Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the Palfinger AG Q1 conference call. Our today's hosts are CEO Andreas Klauser and CFO Felix Strohbichler of Palfinger AG. Throughout today's recorded presentation, all participants will be in the listen-only mode. The presentation will be followed by a question-and-answer session. If you would like to ask a question, you may press star followed by one on your touch-tone telephone. Please press the star key followed by zero for operator assistance. 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. If you 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 result. 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 dealership. If you go to the next slide, and as you can see, 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, so quite the 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 a 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 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, with a revenue of EUR 2.45 billion in 2023. Supported by the overall all regions covering product sites and service centers, currently employing 12,800 people.
In terms of revenue distribution, still an area very strong, maybe 60%-62%. North America, followed by 24%, and then 0.4%, CIS 5%-8.5%. In terms of product portfolio, and if you move to the next slide, I think I can still reconfirm, reassure you, the product portfolio of Palfinger is quite unique. We have nine different product lines on the land segment, six on the marine side. Altogether, it's quite important that we have and can provide digital solutions, so in terms of connecting our equipment, sensor technology, communication, etc. 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 makes sure that we have quite significant, strong resilience through this industry diversity. So this means we are covering 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. Construction equipment business counts for more than 40%, but as well here, we need to divide between private housing and infrastructure projects. Still quite strong forest recycling. Not to forget about transport logistics. Here to mention our truck-mounted forklift, which is quite strong here in the U.S. market. The public sector. Also not to forget about the wind 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 really 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 as well important to focus on that and important as well to explain it. So we are here having three main pillars. There's one in terms of the planet and in terms of emissions. Yeah, 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 accident rate, the TRIF 7.34, also quite positive development, which we can see here as well. Diversity in terms of international employees at headquarters, etc. So quite a good move forward. And not to forget about being strong and future-oriented as an entrepreneur. And here as well, to announce that we have no corruption cases.
For example, we are quite looking forward, and we are fully committed here to our values. Yeah, now I think it's even more important to see the figures, to see the financial results. 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 three 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 development in the markets. So 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. Actually, this is rather marine, so it's in the wrong line here. However, I also have to state that there is no improvement in China. So 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 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 in EMEA, especially, is the ongoing high finished goods inventories, also especially here at our own dealers in Germany, Spain, but also in the US. If you go to the next slide, you see the 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 you 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 also the contribution, the better contribution, positive contribution of marine and tail lift. Sorry, 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 segment, so there was also a positive impact of not having the losses of tail lift from last year in here. 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 had 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 reliability, and our production backlogs could be reduced quite significantly. In the NAM 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% during 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 you then go to the next segment, other non-reportable 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 find the costs for strategic projects.
On the next page, number 17, you see the figures, but please don't look here at 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, whereas 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 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 a positive earnings contribution from tail lift associate, positive effect.
We had some negative one-time 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 number 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, the 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 number 20, you see our CapEx volume compared also to the level of depreciation.
And clearly, we are still investing substantially more than our depreciation, but the level of investments has come down from EUR 45 million last year to around EUR 40 million. And we plan, despite 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 the 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, so 4.2%. We are reaching now the peak in terms of interest of our financial liabilities. The average remaining term debt has significantly improved in more than 4 years. 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 a promissory note loan from Palfinger. We had 4 tranches, 5- and 7-year variable 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.
We will use those means to refinance our maturing promissory note loans, where 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 you would issue them or if you would sell them, you might recall that we did a reversal of a cross-shareholding with SANY when we took our treasury shares into our books, so to say, which reduced our equity ratio by about 3%. Of course, this is a potential for the future.
Looking at the net debt to EBITDA development, we have come down once again a bit, and we are now at 2.25, so a very healthy ratio. The ROCE has further improved to 11.3%. 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. 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. 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 -EUR 60 million, roughly, you can expect, and we really expect, a clearly positive free cash flow until the end of the year. And this will continue to improve over the next quarters. Having said this, I would like to hand over back to Andreas Klauser for the outlook.
Yeah. Thank you, Felix. And let me share here our outlook for 2024. If you 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 here 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 Scandinavia, while some other markets like Spain, Italy, Portugal are really quite on a good track and recovering. Yeah.
Due to this lower order increase, which we are facing out of EMEA, we had to adjust our production, which we did. 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 we keep up on our EBIT. Where do we focus on? We have our strong countermeasures here. One thing, 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 the minimum level sitting. In terms of productivity, quite important here, still, when the volumes are going down, that we can still increase productivity at our plants.
Last but not least, a strong focus on cost reduction, so in terms of targeted costs to make sure that we avoid 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, EUR 3 billion, 10% EBIT, and 12% ROCE. But also not to forget that we need to aim as well and be the market lead as well in the future. Being number one and the market leader in lifting solutions. This concludes here my presentation, and I'm handing over back to the operator. Thank you for your attention.
Thank you, ladies and gentlemen. At this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star, followed by one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star, followed by two. If you are using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star, one, followed at this time. One moment for the first question, please. The first question is from the line of Markus Remis from Raiffeisen Bank International. Please go ahead.
Hey. Good morning, gentlemen . A few questions. Maybe if you 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's the volume progressing there?
Yeah. Maybe I may answer here. First of all, yes. North America is quite stable in terms of market environment itself. We managed as well to get some market share from Hiab in terms of converting them to Palfinger products, Palfinger truck-mounted forklift. The performance is quite well. Customers more and more trusting that even if it's a new product, it's reliable and has the proper performance. This is going quite well here and talking mostly about the United States. We also managed to get here some 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 in logistics. 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 the United States and the truck-mounted forklift.
All right. Okay. Then turning to Europe, two 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, or maybe it's across the board, and also how we should think about that regarding then the kind of earnings development into the second quarter. And maybe you can add if there is already a how should I say? A timeline for how long this production cut will persist.
Yeah. I might answer to the first part of the question and then let Felix talk to the financial impact. I think what's important here is to note that even Europe is divided in two parts. So one part is, let's say, Germany, France, and Scandinavia, as I mentioned here. We see a quite significant slowdown, while other markets like Spain are really recovering, and Portugal, where also the construction sector is quite strong, multiplied by tourism. And 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 an impact a little bit on lower crane delivery everywhere, quite across the products.
As you said earlier, in terms of marine business, which is not a part of it, we still keep the production up. But we flattened this out as well to make sure that we have constant run rate in terms of costs. This is what I can tell you at this point in time. And I'll let Felix. Felix with the financial impact.
Yes. As we also mentioned in our guidance, we expect for the full year a 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 one-third compared to the earnings of last year in the second half year.
This is roughly the trend you will see. 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. Yeah. Last question would be on the order activity as you perceive it at the moment in Europe. I mean, is it kind of bottoming out at low levels, or do you perceive more downside in terms of the demand as we talk?
It has a high volatility. That's the effort you are seeing here. Customers are waiting on one hand side in terms of development of prices of trucks, okay, as a carrier equipment on one hand side. On the other hand as well, they are looking into interest rates, inflation stuff. There are many things which make them still waiting. The good thing is that in terms of offers, the number of offers which are out in the marketplace are nearly the same as a year ago. It's just now a question how and when will it conclude. No doubt, the take is shrinking in terms of volume. This is why the market is more tense. As mentioned before, we are quite confident that we can stick to the target situation most.
Okay. Very clear. 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.
Okay. Very clear. Thank you.
Thank you. The next question is from the line of Daniel Lion from Erste Group. Please go ahead.
Hi. Good morning. Just, I'd like to follow on 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 should we just think about it as optimizing the current capacities? Because obviously, once the market starts to rebound, you will need them anyway going forward.
The one measure, if I may start, and then let Felix complete here. Cost cutting means as well, or cost adjusting means as well, to flatten out production. So we are having quite flat run rates to avoid overtime and stuff like this, but still making sure the market would come back, at least in a certain timeframe, we could adjust our capacity again to avoid losing volume. And as some of you might remember, we did quite well after COVID. That will be a record year. We did some other things which happened. But I'll let Felix talk now to the numbers, please.
Yeah. 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 a 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 quite a few measures in terms of administration, bringing more people to our business service center in a low-cost market in Bulgaria, in Sofia, also streamlining processes, automation also, etc. 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.
Now, 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?
Well, we need to balance out components, low-profitability components, which are maybe currently produced here in the western part of Europe. We will shift this gradually to Serbia. We need to make sure that with all the costs which might arrive, we can counterbalance if we have a solution. So we have cylinder plants on the Balkans, in Bulgaria. We have now a assembly plant in Serbia. So we can, I would not say easily, but 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.
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. Clearly, this will be starting from 2026 then.
Okay. Understood. The tail lift business that you shifted now 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, but 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 quickest 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 they're 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 lifts. And we had still suppliers from high-cost countries. So the 3% EBIT margin should not be the end of the journey, of course.
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 it 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 non-core asset, and it is quite in the holding unit and not in the team.
So would you?
I guess, Felix? What Felix mentioned here, I think it's important that we recognize, yes, it's a commodity business. We have the flexibility within the organization. We deal with it still. We support it from different functions like procurement, finance, etc. 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 organization.
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 contribution out of our overall results. But if an opportunity would come up at 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 strengthens, but now also reflecting on the pressure that Raiffeisen gets 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 what I can comment here, the general comment we are following here overall, it's not only wind farms. It's completely separated. We have to see what's coming up. We don't feel any pressure, but I'll let Felix talk to this, please.
No, I can only confirm. So on the one hand, investors clearly underline that we should 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. We do not expect for the time being major changes here, also not from the Russian side.
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 and 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-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 lever we have here. So we are talking about a high double-digit number of millions of EUR just for trucks in the supply chain. And here we also are, to a certain extent, depending on the overall development with the truck suppliers. But we still believe that these EUR 50 million plus are realistic targets for 2024.
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 an effect.
And also what we can see is that there is no pricing elasticity that, in the last quarters, there has been some more pressure on pricing. And this will also have a certain impact in the second half year.
Okay. Understood. Thank you very much.
Thank you. The next question is from the line of Lars vom Cleff from Deutsche Bank. Please go ahead.
Yes. Thank you very much. Good morning. Thanks for taking my questions. 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, and marine are up and that the severe headwind is solely coming from EMEA?
Yeah. You're absolutely right, Felix Strohbichler, as well. EMEA has different realities. As I mentioned, Germany, France is more of a concern, while Spain, Portugal, which Spain especially is also an important market for Palfinger in Italy, is 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.
From a customer sector point of view, it's still the timber it's still timber and construction?
It's more and more and more and more construction, I would say, maybe than timber. 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. You see, even if you drive across here in Austria, there's a lot of roadwork even on the motorways. On the other hand, private housing is still cautious, but we as well see that it's slowly coming back but still not recovering.
Okay. Perfect. Thank you. And then, now also, yeah, 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 two to three times higher than it is for new equipment sales?
You see, it's maybe an average altogether, right? Yes. And as well here, we are counting on our service and parts business because usually, when our customer is not purchasing new equipment, they do a rework on their current Palfinger products. And this is 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. Thank you. 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?
Yeah. The wage increases are by far the biggest lever. So we have around one-third of our total cost is personal cost. And also in administration, it's even by far a larger percentage. So in terms of structural costs, we are talking about around 70% personal cost. And last year, we had more than 8% of increase. Or compared to previous year, we had more than 8% increase in personal costs. So this is a major lever.
Okay. Perfect. And then I think, Mr. Klauser, you already mentioned that in the side sentence. And you said, so I think in the Q3 call, that the market expects lower truck prices and hence also expects this for your cranes as they are or 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 clearly in terms of price pressure, but people waiting and getting the best deal. The good thing is, on trucks, you have maybe four or five options to buy another different truck brand. 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, yeah? On the other hand, yes, the market is under pressure. And as well, people are not concluding business. They are still a little bit hesitating and waiting. But that's the next step 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, 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 yet there. It's not customers not taking the cranes they have ordered, correct? Correct?
No, it's actually two 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 jam in the supply chain in installation. So we have a lot of installation partners in EMEA doing the installation for Palfinger equipment. And if the trucks come late or if the truck comes too early, etc., they have difficulties to plan their capacities and to plan all their installments. And in the end, we have now significant delays in some of the installation workshops which, in the end, leads to the fact that Palfinger is also keeping back 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 jam in the installation network by not imposing all the equipment onto our partners. So this is the reason why the equipment is sitting at Baltic. It's not unsold equipment. It's not equipment where we have a risk that nobody would take it off. It's all sold. Also, 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 unstable which still has to work out and still has to normalize.
Crystal cl ear. Thank you very much. I'll go back into the line.
Thank you. The next question is from the line of Patrick Steiner from Kepler Cheuvreux. Please go ahead.
Good morning, gentlemen. Thanks for taking my questions. 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, so? And also, can you already give us some feeling for April order intake? That would be the first one.
Yeah. I think in terms of order intake, yes, it was still a backlog which we had still as well coming from last year. So 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. Thank you. I guess the run rate going forward for next quarter is a bit lower than Q1. Is this right, assumption?
Yeah. Absolutely. But still, we're now matching the targets which we had announced in our ad hoc message. Yeah.
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 or if everything is for 2024 or if there's something for 2025 as well?
Well, it's already heading into 2025. I don't want to scroll 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. No insight. This is more, let's say, already for the last quarter of 2024, what we are getting now. With this run rate, we can achieve this. For next year, then we have to see how the elections 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. Let's see how this goes. With the current run rate, we can balance all that out and we expect to stick to our targets which we have announced.
Okay. Okay. Sounds good. Thank you very much. What's your view currently on European construction end markets? And which one are you exposed to the most in terms of residential, commercial infrastructure? Is it possible to divide this up in percentage figures or something like that?
It's 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 we see business coming back. This is the business. Infrastructure is going quite well. And then as well, we have to divide in our customer base between the more professional ones which have a cash flow planning and the really small ones. Luckily, the small ones, since they are sometimes as well less professional, they are more oriented on other brands maybe than Palfinger. But the professional ones, the big ones, the key accounts, Austria, Germany, France, they still stick to Palfinger. They are just maybe a little bit postponing. And as well, we have been asking for some adjusted offers in terms of get a better offer.
At the end of the day, it's quite well under control.
Thank you. Would you say, is there, how does the dynamic work here? If 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 could you think about this best?
For sure, it will take a couple of months and about. This will not go overnight. But when the sentiment starts getting better, especially the smaller customers really need to immediately decide to buy a Baltic product, then you 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 a three-month time frame in terms of delivery time. 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. This makes me believe that we can deal with all these upcoming challenges.
Thank you. Last question from my side. Can you give us some more information on the development in North America? I mean, how is revenue and order intake performance for Loader Cranes compared to the other products? Because it seems like Service Cranes and Access Platforms are doing pretty well.
They're quiet. So the classical loader crane, I would say, is a little bit declining. But this can be offset as we have the aftermarket forklift, service crane, service bodies 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 further Mexico, etc. So this is considered mostly concerning the US market. Still towards the elections, I think we might see a slowdown. But for 2024, I think we have a quite stable environment where Palfinger can count on in terms of business development in North America, especially United States.
Great. Thank you for your answers.
You're welcome.
Thank you. The next question is from the line of Miro Zuzak with JMS Invest AG. Please go ahead.
Yes. Good morning, gentlemen. Congratulations to the full results. I have two questions, if I may. The first one is regarding April, now the current month. The background is I have heard from two 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. Excuse me. We see even some positive signs after a couple of weeks, even now in the month of April, which is more reddish. It's clearly seen that the market is not coming back, but it's more dreadful. So we don't see a steep decline. But maybe these guys you're talking about were referencing maybe mostly about Germany. And this is maybe not extrapolated here. But in the overall EMEA picture, that's not the case. As I said, we see recovery still 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. We 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 pressure. The positive side is that you have less material cost. 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, variable 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 a counterbalance, and you 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.
Maybe a comment here on the steel side. You are right what you said about construction steel. Okay? The price was significantly going down. On the other hand, high-performing steel from voesta lpine, where they limited the availability, the price was as well going down but not that much as on construction steel. That's also within the steel business now, different measures we can see.
Okay. Thank you. And one last question, if I may, regarding your administration cost. If I compare your EUR 182 million from last year and also the EUR 50 million now in Q1, sorry, with a run rate of more than EUR 200 million for 2024, if I compare 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 30 bps higher administration cost 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?
Yeah. Perhaps if I may comment on this, you're absolutely right that if you look at the development of the structural cost of Baltic over the last 5-6 years, you have to consider that Baltic was managed in a completely different way. This was not a group or an integrated company. It was 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 out the savings actually throughout all the processes and to turn this, so to say, to the other direction. And we have now implemented the clear program where you will see the progress in terms of structural cost development.
But if you compare Baltic, how it was five 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.
Thank you.
You're welcome.
Thank you.
Are there any further questions?
Yes. We do have a few questions. The next question is from the line of Lars vom Cleff with Deutsche Bank. Please go ahead.
Apologies. It's me again. I promised to be quick. Just a quick one. I mean, you managed to increase your profitability both on an absolute as well as relative basis while sales were falling. So definitely a better input cost sales price spread than you having implemented or successfully having implemented price increases. I guess stable supply chains play a role. But was a better product mix or an 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, and North America have been performing partially significantly better than last year.
Perfect. Thank you.
Thank you. The next question is from Hauck & Aufhäuser . Please go ahead.
Thank you. Hello, Felix and Andreas. 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 20, 25 years. That is amazing. That speaks for itself about the penetration of other products. And I was wondering, with your new guidance and I appreciate the effort to give us already some indications. But I was wondering if you are managing in a scenario where you managed to not see a declining 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 with the adjustment you are already implementing in your capacities is maybe going to be too difficult to see in 2024? Thank you.
If I may answer this, this was clearly the reasons why we communicated this guidance as we did also at top 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, yeah? So it's not just a decision to reduce the output but to adjust the capacities. It also means that this cannot be reversed within four 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 would start into 2025 with a healthier 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.
Then 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 you make the right adjustment that you can deal with it. But let's say manpower and workforce we are currently having in terms of technology and key people, they are still kept with the flat run rate production we are having. So there is no impact if this was your question.
Thank you very much, both. Bye.
Thank you. There are no further questions at this time. I hand back to Andreas Klauser, CEO, for closing comments.
Yeah. Thank you for your attention, for your questions, and as well for your support in understanding the Baltic way forward. Counting on you. And we'll see you soon. Thank you very much.
Thank you, ladies and gentlemen. The conference is now concluded. You may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.