Ladies and gentlemen, welcome to the PALFINGER IR Call Earnings Release Full Year 2025. I'm Lorenzo, the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for question at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Felix Strohbichler, CFO. Please go ahead, sir.
Thank you. Good morning, ladies and gentlemen. A warm welcome to our presentation of the Results of the Financial Year 2025 for PALFINGER AG. First of all, let me remind you a little bit about what is PALFINGER about. PALFINGER is a true global player with a revenue of EUR 2.34 billion revenue in 2025. We are present worldwide with engineering centers, with total production sites, and of course, thousands of sales and service points around the world, with around 12,000 employees at the end of 2025. What makes us stand out? What is the equity story of PALFINGER? PALFINGER is at the same time technology leader and industry leader, so it's not just about being the top player in terms of technology, but also leading the market in volume at the same time.
Second topic is PALFINGER is highly resilient. With a very broad product portfolio, we are globally present, we have a huge industry diversity and, due to local value creation, we are much less dependent on developments, like tariffs, et cetera, compared to other players. Third point is PALFINGER is clearly a growth company. On the one hand, there is a momentum in Europe and a big potential or even huge potential in Europe, and we focus on growth markets like North America, APAC and Marine. Of course, there is a major growth potential in the service segment, which is also over-proportionately profitable. When we talk about profit, also the earnings potential of PALFINGER is significantly above current levels because we can still increase our profitability not only for growth, but also through digitization, standardization, and optimization of our footprint. I mentioned resilience.
On this slide, you can see our customer segmentation. Obviously, this is very well-balanced. The first and the most important industry segment is infrastructure. Obviously, this is a growing segment. We expect more to come here, not only from Germany but also from other markets. You see that the second biggest industry segment is Marine, and then it's very well-balanced between 7% and 11% of a share of our revenue for each customer segment. I also would like to highlight the public sector and railway in this sector. We also find the defense share of revenue. On the next slide, you see again our product portfolio. Now, you know it has not changed. On the one hand, we have solutions on trucks and rail cars, like different sorts of cranes, Aerial Work Platforms, Hookloaders, Tail Lifts, et cetera.
On the other hand, we have our marine solutions from very large offshore cranes on oil rigs to wind cranes on wind farms, Davits and boats, winch system and slewing systems, for example, for defense applications. What all those solutions have in common are the digital solutions which make our products connected and which bring us even closer to our customers. Last year, we launched our new Strategy 2030+, Reach Higher. The key pillars of this strategy are three strategic directions. On the one hand, lifting customer value. Secondly, balanced, profitable growth. Last but not least, execution excellence. These three strategic directions are backed by, in total, 18 programs to drive our growth and profitability. We have defined five key must-win action fields, which are also mentioned here.
On the one hand, it's to further improve our positioning as customer-focused technology and market leader. Secondly, a massive expansion of service and spare parts business with a big impact on profitability. Third point is Aerial Work Platforms have to become an additional core pillar of PALFINGER in our portfolio. In execution excellence, we focus on supply chain optimization, footprint optimization, and set up of our global footprint in an even better way. Last but not least, process system and data optimization is a key lever for the future to be able to leverage also artificial intelligence and possibilities of the future. Coming now to our segments. As you might recall, we have three segments. On the one hand, the segment sales and service, which includes all the sales and service activities. We have the segment operations with all factories for assembly and manufacturing.
Last but not least, we have the segment other non-reportables. I will come to this later. Starting with the segment sales and service, let me walk you through the individual markets which had quite a different development last year. Even within EMEA, we didn't see a unified picture. On the one hand, we have already a very good development in Southern Europe over the last years. In Northern Europe, we could see a good improvement in 2025. Germany had also come back a little bit from a very weak situation in 2023, already at the end of 2024. However, the infrastructure package in Germany did not show any positive effect yet in 2025. Hopefully, we will see something in 2026. Coming to North America, obviously the tariff situation, especially Section 232, had an impact on the demand.
This was actually the biggest impact of the tariffs. Also, of course, the tariffs which could not 100% been passed on to our customers, net in total to reduced profitability. In LATAM, on the other hand, despite of the volatile situation in Argentina, we could report a record revenue in LATAM. In APAC, we also have a very different development within the region. On the one hand, in China, we didn't see any major economic recovery since COVID. On the other hand, India is the key growth driver in APAC. Big growth rates, a very attractive market and a market we will invest in heavily in the years to come. The Marine business has an excellent performance, driven by major orders from off-shoring, oil and gas, cruise ships, and other segments. Everything's performing very well.
We have a consistently good order intake. There is no sign of a change here. Last but not least, as you might recall, we have a setup in Russia which is completely ring-fenced, acting autonomously. Here we have now a major impact of the sanctions in 2025, which means that there was a decline in revenue and also in earnings. Not making losses, but also no contribution to the bottom line for PALFINGER. Coming now to the KPIs of the segmentation service. First of all, you can see external revenue was on the same level, so very stable. EBIT margin went up by 9.5%. However, we also have to acknowledge that if you look at the two segments, allocations and transfer pricing have an important effect.
This is why I recommend to rather focus on the group numbers. However, what is important to mention is mainly the numbers you see at the bottom of the slide. First of all, order book development. You'll recall that in the COVID phase or post-COVID phase, there was a huge demand. We had an order backlog of one year in 2022. In 2023, we still had a very big order book at the end of the year, and this even spilled over to a certain extent into 2024. We had a good start in 2024 due to the backlog from the past. In 2025, we managed to keep the order book almost stable, so only a very slight decline, despite of the fact that we don't benefit anymore from the backlog of the post-COVID time.
This means that the order intake is more or less on the same level as the output, and we have a reach of four to five months visibility, which is a very good situation to be in, which is also in line with the customers' demand in terms of delivery times. Our service business share went up from 15% in 2023 now to 17.4%, in line with our strategy to push the service business share. Of course, this development should go, and we want to exceed the 20% mark within the next years. Coming now to the segment operations. First of all, we have seen here capacity adjustments in both directions. On the one hand, we had to expand, fortunately, our capacity in Europe, especially for Aerial Work Platforms and for loader cranes.
On the other hand, due to the tariff policy and the dampened demand, we had a lower capacity utilization in the United States and of course, also reduced output in the CIS due to the economic situation in Russia. Coming to the numbers of the segment operations. First of all, let me highlight the external revenues. This is extremely stable, so the same level as last year, which also shows, because we already had almost EUR 200 billion in the past, that the overall economic situation is still somehow on a low level. This of course, also translates into the profitability of production of third parties. Of course, the main activity in the segment operations is production for our segment sales and service, but in the external revenue, you only see production for third parties.
I already mentioned when I talked about the EBIT of sales and service, that there are always shifts in terms of transfer pricing and allocation. The reduction you see here is to a large extent also due to a shift of allocations. Coming now to the segment, other non-reportable segments. This includes, on the one hand, the holding activities, so strategic initiatives for the whole group. On the other hand, it includes the segment Tail Lifts, which is too small to be reported separately. In the external revenue line, you see the development of the Tail Lifts business. Unfortunately, in 2025, the market was extremely difficult in Germany as well as in U.S., for reasons everybody knows, which led to a decline in external revenue.
The EBIT line was stable in this segment with around EUR 44 million negative, of course, because this is a cost center to a large extent for the holding projects. What does this mean now for the group numbers? 2025 was the third best year in history in terms of revenue and EBIT, despite the very volatile environment, especially in North America and CIS. We managed actually to almost compensate the situation in North America and CIS with positive developments in Latin America, in APAC, in Marine, and also to a certain extent in EMEA. The revenue was almost the same, - 0.9% reduction of EUR 2.339 billion. EBIT at EUR 174.3 billion, which is a decline of 6%.
What is the most important topic for our investors, shareholders, is the consolidated net result. Here you can see only a very small decline of 3%. We can report here EUR 96.7 million of consolidated net result, which in combination with the good cash flow we'll come to in a minute, allows us to propose a dividend of EUR 0.90, which is together with the dividend in 2024, the second highest dividend ever in PALFINGER's history. On the right hand, you see the revenue share of PALFINGER. 60% in EMEA around 1/4 North America and the rest split between LATAM, APAC, and CIS. Here we can also see that CIS is constantly reducing the importance in terms of overall revenue, going now down to 4% in the total picture. I already mentioned that free cash flow has been positive.
I have to correct this. Free cash flow has been great. It's the best free cash flow ever in PALFINGER's history. EUR 181.5 million of free cash flow, compared to the already very good free cash flow of last year of EUR 120 million. How was this possible? The starting point with the EBITDA is more or less the same. However, we had another positive impact in the working capital with EUR 57 million. We have also been rather low on the investing activities with around EUR 100 million. There will be some compensation of this relatively low number in 2026. However, in total, this is a very big success to come to this high number of free cash flow.
Of course, a good cash generation with good operational performance also helped a lot to improve our balance sheet. The equity ratio has gone up to 43% coming from 35%. Gearing ratio is very healthy, 50%. Net debt/EBITDA, the KPI banks are looking at 1.71 is a great number, far below 2.0. A very good, balance, set of balance sheet KPIs. Even more impressive is if you look at the last, line of this slide, the net debt has been reduced by more than EUR 200 million to a level of EUR 460 million. We came down from EUR 662 million - EUR 460 million within a year. You also see that the interest rate has again come down.
However, comparing to the years 2020, 2021, when we were talking about 2%, it's still relatively high. Despite of the fact that we have repaid quite a few debt positions in the last 12 months due to the good cash flow, we still have a very good remaining term debt of 3.17 years. I mentioned that the operational performance was a major lever to lead to this very strong and rock-solid balance sheet. The second big pillar was the sale of treasury shares, which was implemented in summer last year. We placed shares for proceeds of EUR 100 million, which support the implementation of our Strategy 2030+. This will help us with the expansion of our service locations, our mobile service in North America, with our investments in defense projects.
We opened last autumn, our spare parts hub in North America. We are going to further expand our service locations in EMEA, we are also going to invest in a new plant in India, just to name a few out of the strategic initiatives in our Strategy 2030+. Of course, next to this increase in room for maneuver, it also helped to improve our equity ratio gearing, et cetera, the whole balance sheet. This measure also increased the free float to nowadays 43.8%, which was the basis for the inclusion in the ATX. I'm very happy to be able to report that yesterday it was made official that PALFINGER will be part of the ATX index as of 23rd of March. On the bottom of the slide, you see the share price development last year.
A +30% share price increase within 2025. Also another increase in 2026, despite of the actual developments in the Middle East. What this ATX inclusion will lead to is improved visibility. PALFINGER now officially ranks among the top 20 stock titles on the Vienna Stock Exchange. Index funds will have to invest in PALFINGER, which further increases our liquidity. In total, this should give us easier access to international investors, because now it's more or less official that the liquidity of PALFINGER has now reached a healthy level, which is attractive for our investors. Coming now to the outlook, first of all, for 2026. We have an order book, I mentioned it before, of about four to five months, so we already have a visibility into summer and beyond the first half of 2026.
From today's perspective, we can say that for the first half year, we expect revenue as well as EBIT to be slightly above the prior year level. We are also confident for the full year. We do see that in the first months of the year, for example, in Germany, order intake has gone slightly up. It's not yet the full recovery. What we need in order to achieve our financial targets by 2027 is a further recovery in Germany and also an upswing in the U.S., which we do not yet fully see. This has to happen now in the coming months to be able to get to the EUR 2.7 billion revenue, 10% EBIT margin and more than 12% ROCE by 2027.
We have set ourselves ambitious financial targets for 2030 in our strategy Reach Higher. We want to reach more than EUR 3 billion. Please do not forget the more than. This is important to highlight. At the 12% EBIT margin and 50% ROCE, of course, as the number one for crane and lifting solutions in our industry. Where does this growth come from? On this chart, you can see the contributors to the growth. Obviously, service with a very high impact also on profitability is a very big lever. Also, recovery EMEA is a big potential for us because EMEA is still far below its potential. Aerial Work Platforms is another big pillar, also a key initiative for us, where we expect a lot of growth.
We have other activities like TMF in North America, which is important for us. In APAC, we will invest in the plant in India. In Latin America, we expect further growth. You can also see marine and defense. You would, for example, expect that marine and defense would show a larger share. You have to account for the fact that a lot of the revenue in marine, but also in defense, is allocated to service because these are very service-intensive parts of our business. On the next slide, this is translated into the profitability improvement levels. This is just the additional profitability, where should it come from? Obviously it's the same levels as on the last chart.
There is an additional level, which is footprint and efficiency optimization, which will also help us to get to the profitability targets on top to the growth initiatives. All those initiatives are based on growth with basic, or let me say, normal development of the world. On top of this, there are some global investment programs on the horizon which account in total to EUR 2.8 trillion. These create huge opportunities to PALFINGER, even if not all the EUR 2.8 trillion will be probably spent. Not everything will go in industries where PALFINGER will benefit from, but still there will be some business, some substantial business for PALFINGER in these initiatives. Just let me highlight the fiscal package in Germany, EUR 500 billion, NextGenerationEU, EUR 800 billion, InvestEU, almost EUR 400 billion, REPowerEU.
The U.S. Stargate Project, EUR 500 billion, which, by the way, shows major effects already for us. We deliver a lot of cranes which are linked to this U.S. Stargate Project for infrastructure, for artificial intelligence. Last but not least, reconstruction of Ukraine will also need EUR 500 billion of investments in infrastructure, housing, et cetera. PALFINGER is very well positioned to benefit from this. This is something which should support us also in the years to come. Thank you for your attention. I am looking forward to your questions.
We will now begin the question and answer session. Anyone who has a question may press star and one on their telephone. You will hear a tone to confirm that you have entered in the queue. If you wish to remove yourself from the question queue, you may press star and two . Questioner on the phone, a request to disable the loudspeaker mode while asking a question. Anyone who has a question may press star and 1 at this time. The first question comes from the line of Markus Remis from ODDO. Please go ahead.
Yeah. Good morning. Thanks for taking my questions. Congrats to the ATX inclusion. First question relates to the order intake. If you could shed some light on the development early the year, as you pointed out, the dynamics will be very, very crucial to get to 2027. How was the beginning of the year, maybe with a special focus on the U.S. and the situation in that market?
Yes. First of all, I can say that in EMEA we had two strong months, January and February. However, it's too early to say that this is now a sustainable development. This is why I'm still cautious. However, the first two months were clearly above previous years' numbers. This makes us also confident that we have a good chance here to see an improvement in the coming months. However, it's a little bit too early after two months to say this is now really a start of a recovery. We also have, of course, some geopolitical developments at the moment where we need to look what this means. Coming back to your question, very clearly the first two months actually were higher than in the last year and showed a good momentum, especially in EMEA.
In the U.S., the situation is still a little bit calm, so here we clearly need more momentum to be able to get to the 2027 targets.
Can you also give us an indication where the North American market stands in terms of order intake year on year?
Year on year, the order intake is stronger because it's a low basis. Again, in order to reach our targets, we need here a stronger recovery in the U.S.
Okay. Okay. Very clear. The second question, staying with the U.S. We've seen HIAB putting out some news that they're gonna expand in the especially in the service market. Can you share your thoughts on how your competition is shaping up at the moment?
Well, of course it's always difficult to talk about competition. What we can see is, because HIAB is publishing, of course, also their order intake, and their service revenue by region, that we are winning market shares in every region compared to the HIAB numbers. Which also underlines the fact that PALFINGER is putting the right focus on customer proximity, pushing service business, investing in our sales and service setup. HIAB in the last years has been extremely cost focused, which also is translated, of course, in their profitability, which really has to be acknowledged as outstanding. Our customers obviously seem to feel a difference here between a supplier who is investing in sales and service and a supplier who is rather focused on cost cutting also in areas where customers can feel it.
I think this is probably the main difference between the approaches of HIAB and PALFINGER in the last 24 months.
Okay. Okay. Thank you. Sorry, I have again to stay with the U.S. I think in the last year you had a burden of roughly EUR 15 million related to the tariffs, if I remember correctly, kind of, already including the countermeasures. What's kind of the scope for 2026, and especially now that, I mean, again, Trump has changed the tariff framework? How does that impact your outlook?
Yeah. First of all, if we look at the tariff implication, in the meantime, we had, of course, the chance also to analyze in detail what was the real impact. Even if we don't disclose the final number, actually, tariff implication was a little bit smaller than we had anticipated and estimated. In fact, the amount we had to pay in total in tariffs was still a significant EUR double-digit million EBIT amount, but not as high as anticipated and estimated. The major impact was actually the decrease in the market, so the lower demand. The demand was, compared to the budget, an even bigger impact than what remained in terms of tariffs, because the tariffs could be compensated, of course, to a certain extent with measures like price increases, et cetera.
There is still a gap, which is significant. This gap will be closed on the one hand with measures in terms of supply chain. I guess this will be even faster as soon as the North American market picks up. Every supplier and every competitor will of course strive to pass on cost increases of the past, which has not been fully possible in a rather low market environment. I think that this year we can talk about still an impact, but it won't be a game changer for PALFINGER. Probably it's a double-digit million EBIT amount, but not a high one. A low double-digit million amount may be the impact. As soon the market recovers, of course, this will further decrease with countermeasures, especially with price increases.
Okay, thank you very much for the clarity. The last question relates to your cash flow. I mean, congrats on the development here, but partially it was helped by factoring, at least as far as I can see, about half of the working capital improvement came from factoring. Can you outline your strategy here going forward now that the balance sheet is arguably on a much more solid footing? Is it going to stay at these levels or do you now see the leeway to reduce factoring again?
I think actually we do not have plans to reduce factoring. If you look at the total picture of our balance sheet, it's now extremely healthy. We have no intention to make the picture worse. As you know, our strategy is clearly organic growth. There are investments, of course, involved, and the next years will still be years of rather heavy investment, so we are talking about investment volumes of about EUR 150 million per year for the three years to come, as we have some strategic projects on the go. In total, our balance sheet will at least remain on this solid level.
The plan is, of course, for the years to come, to even further improve it despite of the growth initiatives, as there is no M&A included, at least not on a major scale, and nothing which would here change the picture to the negative.
All right. Thank you very much.
The next question comes from the line of Daniel Lion from Erste Group. Please go ahead.
Yeah. Hi, good morning. I would like to follow up a little bit on the order intake situation and then going forward, in order to meet 2027 targets, when would you expect to that it would be necessary to see a tick-up in order intake in order to make 2027 realistic?
It will be very clear in the second quarter. At the latest in the communication of our half-year results, it will be clear, or hopefully it will be clear, based on the order intake, if we can ramp up capacities. This is actually the starting point, and this is the decisive factor. When do we dare to ramp up capacities to be able to reach an output of EUR 2.7 billion in 2027? We will only dare to ramp up capacities if there is a healthy order intake over several months. This is, so to say, the preconditions.
If in summer we do not sit on an order book, which makes us confident that we can increase our capacity and our output to this level, then probably it will become difficult because we need some lead time, to ramp up capacities and output.
This would mean, just to put it somehow in figures indicatively, does it mean like 20% intake in order, intake at least, or like 10%-20%, 15%? I don't know, what range would you require in order to step up capacity expansion?
Yeah. This is not so easy to answer because it's depending on product lines. Of course it's depending on regions and product lines, and in some areas we have even over capacity like in the U.S., so there it's relatively easy to ramp up. In other areas, it's perhaps a little bit more complex. It's not like one number which has to come in. It's a mix of factors. It's also a product and regional mix equation. Of course we need some improvement. In the U.S., for example, if we say a 10 %+ increase is already significant and helps a lot. In EMEA it's even not 10% because the basis is relatively high.
If we assume that there would be a 10% improvement in the U.S. and in Europe, I would feel confident to say that we could increase capacity. Of course, this is now not a strict message, but as an indication, I would say a 10% increase would give us the necessary confidence to increase capacity to the required level.
Okay. Can you maybe also, looking back at 25, can you quantify the key impacts, to some extent, especially the U.S. dollar? Just to get a feeling of, of sensitivity in case, we see some shifts or changes here in three to six.
Yeah, you know, we have around 25% of our revenue in the U.S. or in U.S. dollars, so it's above $500 million. Of course, if we have a fluctuation of exchange rate to 10% it's a $50 million impact in the one or the other direction. This is not completely true, because if, for example, we have a change in exchange rate, we have some products where we have components exported from Europe, where also all our competitors are exporting from Europe. Like for example, for the Loader Crane, in such case, we adjust the prices and the U.S.D effect is not as big because it's translated into higher prices than in U.S. dollars. It's not a 100% effect, probably it's a 70% effect.
Mm-hmm. What about in this level?
Sorry, I didn't see the impact there.
What about EBIT level, EBIT margin level? How do you see the impact there?
You mean in the U.S.?
From FX, yeah.
Yeah. The impact of the exchange rate is limited because on the one hand we have products which come from Europe and where also competition is coming from Europe. Here there is more or less no major impact. Of course, in absolute terms for the revenue share of U.S.D, which is translated where also the EBIT line is translated, of course, the EBIT share goes down as well as the revenue share. This is more or less the same factor. In terms of operational EBIT margin in the region, the impact is very limited.
Okay. Situation on the, or question on the situation Middle East. Do you see any direct impacts, or maybe indirect impacts, on the business in the near term or going forward?
Well, first of all, of course, we have stopped our operations. We have some offices there and also some service activities. Of course, we are not asking people now to go to work, but this is not an impact you will see in the year-end or even not in the quarterly results. This is of course the first obligation of the management to make sure that we protect our people. In terms of business, of course, now we see energy prices going up. PALFINGER is not that energy intensive, so this is also not a major impact. In terms of supply chains, we also do not expect any impact. I think the biggest impact would actually be if there is a longer term conflict. If the global economic outlook would deteriorate, of course, this would also have an impact on PALFINGER.
Apart from this, we do not expect a major impact on PALFINGER. If the war ends rather soon, of course, we rather have to take into consideration we have seen this, for example, in Israel, with the destruction, I have to say, of the Gaza Strip that, we see a huge improvement of demand in Israel. Historically, Iran, for example, was a core market for PALFINGER with 70% market share in the ancient times. If the sanction should go away, if there would be a regime change, this could be a major opportunity even for PALFINGER. Of course, we hope that in the midterm, this could even turn out as an opportunity.
Mm-hmm. A last one on defense, demand and development. Could you provide some more insight, how your revenue share is and how you expect this to develop in the coming, say, one, two, three years?
Sorry, we were talking about service revenue share?
No, no. Defense. Defense.
Defense. Sorry. Connection is not always that good. The defense share at the moment is at roughly, 2%. We expect it to grow to 4%. You have to take into consideration that, the defense business is very service intensive, so this helps not only in the service revenue share of, defense, but also helps of course in the growth of, service business. The profitability obviously is relatively high also because the investments to be able to participate in this business, the risk also to enter this business and eventually not to get a tender is higher, so also the profitability has to be higher.
Okay, perfect. Thanks a lot.
Thank you.
The next question comes from the line of Lars Vom-Cleff from Deutsche Bank. Please go ahead.
Yes. Thank you very much. Good morning. Two quick follow-up questions, if I may. One is a quick housekeeping question. tax rate for 2026. I think 2025 was 23%, 24%. Is that a fair assumption for 2026 as well?
Well, we have quite some good tax rates in 2024 and 2025, so I would, for a model, not recommend to take this number, but I think slightly below 25% is a good assumption going forward.
Okay, perfect. Unfortunately so far you're only providing us with a qualitative guidance on the first half and the full year. I mean, if we take slightly up year-over-year for the first half and compare it to the current Bloomberg consensus, which looks for revenue increase of 3% and an EBIT increase of 7%, does that cause sweaty palms or is that something you can live with?
Well, I would say that in terms of EBIT improvement of 7%, this is aggressive for the first half year. In terms of revenue increase, it's rather modest.
Perfect. Thank you very much. That's all ready. I'll go back into the line.
Thank you.
The next question comes from the line of Lasse Stüben from Berenberg. Please go ahead.
Hi, good morning. Could you provide just some color on the Q4 EBIT margin that was a bit weaker? I understand Q4 has had some seasonality impacts, but if there's any kind of operational sort of reasons why the margin was lower there, I'm guessing probably caused by the U.S. Any color would be helpful. The second point is just on working capital and CapEx. The colleague already mentioned, you know, the factor in the working capital. Are you expecting a further reduction in sort of working capital as a share of revenue in the coming years? Is this kind of the level where you feel comfortable? If you could remind us on the level of CapEx spending plans for the next two to year years, that would also be helpful.
Okay. First of all, development of the quarter. If we compare EBIT level of Q4 2025 to Q4 2024, it was a significant increase. I think you were comparing now Q4 to which quarter? Because I do not see now where you see the deterioration in the fourth quarter. The EBIT margin, of course, if you look at the EBIT margin, it went down. However, there are several effects in there. It's mainly in the contribution margin. It was a mixed effect to a certain extent, but this is not a substantial change. It's rather a, I would say, a timing issue.
Okay, that's clear. On working capital and CapEx.
Well, in working capital, of course, we have some good opportunities in the last two to three years to compensate for the massive increases in working capital in the post-COVID times. This effect to counteract with measures against the high increases is going away more and more. We still have some small pockets where we believe that we still have overstocked some topics which we can further reduce. Now it's going more into hard work to consistently optimize our stock levels. Here the potential to reduce working capital with further inventory reductions is getting more and more limited. You won't see this big lever in terms of free cash flow for working capital in the years to come. The main lever to further improve our free cash flow is actual profitability.
It's the starting point of the cash flow statement rather than working capital reductions, even if there are still some opportunities to further improve. As I said, this is now rather small compared to what we have seen in the past two years. Then you were asking about CapEx development. Last year was relatively low, with EUR 100 million. At the beginning of last year, I mentioned probably EUR 130 million, which was our budget and which was our plan. For several reasons, some investments took a little bit longer than planned. Unfortunately, this doesn't mean that these investments will disappear. It will just take a little bit longer, and the time shifts. These investments will happen now in 2026, which means that we are expecting around EUR 150 million of CapEx in 2026.
It will remain the CapEx level, will remain on a similar level also until 2029, as we have some major CapEx programs are ongoing, also linked to our Strategy 2030+.
Thank you very much.
You're welcome.
The next question comes from the line of Miro Zuzak from JMS Investment. Please go ahead.
Yeah. Hi, Felix. Hi, [Andres]. I have mainly two questions. The first one is on order intake. I mean, you do not report order intake, but you do backlog and sales. If I take just the difference between the two numbers, basically I can calculate a proxy on order intake. If I look at Q4, the number has sequentially come down to Q1 and Q2. Q3 were very strong against, let's also say, a lower base. Q4, the base was a bit more difficult, but still it was now negative. You mentioned before that you expect H1 2026 to be above H1 2025. Does this refer to order intake or sales? Maybe you can also comment on what I just said.
Yeah.
Whether it's-
Yeah.
-it's correct or not. Maybe take the second question also.
Yeah. First of all, you talked about our order book development. It's a matter of fact that the last months of the last year were not over proportionally strong. However, the output, especially in December, was very strong. We had a strong fourth quarter in terms of revenue. This was, so to say, the combination of those two effects, why you saw this decrease in order book in the fourth quarter. Looking at our guidance for the first half year, when we say slightly better, as I said before, talking about revenue, but also EBIT and of course also order intake.
Even if now we have more or less the first half year already enhanced, of course it can always have some surprises, but in terms of order book, the first half year is quite safe. Still, we also expect an improvement in order intake compared to the last year also because the first two months were actually a good start.
Okay. Cool. The second question basically relates to your 2027 guidance of 10% EBIT. I'm trying to, you know, model the 10% in the next two years, basically. If I look at the last two years, I see that the growth margin was good and has improved in 2025 by 80 basis points, which is in line with, you know, basically your aspiration of improving operational efficiency and so on. If I look then at the OpEx cost, I see that more than that is basically eaten up by the service cost and also R&D cost and also G&A cost, basically in percentage of sales, all these three lines, they worsened 2025.
If you now make the bridge to the 2027, the 10%, what is basically the mix between these two, let's say two, lines, the COGS line and the OpEx line? Where does the improvement of the 250 basis points come from?
First of all, the pity of the last two years was that the tailwind wasn't really there. We had no increase in revenue, but two years in a row, a slight decrease in revenue. At the same time, we had a strong inflation, especially on the personal cost. Even if material costs have remained quite stable or in some cases have even come down, inflation on personal cost was a major impact in absolute terms in Europe and in the U.S. in relative terms, even stronger than also, for example, in countries like in the Eastern European production sites. This was one impact. The second impact was we have a growth strategy, and we are investing to grow the company to more than EUR 3 billion. This is nothing you can do overnight.
This requires investments with a certain confidence in the future. Unfortunately, these investments are not only CapEx, it's also OpEx. It's like implementation of our ERP system globally. It's a lot of R&D investments we have done and all those things, unfortunately, impact structural costs. This is a big data, as I also mentioned before, to our competitor HIAB. They are, of course, in the same market. Their reaction is different. They have started to dramatically cut costs. PALFINGER has taken the decision to further invest in the future, and the main lever for the profitability increase is actually to benefit from the growth we have been preparing ourselves over the last two years. This is the main lever to get to the 10% EBIT margin.
We have the structures in place, to get there, but in the last two years, and not only in the last two years, probably in the last years, you can see that PALFINGER has invested in structures, in service sites, et cetera, and in early phases of such investments, it's a cost and not a benefit.
To answer then the question, that would mean that the improvement mainly comes from the OpEx lines.
Within the timeframe of 1.5 years, it can only come from the top line because such a short term, cost improvement on the structural cost would not be possible in such an extent, not without cutting arms or legs.
Okay. Thank you.
Every time.
We have a follow-up question from the line of Markus Remis from ODDO. Please go ahead.
Yeah, thank you, for taking two more. The first one would be on Russia. What's kind of the expectation for that business? You indicated a roughly break-even situation in 2025. What's kind of the scope for revenue development, and is there a risk of Russia falling into losses? The second question is a very specific one. In Q4, I see that in the holding and non-reportable segments, EBIT was negative at EUR 14 million, which is quite a hefty number, almost double or more than double of last year, and also sequentially, compared to Q3, the loss doubled. Were there any specifics that you would like to outline here?
Actually, I would have to look it up because it's not one single impact. What happens typically in Q4 that certain positions take effect or are provisions are made. It's not an operational topic. This is rather an accounting and timing issue. There was no special event in Q4 which would have led to this change in the result.
Okay, thank you. Then Russia.
For Russia, if you ask me for an outlook, this is of course, very difficult to say, as we are also not controlling those entities. We rather report the numbers and get the information, so to say, and then report with the wisdom of hindsight. However, what I can say is that in 2025, the situation was really difficult. The management managed to turn around the liquidity situation to achieve a yearly positive cash flow in the second half of the year after a negative first half year. The profitability was slightly positive and we already see a slightly positive development. Of course, if I talk about the positive development, I mean that we expect a slightly positive situation and no losses. We won't see double-digit EBIT margins in Russia.
I cannot answer the question, based on fact, figures and my knowledge deep inside the market. What I can say is that from today's perspective, and this is also reflected in our budget, we expect that the entities will remain stable in terms of liquidity and also stable in terms of profitability. The good thing is that we have a very experienced management there, and they have proven in the meantime, in some cases over decades, that they know what they are doing.
Okay. Maybe a very nice one to have it specifically mentioned here. When you say regarding the first half, you say, okay, revenues should be higher and then the notion on the earnings should also be EBIT end margin be higher or just EBIT?
I said, we expect the revenue to be higher and also the EBIT to be higher. The revenue a little bit more than the EBIT, this is what is our guidance now for the first half year.
Okay. Slightly lower EBIT margin then.
A slightly lower EBIT margin or almost stable, but probably a slightly lower EBIT margin, but higher revenue and also slightly better EBIT.
Okay.
Yeah.
Okay, thank you. That's very helpful.
Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Felix Strohbichler for any closing remarks.
Yeah. Thank you very much for your attention and for your questions. I just want to remind you once again at the end of this call, PALFINGER is a very attractive company, is a market and technology leader with a lot of growth potential and earnings potential with a highly resilient setup. Please keep stay tuned and we have good opportunities for the future and I'm confident that at the half year we will have the next good news for you. Hopefully, we hear each other in three months again for the quarterly call. Thank you. Bye.
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