, which of course boosted our Q4 numbers in ports but had then a negative effect for our Q1 numbers in this year. So what we see is that the funnel is equally strong both in the short-cycling product and projects of all sizes.
But in this quarter, we didn't have any orders that we sort of would define as medium or large project order intake. So what you see is an underlying good performance, which is clearly ahead still of the trough quarter, which was the Q3 as we stated it to be. And we still believe that was the trough. So this is in between the Q3 and Q4. And maybe since we got that late order intake, you should look at Q4 and Q1 together because that was basically one day's margin in between. So that is, I think, a review.
Yeah. Thank you. Then we have another question on the manufacturing operations in Würzburg. So could you provide us with more information on the process of finding a new owner of straddle carrier manufacturing operations in Würzburg? Has there been any progress there?
Yeah. So we always review our footprint both in terms of internal footprint and also our external supplier footprint. We do that under our accelerate efficiency initiative, which is also one of our strategic enablers for the group. Here we look into the operating model that we have for straddle carriers, which is a one-site, one-product site. That makes it very sensitive towards ups and downswings in order intake in that specific product. If you look at other products within ports like RTGs where we have a completely different operating model with outsourced manufacturing, we are much less sensitive. Also the supplier do other things. So they are also less sensitive. Hence we have taken the decision to look into the operating model here. That means then that we look into if we can find a buyer for the site.
We, of course, want to progress as quickly as possible to find that buyer and to agree with that buyer and then transfer people, the facilities, and the operations to that buyer. We can't comment on where we are in the process specifically. That is our main initiative to identify that buyer as soon as possible. We can't exclude that other initiatives will be needed to be taken in terms of Würzburg to manage our operational excellence.
Thank you. I think those were all the questions this time around. So it's time to conclude the conference. As a kind reminder, we will report our half-year financial report on July 26th. So that is then when we will be back here in the studio. I wish you all a great day. Thank you.
Thank you.
Thank you.