Good morning, ladies and gentlemen. Welcome to the earnings call of Palfinger AG for the first quarter of 2025. First of all, let me just quickly recall who we are. We are the number one in the world, the global market leader for crane and lifting solutions. Our revenue in 2024 was around EUR 2.4 billion. We are present worldwide, opposed to our competition, with 30 production sites globally. We are present in all continents on the one hand, with production, but especially with a very comprehensive sales and service network, which is a USP, especially in Europe. We employ around 12,360 employees at the end of Q1. Below you see the revenue distribution by Q1. Around 60% of revenue came from EMEA, 26% from North America, and 5%, respectively, 4% from the other regions.
North America, as you might recall, we clearly see as the biggest potential for Palfinger, and we target here a revenue share of around one third within the next years for North America. Just to give you the highlights and the headlines of Q1, we still have seen the continuation of the high order intake, which started in Q4, which provides a solid foundation for the full year. As forecasted, but actually slightly above estimates, we have a decline in revenue and profit. However, the order intake continued on the increased level, especially in EMEA. What I also, I'm very happy to also be able to report is that we have seen now a further reduction in net financial debt. What were significant events in Q1? On the one hand, we won a very important order with Royal Caribbean's Icon Class for rescue equipment.
This is a cruise order. At the moment, there is a real boom in this industry. A lot of things going on. Palfinger is very active in offering to a lot of cruise customers at the moment. Another important event was the Bauma. We presented innovative lifting solutions. We presented a lot of world premiers, and we had more than 100,000 visitors on our stand. A lot of deals were closed. What is very important is that the sentiment of our customers, especially from Germany, was extremely positive. When I recall, just half a year ago at the IAA in Hannover, this was still very much depressed, whereas nowadays, obviously, there is a very positive attitude of our German customers based on all the things happening, like fiscal package on the one hand, rearm Europe, infrastructure, etc.
Last but not least, even if this was already on the 3rd of April, I would like to recall that the annual general meeting approved the dividend of EUR 0.90 and also authorized to purchase and sell treasury share and elected Marianne Heiß in the Supervisory Board. Here you can see a chart, which you already know, which shows the customer diversity of Palfinger. We have a very balanced segmentation of our customers, which also means that we have a low concentration of customers and a high resilience because we are not depending on one individual cycle. We talked in the past a lot about construction, more than 30-40%. If you look at this in more detail, you can see that private housing, building, construction, infrastructure accounts for about one third of this construction share. Also, these segments are following different cycles.
is not just one construction segment. Palfinger has a very balanced setup here in terms of segmentation. I do not need to repeat, I guess, all the segments we are serving. If you go to the next slide, you see again the broad, innovative, and powerful product portfolio of Palfinger, which is unchanged. We have solutions on trucks on the one hand. We have solutions on rail cars. Of course, our marine solutions. What all those solutions have in common are our digital solutions we provide to our customers. Sustainability is a key component of the strategy. What is especially important also for the shareholders is that this is clearly a driver of further growth for Palfinger.
We are serving a lot of industries which are actually benefiting from the mega trend of ESG, like, offshore wind, fish farming, recycling, railway, things like the electrification of trucks and the electrification of solutions clearly plays into the hands of Palfinger. We expect that also in the future, this will be a strong driver of growth for Palfinger. You also see here some KPIs like working safety and carbon emissions. We could reduce carbon emissions only slightly. This is also due to temperature, which was lower this year. There was more heating required than last year. If you look at the accident rate, there is unfortunately a deterioration. Last year, we made a huge step forward in the accident rate.
This year, we have a very different development to last year because we had last year a phase of high workforce, decreasing numbers worked, decreasing number of people. Whereas at the moment, we are building up capacities. This sometimes leads to, unfortunately, a slightly higher accident rate. We are working on this. Still, the accident rate is on a much better level than we have seen it in previous times at Palfinger. If you then go to our segments, as you all know, we have three segments. Let me start with the segment sales and service, which comprises all the activities linked to sales and service of Palfinger Solutions, not including the revenue for manufacturing for third parties. First of all, in North America, we have seen a slight growth in the first quarter, but the demand is subdued. Trump's tariff policy is causing uncertainty.
People are holding back orders. There would be much more potential, but as long as people do not know if tariffs will remain, they are hesitant to really place an order with a tariff surcharge, which is well understandable. Unfortunately, the potential of the U.S. market at the moment is somehow not unleashed due to the fact that there is no clear way forward, especially in terms of tariff policy. If you look at APAC, the growth in the emerging Indian market, of course, continues. We do not see any indication why this should change. What is also positive is that we see a modest recovery in the Chinese market, by far not a boom, but at least the market is heading in a positive direction for the first time since quite some quarters and even years.
If you look at marine, earnings and revenue remain at a high level, and this is expected to continue. We have a very good demand in service and offshore cranes and, as I already mentioned, also in the cruise business. In EMEA, the core markets are recovering, have been recovering now for two quarters, and we have seen further increases in order intake. Also in Latin America, we have seen revenue growth in Brazil and Argentina and increased earnings. If you look at the complete picture, the headline says it in short, we have at the moment a positive global development. In the U.S., still some slight growth, not yet the potential unleashed which we would expect, but overall a very positive environment. What does this mean in terms of numbers for the segment sales and service?
You see a slight decrease in revenue of -3.5%, EBIT is down by 11% to EUR 53 million. What I really would like to highlight is, the order book. Unfortunately, you can only see the comparison to last year. Here we see still a decline of 11%. If you recall the number we have reported in Q3, you can already see a substantial increase of order book again. Since October, we see now the opposite development. Order book is increasing, which also leads now to capacity increases, especially in Europe. The second positive message is the service business share has increased from 17.6% to 19.6%. Of course, this is also to do with the fact that external revenue is slightly down and service business share is always, or service business is very much stable.
However, this is not just linked to the reduction in the new business. It is also a matter of fact that we are focusing a lot on expanding our service business share. We plan to double our service revenue within the next years. Here you can see also that this is already on track and we see the first benefits of these initiatives. Coming now to the operation segment, which comprises manufacturing and assembly of our products and also manufacturing for third parties, we still have a reduction of external revenue to third parties due to the difficult economic environment. The positive momentum we see in our sales and service segment in terms of order intake has not yet really hit other companies, obviously. Our third-party manufacturing is not yet on the level which we expect, hopefully then at the latest for 2026.
In Latin America, we had the expansion of our capacity as a result of the high order intake in Brazil and Argentina. Also in EMEA, we have initiated production capacity increases due to the positive development in order intake. When I talk about capacity increases, I do not mean investments in capacity. It is mainly ramping up people again. The number of people has been reduced last year, still with some reserves, but now, of course, it is the opposite direction and we need to hire again, especially in our manufacturing plants in Eastern Europe. What does this mean in terms of numbers on the next slide? External revenue, down again by 10%. Again, this is manufacturing for third parties. EBIT even more down to minus 1.3%. This simply means that the performance is now impacted by the lower utilization.
This will change over the year because we are now ramping up the utilization and also transfer pricing is based on the overall yearly volume. The first quarter was, so to say, on the lowest level of output compared to the other quarters, as it is expected. This means that the first quarter has been substantially lower in terms of EBIT than we expected from the rest of the year and even negative in Q1. Coming now to the third segment, other non-reportable segments. A little bit difficult name, but what it really comprises is, on the one hand, the activities in the holding, initiatives we have for overarching strategic projects, etc., and also the tail lift business. We had continued positive earnings contribution from tail lifts also in 2025. First of all, you see here the revenue of tail lifts in line number one.
This is only tail lifts because the holding does not have any external revenue. The EBIT line has improved by around EUR 5 million. This is mainly linked to the fact that we have increased intercompany invoicing of central services to other entities. The reality is that not so much has changed here either in the earnings from tail lifts nor in the cost of the holding. If you then go to the numbers of Palfinger Group overall, first of all, revenue has been down by 4.5%, is amounting now to EUR 552.5 million. EBIT is down by 26.7% to EUR 40.1 million. Our guidance was that we expect around one third of reduction. This is actually slightly better than we guided. I think this also underlines that we rather try to be conservative than to overpromise.
This gives an EBIT margin of 7.3% and a consolidated net result of EUR 22 million. Very important is one word on this slide, which is currently. Revenue and earnings in Q1 are currently below previous year. However, we do expect here a rebound starting in Q2. I will come back to this later in the outlook. If you go to the balance sheet, we see here a substantial improvement in equity. This is also to a certain part linked to translation effects, but the equity ratio is now up to 36.3%. Gearing is now by 79.4%. This is mainly due to the fact that the net debt could be decreased substantially compared to the previous year. We had a huge peak in summer last year.
We managed really here to keep the net financial debt at a substantially lower level despite the fact that normally between year end and end of first quarter, you have a certain increase of net debt. We managed to come down here even further. Free cash flow in Q1, EUR 20.7 million. If you compare to the previous years, you also can see, especially in the change in working capital line, that the buildup of inventory, which is the main influencing factor here, was much less than in the previous year. This is more or less a normal seasonal effect you can see here. We are not anymore in a situation where we are building up stock, which is actually overstocked. At the moment, we still have some potential to even reduce inventory levels.
What is also quite low is the cash flow from investing activities, EUR 22.7 million, as opposed to substantially higher figures in the previous years. Whereas in the previous years, the number was too high, the number in Q1 is probably too low to multiply it by four. We have some delays here. The number will increase in the coming quarters. As we have also communicated, we expect a level of around EUR 140 million of investing activities for the whole year. Again, a positive free cash flow of around EUR 21 million already in Q1. Our target is to have on a regular basis every year a free cash flow of more than EUR 100 million. I think for 2025, with this result, we are on track. I would like to recall once again the potential sale of our treasury shares.
We had an agreement with SANY to dissolve the cross-shareholding in July 2022. At that point, there was in bookkeeping a purchase price of EUR 35.20 per share. We exchanged shares in a SANY company against Palfinger shares. At the point of time of exchange, the share price of Palfinger was EUR 35.20. This was also the factor by which our equity reduced. The number of shares multiplied by EUR 35.20 was the reduction of equity as a consequence. On April 1, we made an ad hoc announcement that we start the evaluation of a private placement of our 2.8 million treasury shares. This does not mean that we want to do this on the short term.
First of all, the planned use of the proceeds from a possible transaction is, especially the expansion of service structures on the one hand in Europe, but also in North America, also in India. It is the exploitation of growth opportunities, again, especially in North America. We also want to increase our investments in the defense business and to be even more proactive in developing solutions which can help us in the future to get a larger share of the defense business amongst other things. This is what we have in mind. This does not mean that we would not tackle those opportunities if we do not sell treasury shares.
A sale of treasury shares would give us the possibility to pull forward those investments, sometimes even by years, and simply to increase shareholder value much quicker than we could do it if we just rely on the operational cash flow to do all those things. Additional advantages are that we can increase the liquidity of our shares and the free float, which of course then also could help us to attract new investors who today feel that there is not enough liquidity, especially for those investors who want to gain or to get a larger share of Palfinger. It could also help us to increase the trading volume and perhaps to get into the ATX, which again would give us the opportunity that index investors would have to buy Palfinger shares, in which the net rank again drives the share price.
Of course, also the balance sheet rate would improve in case of a sale of treasury shares. The aim is to implement this in 2025, but of course, depending on an attractive capital market environment, on the Palfinger AG share price performance, and of course also on the level of interest from potential investors. I have to be very clear that the current share price is considered to be significantly undervalued by the Executive Board. We always communicated that below EUR 35.20, this is out of consideration in any case because this is the value we had, actually as a reduction of our equity. Having in mind that we are now at the beginning of a positive wave in the market, we have Ukraine ahead of us.
I would even say that 35 is not the right value to consider a purchase, to consider it the right level to sell the shares. Probably this is even substantially higher than 35.20. Just to make clear that this is not going to happen in the short term only if we see a proper share price development. Coming out of the outlook, first of all, I would like to recall once again our APEC growth strategy. We want to reach EUR 300 million in APEC. We have tailored strategies for India. On the one hand, where we have a joint venture with SANY, this is not fully consolidated, but of course still a very important part of our business. We have in India now the plan to create an assembly plant for loader cranes, hook loaders, and aerial work platforms.
We will buy the land in the coming weeks and we will invest more than EUR 25 million and create approximately 180 new positions in India in order to be able to start production in Q1 2027. All these initiatives together, also with plans for other Asian countries, should lead to the EUR 300 million of revenue by 2030, which would substantially increase the revenue share of APEC for Palfinger. Coming now to our outlook for 2025. We have seen this recovery in order intake in the European core markets, as already mentioned several times. This will help us to show a positive earnings development from Q2 onwards. In total, we expect a significant increase of EBIT and revenue in the second half of the year.
Our target is actually to increase revenue and EBIT compared to the previous year as a whole and to have the second best financial year in the company's history in 2025. This is not yet a guidance, but this is a target. From today's perspective, with today's market developments, it seems to be realistic. We have also seen a positive momentum in the share price performance since the start of the year, despite the uncertainty caused by the U.S. tariffs policy. Last but not least, our financial targets for 2027 are a significant increase in revenue to EUR 2.7 billion from organic growth only with a 10% EBIT margin. The ROCE shall go and will go above 12% according to our plans, of course remaining the number one in the market. Thank you for your attention. Looking forward to your questions.
Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to disable the loudspeaker mode and eventually turn off the volume from the webcast while asking a question. Anyone who has a question may press star and one at this time. The first question comes from Markus Remis of Oddo BHF. Please go ahead.
Yeah, good morning. Let me start with a question regarding the trading conditions in Europe. Can you maybe elaborate a bit, which products, product groups are driving the recovery?
Maybe also shed some comments on markets like Spain, and the dynamics in CE that you're seeing. In general, I'd like to get a sense of kind of what's driving the recovery, given that the economic framework in Europe is arguably still not very dynamic. Let's start with this one, please.
Yeah, absolutely. The main dynamics are coming from loader cranes, especially large loader cranes, but also from timber and recycling cranes. Actually, here, construction industry is a major driver. I would say the biggest increase in relative terms, even if Germany is not yet at the level where it should be and where we expect it to be, Germany has been extremely low last year. There was a major recovery already also in Germany.
This is mainly coming, I would say, from construction to a large extent, but not only. It is across the board, but this is the biggest chunk. Spain has been stable and is still stable. There is not a major change here. The third question was CEE countries. In the CEE countries, we clearly see here a positive momentum due to the fact that it is expected at a certain point in time the war in Ukraine will end. We have got first orders in Q1 already for Ukraine. We are talking here about a few millions of order intake. In the end, this is a higher order intake than previously for a whole year, just in one quarter. We clearly see here a momentum in the market, which was more or less dead now since the beginning of the year.
Just to give you a number here for Spain, Spain is accounting for around 5% of the overall revenue of Palfinger. Spain is a very important market. Mm-hmm.
Okay. Do you see that, kind of the possibility that Germany is just kind of a normalization from ultra low levels, or do you think that this momentum, I mean, looking now at order intake of EUR 560 million in the quarter, that this will then go up to the levels kind of above EUR 600 million that we've seen three years ago?
It is of course difficult to say, but on the one hand, it is a normalization, but we have no extraordinary effects. The fiscal package is something which has not been in place. Construction in Germany has been low for a long time.
There have always been by far less apartments built than needed, et cetera. There is a need to do something in Germany. We believe that customers are now also expecting that something will have to happen. On the one hand, it is a normalization, but we have on top to the normalization also some positive momentum, which drives additional volumes probably.
Mm-hmm. Okay. Thank you. Turning to the other side of the Atlantic, maybe you can help us understand what's baked in the guidance or kind of the boundaries that you've given for revenue. That is something like EUR 2.36 billion-EUR 2.44 billion. Is kind of the swing factor mostly the U.S. and the kind of impact that is coming from the tariffs and kind of what's your assessment here?
I'm not sure if I understood the question correctly. The question is, where is the growth coming from? Or please, can you repeat it?
It's rather kind of what you have baked in your guidance, in your top line assumptions, with regards to the U.S.
Yeah. Okay. For the U.S., actually, if you look at our budget and if you look at the actuals, U.S. are not performing as we budgeted it in September. Our expectation was clearly that Trump would have a positive impact. You also can see in the share of revenues from North America, it has even gone down compared to the previous year. However, the fundamentals of the U.S. are still positive, extremely positive. The market remains as interesting for Palfinger as it has always been.
It's rather a timing effect or it's now the uncertainty impact. If there would be a recession of the U.S., the U.S. typically comes out of a recession rather quickly and the market potential of the U.S. is huge. At the moment, I have to say that Europe is performing better than we had budgeted or planned, whereas the U.S. is actually not as good. This is also the basis for our guidance. If we say we expect a slight improvement in turnover compared to the previous year, it has to be improving because if we talk about the second best year, there is not such a huge delta between 2023 and 2024. This slight improvement mainly comes here from Europe. Also marine. Marine is also a very positive impact here.
Okay. Thank you.
Last question is related to Russia. Actually, I see in the presentation that the value of the assets has gone up to 185 and that was 137 at the end of 2024. Can you shed some light on what has driven this massive increase in the quarter?
Yeah. This is the currency exchange rate, which has changed dramatically. This is the main factor. It is accounting for 90% of the delta. Of course, this is something we do not like. This is also why I mentioned in the equity, there is a certain impact of translation effects in there. Unfortunately, this is coming to a large extent from the ruble. Mm-hmm.
Yeah. Okay. Got it. All right. I'll get back into the line. Thank you.
Thank you. The next question comes from Daniel Lion at the Erste Group. Please go ahead.
Yeah, good morning. Actually, I would have just one question. Maybe you answered this, anyway, indirectly already. What has changed actually compared to last call where you ruled out EBIT to improve year over year in 2025? Was it just that you got much, much figures, in addition, giving you or confirming the rebound? Or is it the product mix that's now improved in the order intake? Can you give us some insight here? Yeah.
What we see is simply that, in terms of, on the one hand, order intake, but also in terms of gross margin development and also in terms of cost base, we have seen positive developments in the first quarter. Actually, the difference is probably not so big between what we communicated a few weeks ago and today.
We are talking here about a delta of 10 million or so, but it makes a difference between the second best year and the first best year, of course. Yeah. It is not a dramatic change in expectation, but simply due to the fact that order intake has been continuing on a good level, we see a further improvement in the gross margin on the one hand from procurement cost, productivity increases, and mix. All these factors together have, so to say, increased our expectation or improved our expectation for the full year by a few millions, leading to this target of achieving the second best year in history. Yeah. Okay. Understood. There is then still one more.
When I look at the profitability, especially in the operations segment, I guess this is burdened by the capacity buildup to some extent, and this should level out in the course of this year. It's not really capacity buildup. It's actually underutilization. Even if you're ramping up capacities, yes, you are right. Of course, if you hire people, you have already some cost and it's not yet paying off. The main factor is, for example, also manufacturing for third parties. We have actually historically low levels of earnings, whereas in the past, this was highly overproportionally profitable. This is a major impact. We are calculating transfer prices for the whole year, and over the year, this levels out.
If you have one quarter with a lower output, and this is the first quarter as it's the ramp-up quarter, it simply means that in the first quarter, with the transfer prices to our sales and service segment, operations cannot cover the cost.
Okay. Understood. It is also a transfer pricing issue, but, over the year, it's simply utilization. Yes. Yes. Yes. Perfect. Thank you very much.
You're welcome.
The next question comes from Jorge Gonzalez, Hauck Aufhäuser Investment Banking. Please go ahead.
Hello. Good morning, Thalis. Thank you for taking my questions. My first question is a follow-up on the order intake. Implicitly, the order intake in Q1 was quite in line with Q4, but I understand that, as you mentioned, with a much better component of demand from Europe and Latin America than from North America.
I was wondering if you can give us, more or less, what was the growth in EMEA in relative terms compared with Q4. And also a little bit, your expectations for Q2. We obviously have seen only a few days of the Q2 at this point. Are you expecting order intake to improve in Q2 or to continue a little bit in the same line that Q1? That would be my first question, please. Actually, the biggest uncertainty, however, rather in positive terms, is the development in the U.S. If in the U.S. we see here some stabilization of the political environment, if we see some light in the tunnel or a little bit less fog, probably, this would help dramatically to increase the order intake.
I think that for EMEA, our assumption is that we will remain probably stable even if there is an increase in order intake, especially linked to Ukraine, et cetera. This will probably take some time. Also, if the fiscal package in Germany really leads to a boom, let me say, it would also not happen within weeks, but rather after quarters. The main assumption for this year is that order intake for EMEA will remain at least on this level we see today, perhaps with some upside potential. North America is the big question mark. If North America comes back because Trump decides to be more predictable and to give more stability, then I think order intake could go up to a higher level. As long as this is not the case, probably the upside potential from today's levels is there, but limited.
Okay. I see.
Is it possible to have also a proportion of how much is marine, this base, of sales and service division?
Yeah. Marine is about 12% of our revenue. Tendency is growing, but what is important to understand about marine is that especially the service share within marine is getting higher. The growth is coming to a substantial extent also from the service business. Of course, this is helping a lot in terms of profitability of the marine business. It is not the revenue, it is especially also the bottom line of marine, which makes this business extremely attractive. Thank you very much. I'll ask one, if I may, on the tail lift business. How are you progressing on the sale of the business?
I think in North America, no, is where you are planning to sell. Obviously, we have put tail lifts on sale about two years ago. At that point in time, there was nobody interested to pay a positive purchase price for this business. This is why we decided actually to do what PEs offered to us to restructure it. We just put it outside of the GPO of the Global Palfinger Organization. It's now a separate segment, so to say, within the other non-reportable segments, steered separately with the freedom to act according to the needs of this market, which is actually quite different in terms of customer access, also R&D focus, et cetera, compared to all the other product lines. At the moment, it's not for sale. It's clearly a non-core asset, as it's also in the other non-reportable segments.
Before this business is not clearly restructured, showing the results we expect to be appropriate, it does not make sense to consider a sale. Of course, in the long term, if somebody would approach us, this is by far not ruled out. At the moment, it would be simply too early. We have here several projects ongoing, which should help us to substantially improve the EBIT, especially if the market in Germany, in the logistics market, comes back and in the U.S., and both markets here are depressed. This would help a lot because the tail lift business is, of course, also substantially driven by the top line. If the top line is, or if the environment for top line is right, if we have implemented all the projects, we can look into this, but not at this point in time.
In 2025, for sure, no sale of tail lift will happen. Thank you very much, Felix. I go back to Elay. Thank you. As a reminder, if you wish to ask a question, please press star and one. The next question comes from Elias New, Kepler Cheuvreux. Please go ahead. Yeah. Good morning. I just wanted to clarify on your guidance for 2Q 2025, where you say you expect a positive development in earnings. Is this meant on a year-on-year basis compared to 2Q last year or compared to the current quarter we've just seen? And maybe as a follow-up, to what extent do you expect the recovery in 2025 to be driven by the service development rather than a recovery in the capital business? First of all, in Q2, we still expect to be below the previous year.
You might recall that the first two quarters last year were record quarters, but the delta will be lower or we will get closer to the previous first half year. It will be less than a deviation of 27% to put it in these words. We will close the gap already in Q2, but it's not that in Q2, from today's perspective, we would have a better first half year compared to the previous year. We will still be below the first half year of 2024 according to our forecasts. The second question is, where does this growth come from? It's mainly coming from the new business, of course.
Service revenue is always an important factor, but even if we manage to increase the share of service by 1%, this is still not a driving factor for the positive revenue development in the year 2025 in the second half. It is part of it, but the main factor is order intake for new equipment.
The next question comes from Christian Kienrath, Deutsche Bank. Please go ahead.
Can you hear me? Yes. I just want to come back once more to the U.S., especially with regard to tariffs. I mean, I know you are producing in the U.S. for the U.S. market for North America, but as I understand, there are also some exports, especially of larger cranes, which are not produced in the U.S., I think, via Canada. Of course, you need to buy some components out of the U.S.
I guess it's a very small impact, but could you quantify, could you quantify it? Yeah. Okay. There are two impacts. On the one hand, there is a cost impact, and this is not so insignificant. We are talking here about a level of up to EUR 40 million, of course, depending on further development. This is from what we know today, but we rather expect that this number should decrease. Of course, this is not the bottom line impact. This is now the cost impact, but we have to pass on the cost to our customers as also competitors are doing it.
What many industries are doing and what also Palfinger is doing is to add a tariff surcharge on the invoice to show also the customer that we do not want to generate windfall profits, but we simply have to pass on the cost linked to the tariffs. This will not always be 100% successful, but in the majority of cases, this will work out. We are also seeing the same from competition. Of course, everybody has a different level of impact. This is now, I would say, a situation where things are a little bit in the flow, but clearly our strategy has to be and is to pass on cost increases. The final impact is expected to be a few millions, but it is not in a level of a double-digit million amount or what we expect really to hit our bottom line.
The vast majority of the cost has to be passed on. We also still have stock levels of several product lines in the U.S., which allow to still cover several weeks and even months. If the situation improves, the EUR 30 million-plus will go down still substantially, and also the stock levels will help. It's hard to say what will be the impact, but just to give you a quantification, we expect some millions of cost, which we will have to bear. We do expect that this will increase the cost for our customers by up to EUR 30-40 million in the end.
Thank you, Felix.
You're welcome.
The next question comes from Gregor Kouba, RBI. Please go ahead.
Good morning and thank you for the presentation. I have just another quick question on the order intake.
Have you already seen any impact on order intake in relation to the European defense spending? Which product groups are you likely to see an increase in demand in the future? Thanks.
We see overall that defense business is very active, but this is not short-term business. It's not like somebody asks for a quote and you get an order. It's with long lead times. It's a slow business, and it's a long-term business. Clearly, Palfinger is very much committed to serve this industry and to provide solutions and to offer in-tender processes. The main product line which is required from the military forces are hook loaders. The military forces are building their logistics on ISO containers, and ISO containers are transported with trucks, with special hook loaders. Palfinger has here, of course, a proper solution for the army.
This is where we expect the most important impact in terms of direct orders from armies. Typically, this is not going directly to armies. It's the OEMs, like Rheinmetall or whatever, tendering then a complete solution, for example, with the Palfinger solution on. When do you expect that this will have an influence on your order intake? We believe that, starting from next year, we should see some orders here. We already have seen orders in the past from Eastern European countries. These countries have been much faster, especially those with the border to Russia have been already active now, active now for years. We have received several attractive orders in the past 18 months already from military forces from Eastern Europe.
I believe that much more can happen here, but probably this will not necessarily be in 2025, rather 2026 and 2027. The good thing is, if you win a military order, it's typically not for one year. It can be up to 10 years or even 20 years of supplies, including service contracts. It is a long-term business. It's actually volumes which are committed perhaps for a three-year period, and then there are options to extend by another five years, et cetera. As I said, it's a long-term business. It's something where we are really pushing now to do the utmost to increase also our market share in this business. I believe Palfinger has here a great opportunity. Our main competitor, HIAB, has been very well established in especially NATO armed forces for decades. I'm talking really for many decades.
I think since the 1980s, et cetera, they have always been a very strong supplier. We believe that we can take here a major market share. This is also part of our story for the accelerated book building. If we sell the treasury shares, we would invest also in developing probably more products already without the direct link to a tender to be even better prepared in order to be able to increase our business here.
Okay. Got it. Thank you.
You're welcome.
The next question is a follow-up question from Marcus Remis, ODOVHF. Please go ahead.
Thank you. One more related to the working capital release potential.
Can you help us understand kind of the dynamics between higher capacity utilization, higher production, especially in the second half, and what that could mean to or do to your capital reducti
on plans? The capital reduction plans, of course, are somehow compensated by revenue growth. It is also depending on where the revenue growth comes from. It is depending on the region and also on the product line. It is relatively complex, but the reality is, of course, that to make it simple, if revenue grows, it will require more working capital. Even if we have still around EUR 25-30 million of potential to reduce working capital, this can be eaten up to a certain extent by higher inventories in the end.
The good thing is we still expect that despite increasing capacities towards year-end, we can compensate the increase of working capital with our potentials in inventory we have already identified. Of course, we will not stop working on finding potentials to further decrease inventories or to improve these inventory health.
Okay. Can we clarify this? Does it mean now with a stable or slightly growing top line, you will also see a bit of a working capital consumption, but not the release at the end of the year? Is that kind of the base line?
In, you know, that we said at the end of last year, we believe we still have around EUR 40 million of potential this year. This is something, of course, we want to benefit from, and we are working on this.
Part of this has already happened in the first quarter. On the other hand, if you consider working capital, current capital ratio of, let me say, 25% to simplify it. Yeah. Of course, if there are 50 million added, it is 10 million more of working capital. Yes, part of this will be eaten up by increase of revenue and especially towards year-end. It will not be a flat revenue increase. It will be kind of a hockey stick. This is why the year-end, probably not the 40 million will remain as a positive effect. Hopefully it is 50% of it. Yeah. Of course, this is a little bit difficult to predict. Okay. Very clear. Also related to the cash flow, if I remember correctly at the capital markets presentation, you were kind of flagging plans to divest non-core assets.
That was up to 30 million, if I remember correctly. Is there anything planned for the current year, or is it more a topic for 2026? No, there are also issues planned for this year, but it is not as big chunks as you would, or I would also hope for. I believe that until year-end, EUR 10 million out of sale of non-core assets is a realistic number. Of course, sometimes these things take longer than planned, but it is not only 2026. We are already busy doing such things, and we have already made some divestments. For example, just a few days ago, we signed a divestment of an entity in the Middle East, which was building maintenance, which is actually not a lot to do with Palfinger core business. We divested this. It was a very small purchase price.
This is not a big impact. It's only, I think, 900,000. In the end, there are many small steps to get to the 30 million. The majority of this should rather come in in 2026. Okay. Very clear. Yeah. Maybe one for the bookkeeping on the tax rate. Is there any guidance that you can share with us in the brackets? Last year has been especially good with 22%. I would not put in the model 22%. I think in the first quarter, it was 24%, if I'm not wrong. If you assume 25% on the long term, I think this is a realistic tax ratio to build a model on.
Okay. Thank you very much.
You're welcome.
Ladies and gentlemen, that was the last question.
I would now like to turn the conference back over to Felix Strohbichler, CFO, for any closing remarks.
Thank you. Thank you for your attention and your questions. I think it came across that Palfinger is already benefiting from a lot of positive developments we see for our industry. Please stay tuned. The share price is on a very attractive level still. Our clear view is that there is a lot of potential. Please stay tuned. Thank you very much. Have a good day. Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.