Good morning, ladies and gentlemen. A warm welcome to the presentation of the results of the first quarter, 2023. I'm very happy to announce that this was not just any first quarter, it was the best first quarter in the company's history, which we can present today. One of the reasons why it was such a good quarter was that the price increases we have implemented over the past two years have become fully effective during Q1, and we've also seen improvement in the supply chains, which helped us, of course, to reach the high output. What is also a very important topic for us, of course, is North America is the growth market, the most important growth market for Palfinger.
In Q1, we had the CONEXPO at Las Vegas, a very important show, or the most important show in our industry for the North American market. We had a lot of customer meetings, a lot of products on display, a lot of product demonstrations, and a very good feedback. What I also would like to mention here is that we are going to open a new headquarters for the North American market near Chicago at the end of Q2, which will help us to really bring together the whole management team of North America to achieve our strategic goals for this region. Let me just go back a little bit on a higher level to briefly talk about who is Palfinger at a glance. As you all know, Palfinger is the number one in our industry.
We are a global market leader with around EUR 2.23 billion of turnover in 2022. We are present in all regions worldwide, 31 production sites, and what is even more important, around 5,000 service centers. This is one of the key USPs of Palfinger, because we have the best service coverage worldwide with people, trained technicians, with spare parts availability, et cetera. This is a very important topic to mention here at the very beginning. We have, in the meantime around 12,000 employees. If you look at the revenue distribution, you can see that EMEA in Q1 has still even increased the share to more than 60% due to the fact that the price increases have become effective, and the product mix in EMEA was quite good. North America, 23%.
Latin America, CIS, and APAC, around 4%-5%. On this slide, you can see the customer segments we are serving. Construction is clearly the key customer segment with more than 40% of the share in terms of revenue. Also forestry, agriculture with around 15%, waste recycling with more than 10% are key customer segments for Palfinger. We are quite diversified with quite a few other industry segments like railway, wind farms, agriculture and fishing, which are clearly growth markets and serving megatrends. Of course, we are also selling into the public sector, rental sector, oil and gas, and we are even serving the passenger ship industry. This is a very important slide for us because it underlines that we are highly committed to sustainability.
We have already implemented around two years ago a Sustainability Council to ensure that business strategy and sustainability strategy are merged together. The Sustainability Council consists of key managers of the most important functions like PLM&E, purchasing, production, where we have the big levers in terms of sustainability. It's absolutely clear for Palfinger that we need to make sure that our business itself is contributing to reducing CO2 emissions, that we make sure that our employees, but also people who are using our products or who are around our products, are safe and healthy, that we foster diversity and qualification of our people. Of course, governance and transparency is a key value for Palfinger.
Just to underline how important CO2 emissions are for us, you can see that we have, in the meantime, already 76.6% of energy from renewable sources. This is the maximum we can get at the moment, because in some markets, it's just impossible to get 100%. In order to further push this beyond this point, we are investing heavily into photovoltaic roofs in many of our sites and in many of our factories. Coming now to the KPIs and the results of the first quarter. Let me start with the segment, Sales & Service. As you know, we are segmented in two segments. On the one hand, Sales & Service. On the other hand, Operations. We have also the Unit Holdings.
In the segment Sales & Service, as I mentioned before, we have seen a very good development in EMEA due to the fact that the price increases took full effect during Q1, and we also had a good product mix with, of course, a positive effect on revenue and earnings. North America remains a strong growth market. We had also the first quarter, again, a very high order intake for service cranes. We see still a very high demand for the new truck-mounted forklifts, and North America remains strong, and we are expecting a lot from this region. APAC also shows signs of recovery in China, so this is not yet booming, but we clearly see an improvement there. What is really very good to see is that China is now picking up quite substantially.
We saw high order intake for loader cranes in India, and we are evaluating intensively how to intensify our footprint in India and eventually to get more local content to be able to even better serve the market in India. Last but not least, what has continued in Q1 is not satisfying delivery liability for trucks, and this causes delays in installation of our products. In the end, this causes still a high inventory of finished goods. Unfortunately, we do not yet see the trend of improvements in terms of finished goods inventory. If we go to the KPIs, you can see the external revenue increased by around 25% to EUR 544 million. EBIT went up by more than 150% to EUR 41.8 million, with an EBIT margin of 7.8%.
If you then go to the segment Operations, we had a high output, particularly in the MFA production plants, as I mentioned at the very beginning. Also, due to the fact that the supply chains have started to stabilize, not yet on the level where we need the supply chain stability, but it's substantially better than the year before. In North America, however, we have been slowed down due to chassis availabilities, especially for aerial work platforms. We had difficulties to get the chassis from the suppliers. Hopefully, this is going to be sorted out in the second half year. Also, positive effect, only a slight positive effect, with some counter effects, was that at least raw material prices fell slightly in Q1 compared to the last quarter of last year.
As I mentioned in Sales & Service, we have a very high demand for the truck-mounted forklifts in North America. This is why Steyr Automotive takes over the assembly of our truck-mounted forklifts for the North American market starting September 2023, in order to enable us to push the output and to serve our customers in the North American market. What I also want to mention here is that Martin Zehnder, our former COO, resigned about two weeks ago, and the supervisory board is now searching for a successor for Martin Zehnder. If you look at the KPIs, you can see that external revenue, so what we do in terms of manufacturing for third parties, remains still at the high level. Just compare Q1 2021, and you can see the steep increase in last year.
Even if this year shows already some slowdown in several industries, we have still a very high output for third parties. Also, if you look at the EBIT, it's still remaining at this high level at around EUR 19 million. Coming then to the Holding Unit. You can see here an EBIT of - EUR 12 million. This is showing that we are continuing our future forward projects and we are still investing here. If you compare to Q1 2022, you might get the impression that we have significantly increased here the expenditures. This is not true. In Q1 2022, there was an effect from group postings which were pushed onto the local level.
We had a COVID bonus last year, which was booked on the group level, and this was a positive effect, so to say, in the Holding Unit in the first quarter. The expenses were more or less on a similar level as in Q1 2023. Let me come now to the KPIs of the group. Revenue went up to almost EUR 592 million, an increase of almost 22%. The EBIT, the best EBIT in the first quarter ever, EUR 48.9 million, which is an EBIT margin of 8.3%. Completely back to pre-COVID levels. If you look at Q1 2021, you see that it in 2021, the first quarter showed an even better EBIT margin.
The reason for this was that in Q1, 2021, we had increased our prices expecting cost increases, but the cost increases did not yet kick in. There was kind of a tailwind effect in Q1, 2021. Q1, 2023 clearly shows that all the cost increases have been passed on to the market. On the next slide, you can see the level of investments and what we have communicated already over the past years, that we have ambitious goals. These ambitious goals require heavy investments. In Q1, 2023, you can already see this trend, and this trend is going to continue. On this page, you see on the one hand, the development of our financial liabilities and also our net debt. I will talk about this also when we come to the cash flow.
Obviously, the supply chain situation, especially for trucks, has not yet led to a decrease in working capital and net debt went further up. On the one hand, we have this development, on the other hand, very high investments, as you have seen on the slides before. In total, we are ending up now at the end of Q1 with a net debt of around EUR 640 million. You also see that the remaining term debt is about 2.8 years at around 3% of interest. In the meantime, in April, we issued a promissory note loan, which is ESG KPI linked, of EUR 150 million. This, of course, will push out the terms, the remaining terms on average, but will also increase the average interest. Going now to the next slide.
Here you see some balance sheet KPIs. Equity ratio at 33.6%. Stable, equity went up significantly, but in the end, due to the fact that also debt went up. No change in equity ratio and gearing net at EBITDA, of course, are impacted by the fact that net debt is on a high level. ROCE is stable at 9.6%. If you then go to the cash flow statement, we see still a negative free cash flow due to the further increase in inventories and due to the high level of capital expenditures. You can see that in Q1 2022, we had already an effect of -EUR 50 million. Again, in Q1, we had another -EUR 30 million.
What we do expect is, and what we can already see, that the stock levels and inventory levels in Operations are coming down. However, in finished goods inventory, we still do not see the positive trend due to the fact that truck deliveries are still very unstable. Unfortunately, we have a counter effect, also on the Operations side, which is the increase in cost. Yes, we see some decrease in raw material cost, but on average still, there is a lot of cost going up in many components, which still leads to increasing values in many components and also to an increase, overall in the stock levels driven by inflation. Let me come now to the outlook for 2023.
We have a very high order backlog still, even if the order intake, especially in EMEA, is lower than it used to be over the last quarters. We are still on a high level with the order backlog, so we have a good visibility up to Q4. This was also the reason to be more precise on our guides for the full year, which we communicated recently when we said we do expect a revenue of more than EUR 2.4 billion, and we target an EBIT of EUR 200 million. Of course, the geopolitical developments remain a factor of uncertainty, but based on the preconditions we have today and based on what we can influence, we have the best starting position to reach this guidance. As you know, we have also changed our financial targets.
We pulled forward the revenue target for the EUR 3 billion of revenue to 2027. We want to reach this together with an EBIT margin of 10% and a ROCE margin of 12%. Thank you very much for your attention. I'm looking forward now 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 lift the handset before making your selections. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. Our first question is from the line of Markus Remis from Raiffeisen Bank International. Please go ahead.
Hi, good morning. Congrats to the results, and thanks for taking my questions. The first one relates to the growth momentum. Actually, I would be interested to get a sense of the top line growth in North America in the first quarter. If you could also give some indication on the growth trajectory for the full year. Related to that, I'd be interested to get a sense of the European momentum, specifically asking about the volume side. Are European volumes down or flat at the moment?
Thank you for your question, and thank you for the congratulations. First of all, in EMEA, we had a very high output due to the fact that the supply chain stabilized in the first quarter, so we had a good output, and we had a good mix. In North America, we had the problem that we didn't get the chassis we needed, and this led to a lower output in North America. The growth momentum, despite of the fact that the North American market is booming, and in Europe, we see a certain slowdown in order intake. Clearly, the growth was coming from EMEA in Q1 due to the fact that the supply chain was stabilized.
If you now look further into the remainder of the year, North America should pick up as soon as the truck and chassis supply is getting better. This is expected in the second half year. For EMEA, we can see due to the high order book that still we expect some good months to come. Of course, with the lower order intake, we are now reducing our order book, but for the rest of the year, we don't expect a major impact from this because we are more or less booked out. Of course, what is interesting then is what is the further development in terms of demand, in terms of order intake for 2024. For this, of course, we don't have the crystal ball, but we are positive. In terms of infrastructure, a lot of things are going on.
Even in terms of housing, we don't believe that this is going to remain at this low level where it is today for a long time. Of course, this is uncertain to a certain extent. 2023 is more or less in a shape where we see little risk here.
Right. Okay. point taken. On the inventory trajectory, you provided some granularity. I mean, what's kind of the trajectory we should think of over the course of the year? I mean, trucks chassis supply is probably something where visibility is very low. I mean, do you see the scope for a reduction over the coming quarters?
Yes, we see already a reduction in Operations. If you look at stock, you have to look at the number of components, so to say, because the value is another topic. We see already that we are reducing the stock levels in Operations successfully. Unfortunately, due to the cost development, there is a counter effect which eats up a major part of those savings in terms of inventory. Yes, inventory and Operations is going down, but not that dramatically simply because of the inflation effect. For finished goods, unfortunately, we have seen an even further negative development in Q1 due to the fact that we have even more output, but trucks are not much more reliable or are not coming in in a much more reliable way than they used to come in.
Here we do expect that this is getting better at the latest in Q3, but at the moment the situation is still unchanged. We do not yet see, I mean, we are talking now about the first quarter, and this is only a few weeks ago, the end of the first quarter. At the moment, we do not yet see that the supply of trucks is getting better. At the moment, we do not see any reduction in finished goods inventories, unfortunately. We expect that also in Q2, this will not be substantially better. We hope that in Q3, and we will see an improvement.
Okay. Then taking all that together on the group level in value terms, so your balance sheet position inventory from the Q1 level. I know it's difficult, but would you say that this should actually have been the peak?
It should be the peak. However, it could be that in Q2 we see it at a similar level, and I would expect.
Yeah.
a reduction in Q3 and especially in Q4. Again, this is to a certain extent, crystal ball. As we can see from the car industry, for example, where deliveries have stabilized. At a certain point, I would also expect that deliveries get better on the truck side.
Okay. Well, thank you. A final question then on the holding cost, please. I mean, EUR 12 million loss in the first quarter, EUR 15 million in the fourth quarter, EUR 10 million in the third quarter. I mean, that looks like it's gonna end up somewhere at, I don't know, EUR 45 million-EUR 50 million for the full year. Is that something you would kind of confirm?
This is a range which is realistic, yes. It's about EUR 10 million.
Yeah.
-plus per quarter. This is correct. As I said, don't look at the Q1 of the last year because this was distorted by a special effect.
Yeah. Yeah. Okay. Very clear. Thank you very much.
You're welcome.
Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star and one on your telephone. Our next question is from the line of Daniel Ryan from Erste Group. Please go ahead.
Yeah, good morning. Thanks for taking my questions as well. I would like to start with the, with the cost increases. Can you give us an overview of how much of the business benefits from the, from the dynamic pricing now in the first quarter? By how much you raise prices?
It's not a uniform picture because we introduced dynamic pricing, especially in the EMEA markets, not all over the world or in different variations, so to say. We talk here mainly about EMEA markets, we talk here about the majority of the turnover, also not 100%. It has kicked in, I would say, on average, in February. However, we also still see some cost increases. In reality, dynamic pricing is following the cost development, I would not expect a major payment now in the second quarter. Of course, the good thing is that dynamic pricing is now fully effective, whereas in the first quarter it was only partially effective. There is still a slight positive effect to come from dynamic pricing in Q1.
Q2, I mean. Affecting Q2. Slightly positive.
Yeah.
Yeah. Yeah. I have just figures for February. Do you happen to have already the figures for March for the PPI? In the end, when I do the, when I look at the development, it seems that you have some 2% or slightly above 2% room for increasing prices in order to match the PPI. Is this correct?
I don't have the figures of March. I think we have all the same figures because this is official source. The PPI is still going up. It's a matter of fact that on average it's going up, I think, by 0.8% or so per month, which is reflecting the actual cost development also of Palfinger. This is then also reflected in the invoice prices of the existing order book. If now the PPI is going up again by 0.8, let's assume in March, it means that in May, we will also add those 0.8% to the existing order book. This is the logic how it works.
Okay. It's really automatic. It's not like, you do it manually depending on demands or patterns or clients.
No, it's like this, that our customers received an order confirmation with a QR code. They can open up the PPI, then they can calculate, so to say, what is the price they will be invoiced from today's perspective. Of course, this will change until two months or so before final delivery.
Mm-hmm. This.
It's a really dynamic price.
This also really works in both directions, huh?
Not really, because we increased prices by 6% and added the dynamic element, so to say, which means that if prices or if cost is going up by more than 6%, we can pass on even higher cost increases. If the PPI is going up by less than 6%, there is no change. Only if the PPI falls below zero, so this means even not 6%, but below zero, then of course, in theory, customers could ask for cancellation, which has never happened and which is not in sight, and the cost is only going up. In practice, it means that at the moment we are at about, I think, 112 for orders which have been booked in summer. It's not 6% price increase, but 11%-12%.
Okay. Okay. Still when we, when I look at your guidance for the full year, and deduct the first quarter, the growth dynamic is really coming back for the remainder of the year. Is this just a conservative view, or is the base effect really that strong?
I wouldn't say that this is a conservative target. I disagree with this. First of all, in terms of turnover, we are now in a situation where we don't push capacities any further, so we are remaining now on a stable level as the markets are calming down, except for North America and APAC. This means that there are no further increases in capacity planned for the remainder of the year, at least not significant capacity extensions. We have now passed on all the price increases, and this is reflected. Actually, if you look at the seasonality, what we have guided here, absolutely makes sense from our perspective. I wouldn't see this as a conservative target.
Mm-hmm.
You also have to consider in terms of turnover, that the first quarter actually had a very good product mix, for example. Yes, there is some.
Mm-hmm.
from pricing, in terms of product mix, the first quarter was very good.
Where does the growth then in the end come from? Actually, we would need to compare it to the first quarter in the end, because for last year, would you say that you have utilized the same production capacities as you did in the first quarter?
Last year, we had much more supply chain issues than in the first quarter of this year. Even if the capacity was not dramatically different, the output was higher. Due to the fact that.
Now.
new components
Yeah, yeah.
Had less.
Mm-hmm.
This was the main difference.
Yeah. That's what I mean when I say it looks conservative, because it seems that if you continue to run on this high level and your visibility is of course on the first almost until the end of the year. Of course, we don't know how the economic environment and demand patterns, how they play out and if we see cancellations or whatever, yeah. For the time being, it seems that it looks actually rather stable. I'm just a little bit puzzled, you know. The implied growth for the second until the fourth quarter is 4% top line.
Yeah. The first quarter is the second strongest quarter usually. The second quarter of the year is the strongest, and then Q3 is the weakest quarter of the year, and Q4 is the second weakest quarter of the year. Yes, it's true that in the second half year, the growth momentum is lower than the first half of the year, but this is simply linked also to seasonality and working days.
The seasonality was the same last year, I compare it to last year. Not to the first quarter. I'm not extrapolating Q1, of course. It's really, it's the comparison, the implied growth guidance, year-over-year. You have.
Yeah. I would have to look at the development of the quarters. Let me just check. Takes 10 seconds. Looking now at the development of the quarters. If I look at Q1 2022, we had EUR 450.86 million of turnover, then EUR 553 million in the second quarter. I mean, what you have to consider is last year we had a ramp-up of price increases.
Mm-hmm. Yeah.
This is what's happening this year. Last year-
Yeah.
We had a constant effect from price increases over the quarters. This is why Q4 was so strong in terms of sales. It was on the one hand also improvement in the supply chain. Especially also the price increases kicked in. Of course, if you now would take Q4 2022, and you take the same for Q4 2023, then I understand where you are coming from because Q4 was so good. What was special in Q4 was also that we had a lot of backlog we could recover in Q4. There were units which had been produced over the year, which couldn't be supplied due to a lack of chips, for example. In Q4, we were able to invoice those units because the components came in.
This was not a normal distribution over the year because it was really distorted by price increase effects on the one hand, but also supply chain effects. You cannot take 2022 as a standard, I would say not as a template for the typical seasonality of Palfinger.
Could you help us on your average interest rates post or including now the promissory note loan that you issued where would we stand?
I did not yet do the exact calculation. Of course it will go up if you take EUR 150 million at around, let me say, an average of 4.6%-4.7% of interest. Of course, this pushes us above the 3%. I would assume it's now at around 3.4% or so.
Yeah.
We also have the rival loans. These are also going up, so probably it's even 3.5 or so. This is now just a rough guess. I didn't calculate it now.
Mm-hmm. Yeah. Could you give us an update on at least, as far as possible on how the Russian business develops.
The Russian business is stable. Stable means, however, it's less in terms of group revenue and group EBIT contribution because the exchange rate is significantly different to last year. Last year, I think we had, at this point of the year, an exchange rate of about 50 or 55, whereas now it's I think around 85 or 90, and this of course makes a major difference. This is also what you can see.
Yeah, yeah.
on the slide with the share of the regions in terms of turnover. CIS went down from 7% to 5%, mainly due to this effect, but also due to the effect, of course, that we had a major growth now in EMEA. It was both effects.
Mm-hmm. Mm-hmm.
In principle, the Russian business itself is stable. If you look at the ruble values, it's still performing on a good level.
Mm-hmm. Okay. This is, yeah, also implied like this, as your assumption going forward in the guidance. Go ahead.
Well, we see for Russia that in the last 12 months there was actually no major negative impact. We still don't.
Mm-hmm
see any negative impact. Our assumption is that we can't expect here growth or positive development, but we also don't expect a major negative impact.
Mm-hmm. Okay.
We are aligning.
The last question?
It will continue on the same level. Sorry.
Yeah, yeah. Yeah, yeah. Clear. Clear. Makes sense. Last question on your CapEx. You were at EUR 50 million now in the first quarter. Do you see this as a good run rate, or was the first quarter exceptionally high?
This was, I would say, still a little bit too high. The 50 million EUR were also accumulation of factors coming in now in the first quarter, so I wouldn't multiply it by four. It's going in this direction, I have to say. We will clearly spend substantially above 150 million EUR this year. This is our plan. It's actually difficult to say what we will actually really spend because delivery times of machinery, but also for construction, et cetera, are still hard to predict at the moment.
Mm-hmm.
We have very often.
Will they keep this level?
Sorry?
Yeah. Yeah, yeah. Mm-hmm.
Last year we would have planned more than what we actually showed. In the first quarter we are showing more than we had actually planned, but it's rather going towards 150 +, 180 than remaining on the level of last year.
Mm-hmm. This level is likely to remain in place for the next two, three years at least, right?
Yes. We have some major projects in the pipeline. For example, we are building a plant in Serbia, Nis. This is one of the major investments. We are also going to make a major investment in Slovenia for a new painting facility, which is around EUR 50 million-EUR 60 million. Both investments will come in in the next two to three years. These are, so to say, one-off investments. For example, a painting facility is an investment once every 15 years. Of course, this will be something which is added to our run rate here.
Mm-hmm. Yeah. Understood. Okay, perfect. Thank you very much.
You're welcome.
Ladies and gentlemen, as a final reminder, if you would like to ask a question, please press star and one on your telephone. So far, there are no further questions, and I hand back to Felix Strohbichler for closing comments.
Yeah. Thank you for your questions. Thank you for your attention. I think this first quarter underlines once again that Palfinger is able to show a strong performance. We believe in our targets. We confirm our targets for this year and also for 2027. Despite of the fact that today the economy, especially in EMEA, is a little bit slowing down, we still see that also for the years to come, we have a good growth momentum and can continue our path. Thank you very much. Have a good day. Bye.