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Good morning, everyone, and welcome to Konecranes's Q1 Earnings Conference. My name is Kiira Froberg, and I'm the Head of Investor Relations at Konecranes. Here with me today, I have our President and CEO, Anders Svensson, and our CFO, Teo Ottola. Before we start, a kind reminder, this presentation contains forward-looking statements. Next, Anders and Teo will walk you through our Q1 results. Anders will start by discussing our group figures, after which Teo will focus on business segments. The presentation is followed by Q&A, as always. Anders, I think it's now your turn.
Thank you very much, Kiira and welcome also from my side to this webcast for the first quarter of '24. Our demand or we can start with the headline of the quarter actually. It's record high Q1 profitability. And our demand environment remained healthy in the first quarter despite being down versus the previous year due to very strong comparables. Our sales were 913 million, and that was up year-on-year with 2.5%, and we posted a record high comparable EBITA margin of 11.1% for the first quarter. I also want to mention an operational highlight here. We are releasing our new crane, the Konecranes X Series in March in Logement this year. And it's a new product that will then replace our CXT model cranes and it comes with a full suite of smart services and is upgradable over the year. And we expect to see good demand of this product across different industries and also in general manufacturing. So, it will be a key product for Konecranes going forward. The product will be released in the EMEA during the autumn and then rolled out in other regions. So, in summary, we had a very good start to the year, and we believe it sets us up for a good performance for the full year. I will move into the market environment and starting with our Industrial segments. So here, we look at some key macro indicators. It's the manufacturing capacity utilization rate. And you can see in EU, it was down year-on-year and also sequentially down. U.S. is more flat year-on-year and also sequentially flat. If we look at the global manufacturing PMI, it was above 50%. So that was the strongest reading since June 2022. EVs still in contraction, but U.S. is in expansion just like China, India and Brazil. If we then move into the macro environment in for our Ports segment. Here, we look at the Global container throughput index. And as you can see, it's up 9% on a year-on-year comparison. And the positive here was also that we could see that the ports within the European Union is also improving in terms of container throughput, and that's very positive for our business, of course. Then I move into the financials, and we posted an order intake of 909 million, and that was in line sequentially with the previous quarter. But of course, versus the record quarter of the first quarter of last year, we were down 29% on comparison. We had a decrease in Port Solutions in Industrial Equipment, but service show strength and we had an increase year-on-year. We had a decrease in all the 3 regions on a year-on-year comparison. We posted net sales of EUR 913 million, and that was up 2.5% in comparable currencies versus the previous year. And we saw an increase in both service and Port Solutions, but a decrease in industrial equipment versus strong comparables. We saw an increase in Americas and a decrease in the other 2 regions, EMEA and APAC.The group order book is the next. And if you look at book-to-bill for the quarter, it was basically 1. And we can see that our order book is now above 3 billion despite being down 7% versus the previous year. We had an increase in our service order book but a decrease in Industrial Equipment and Import Solutions. Moving into the profitability. So, we posted EUR 102 million in comparable EBITA, and that is equal to a margin of 11.1% and that was up 50 bps versus the previous year. And the comparable EBITA margin increase was in service and Import Solutions, while we saw a decrease in industrial equipment. And the margin increase is mainly attributable to improved productivity and pricing. The gross margin improved also on a year-on-year comparison. Next, we will look a bit about our performance towards our financial targets, starting with the group. So, the group had a stronger first quarter than we did in previous years. So, you can see the rolling 12 is has an uptick to 11.5%. So, we are inching towards our profitability corridor. On the service side, we had a strong first quarter. And here we are now within our corridor at 20.1% on a rolling 12 basis. In Industrial Equipment, as I said, we had a tougher volume comparison. So, the volume was down due to a strong comparison last year, but also due to some delivery challenges in this year due to strikes in Finnish ports. So here, we posted a lower margin for the first quarter, and then the rolling 12 went down to 6.8.In Port Solutions, we had a good volume development and also posted a stronger result. So here, we went up to 7.6. So, all in all, we have good progress, and we are still confident about our communicator financial targets. Now moving to the demand outlook. And starting with the industrial customer segments. So, our demand environment within industrial customer segments has remained good and continues on a healthy level. And here, we have seen some slight improvement, and that continues also in this quarter. Our sales funnel is good and healthy and also in terms of number of cases, but also in terms of monetary value. Moving into our port segment. So Global container throughput continues on a high level and long-term prospects related to Global Container handling remains good overall. In here, our funnel contains both short-cycle products, but also projects of all different sizes. And as you know, by nature, this business is lumpy in terms of order intake. And we should also remember here that in the fourth quarter, we mentioned some early order intake for the fourth quarter, and that was, of course, helpful for the fourth quarter but is then negative for the first quarter order intake in ports. Moving then into our financial guidance for the year. So net sales are expected to remain approximately on the same level or to increase in 2024 compared to 2023, and the comparable EBITA margin is expected to remain approximately on the same level or to improve in 2024 compared to 2023. So, we continue to remain positive regarding the 2024 outlook. And we think that it was a good start to the year with our first quarter. And now I invite our CFO, Teo Ottola, to go more into the financial details.
Thank you, Anders. And actually, before going into the segment financials. So, let's take a brief look at the Q1 comparable EBITA bridge as we usually have done. When we take a look at the Q1 profits and compare that to the situation 1 year ago, so we actually have an EBITA improvement of slightly more than EUR 6 million. This is clearly less than what we have had, the monetary improvement, for example, during most of the quarters in '23. And there is one particular reason behind that one, and it is coming from the 2 first columns, volume, price/mix and variable cost combination because the net in this quarter in comparison to the previous is 23 million positive, whereas when we take a look at the year '23. So basically, we were 35, 40 million positive with this balance in the previous quarters. And there are, of course, a couple of reasons behind that one. The first one is the underlying volume. As Anders mentioned, our sales increased by 2.5%. The pricing impact was more than 3%. So actually, the underlying volume development in a year-on-year comparison has been negative, unlike during '23 when basically or during all of the quarters, we had about 10% underlying volume improvement. So, this is one reason. The other reason is pricing. We do have and we continue to have positive net impact of pricing, so net of inflation pricing, but it is less than what it was on average during '23, of course, as a result of partially as a result of catch-up and, of course, also the inflation slowing down. On the positive side, then when we take a look at this part, variable cost. So, we actually had a good productivity development during the quarter, and our operational efficiency/productivity was on a better level than a year ago, and this created a positive impact into this comparison table. Also mix was slightly positive, but this productivity impact was clearly more than the mix impact. Then when we take a look at the fixed costs in this slide, so the fixed cost increase in a year-on-year comparison is in line with what it was also during the third quarter as well as the fourth quarter. And then if we jump to the segments and as usual, start with the service business. So, service order intake, EUR 388 million. That is up 3.7% in a year-on-year comparison. We had increase in field service and parts. In both of those, we had increase in the Americas. Americas performance was very strong, actually. Also in APAC, a small decrease in EMEA. Then when we take a look at the agreement base, so we had growth there as well, more than 5% and Americas was very strong on the agreement-based growth area as well. Sales number, EUR 367 million. That is up a little bit more than 5% with comparable currencies. We had an increase in field services, a slight decrease in parts. Normally, we would be saying that this would mean a negative mix in a year-on-year comparison. Now this time, modernizations actually compensated for that, and we believe that the mix was more or less unchanged in a year-on-year comparison when we then talk about margin later on.When we take a look at the sales increase in Americas and EMEA, but a decrease in Asia Pacific. Order book, like Anders mentioned, slightly up and book-to-bill, for example, now for the first quarter continues to be positive. EBITA, EUR 73 million, 19.9%, a very good margin. It's more than 1 percentage point up in a year-on-year comparison coming both from productivity and pricing. So, we had a smooth quarter from the operational excellence operational performance point of view. This is partially also helped by the fact that the first quarter of last year was not particularly good. So, the comparables from that point of view are maybe a little bit easier than usually. And then also net of inflation pricing helped us. Gross margins increased as a result of those things, and then, of course, also consequently, the EBITA. Jumping on to the Industrial Equipment. Our order intake was EUR 313 million. It's a clear decline, almost 30% year-on-year, but against very tough comparables as we can also see from the picture. So Q1 '23 orders were on an exceptionally high level. In a year-on-year comparison, we had decreased in basically all of the major business units as well as in all of the regions. But then if we take a look at the Q-on-Q comparison, so we are actually compared to, say, Q3 and Q4. So, we are on the same level or higher now in our order intake in the first quarter. And when we take a look at the business unit there, so particularly components did very well. So, we have a very high sequential increase in the order intake for components where our standard and process cranes were a little bit lower in a sequential comparison. Taking a look at the sales, EUR 283 million. This is down in a year-on-year comparison by 7% with comparable currencies decrease in process grains as well as standard grades increase in components and decrease in basically all of the regions. A couple of reasons. One of them was that the first quarter of 23 was pretty good from the sales execution point of view as well. We were still delivering so-called late backlog during the beginning of '23. This impact we did not have this year now in '24. And then, of course, the strikes in Finland impacted our sales on group level, 15 to 20 million, most of that actually in the industrial equipment. So, these are then visible in the comparison when it comes to sales. Order book is slightly down, but also here book-to-bill on a quarterly level better than or higher than 1. EBITA, EUR 18 million, 6.5%. This is down year-on-year the reason is lower volume as discussed regarding the sales. Gross margin actually increased, thanks to the pricing. But thanks to also our optimization program, also mix was slightly positive as a result of the high share of components. So that those actually supported the margin but the volume was the thing that they meant that the margin declined slightly. Port Solutions order intake there, EUR 248 million, also here a significant decline year-on-year. And as in Industrial Equipment against very, very tough comparables. Q1 '23 was excellent, of the business units, we had basically year-on-year order intake decline in most business units except for mobile harbor cranes, which is mentioned here on the slide as well. Then if we take a look at the order intake in a sequential context, so we were between Q3 and Q4 of last year from the order intake point of view in ports. And then if we take a look at the business units that one would consider being maybe earlier cyclical, lift trucks did decline year-on-year, but sequentially went up. And the port service also was sequentially quite flat or on the same level. Sales, 300 million. We had a good sales quarter, 10% increase. Most of the business units performed well from the deliveries point of view. And then order book still on a good level, even though down here, unlike in the industrial businesses. So here, the book-to-bill is below 1. Comparable EBITA, EUR 21 million, 7.1%. This is an improvement in a year-on-year comparison coming primarily from the volume, but also we have had an R&D support subsidy in the amount of slightly more than EUR 2 million, which is then impacting the numbers in the first quarter, also positively. Before going into the Q&A, a couple of comments on the net working capital, cash flow and balance sheet. In general, our net working capital was EUR 374 million. That is 9.4% of rolling 12-month sales. We had an increase in comparison to the end of the year in inventories. So net working capital development from that point of view was a little bit in the wrong direction. However, we are still clearly within our target range of being below 12% over rolling 12-month sales. Free cash flow consequently went down also in comparison to the previous period and to the end of the year, EUR 49 million free cash flow. It's cash conversion of approximately 80%, given that we had an extremely good cash conversion during the whole of '23. Still, this achievement taking a little bit longer view is very good. And then on the next slide, we have the gearing net debt as well as net debt EUR 335 million, 22% gearing. This is obviously now excluding the dividend payment, so that took place in April. So that has to be taken into consideration, of course. And then finally, return on capital employed on the right-hand side of the slide, comparable return on capital employed, 18.9% and good development there as well. This was the last slide of the presentation, and now we can move into the Q&A.
Thank you, Teo. So, let's start our Q&A now. And operator, I would kindly ask you to open the line, please. [Operator Instructions] the next question comes from Johan Eliason from Kepler Cheuvreux. Please go ahead.
Yes. This is Johan at Kepler Cheuvreux. I'm starting just with Industrial Equipment. You mentioned that sales were impacted by the strikes, primarily industrial equipment of SEK 15 million to SEK 20 million. Will this imply these loss sales you will get now in Q2 instead then we should see sort of a sequential boost from this?
To some extent, that will be coming back to us in catching up with sales, where you might not see the same full catch-up might be on the service side that we lost some operations in some parts, but majority of that should be catch up during the second quarter.
Okay. Good. And then on pricing, you mentioned in sales, it was above 3% if I got the details right here. How does it look like in orders? Are you still hiking prices and where that is the case?
So pricing effect, we say now is 3% to 4% in the first quarter. And when we look at the order book, it should be on a similar level as we have now.
And we have gone to Yes, sorry, we have continued to do price increases also this year so that inflation is on a lower level. Material inflation, in particular, of course, but it hasn't meant that the overall price levels would have started to go down, but price increases are still being done. Of course, they are much more modest than what they were sometimes ago.
And more driven by labor than more.
Was more driven by labor. Obviously. Yes.
Good. And then just finally on Port Solutions and your visibility here. Now you have a backlog that is almost 120% over last 12-month sales here. You had a very strong revenue development in Port Solutions last year. But do you think you're looking at your backlog import that you can match these sales? Or is it more longer lead times into 2025 here that we should expect for Port Solutions.
We normally don't comment on segment level, but we have actually commented on port due to our long visibility here. So, the outlook is the same here. We expect the same level or improving versus 2023 in terms of sales of ports.
Excellent thanks
Thank you [Operator Instructions] The next question comes from Panu Laitinmäki from Danske Bank.
I have a few questions. Firstly, starting from the outlook for me. Basically, how should we read these statements, both in industrial equipment and imports that industrial, you say that demand is healthy and you no longer reflect the sign of weakening that you had last year that this kind of implies sequentially stable orders or increasing and basically same question for ports. So, any kind of comments what do your statements mean in terms of orders for the coming quarters? Thanks.
Yes. So, we don't give any order forecast. But when we talk about improving demand, that is, of course, a positive underlying driver for future order intake. So that is the way it should be read.
For the port divisions.
We haven't really changed the comments on the port side. So there, you can more see it as continuing on a good and healthy level at this has been during the previous year. So, it's a similar sort of funnel that we see in short-cyclic products. It's coming back. It was weaker a bit, and now we can see its bottom out and coming back. And then from project side, which is not driven in the same way by upturn or downturn in economy or interest rates to the same extent as maybe other order intake and more driven by long-term timings of these projects. So there, you can see that we have similar amounts of projects of all different sizes also in our order funnel going forward for ports.
Okay. Then on the margins, basically, 2 questions. So firstly, can you talk about what are the main margin drivers for the rest of this year for the coming quarters? So, what are the main positives what are the main negatives and any kind of changes to what we saw in Q1?
No. If we take a look at the rest of the year, as you pointed out. So, I guess that, of course, volume development continues to be important. We have, to some extent, more order book now for the rest of the year than what we had a year ago at the same time. So, this is kind of a positive. Of course, we also need in and out orders, a significant amount. But I mean the order book situation is slightly supportive. Now we had very little or we had actually, let's say, declining volume underlining when we take a look at the Q1. So, this, in a way, from the order book point of view, should be in a better situation. And then I guess that what we want to continue with is the operational improvements that we have been doing already now in Q1. So, the optimization program that we are doing in the industrial equipment will continue to give us benefits towards the end of the year as well. It has had benefits in Q1, but we are expecting that to continue to the coming quarters. Product mix is maybe something that we are now a little bit more positive than we were 3 months ago. we said 3 months ago that it would be flat to weaker. And now we are actually saying that it would be maybe flat to positive. So, the product mix improvement can, to some extent, be there in comparison to what we are seeing what we have seen in the previous year. And then, of course, we also, in a way, of course, as we are increasing prices. So, the idea that we would be at least capable of compensating the cost inflation with price increases.
Okay. Then the second question on margins was on core solutions and maybe on a bigger picture. I mean if I take out the R&D subsidy that you mentioned the Q1 margin was pretty flat compared to last year and quite a bit below your target level, even though you had the highest Q1 sales in that business ever. So basically, what will it take to get to your target level? And could you also touch on kind of product mix because there are maybe some investors are anticipating that you might benefit from demand to larger cranes in the U.S. market especially. So how would that kind of impact your margin target achieved, given that those products might have lower margin?
If we take a look at the situation currently and reflect to the, let's say, rest of the year, so we are expecting product mix impact to be slightly positive. Of course, then at the same time, one has to comment that this is primarily dependent on what is the share of port services of the total ports. There are other aspects as well, but there is a clear difference in gross margin and EBITA margin between the port service and, let's say, the average of the rest of the business units within Port Solutions. Otherwise, what is needed and required for the margins to improve within the Ports Solutions overall is, of course, pricing. We have talked about that. And then it is project execution, project excellence, project management excellence that will be then driving the margins up on a, let's say, a longer-term perspective when it comes to our project businesses within ports. And that's, of course, a significant part of the port businesses. And then obviously, in those product categories, which are more like product rather than project type of activities. So, the underlying volume development, of course, continues to be important because we have a fixed cost that we will need to cover for.
Okay. Any time line, when do you think you could reach the margin in imports? I mean, given you have a pit order book in that business?
So we have communicated the same time line for all targets that we should be the latest by the end of 2027. So that is also applicable here. But of course, our internal targets are to reach them much quicker. What should be considered in ports is also, as you mentioned, some of these are quite long lead times. So things we changed in the way we offer in the way we manage the project, et cetera, it takes time until it filters through to the actual result. So there are a lot of improvement initiatives ongoing in ports that have yielded the results that we believe it will yield going forward. And we are still confident regarding the financial targets we have communicated in regards to ports.
Thank you. Let's now take the next question from the line, please. [Operator Instructions] The next question comes from Mikael Doepel from Nordea.
Thanks for taking my questions. I'm not sure if you said this there, but I just want to come back to your comments around the mix that you now see overall product mix a bit more positive than 3 years a few months ago. But I was wondering what drove the change in the view here?
The biggest underlying reason is that we have a little bit, let's say, changed view on how big a share would service represent of the total. So, this mix this change in the commentary is more in relation to the mix between the segments rather than the mix changes within the segments. Even though, of course, now that we commented the order intake regarding Industrial Equipment as well so that the component order intake that was very strong. Now in the first quarter, of course, drives also the mix within the industrial equipment to a better position.
Right, right. Okay. That's very clear. And then coming back to the pricing, both your comment and your answer previously. So I think you said that inflation is still there and the overall pricing has not gone down. So is it fair to assume that in some segments, you have some price gains in some, you might have some price declines. But on average, pricing is stable and underlying costs are stable. Is that the way to read it or am I wrong.
There is fairly high inflation on wages and salaries. So and we are not expecting that to go away. So, from that point of view, the inflation is there. There is also inflation if we take a look at, for example, Q1 and compared to the Q1 last year. So, there is inflation, but the percentage is much, much lower than what it used to be. But it does mean that we will continue to increase prices to be able to cover the inflation. And then in the big picture, like I said, the idea is that we would be at least able to compensate for the cost inflation, let's say, combined cost inflation that we have. And yes, sure, it may be that in some product categories, we would be gaining a little extra. In some product categories, we might be losing a little bit. But the overall target is that on average, at least cost inflation, hopefully, a little bit more would be coming through into the P&L.
So what you're saying is that overall, you see some constant inflation underlying and your pricing on average up a bit. Is that basically what you're saying.
Can you please repeat that? I'm not sure I understood.
Number, just what you're saying is basically that you see overall inflation, which means that you also see overall pricing up a bit for the full year and perhaps a bit more than the costs are going to.
Yes, we are seeing overall inflation at least currently. And then, of course, the situation can change. But like I said, we do not expect that the situation will change regarding the labor so that there will most likely be inflation throughout the year. Material inflation is on a lower level, but currently, there is inflation. And if these circumstances continue, we will obviously need to and we want to increase the prices so that we are at least matching the cost inflation.
Okay. Okay. And then just a final follow-up on this. So, if I think about the process claims, which are very steel content, for example, on the steel price side down, you're not changing pricing in there. You're also hiking pricing there. Is that the case?
Could you Mikael repeat your question? We can hear you quite bad, unfortunately.
Okay. Sorry about that. So basically, I was asking to the process crane side, for example, the heavy cranes where you have a big steel content, the steel pricing is down. Are you saying that also there you see pricing stable or often not done? Just to be clear on the pricing point.
Yes. So there was more on a project base if you talk about really big installations where there is more steel. So of course, we price those on a project basis to the customer. And here, we share the eventual gain of material prices because otherwise, we wouldn't get the order. So that's how it works. We need to stay competitive in the market still. But on the main components, there is still inflation. So on those, there will also be inflation in the process crane area. So we are not reducing prices generally in the process crane area.
Okay. That's very clear. Thank you very much.[Operator Instructions] The next question comes from Antti Kansanen from SEB.
It's Antti from SEB. A couple of questions both on the sales mix. And if I start from the services, you mentioned that, that is the primary driver for improved sales mix outlook. And I imagine that means that you see higher growth for services at lower for other equipment businesses. So what is driving this view? Is it market-driven demand? Is it something that you have won yourself? Or what's the view changed?
So in regard to service growth, and you are right, we are looking at hopefully planning for quite good growth going forward in this year within service, as we have communicated earlier as well. And we have a lot of initiatives that we are doing. We have updated our offering. We are recruiting more service technicians to be able to service better our customers and to deliver better. And we have also improved our systems and how we support our technicians to be more productive. So, a lot of this combined, of course, together with making some acquisitions that we have done, the Whiting acquisition, the Mank acquisition and now so and we are as I said, activating ourselves in further acquisitions. So we see this as a growth engine for us going forward as well. And here, when we grow, we are not increasing the overhead at the same pace as we are increasing our top line. So that is a positive leverage that we talked about also in the Capital Markets Day that we have in service growth. So that's a key focus area for us.
All right. But nothing has kind of dramatically or less dramatically changed quarter-on-quarter on how you see the service demand if you now see kind of a higher share of service sales for this year?
Nothing dramatically has changed. But as we also commented, we see a slightly more positive outlook within the Industrial segments than we did a couple of quarters ago. And that's, of course, also contributing to our overall picture and how we see the year for service.
Okay. And then on the same theme, kind of the improved demand sequentially for the early cyclical businesses on both markets. Can you provide a bit more color on that? Is this a very much a U.S. phenomenon is this broad-based? And if you look at the demand in those businesses components and lift trucks, where we are now, is it an early recovery where your volumes are still clearly below, let's say, a mid-cycle level? Or where do we stand right now?
Yes. So like Teo mentioned, very good order intake on components. So and in general, components, it's performing very well. And that is an early cyclical product. So that is normally the first one that goes upwards. Difficult to comment, of course, if that's sustainable or not, I mean, we don't know and we don't give those forecast anyhow. So it looks good going forward within the early cyclical product within the Industrial segment, and it's also coincides very well with what we see in macro indicators that they are turning upwards. Then when it comes to lift trucks, as I said also in my presentation, we see that lift trucks and early cyclical product has also turned positively in demand on the port side. So that is indicating the same way. And we also saw on the macro indicators for ports that the container throughput index is improving, and that is, of course, helping us. At the same time, as lift trucks is also used on the industrial side, the industrial side improving would also help lift trucks. So I would say it's in line with what you say basically.
Okay. Is it the broad-based regionally? Or is it very much a U.S. driven? Increase in demand.
U.S. has been strong, basically throughout. I would say it's more an uptick, what we see in EMEA, if you compare it to a quarter ago or so, so we can see an uptick in EMEA. And then APAC is still, for us, more struggling and more competitive markets.
Okay. And the last one for me is that is there a kind of an inventory cycle also involved, especially on the lift truck side but also on the components. restocking or destocking. Yes.
There can be to some extent because these are distributor businesses. And I think that when we talk about the components in industrial equipment, in particular, so there is this price increase cycle. And like mentioned, we have increased prices and the price increases usually come in force for example, during the first quarter. And it means that the order intake before the price increases is high. And now lately, we have been having this kind of a phenomena that the order intake for components is very good during the first half of the year and not as good during the second half of the year. And of course, that remains to be seen. And I guess that from the recovery or decline point of view from the economy overall economic point of view, of course, these are the kind of things that we will need to follow up. There is, of course, distributor impact in lift trucks as well. So it is possible that part of the demand is, let's say, managing the reservations that they have for their own customers and hence, from their suppliers. So even though typically, we do not have rand destocking. So in these 2 product categories, to some extent, it can exist.
I mean has it done been a major headwind last year on lift trucks, exactly the distributor destocking or embryony?
Sorry, I didn't catch the question.
No, I was just talking about the lift trucks that if I remember correctly, there was a kind of a major destocking headwind last year. Is that correct?
To some extent, there was a destocking definitely. We also maybe we're not as competitive as we should have been due to our longer lead times than we would have wished to have had. So I think it was a combination of several things. Now we see ourselves being more competitive in terms of output of our factories. And we also see that the general market seems to be picking up for lift trucks as well.
Thank you Antti let's now take next question from the line, please. [Operator Instructions] The next question comes from Tom Skogman from Carnegie.
Good morning, Anders, Teo and Kiira. I can see from your slides that fixed costs are up EUR 16 million. I just wonder within this, what is happening to SG&A cost, given the changes you have done to the DMAG distribution model. Our SG&A cost up or down?
Do you want to take it?
The when we take a look at the change that we are doing in the particularly in the distribution network. So of course, we are, let's say, tightening the network. And from that point of view, the fixed cost SG&A that is has been decreasing as part of the optimization program. So if we take a look at the savings from that program, so obviously, part of those are in relation to the SG&A. So then there is another part of fixed cost that is actually linked to the activities that take place above gross margin because those would be then factory related. So there are actually both from the cost saving point of view, both above gross margin and then also below. But if we take a look at the whole set in a way. So of course, the efficiency improvements and activities, so they are impacting more gross margin than activities below it.
So SG&A costs are lay up or down, now Year-on-year.
These fixed costs that we are giving in the slide, the 16 million. So that is the fixed cost below gross margin. That is the delta.
Okay. Yes, yes, sorry. But it needs to be strange that it grows if you have this program to do big changes to the BMG setup. I would kind of expect that you could realize there is a general cost inflation, but it would still be nice to say at least a flat number there.
It is correct that there is cost inflation. And of course, it is also correct that there is in addition to that, there is some underlying growth in the fixed cost. We feel that the growth, as such, is completely under control. One also needs to remember and take into consideration that when the volume started to improve in 2023. So we had very small fixed cost increases despite significant ramp-up in the production. And what typically happens in this is that the operating leverage from that point of view in the beginning is very, very strong. And then later on, when the organization catches up to the level where it actually should be, so the operating leverage reduces. And this is, of course, what you can see in the bridge as well now. So even if the volume the underlying volume is not growing. So the underlying fixed cost is still growing on this quarter at least because of the heritage from the '23 where the overall volume output increased significantly in comparison to the previous year.
Okay, I should just make some other comments there as well. If you look at our total headcount, it's not really increasing year-on-year. We are up with 30 people, I think, year-on-year or 19, actually. And we are increasing our ratio of service technicians as we have talked about in the year. So other resources are actually down year-on-year comparison. So where you see the increase, it's in cybersecurity investments. It's an IT system supporting that. It's in sustainability investments, et cetera, and those we need to do to be able to continue to be in the forefront of our business basically. But we are not investing in a lot of admin central resources rather the opposite.
And this fixed cost savings that you have guided for, it's still EUR 11 million for this year. Is that right? Or.
Is right.
Yes.
And then, I mean, Ali discussed this already. But really to push service I understand you need more technicians and you need acquisitions. But then you have this big installed base of BMG cranes as well. I mean, do you have any kind of new thoughts or ideas how to sign service agreements with owners of those cranes or something that could make us believe that you could start to grow more than 5% annual then less than 5% annually.
We, of course, look into our installed base. And then we prioritize to see if we have big cranes that reserve require a lot of service and those are, of course, prioritized. But in general, we don't go to a customer to service one Demag crane. We go to a customer to service all cranes at the customer sites, be it Demag cranes or other brands. We never take only one crane at the site. So we rather target customers that have a large installed base of cranes that we can contribute with our knowledge and competence to improve productivity at the customer and help the customer to then renew their equipment to increase their productivity in their manufacturing. So we don't, by default, targets a singular installed Demag cranes. That's not how we operate. We rather target all cranes or we look at customer sites where there are many interesting cranes that we can service. And then over time, if we do have the service contract at that site, of course, we are in a good position when they need to expand or when they need to reinvest it in Ukraine or upgrade.
Okay. And then you have said many times that you think that short cycle product demand outlook has improved. But is that kind of based on your feeling or talking to your salespeople or data in your sales system? Or what is it based on it, it was not seen in orders really this quarter. So what is the real reason for it.
It's based on order intake, and we look, of course, both sequentially and year-on-year. And then it's based on our monthly review calls where we talk to the people who actually are in the front line, how they see and interpret the market conditions.
Thank you, Tom. Let's now take the next question from the line, please. [Operator Instructions] The next question comes from Erkki Vesola from Inderes. So he's not asking any questions this time around. Maybe we could take a couple of questions from the chat now. First, there is a question on the ports order intake. Could you take us through the reasons of your extremely deep dive on Board's order intake? And I assume this is now the year-on-year decline.
What was the question?
Could you take us through the reasons of your extremely deep dive on boards order intake? So why did the orders decline so much?
So a review on why it did decline... Okay. Sorry, I didn't get, so in the comparison period, we had several really big orders, strong orders, not only the one that we talked about at EUR 150 million. That was by far the biggest one, but there were also other really significant order intakes that we had in the first quarter. And hence, it's the all-time high quarter for ports order intake, of course. Then if we look at the current year, we had, as mentioned in the previous quarterly call that we got early order intake into Q4. Something that we were expecting to come in Q1 actually came in the last day of Q4 last year, which of course, boosted our Q4 numbers imports, but had then a negative effect for our Q1 numbers in this year. So what we see is that the funnel is equally strong, both in the short-acting product and projects of all sizes. But in this quarter, we didn't have any orders that we sort of would define as medium or large project order intake. So what you see is an underlying good performance, which is clearly ahead still off the trough quarter, which was the Q3 as we stated it to be, and we still believe that was the trough. So this is in between the Q3 and Q4. And maybe since we got that late order intake, you should look at Q4 and Q1 together because that was basically 1 day's margin in between. So that is, I think, the review.
Thank you. Then we have another question on the manufacturing operations in Wurzburg. So could you provide us with more information on the process of finding a new owner of Straddle Carrier manufacturing operations in Wurzburg? Has there been any progress there?
Yes. So we always review our footprint, both in terms of internal footprint and also our external supplier footprint. So Here, we do that under our accelerated efficiency initiative, which is also one of our strategic enablers for the group. And here, we look into the operating model that we have for stranded carriers, which is a one site, one product site, and that makes it very sensitive towards ups and down swings in order intake in that specific product. If you look at other products within ports like RTGs, where we have a complete different operating model with outsourced manufacturing. We are much less sensitive. And also the supplier do other things. So they are also less sensitive. So hence, we have taken the decision to look into the operating model here. And that means then that we look into if we can find a buyer for the site. And we, of course, want to progress as quickly as possible to find that buyer and to agree with that buyer and then transfer people, the facilities and the operations to that buyer. We can't comment on where we are in the process, specifically, but that is our main initiative to identify that by as soon as possible. But we can't exclude that other initiatives will be needed to take in terms of Virtual to manage our operational excellence.
Thank you, I think those were all the questions this time around. So it's time to conclude the conference. As a kind reminder, we will report our half year financial report on July 26. So that is then when we will be back here in the studio. I wish you all a great day. Thank you.