Thank you for standing by. Welcome, and thank you for joining the PALFINGER AG Q1 to Q3 results conference call. Our today's host is CFO Felix Strohbichler of PALFINGER AG. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a Q and A session. If you would like to ask a question, you may press star followed by one on your touchtone telephone. Please press the star key followed by zero for operator assistance. I would now like to turn the conference over to Felix Strohbichler , CFO. Please go ahead.
Thank you. Good morning, ladies and gentlemen. Welcome to the presentation of our actually very good results of the first three quarters of 2023. First of all, let me just say a few words about PALFINGER. We are the global market leader for cranes and lifting solutions. We had a revenue of EUR 2.23 billion in 2022, with around 12,700 employees at the moment. What is very special at PALFINGER is that we are present in all regions worldwide, as in comparison with our competitors, which are rather local producers. We are really present in all regions with production sites on the one hand, but what is even more important for our customers, with around 5,000 service centers, which creates a real USP for PALFINGER customers.
At the bottom of the slide, you see the revenue distribution of PALFINGER. And what you can see here, that for the first time, we have reached now a share of 25% of our revenues in North America. EMEA is still at 60%, and the other regions are at 5% each. What you can see here is the customer segment of PALFINGER, and obviously, PALFINGER has a diverse product portfolio and is also serving a lot of different industries, which is a good thing, as it provides us with a good resilience in a downturn of one or the other segment. About 40% is exposed to the construction industry, then forestry and agriculture, with around 15%, is also a very important customer segment. Waste management, recycling, around 10%.
And then we have a lot of smaller customer segments, public sector, rental, offshore oil and gas, wind, railway. So a lot of applications, different applications we are serving to. And as you can also see, there are quite a few sustainable applications like offshore wind, railway, agriculture, so waste management and recycling. So obviously, PALFINGER is also serving here mega trends. Sustainability is, in any case, a very important driver of PALFINGER, on the one hand, in our strategy, on the other hand, also in terms of our daily operations. What you can see in the first column in emissions, you will eventually recognize that the percentage of power from renewable energy sources has come down from around 76% to 61%.
The reason for this is that we have not been able to obtain green energy in Romania, where we have the highest energy consumption in the group. So we are looking at how we can compensate this, but this is the reason why we have here a major decrease compared to the last presentation. Of course, next to few emissions, safety, health of our employees and of our users, and also the focus on governance and transparency are key factors of our ESG strategy. Coming now to the results of the first three quarters. So we have an absolute record period in terms of revenue, EBIT, and what is the most important in consolidated net result. Still, inflation and high interest rates impact the economy worldwide, especially in Europe, which impacts mainly the order intake in EMEA, and I will talk about this in a minute.
Last but not least, we have been talking about high inventory levels over the past quarters. We see here that the development is turning into the positive direction, but we still have very high inventory levels. On the one hand, due to the still poor truck delivery reliability in the EMEA and NAM, but also due to the fact that, especially in EMEA, the installation network is a bottleneck. Coming now to the segment, sales and service. In North America, we can show a revenue growth of about 30%, and we still see a positive development in earnings. We always set a target of a double-digit EBIT margin in North America, and we can say that we have reached this goal. Also, Latin America shows a solid performance, despite of the fact that the market is quite difficult there.
In APAC, and I'm not talking about China, because there we don't see any improvement, but in the rest of APAC, we have seen a high order intake for loader cranes, especially, and namely in India, which is one of the growth markets of PALFINGER in the future. If you go to marine, we have here tailwind from the oil and gas prices, and this is really boosting also our order intake. So we have a very good development here in marine handling solutions and also in boats and davits. Coming to EMEA, obviously, the order intake is impacted by, on the one hand, high interest rates, which then impact the construction activity. And obviously, as we have more than 40% of customers in the construction industry, this also leads to a lower order intake for PALFINGER in the EMEA region.
On the other hand, we see a very much improved profitability due to the fact that the price increases, which have been implemented over the past years, have been fully effective in the first three quarters. And then I already talked about the inventory levels, so this is mainly in the segment Sales and Service, where we still face the high level of finished good stock. Here we see the KPIs of the segment Sales and Service. So we see an 18% growth in external revenue, mostly driven also by the price increases, which have become effective. And EBIT has grown over proportionally by 41% to EUR 148 million, and this despite of the fact that the transfer prices from the segment operations have been adapted.
Which means that this has actually positively impacted the EBIT margin of the segment operations and negatively impacted the EBIT margin of the segment sales and services. Still, you can see here this substantial increase. Coming out of the segment operations, we see that the delivery reliability for purchased components is improving significantly and has significantly improved. However, this is not really good news because in the end, this is just mirroring the macroeconomic environment, especially in EMEA. Nevertheless, we had a stable production output in EMEA. In North America, however, we have been slowed down by the fact that chassis have not been available to the extent we would have needed them. We can also see that the decrease in freight costs is hitting our P&L. The falling material costs only start to have an impact now in Q3.
We have here a delay due to the fact that, our contracts are running at least for six months, so a lower purchase price only takes, two to three quarters to positively, be seen in the P&L. Last but not least, we had in September, the groundbreaking ceremony in Niš, in Serbia, for our new production plant. This is a very attractive country in terms of, wage cost levels, and also the availability of skilled employees is extremely good compared to other European countries, especially also to Bulgaria, for example, or, Maribor in Slovenia. Coming to the, turnover figure of, segment operations. So this is the external revenue only from manufacturing to third parties, and you can see here a decline of 20%, which is, again, mirroring the overall economic development, especially in Europe.
But the EBIT could be significantly increased. This is mainly due to the fact that the higher material costs have been passed on in new transfer prices to the segment sales and service, so that the segment operations is, so to say, on the profitability level, where it should be. Coming now to the new segment, other reportable segments. We have decided in the second quarter to spin off the tail and passenger lift product line from the global PALFINGER organization. This is a very specific product line with specific market requirements. It's a commodity product. There are very little synergies with the other product lines.
So, due to the fact that this product line was also making losses, we decided to create a new organizational structure to create the flexibility, to respond fast to the needs of the market segment, and also to turn around the business very quickly. The change in organization and segmentation affects, at the moment, only the EMEA business of tail and passenger lifts. From 2024 onwards, also the North American business. If you look at the timeline of financial figures, you will see that we have already adapted 2022, but not yet 2021, to give you comparable figures for the last year, at least. You can see here the external revenue. So this is now the product line Tail and Passenger Lifts in Europe only, as mentioned before, in EMEA only, with an EBIT of -EUR 48 million.
This is a relatively high difference to the year before. Here we have quite a few one-off effects. On the one hand, of re-segmentation, which is around EUR 3 million, but we have heavy currency effects in the positive direction in 2022, in the negative direction in 2023, and then also, holding costs have continued to increase, mainly due to inflation, so that we end up with this, EBIT of -EUR 48 million. Coming now to the PALFINGER Group. It's by far the best Q1 to the Q3 result in PALFINGER's history, almost EUR 1.8 billion of turnover, an increase of almost 14%.
What is even more important is that the EBIT increased over proportionally by 47% to EUR 165 million, which reflects an EBIT margin of 9.2%, and the consolidated net result increased by 71% to EUR 91 million in the first three quarters. As mentioned before, we still are faced with very high inventory levels, which continues, obviously, to influence our net financial debt, which is still at a very high level of EUR 790 million. At the half year, it was only slightly higher, so you see here only a very slight reduction. However, as already mentioned, we have set here measures to reduce the stock levels, and we do expect that the stock level will come down significantly over the next three quarters, but clearly with a major first step in the fourth quarter 2023.
Our equity ratio reduced mainly due to currency effects. So on the one hand, the US dollar and the ruble had quite some negative impact in terms of translation effects on the equity, which also impacted, obviously, the equity ratio and the gearing. However, we can say that net debt, EBITDA, and ROCE have improved, and we are heading towards our target levels here. Last but not least, if we talk about financial KPIs, our free cash flow, we have still a negative free cash flow of EUR 28 million for the first three quarters, but what is positive is that it's now the first quarter in this year with a clearly positive free cash flow. So we had around EUR 20 million of more negative free cash flow in the first half year. So it's an improvement now, significant improvement compared to the half year.
The main driver is still working capital. As you can see, the change in working capital in this year is still EUR 113 million, which is still significant. Despite the fact that we have a very high EBITDA start basis with the change in working capital and also a high level of investing activities of EUR 121.5 million, which is far more than in the previous year, we still have a free cash flow, which is negative of EUR 28 million. Again, we are heading towards a positive free cash flow until the end of the year. This is clearly our target to get there. Coming now to the outlook 2023. We are on track.
We communicated already in March that we want to reach a revenue of EUR 2.4 billion and an EBIT of EUR 200 million. So we are here on track. We expect to reach the EUR 2.4 billion, and what is, of course, more important is that we also expect to reach the EUR 200 million for the full year 2023. The order book coverage gives us a visibility until the end of Q1, which is still a very high and good order book. However, clearly we see a lower order intake in EMEA, and there is no sign of a market recovery, and there is no indication that the market will change in the short term. The good thing is that the market environment in North America and also the marine market is still very healthy and positive.
Of course, we have increased uncertainties due to the geopolitical developments. I would say the macroeconomic situation will not change the outlook for 2023, but of course, the geopolitical developments are a major risk factor nowadays. Coming now to our guidance for 2027. We keep up our ambitious financial targets, despite of the fact that we are in the middle of an economic downturn in EMEA. It's also important to mention that from January 2024 onwards, the executive board will be strengthened by Maria Koller. She will be responsible as Chief HR Officer on the board level to help us to contribute to these ambitious financial targets of reaching EUR 3 billion turnover from organic growth until 2027, at an EBIT margin of 10% and 12% ROCE. Thank you very much for your attention. Looking forward to your questions.
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 touchtone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you're using speaker equipment today, please leave the handset before making your selections. Anyone who has a question may press star followed by one at this time. The first question comes from the line of Markus Remis with Raiffeisen Bank International. Please go ahead.
Hey, good morning, thanks. Congratulations to the results. First question relates to Europe, and I would be interested to get a sense of the magnitude of the downturn here. So, I mean, we got numbers from your peer here. I mean, is the order intake decline comparable? Is it 25, 30% plus in Europe?
So the order intake is something where you need to be careful when we compare it against 2022, because 2022 was an exceptional year, so it's better to compare the order intake, I would say, to a normal, reasonable year, like 2019. And if we do this in a year, we have a reduction of around 25%-30%. So this is from a normal, sustainable market level, the reduction we see at the moment. However, we also have to say that it's extremely volatile. So we had, for example, a very good month in August, and then it's down again, so it's very difficult to predict. But what is quite clear is that in the construction industry, an upturn is not in sight at the moment.
Yeah. And okay, that's that leads to my follow-up question. Is there any granularity that you can share regarding the product groups or various countries in Europe, or is that pretty much comparable across the board?
Well, we have some product groups where we are not impacted at all. So if you look at the sectors, which I've presented before, it's clearly the timber industry, which is the worst at the moment. So the timber prices are quite low. There is much lower demand for pulp, for paper, cartonnage, packaging, but also for fiber, for cloth application. Then in construction, much less timber is needed. So this is a main driver why the timber industry is, at the moment, adverse. If we then go to construction industry, it's not such a uniform picture. On the one hand, we have still markets like Spain, Portugal, also Italy, which are performing quite well. You have Scandinavia, which is extremely bad, especially Sweden, with also devaluation in currency, is at the moment more or less dead.
So there is almost no activity happening in Sweden at the moment. Also, Denmark and other northern countries are very modest. And then we have other applications like, for example, in recycling, where there is very limited impact, wind cranes, marine cranes, the whole marine segment, still very positive also in Europe. So again, it's not a uniform picture, it's mainly the construction and the timber business, which is not good. And if you look at construction, you even have different segments. For example, everything which is infrastructure is still quite good or is actually very good, and those construction companies focusing on infrastructure are extremely well-booked. For example, in Austria, we have here as example, STRABAG and PORR, and these companies are doing exceptionally well.
Of course, smaller players mainly focusing on making smaller houses, family houses. This is where really there is a major downturn, and this reflects also our product mix. So, for example, for larger cranes, we still see a very good demand because this is not the typical application for material handling. It's more the 20-30 meter ton range, so the middle class of cranes, which is the most impacted by the downturn in construction industry in EMEA.
Very clear. Thank you. Then I'm, I would be interesting to get a sense of the expected pricing into 2024, also against the backdrop of the flexible pricing strategy or regime that you've implemented. So what would be like the base case at the moment?
What we did, in fact, also due to the macroeconomic environment, also the competitive landscape, that we changed for the time being, the approach with the dynamic pricing. We made it kind of a security net. Only if the PPI exceeds or falls below a certain threshold, prices will be adapted. But at the moment, we provide to our customers stable prices as long as cost level remains in this bandwidth. For next year, our key assumption is, and this is what we can see at the moment, that in Europe, there is no price elasticity, so it's not possible to increase, increase prices at the moment. Obviously, two years ago, if there was a price increase of 5%, nobody was asking questions. Everybody understood that prices are going up and accepted it. Nowadays, competition is more intense.
Material costs are going down, so customers do not accept any price increases, at least in Europe, which leads to the fact that for the next year, we are faced, on the one hand, what is positive, lower material costs, lower freight costs, but significantly higher labor costs. So we assume that this will be around 8%-9% of an increase globally on our labor cost, and this is around 30% of our PNL. So this is a significant position, and we have to compensate for this with the lower material cost, with higher productivity, also substantial savings on the structural cost side. But it will not be possible to further increase prices. It's rather that we have, in some cases, to act with some additional discounts, to win one or the other order.
Okay. Okay, that's very helpful. So did I get it right, the dynamic pricing as such, has been kind of suspended or adapted again?
It's been substandard, but what has been kept is the safety net. So what happened to us two years ago, that the costs rocketed, and we couldn't adjust the prices in a timely manner to prevent a scenario like this. We have still the safety net of the PPI in our general conditions.
Okay. And what about how did your dealers and customers react to it? I mean, like, annual changes of the pricing regime might cause some irritation eventually, or is that not the case?
Well, in the end, customers and dealers were never the biggest friends of the dynamic pricing. So this was actually introduced to protect the margin of PALFINGER or to restore the margin of PALFINGER. So for customers, it was always difficult to accept. And of course, as competition didn't follow this model, our biggest competitor, Hiab or Cargotec, had something like this in the general conditions, but never executed it. As they had increased prices earlier and to a larger extent, it was not necessary for them to execute it. But it was only possible to really defend this position in a good market environment now. As the competition is tougher, as the market is going down, it's important that we also adjust, and our dealers and also customers appreciated this move.
Okay. Thank you. Final question for me would relate to the basically balance sheet, cash flow development. I mean, inventories have been up again sequentially compared to the second quarter. I mean, firstly, is it—shouldn't it be easier to get trucks in the economic downturn? And how do you think your kind of especially inventory position will develop until year-end? So anything you can share with us regards net debt development and maybe also with the economic downturn kind of shaping up, are you adjusting your CapEx plan?
So first of all, if you talk about delivery of trucks, yes, it's getting better, but still we have 25 millions of trucks, not units, but euros, obviously, so EUR 25 million of trucks sitting in our balance sheet, and this is much more than we actually would like to have, but it's the wrong trucks. So some trucks come earlier. It's not really the problem that the trucks are not delivered, it's that the delivery reliability is bad, which creates a huge problem in the supply chain, especially in the downstream supply chain. So we have to cope with the fact that on the one hand, we have a lot of trucks sitting in our yards, on the other hand, we have also equipment sitting in the yard, but it's not matching.
But this is getting better, and we also have reduced the output now in Q4. So we have taken out some production days in October and in December, which will not affect the revenue according to our planning, because we want to reduce the stock levels. So actually, this will even not hit the P&L simply because we have the priority to reduce inventory levels rather than to keep the output on the same level. So yes, we expect that until year-end, we will see an improvement in the working capital. It's difficult to say to make a promise, but we have, of course, set an internal target, which would clearly improve this figure significantly. And as I mentioned already, our target is to have a positive free cash flow until year-end, and this is only possible by reducing the working capital.
Because everything which is cash flow from investing activities has been decided and has been already implemented, months or quarters ago, and cannot be influenced anymore in the fourth quarter. So it's purely working capital. And the second question was, if we do adjust our CapEx, our CapEx planning for next year. Obviously, we're looking into our CapEx and are trying to reduce. It's not just delaying. In the end, we need to question our CapEx strategy, and we are doing this or have been doing this already for a few quarters, but it's not such a simple process.
Many things have already been started and kicked off, but in the end, the target is that we will reduce the investments, especially into manufacturing of PALFINGER, to make sure that we don't need to make investments on a similar level as we had to do it in 2023, in the years to come. But also in the next year, there will still be a relatively high CapEx figure, even if it will be lower than in 2023.
Okay, and the base is in 2023, which figure?
Well, you could assume that if you take the figure of the first half year, which was EUR 85 million, if you multiply it by two, you're roughly there.
Okay. Thank you very much.
Welcome.
The next question comes from the line of Lars Vom-Cleff with Deutsche Bank. Please go ahead.
Yes, good morning. Thank you very much for taking my questions. I have two, and will ask them one by one, if I may. First of all, with great interest, I took note of your first remarks regarding next year's business performance, which I find slightly muted, to be honest. Is this just a description of the status quo, or shall we rather take your statements as you starting to manage our expectations, i.e., negative growth or diluting margin being in the cards for next year? Especially as also order intake in EMEA is, as you say, at a low level, and you just mentioned wage increases of 8%-9%.
Actually, the wage increase is something we can manage. As I said already, we are taking counter actions, and there are also some positive effects. But what is clearly something which we cannot expect is growth in 2024. I think it will be challenging to keep the turnover level of 2023. Please accept that I cannot give now a detailed guidance. Typically, we do this in the presentation of the results of the year 2023, not today. By the way, of course, last year, the situation was much easier to predict because we had nine months of order book ahead of us. We had a very stable market environment. Today, we see a huge volatility, not only looking at the geopolitical developments.
I also mentioned, for example, order intake in August was quite good, then it went down again. So it's extremely hard to predict, but what we can see is that at the moment, there is no indication that in the coming months, construction industry in EMEA should pick up. So interest rates will remain high, and there is no indication that governments take significant action. Of course, there are some cosmetic actions taken and some promises, but will this really change the big picture? I doubt it. I didn't give any guidance for 2024, but the key message is, 2024 is for sure more challenging than 2023.
Okay, understood. Many thanks. Then I have to apologize because I got slightly sidetracked when you spoke about your full year target for the free cash flow. It would be great if you could quickly repeat that.
Yeah. So our target for the free cash flow is to reach a black figure. So at the moment we are at -EUR 28. So the target is to cross the zero line and to have a slightly positive free cash flow. This is what we are working on, and as I mentioned, the main lever, or actually the lever is, working capital stock.
Perfect. Perfect. Many thanks.
You're welcome.
The next question comes from the line of Jorge Gonzále z with Hauck Aufhäuser Investment Banking . Please go ahead.
Hello, good morning, thank you, Felix, for taking my questions. I would like to start with, if you don't mind, with North America. The implicit number is quite impressive, and I was wondering if you expect to repeat or this number could be considered as a run rate from now onwards, or if you are also expecting some slower performance next year in North America. That well, depending on the different companies of the sector, they have different views here. So it will be helpful to know better your view as you are also increasing your market share in the country.
Regarding timber, I was also wondering if you can give us some sensitivity of the potential decrease for next year, if you expect the sector to decrease as, I'm not sure if the seasonality in Q4 is going to be key also for timber and construction, and then we should wait a little bit, or if you can already foresee a decrease compared to this year for timber. Maybe, lastly, it will be also interesting if you can give us some reference regarding the volumes you are expecting to do in India. I think that could be quite useful. Thank you very much.
Yep. Thank you. So first of all, expectation for North America, we all read in the newspapers that a slowdown in North America is expected for 2024. If you look at the market environment for PALFINGER nowadays, we don't see any indication, so we still have a very healthy demand. We still have a high demand for products we are, we have launched recently, like the truck-mounted forklift. We are ramping up the volume for service cranes, which is a market with delivery times of by far more than one year. So yes, the macroeconomic indication from a lot of investment banks is that next year should be a downturn, a slowdown in the U.S.
At the moment, we can't see it, and by the way, we are by far not in a situation in the U.S. like in Europe, that every downturn hits us one by one. We still can expand our market position. We have opportunities which are only addressed today. Our expectation for 2024 in North America is that we will increase our revenue in North America compared to 2023, and our target is to have $1 billion or even EUR 1 billion, depending on the exchange rate. In the end, it should be possible to have $1 billion, about EUR 1 billion of revenue by 2027 in North America. The market size would allow this, and in case we have a relatively stable market development, this is absolutely realistic.
The second question was, is there an impact of the slowdown in timber in 2023? Yes, there is already a slight impact in Q4, but the main impact will be in 2024. On the one hand, there is a need for replacement, and there is also the need to bring out damaged woods out of the forest. So I, I think people will not be able to wait forever, but as long as the timber prices are that low and the demand for timber is that low, the timber crane demand will be substantially lower. And here we are talking about a bigger reduction than the 25%-30% I mentioned overall for EMEA. And last but not least, you asked about India. So in India, we have around 60% market share for loader cranes.
We also sold quite a few aerial work platforms, so this amounts for around 400 cranes, and I think it's a revenue of roughly EUR 10 million-EUR 20 million. I would have to check now exactly, but it's in this range. It's not that huge, but there is a big potential in India. And for 2025, one of the strategic projects we are pursuing is the evaluation, how we'll set up a footprint for assembly in India, not only to cover the local market in India, but also other low-cost markets, on the one hand, in APAC, in Middle East, but also Africa.
Thank you, Felix. That's, that's very useful. Maybe allow me to to make another question. Is regarding, obviously, construction in, in Europe for next year. Companies like Volvo, despite they, they have order intakes falling in the levels of 40, 50%, they are foreseen, scenarios of around -5% to 15% decrease in volumes only next year. And I was wondering if you also have, better expectations for, for the end of the year in terms of orders, if we should take into consideration some seasonality, or, or some, different, order intake dynamics, due to the dynamic pricing.
If maybe you can catch up later on with the demand or how you see the market, because I'm not sure if with the strong growth you have the last two, three years, clients have enough, or if you think that the economy gradually recovers next year, demand should return strongly. How you see the return of the demand in relation to the needs of your clients, as you have conversations with them? That would be very useful. Thank you.
Yeah. So first of all, you mentioned Volvo, around 5%-15% decrease in volume. So Volvo is mainly active, of course, in infrastructure and less in building family houses and small buildings. Of course, their equipment is also needed for these applications, but it's a higher percentage, which is also needed for infrastructure projects. So I believe that they are probably less affected than PALFINGER, as long as we look at the construction part of our customer portfolio, yeah.
It's very difficult to predict what's going to happen next year, so I, I can't give you a guidance, but I believe that the level of -25% order intake, especially related to construction industry, so I'm not talking now about the overall portfolio, but I think for timber industry and also for construction industry, 25%-30% lower need has to be expected for 2024, from my perspective.
Thank you very much, Felix. I go back to the line.
Thank you.
The next question comes from the line of Tore Fangmann with Berenberg. Please go ahead.
Good morning, and thank you for taking my questions. I've got two. First will be, do you see any cancellations or price renegotiations from customers for the standing backlog? So not for the new orders, but for the backlog that you have already.
No, we don't see any cancellations and no renegotiations. The reason for this is also because the vast majority of all our orders are linked also to an order of a truck and an installation. So it's not just the crane, but there is also a truck behind. So if the customer would now cancel an order, this customer would also have to cancel truck and the installation. And, in the end, we see lower order intake, but no cancellations at all. And this is a very big difference compared to, for example, the year 2008 and 2009. In that time, a lot of units were sold without end customer, not with a truck linked to the order, and this is completely different in 2023.
So every unit which is sold, not every, there are always some stock units, but this is very limited. The vast majority of units are linked to trucks, and there are no cancellations.
Okay, perfect. Thank you. Second would be, how is the agricultural end market, especially in India, developing? Just looking at the latest business parameter for the market. It seems like there's a lot of high stocks in the market, and also the agricultural market in Europe is in a downturn.
Well, the agricultural market for us is quite a limited market, so we mainly look at the timber market. So agriculture is kind of a small segment for us. I cannot comment here in detail on the agricultural segment because this is actually something where we have perhaps EUR 20 million-EUR 30 million of turnover or more, and this is not a heavy impact for PALFINGER.
Okay, thank you.
The next question comes from the line of Daniel Lion with Erste Group. Please go ahead.
Yeah, good morning. Actually, just one question from my side. Looking at the competitive situation or the competitive landscape, especially in Europe, do you expect here further changes or improvement of market share in the downturn? And how do you think about potential acquisitions? Of course, your balance sheet is currently stretched, but going at next year, there might be some targets available. And could you maybe update us on the market share that you together with Hiab hold in Europe?
Yeah. So, first of all, market share development. If we look historically into phases of a downturn like 2008-2009 or 2020, and also the previous downturns, I think it was 2003. PALFINGER has always gained a market share in these times, mainly due to the fact that customers, if they have to consider three times, if they really want to place an order, they don't want to enter a risk. And this is playing into the hands of the big players, PALFINGER and also Cargotec. So I would expect that in the next 12 months, PALFINGER and Hiab are the ones who can gain market share. And we can also see this, because smaller competitors are really facing difficulties to fill the factories.
They are already at the limit and need to reduce people and capacity. So obviously, the order book of PALFINGER is substantially better than the order book of smaller players. If we look at the market share, of course, market share is not so easy because we have several product lines, and it's different from product line to product line, from country to country, and from region to region. But overall, if you look at the core product, crane, you, you could say that PALFINGER is slightly above 30% market share, and higher up is slightly above 20% market share. So in this product line, which is the core, we are the bigger player. You also asked about acquisitions.
PALFINGER has not the intention to make any major acquisition, and it's also actually not required because in most product lines we are offering, we are present worldwide. We have the technology we need, and if we would acquire a local player, it would almost necessarily destroy value because we couldn't keep up the full business of the competitor. We would have to close either the factory of the competitor. We would have to consolidate the product portfolio, et cetera. So it's only very few areas where it's actually worth considering making any further acquisitions. Of course, what can always happen is that one or the other dealer is for sale because there is no successor or so.
But also here we have a clear policy that we only want to go into markets which we see as strategic markets, which also allow us to add value to the PALFINGER portfolio, so we won't buy any dealer or any distributor which is on the table. So don't expect any major acquisition from PALFINGER. On the one hand, for cash flow reasons or for NFD reasons, but also from a strategic standpoint, it's not required and not intended to make any major acquisitions.
Okay, understood. Thanks.
Thank you.
The next question comes from the line of Miro Zuzak with JMS Invest. Please go ahead.
Good morning. Can you hear me?
Yes, Miro, I can hear you.
Hi, Felix. I have a couple of questions I would like to take them one by one. The first one is regarding your revenues. Did I hear that correctly, that you said that you would like to stretch a bit, the deliveries, basically, in order to optimize efficiency?
Well, what we are doing is, we are reducing the production output because we have too high finished goods stock levels. So in the end, this has no impact on the turnover, so we still keep up the EUR 2.4 billion revenue target, because just by reducing the stock levels, even if there is less production, it just will mean in the end, that it's the same revenue, but it's lower inventory levels. So this is the target. But we are talking here about, 3.5 or 4.5 days, only in Q4.
Okay. The moment when you take our finished goods out of your stock inventory, you recognize the margin, right? If you sell it.
Yes.
Just accounting, right? Is it? Is there any? So, so your growth margin should stay on the, say, high levels, where it is—
You will not see this impacting the gross margin, though. This is a minor effect.
Okay. The question is, given your, allow me to say, excellent cost management in the OpEx lines, do you agree that EUR 200 million of EBIT is an easy-to-reach target? I mean, I'm modeling your, your, your—
But we said that we want to reach over EUR 200 million, so we are confident that if nothing major happens, we should be above EUR 200 billion. But easy to reach is kind of too optimistic. So yes, we believe that we can reach the EUR 200 billion, but it will not be significantly much higher than the EUR 200 million.
Okay, and which cost line will then be, let's say, will deteriorate in Q4?
On the one hand, what we will already see is substantially higher personnel costs. For example, in Austria, where we have more than 2,000 people employed, we will see, starting with November, a relatively high personnel cost increase. This is something we will already see, for example, in Q4. Typically in Q4, there are also some one-off effects where we look very carefully at activated development costs, et cetera. We really want to go very clean into 2024. Also in our planning, we have considered that there will be one or the other million of one-off effects in Q4.
Okay, and this is included in your guidance, basically?
This is included.
Not an adjustment. Okay, good. Thank you. Then, on the financial result, is the current, let's say, minus EUR 9.5 million of quarterly negative financial results, is this a good assumption also into next year? Or are there any changes to your financing mix or to your financing structure that we have to consider?
Well, in the end, we will see, according to our expectation, lower NFD or lower financial debt next year, which will positively impact our interest cost. On the other hand, the average interest rate will go up. So we have EUR 119 million of promissory note loan, which has to be refinanced in March, and this is a quite attractive fixed term promissory note loan. So obviously, these EUR 119 million will kick in with a substantially higher interest cost than next year. So I do not-
120, sorry. 120.
Yeah, EUR 119 million, yes.
190, okay.
119, 119, sorry. 120.
119, okay.
The 9.6 are also including some exchange effects, et cetera. It's not exchange rate effects, et cetera. It's not just the interest cost, but yes, for next year, we do assume a financial result just from interest, which is slightly above EUR 30 million.
Mm-hmm.
This is our assumption of interest costs for 2024.
Okay. But you said you would expect lower net financial debt. You refer to the Q3 and Q2?
Yeah, Q2.
The seven.
In Q3, we are at very high levels of EUR 720 million of net financial debt. So of course, we have the target to come down now already to a certain extent in Q4, but especially until the middle of the next year, we should see here a substantial reduction of net working capital, which then in the end, will also result in a reduction of net financial debt, and therefore, also in a reduction of the basis for our interest rates.
And what, what is a good assumption for this reduction? Would you say about EUR 50 million-EUR 100 million, something like that? Or is it like-
I think this is a valid bandwidth. I mean, the 50 would be on the conservative side, the 100, perhaps on the aggressive side. But of course, if you ask me for the target, it's rather towards 150. But, it's of course, depending on also other factors, but yes, this is what we are striving for.
Okay. And then, the last question would be on, on the, minority side. I think, there, we talk about revenues, or basically minorities from Holzkran, Epsilon and, and Zylinderverchromung, Hakengerät, and so on. It's, it's very, I mean, I see quite a, a large change this year versus last year, when it comes to this minorities. They were significantly lower this year. Also, the -EUR 18 million, -EUR 19 million, it is also a realistic, value for next year. What would you say here?
Well, first of all, you mentioned Hakenlift, so it's the hook loader, which is not included anymore because we have purchased the minority shares about two years ago. Or was it? No, two years ago, I think, in the meantime. So it's mainly Nimet, which is chrome plating of cylinder tubes, and on the other hand, it's Epsilon. And manufacturing for third parties has been substantially lower this year. It was around minus 20% or even more, because partially it was compensated by other third-party manufacturing, and especially the margin also went down here. And timber, as I mentioned, is the market which has been impacted the most in terms of order intake. So it's the two entities with minority shareholding in EMEA, which had the hardest hit in terms of market development.
For the next year, I would say that the figure you, you mentioned is probably a realistic figure, yeah.
Okay, good. Well, if I may add one, like, your net debt target, say, for end of H1 2024, would then be around, like, EUR 550 million or something like that. Is this the—
No, no, no. We are at EUR 720 at the moment. If we can reduce by EUR 100, this is already a stretch target. So I believe that if we can get to EUR 620-EUR 650, this is a realistic bandwidth.
After H1 or after 2024.
After H1 2024, yes.
Okay, cool. Thank you.
You're welcome.
There are no further questions at this time. I hand back to Mr. Strohbichler for closing comments.
Thank you very much, ladies and gentlemen, for your attention and for asking questions. Looking forward to talking to you soon. Have a good day.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.