Kalmar Oyj (KALMAR) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Kalmar's First Quarter Results Webcast. My name is Carina Geber-Teir, and I'm heading the Investor Relations at Kalmar. Today's results will be presented by our President and CEO, Sami Niiranen; and CFO, Sakari Ahdekivi. The presentation will be followed by a Q&A. And as always, please pay attention to the disclaimer. And now over to you, Sami.

Thank you very much, Carina, and good morning, everyone. I'm pleased to share with you Kalmar's first quarter's results, which demonstrate solid performance driven by our focus on operational and commercial excellence. We managed to generate stable revenues and a resilient margin by successfully leveraging Kalmar's leading position in the market and driving excellence in our operations. We advanced our strategy towards sustainable growth and focused on building upon the strong foundation. Our orders received increased by 20% from last year and overall demand was favorable in Q1. Despite lower sales, we delivered a resilient profitability of 12.0%, which was supported by the record high services profitability. We have continued our focus on growth and investments in sustainable innovations and we are proud to announce the launch of a 5-year Move2Green R&D program, including a EUR 20 million funding from Business Finland. However, today, there is an increased level of uncertainties in the market environment affected by, for example, the recent tariff announcements and geopolitical tensions. As mentioned, our orders received in the first quarter increased by 20% compared to last year and totaled EUR 480 million, following the good development from the previous quarter. Demand in ports and terminals remained stable. We saw some early market recovery signals in the beginning of the quarter in the U.S. distribution end customer segment. However, there is an increased level of uncertainties in the market environment today. Europe performed strongly and remains our largest region in terms of orders, representing 47% of our first quarter's order intake. Our order book was at a good level at the end of the quarter and EUR 86 million higher than at the end of 2024. Then moving on to our sales performance. Our sales in the first quarter were EUR 398 million. The lower sales levels we have seen are impacted by the lower orders in 2024. The services segment share of sales increased to 36% in Q1, which is providing resilience to our overall revenue. The softness in North America is visible in sales and Europe was clearly the largest region, representing 45% of the sales. We have a well-diversified business with 4 strong customer segments. As mentioned, our services share of sales was 36% in Q1. Eco portfolio share of sales increased to 43%, which is showing the strong interest towards our sustainable solutions. And we have a strong footprint in our 3 main markets, which are Europe, the Americas and EMEA. With an installed base of 68,000 machines globally and a strong presence in over 120 countries for sales and services, our extensive reach remains a significant asset. This robust foundation fuels our active acceleration of future service growth through innovative offerings and digital solutions. Today, we have over 1,400 own service technicians around the globe and 4 factories, which are located in Poland, the U.S., China and Malaysia. Since January this year, they are all now decentralized and reporting directly to the divisions. The world today is different than a few months ago with an increased level of uncertainties related to recent tariff announcements, geopolitical tensions and the risk of a global macroeconomic downturn. It's still too early to draw conclusions on how all this will affect our industry, the demand environment and global trade in the short-term, but we will monitor the situation closely and have made different scenarios and are ready to act swiftly as needed. Despite uncertainties, we still see growth indications in the market indicators. The global GDP, global manufacturing and global retail output development are all expected to grow around 2% to 3% this year. But as late as yesterday, we received the latest container throughput development estimates from Drewry and the global container throughput is expected to decrease by 1% this year. Let's then take a closer look at our large base of over 14,500 connected equipments around the world. By following the running hours of these equipments, we get a good view of the activity and demand in different regions. We see positive development trend both year-on-year and quarter-on-quarter, which is indicating increased activity at our customer sites during the first quarter. However, at the same time, we have to remember that there are now more uncertainties in the market. The eco portfolio share of total sales has remained high and increased to 43% and eco portfolio share of order intake was 44% in Q1, which is demonstrating our customers' strong interest towards electrical and hybrid solutions as well as sustainable service solutions. The fully electric machine share of equipment orders for the last 12 months was 11% and we continue to see significant potential for electric equipment. We have announced 3 orders from the quarter, including 32 straddle carriers to APM Terminals in Morocco, 6 hybrid straddle carriers to Forth Ports in the U.K. and 5 reach stackers, including a Kalmar Complete Care service agreement to SSAB Oxelosund in Sweden. We are also happy to announce some actions towards sustainable growth. As I mentioned earlier, a 5-year Move2Green R&D program, including a EUR 20 million funding from Business Finland was launched during the first quarter. This program brings together over 150 ecosystem partners, including industrial organizations, technology companies, research institutions and universities. And the goal of this collaboration is to initiate and lead large-scale research and development projects, increase R&D investments and to build solutions that enhance the efficiency in heavy material handling operations and support its transition to a low-carbon future. We also started the sale of our third-generation electric terminal tractor in North America. This terminal tractor is fully designed and built in-house at our Kalmar's Ottawa facility, and our strong North American dealer network is trained and certified to support the new terminal tractor. Additionally, we will expand our global delivery capability by starting the production of electric empty container handler and heavy forklift truck at our Shanghai facility, which is showing our ability to meet our customer expectations globally. Both our equipment and services segments performed well in the first quarter. The equipment margin is impacted by the lower sales volume and the services profitability continued developing positively. The order book has strengthened in both segments. So on my last slide here, I would like to remind you about our performance targets 2028, which we are fully committed to. So thank you all for now. And next, I will hand over to Sakari.

Thank you, Sami, and good morning to all of you also from my side. What I will be talking about is to start off, as we usually do, just to recap on our financial profile and where we are with that. Then we'll dive a little bit deeper into the reporting segments. Then we will go through the balance sheet and cash flow highlights and then finish off with our guidance for the full year 2025. The financial profile, as you remember, is presented here in LTM figures. Our financial profile has remained strong, which gives us an excellent possibility to develop the business and target growth as we move forward. Our order book is now at EUR 1.041 billion, and this is actually almost EUR 140 million higher than what it was at the low point in Q3 of last year and we are now above end of 2023 levels in terms of order book. Gross profit levels have remained strong and comparable operating profit on an LTM basis is at 12.6%. Orders received is now higher than sales on an LTM basis, thanks to the strong order intake, both in Q4 of last year as well as now the first quarter of '25. We have continued our strong cash generation and our leverage is now standing at 0.1x and our gearing is at 4%, I will come back to that. Return on capital employed is at 18.4% and we have close to 100% cash conversion over the last 12 months. Now equipment orders have actually increased by 31% compared to the same period in the previous year. This was the second consecutive quarter of strong order intake in equipment. And I could say that we saw positive growth signals in the beginning of the year across the board. Of course, then the future looks more uncertain as we move forward, but the beginning of the year was strong in terms of orders. Sales on the back of the lower order intake in '24 and the lower order book coming into the year is, of course, significantly lower in equipment than it was last year. And I think this is important to understand that the volume, of course, has an impact on the profitability of the equipment segment. However, it's still at a good level at 11.6%. I think the important thing to understand here is, whereas the commercial margin has continued stable or even increasing. Of course, there's less volume and less margin contribution to cover the fixed costs, which on at least a medium-term are as per definition, fixed. And therefore, the lower volume has an impact on the margin. But if we would look at this on a gross margin level, this would be still an increasing picture. Services has seen very positive momentum. We have continued to grow the orders. Sales are up and profitability is clearly up at 19% for the quarter supported by, on the order side, by significant contract renewals and upgrade projects, but then on the profitability with good execution. And services is, of course, providing resilience to the entire Kalmar business. On the profitability at 19%, this was supported by good commercial performance, execution and increased activity in our installed base. We have promised that we would come back to our EUR 50 million gross efficiency improvement program in connection with this Q1 report. So here we go. The execution of our driving excellence initiative is ongoing and we are and continue to plan to reach the EUR 50 million of gross efficiency improvements by the end of 2026. During the first quarter, we have progressed the implementation and we have reached a run rate of approximately EUR 9 million of annualized gross efficiency improvements so far. And the majority of these improvements are coming from our commercial and primarily sourcing activities. However, driving excellence is, of course, much broader than that. The main components of the program are commercial excellence. So this is around pricing, supply chain optimization and sourcing and then operational excellence, which is mainly consisting of process optimization and a continuous focus on competitive operational cost base improvements and faster decision-making. So quite a broad program all in all, focusing on both external factors as well as internal. As said, our return on capital employed enables strong long-term growth. 18.4% is a reported figure. However, if this would be corrected for the items affecting comparability, which were significant in 2024, the figure would be 3.6 percentage points higher at around 22%. The balance sheet is strong and we have continued to lower our leverage as well as our gearing. As said, leverage now at 0.1x EBITDA. On the financing side then, we have nothing major maturing during 2025, and you see the maturity profile of our debt financing there on the right-hand side of the picture. And gearing now is at 4%. Of course, this is before dividends were paid out in the beginning of the second quarter. Cash generation has continued strong. We generated EUR 85 million of cash flow from operations before finance items and taxes in Q1 and the cash conversion rate was 97% for the last 12 months. And this was also the 7th consecutive quarter of positive cash flow generation. Finally, as a reminder, we have our guidance for 2025. We maintain the guidance and expect that our comparable operating profit margin will be above 12% in the full year '25. Thank you.

Thank you, Sakari. And we'll get Sami back to the stage. And I know it's a very busy day today, so let's immediately start with the Q&A, and I'll hand over to the operator right now.

[Operator Instructions] The next question comes from Antti Kansanen from SEB.

It's Antti from SEB. And I will start with the demand side of things. So I mean, you mentioned strong equipment orders during the quarter. You referred to strong demand recovery early in the quarter with increased uncertainties. But could you provide a little bit more color on how have you seen the run rate trending if you look at January, February versus, let's say, March and April? Has there been already a concrete step down on the level of orders that you are taking or are you just referring to bit of uncertainty how things are progressing here?

Yes. Thanks for the question. Yes, we are referring to a higher level of uncertainties definitely. And of course, if you look a little bit back Q4, Q1, we had a strong order intake in both quarters, basically almost on the same level. But of course, going towards the end of Q1 as well as, of course, now in the beginning of Q2, of course, the uncertainty level has increased. That's the fact. And in certain parts of the world, the customers are a little bit more in the wait-and-see mode, of course, because the situation is unclear.

Yes, just trying to kind of figure out what's kind of a realistic from -- as a run rate basis. I mean, 2 very strong quarters. Is it more realism to come back to the levels that we saw a year ago or -- and also kind of is the, I don't know, uncertainty and slowness isolated to the U.S. market or is it also visible in Europe, where at the same time, you are seeing the utilization rates up quite a lot year-over-year?

Yes. I think it's too early to draw conclusions on how it will short-term behave, basically, as we mentioned in the presentation as well. But when it comes to different regions, areas, of course, the uncertainties, they are highest in the U.S. market. That's what we can see. And of course, when it comes to running hours, that was a very positive development in Q1, all over, I would say, but especially in Europe, if you look at those numbers. So I think the U.S. market is most uncertain at the moment. And that is reflecting, of course, the customer behaviors as well. And then Europe has been going very strong in Q1.

Okay. And then the second theme that I had was Q1 equipment deliveries out of the backlog. So just a question, was this as you expected or does kind of the tariff environment provide some headwinds also for deliveries? And when should we start to see equipment deliveries growing year-over-year basis now that you've had positive book-to-bill for 6 months and strong order growth?

Good question. No major headwind in Q1 when it comes to equipment deliveries. And of course, our lead time for our portfolio is between 3 and 12 months. Of course, that gives an idea of, of course, the backlog and the behavior there as well when we now have had last 2 quarters on a good level in order intake.

Yes. Maybe to add there, so I think this was expected and no -- nothing kind of surprising there. And it's coming from the fact that we had the low order intake quarters in the middle of last year. And if you consider the 3 to 12-month lead time and an average of that, then that's roughly where the timing hits then.

Okay. And then the final question for me is on the excellence initiative program and the savings. If I would try to model the improvements, where do you -- how should I kind of split the impacts between the segments that you report, services and equipment?

Well, I would say that the improvements, of course, are coming from now in the Q1, as we said, mainly from the sourcing side. So I would say that probably a little bit more weighted towards the equipment segment.

The next question comes from Panu Laitinmaki from Danske Bank.

I have a few questions. Firstly, going back to the demand discussion. I understand what you are saying that there's more uncertainty, but could you kind of quantify or be a bit more specific what does it mean? Has the U.S. market completely stopped or is it more that you see customers kind of taking more time to decide or kind of how big of a change is this compared to Q1 that you have seen in early Q2?

Yes, absolutely. So in the beginning of the year, in February or Q4 reporting, we mentioned a gradual improvement with terminal tractors in the U.S. market. So what we can say is that, okay, customers are more hesitating in that segment, in that area right now, and of course, maybe going -- slowing down the gradual improvement, I would say, going back to the mode that we were at last year, for instance. So that's what we see. It's not the complete stop of the sales even in the U.S. But of course, the customers, dealers, they are more in the wait-and-see mode. Of course, when the tariffs and the price increases that we have implemented, of course, are affecting that market.

And maybe to add there that we've been referring to the inventory levels of the distribution market and the terminal tractors. And that, as such, has more or less normalized. So from the inventory side, I think it's more or less healthy situation, but then the uncertainty is now playing into it.

And at latest, last night, I got message from the U.S. where we have a big event ongoing. And the one word that describes it at the moment, indecisiveness, that there is a need to buy equipment, but then there is kind of hesitation amongst the customers.

Okay. Then on Europe, you mentioned several times that it's strong. Kind of why it's so strong? Is it coming from the ports or is it coming from the other segments than ports? And do you see kind of some impact from the German infra plans or what have you kind of driving industrial demand in Europe?

The growth and the good business sentiment in Europe, it's coming from all segments, basically. It's not only limited to ports. We have been -- we have seen high activities in all the 4 customer segments in Europe. Germany, not very much visible yet and the new packages that they have launched, of course, they haven't come into effect yet. So Germany has been quite slow actually. But I think our strong service footprint as well has been performing well in Europe. So I think it's the mix between the equipment as well as services, and then of course, including all 4 customer segments. So we are happy with the diversity that we have, of course, with all customer segments.

Okay. And just to clarify, so do you expect the good sentiment in Europe to continue and then it's more uncertainty in the U.S. or is it also in Europe that where you have seen kind of some change?

I think the uncertainty is everywhere, basically. But of course, the highest uncertainty we can find in the U.S. market for sure. But Europe has been performing well, at least in Q1. And we will see in the next coming months, of course, what kind of business sentiment there will be in Europe. But of course, the wait-and-see mode is also seen in Europe with certain customers.

Looking at the running hours of our equipment, as last Friday, we were taking a closer look at the running hours and they're still stable. So you cannot see kind of a huge difference in those. So that's why kind of the uncertainty is the message that we are trying to prevail here.

Then the final one from me is on the tariff impact on earnings. So could you kind of remind us what is the direct impact to you as you export products to the U.S. So how do you expect to mitigate the impact? And how has it been going so far and so on?

Yes. Let's say, the majority of our revenue in U.S., it's coming from the country, basically. It's coming from the terminal tractor business, which is a big business that we have there. We have a factory in Kansas as well, delivering machines to the U.S. market. And then, of course, our services business is remarkable also in the U.S. So the majority of our business in U.S. is coming and revenue is coming from the country itself. But, of course, even for those products and solutions, there might be some indirect effects from the tariffs. But then, of course, what we are exporting and transporting to U.S. from other countries, from Poland, our factory there is, of course, counterbalanced, I mean, forklifts, reachstackers, and then we have some horizontal transportation, straddle carriers as well. But the biggest portion is produced and purchased from the country itself. Then that gives us, of course, resilience, okay, what kind of actions have we taken so far? Because, of course, we have seen the cost increase from our suppliers. So we have implemented price increases already for many of our products, and they are actioned basically as of today. And what size of price increases? We can give some kind of range between 5% and 10%. And that is valid for both equipment as well as parts.

The next question comes from Andreas Koski from BNP Paribas Exane.

Maybe I can follow on, on that last question. So do you think price increases of 5% to 10% will be enough to offset the cost increases for you related to the tariffs?

Yes. Thanks for the question. I think, at this moment where we are, I think, pretty much so. I think, they will match the cost increases as well, of course. But the market and the business is uncertain, as we can see. But we try to be as agile as possible, of course. And so, therefore, we have taken those actions already.

And then what happens next depends then on, of course, where the tariffs then go next. And then, of course, then we need to react again should a different situation arise.

And do you import a lot of components and goods from China? Or is it mainly from Europe to the U.S.?

The import part, it's mainly from Europe. As I said, the majority of the business is coming from the country itself. But then what is not produced or purchased in the U.S., of course, is coming from Poland. And when it comes to China exposure, we talk about 5% roughly. So the exposure to China is quite limited.

And then moving on to equipment. You said that the revenue level of around EUR 250 million was expected in this quarter. We have a book-to-bill of close to 1.3 for the equipment business, and the order intake has been above EUR 300 million for 2 quarters in a row now. So just remind me of the lead times here. When should we expect a decent pickup in equipment revenues? And did I understand you correctly that if we see a pickup in equipment revenue, then at the revenue level of EUR 300 million or more, that should lead to a margin about 13%.

Yes, I think that I'm not giving you a number, per se, but it means, of course, that the -- what I was trying to say there is that the low level of revenues, of course, impacts the margin because even if our commercial margin, i.e., the pricing or the margin between pricing and our sourcing is stable or even improving, if your volumes are really low, then you have less that you can cover your fixed costs with. So it will lead to a higher margin because then we have better fixed cost coverage when the volume is higher. And then on the lead times, the shortest is the terminal tractors around 3 months, and then we have the straddle carriers at 12 months. And, of course, we've had quite a lot of straddle carrier orders, especially in Q4. So that's, of course, a little bit longer before that then hits the sales. But at the same time, both in Q4 and in Q1, we had good order intake across the board.

Understood. And then can I ask on the margin guidance of about 12%? Is that based on a revenue level of EUR 1.6 billion to EUR 1.7 billion, or what kind of revenue range do you look at when you give that guidance?

Let's say, we have guided on the profitability and said 12%, which is the floor, and that is still unchanged. We haven't linked it directly to any revenue. But, of course, the market is uncertain. We are taking actions, of course, to mitigate those negative effects, but we keep our guidance as it is. And of course, it's very important that we are reacting on the price increases that we are -- or the cost increases that we are witnessing and increasing our prices swiftly. And then, of course, a high focus on services, of course, and driving excellence, as mentioned, are very crucial, of course, and then keeping the cost control as such. So that is all behind the guidance and this 12% profitability as well.

And as you're aware, we, of course, don't give guidance on our sales number. But the LTM orders figure is a pretty good indication of what we are heading towards in terms of the sales over the next coming period, so to speak. Whether it's exactly this year, I'm not going to say. But anyhow, we have a good book-to-bill ratio and that, of course, indicates that the sales will be higher at some point.

And then lastly, just on the APM order, I think it was related to a modernization of the 32 straddle carriers. So I just want to confirm that, that is reported in service and not in equipment. And if you can give an indication of how large this order was, that would be great.

Yes, it's reported in the services. It's one part of our services portfolio, and the size of the order now...

I think I need to come back to you not to say anything wrong on that part. But if it's okay, I'll confirm.

The next question comes from Mikael Doepel from Nordea.

Just coming back to the comment about the running hours you mentioned, Carina, there, checking last Friday, you said it remained stable. I mean, did you refer to April thus far compared to March or something else? And also any specific regions or globally? Just to be clear on that comment.

Well, we looked both at the regions, and then we looked kind of on the longer term what it looks like. So if you look at the year '25 compared to some other years, so it's a fairly average year, not the best one, not the worst one. So it's in between there. And looking -- we looked at the different regions, and we couldn't really -- that's why I'm saying it's stable. Not kind of a huge change, but that's why we come back to that. It's too early to draw any conclusions. But we are following that closely.

Okay. So this was not a comparison of April compared to Q1 or March or something like that?

No, no, it was on a kind of --yes, it's a comparison kind of looking on a kind of weekly basis at the running hours.

Okay. And the fact that you're saying it's too early to say what's going on, I mean, that in itself could be an indication that you haven't seen much of a change in your sales funnels or your order intake into Q2. Would that be a fair conclusion to draw from that comment?

No, I think we are 1 month down the road, basically after this big decisions in the beginning of April, basically. So it's still early days, of course. But what we have seen is the hesitation and the news from last night from the U.S., of course, indecisiveness as well. So that's what we have seen. And, of course, we have order -- let's say, the order pipeline and the discussions with our customers ongoing every day. And of course, that is affecting those. But short term, I mean, for a couple of months ahead, it's still too early to draw any further conclusions at the moment. But, of course, there is a high level of uncertainty in different parts and mostly, I would say, in the U.S. at the moment. But, of course, affecting the whole globe, as we can see from the news as well.

And in terms of Q1, I mean, the order intake was actually quite strong, I would argue, and especially on the equipment side. Would you say that there were any elements of prebuying now ahead of any potential tariff increases? Or did you see any indications of prebuying basically in the quarter?

No, we haven't seen that in Q1. But of course, we have been very active with our proactive sales and trying to offer our superior solutions to our customers in different parts of the world. And we were successful, I would say, in all 3 regions, but especially in Europe, I would say, that was really the bright spot in Q1. And I could even claim that with our efforts, white spot strategies, territory management and so forth, sales strategies, I think we have been successful in winning some market share as well.

I have asked that prebuying question, I think, 10 times during the last week that is there, and the answer from the businesses is that there is not yet any evidence of prebuying.

And then just a final question. I mean, you mentioned in your remarks and in the report as well that to grow the service business is a key strategic focus area. I'm looking at Q1, it looks fairly flattish if you adjust for currencies year-over-year on the orders. I'm just wondering what are the levers to drive growth now this year for the service business, given, as you mentioned yourself, increased uncertainties and perhaps lower throughputs and so on and so forth.

Yes. Growing service is one of our strategic pillars and definitely a high priority area. And I'm very happy with the performance that we had for services in Q1, if I overall look at the numbers there. And we need to keep in mind, of course, in Q1 and Q4 and last year as well when it comes to services that there are certain markets which have been slower like the U.S. market has been slow and Germany, which is our big market -- big country as well for us, that has been quite slow up until today. So of course, that is affecting the top line growth in services. But I think we have very good actions in place. We have very good activities in different areas. Modernization was mentioned. But really, I think what is driving the growth is coming back to our installed base, active installed base of 68,000 equipment that we have all over the world. Remember the number from 2023, that was 65,000 that time. And now we have 3,000 more. So really going to those machines, customers proactively and trying to sell our superior solutions. I think that is the key ingredient for future growth as well. And then we have different flavors. We have the e-commerce, we have the digitalization, we have safety solutions for services and, of course, with a very high focus on service agreements as well.

Yes. Strategically, I don't think short term anything changes. We drive the same initiatives. And I think maybe one thing, if you're just comparing Q1 to Q1, Q1 last year was rather strong in order intake in service, and yet we were a bit higher now. And, of course, the sales was up 6%. So quite good development there.

Okay. And the target is to grow the service business this year as well in terms of orders?

Yes. And what we have said, and we have nailed down our 2028 targets, as I showed in the presentation as well, 15% operating -- comparable operating profit and then 5% or more annual growth basically over the cycle. So that is very applicable and valid for our services as well. So definitely, this is now 2025, and we have a few years to go to 2028. So definitely, we want to be active every single year. And, of course, in these a little bit more turbulent times, uncertain times that we are living at, at the moment, of course, services, aftermarket, aftersales business is very important for us and many other companies, of course, as well. And if the running hours stay on a decent level, of course, there is always possibility to sell our solutions to those customers, even though not everybody might be buying the new equipment.

And we're particularly happy about the margin development in services, which has now been increasing quarter-over-quarter.

And if I can just squeeze in one final one, maybe to Sakari on the pricing versus cost. I mean, you mentioned price increases. You also have cost inflation. How do you think about that equation this year? Do you expect to see a net benefit? Or is it more neutral?

Well, it comes back to our driving excellence actually because a big part of that is our commercial improvements. So both on the pricing side, of course, the tariffs now play an additional role in that as well. But then if you look at the savings that we've been generating in Q1 and the run rate, that's mostly coming from our sourcing activities. So there's a lot we can do actively ourselves in our sourcing. So we're not just following the market there in terms of inflation. And so that's what I would say that with actively executing our driving excellence, that's where we have the answer.

Yes. And keeping the cost under control at the same time.

The next question comes from Tom Skogman from Carnegie.

This is Tom Skogman from Carnegie. I have a couple of questions. First of all, have you seen any cancellations? And how are you protected with advance payments and contracts in the U.S., especially?

Good question. No, we haven't seen any cancellations as such. And then when it comes to contractual terms and commercial terms, of course, we have comprehensive contracts, of course. And we have the prepayments or advanced payments clauses for different kind of equipment as well.

And actually, if you look at the cash flow, Tom, in Q1, advance payments were a big contributor to the working capital impact on cash flow being positive. So yes, that is an important factor in how we do business. We haven't seen cancellations.

But what would it mean if a customer wants to do a cancellation in Q1? If you have in your contract now that the price goes up by 10% or 20%, who knows how much it goes up at point of delivery, and you have already made the machine, and they have paid 10%, and then it comes there, what happens in practice?

Now, of course, we stay always close to our customers in good and bad times. And, definitely, there will be discussions on that kind of particular case if that happens. But case by case, it will be handled, of course. But the key is really that we have a very close collaboration with our customers. So that is helping in this type of situation.

And then the terminal tractors, how large share of the components are sourced from the U.S. that you make in the U.S. is terminal tractors?

I would say, the majority -- sourced from the U.S. is majority for diesel terminal tractor. Then okay, where some of the subcomponents might be coming from, okay, there might be different tier levels, of course, in the sourcing or supply chain process. But mostly, it's sourced from the U.S. market.

And it's the vast majority in diesel.

Yes.

And as Sami previously stated, if you look at the diesel terminal tractor, the level of kind of parts that come from -- are sourced from China is about 5% of a diesel terminal tractor in U.S.

And can you explain to me just how this pricing is done? I mean, we know your delivery times, but all suppliers have not adjusted their prices for components that are imported to the U.S., et cetera. I mean, this is like a moving target all the time. How do you guys deal with pricing to be able to sell something at all at the moment?

Yes. That's a good question and very, very valid. No, but we are very professional with our pricing activities, not only today but also yesterday. So we have very good people treating and dealing with pricing, of course, and understanding the situation, then we have the collaboration between different functions in the company as well. Really transferring this macroeconomic view to the pricing team as well, and then we will take actions and decide, of course, as we go. But it is quite dynamic, as you rightly said, and a moving target, definitely. But I think we have to nail down at some point, okay, now in the beginning of April, there were some decisions taken. So of course, that gave us, of course, I would say, a trigger to initiate some price increases, because that's the fact. But of course, if tomorrow happens something else, of course, we need to react. But we have a task force dedicated to this one, which is even enforced task force compared to a normal situation.

And maybe to expand also from pricing to kind of keeping close to the customers. And when the customers do an investment, it's usually a huge investment overall in their operations and the machines and the services is one part of it. So that's why it's really important to look at it beyond pricing also.

Just to understand, are you happy with the IT systems you have with -- there you get new kind of prices on components, including tariffs that they go straight into the sales people's knowledge somehow. Are you happy with your kind of how you deal with the new information you get day by day now when suppliers increase prices?

I can say, generally, I'm -- and we are happy with our market intelligence and how it works and how it transfers down to the frontlines as well. So overall -- but you are responsible for IT, so...

And also between the, the relation between our input costs and our pricing, I mean, there's a very clear communication there. And of course, still coming back to the driving excellence, we are also working actively even in this environment then on our sourcing and our input costs, which also plays into this in a positive way. But pricing-wise, yes, we need to be -- we need to stay active and react to the situation. That's what we're doing.

Can you provide an FX update and especially the dollar sensitivity if you exclude the hedges and, of course, understand you have [indiscernible] beyond the hedges?

Yes. I mean, of course, through the translation, there is impact. And that's actually shown in the interim report on Page 11, where you see the impact of FX on the orders and sales. And there is, of course, some impact on the operating profit as well through translation.

Are the transactional exposure beyond hedges?

Yes, there is, of course, some of that as well. And generally speaking, I would say that if the -- where the dollar weakens, then that tends to have some negative impact.

But you cannot quantify, give out any number or something?

Not really.

And then you didn't say anything about electrification. What is the strategy here when we know that batteries are usually imported from China? What happens? Do you take a break in this in the U.S. market? What about Europe?

Full focus on electrification. As you know in the past, and it's a vital part of our strategy going forward. And we saw -- we had a couple of numbers on the electrification as well as eco portfolio as such. And of course, in the fully electric machines in Q1, the share of the electric machines of the total equipment orders increased. So we were happy with that. So 11% is the last 12 months number there. So yes, full focus there. But, of course, if you look at the tariff magnitude between U.S. and China at the moment, so, of course, short term now, at least, it's affecting our, of course, electric -- fully electric machine sales in U.S. That's the fact. But we have just, as we reported, launched our fully electric terminal tractor in the U.S. So we are in the beginning of that journey. So, of course, not affecting that much yet. But when it comes to other regions, of course, full focus on delivering our superior solutions and selling them to our customers. So I think we had a good performance in Q1.

Then my final question is on potentially setting up more production in the U.S. It's quite asset-light assembly. So the CapEx maybe should probably not be any big, but then you would have underabsorption in Poland. And what about finding suppliers in the U.S. for this type of industry? I know you have U.S.-based competition. So I guess there must be suitable suppliers in this industry in the U.S.

Yes. Let's say, if you look at our global footprint, as you can see here on the picture as well, it's strong. And we are very happy to have a factory in the middle of the country in the U.S., of course, our Ottawa factory there. On top of that, we have some subassembly activities for counterbalanced, I mean, forklift and reachstackers in different parts of the country as well. So it's not only limited to our factory in Ottawa, but we have some other activities contributing, of course, to other divisions as well. So we are happy with the footprint there. But of course, constantly, if you look at the whole world here, of course, we are analyzing what is the best setup to operate. But I think our base and foundation as of today is pretty good, and we are happy with that. And then, of course, we have -- like we discussed on the suppliers in the U.S., there are several suppliers there, of course, for our terminal tractors. And, of course, the same thing there. We are constantly analyzing the opportunities in different parts of the world, but also including the U.S.

And potentially, of course, we could do more there if it makes sense.

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Thank you for a very active dialog, all the good questions, and hope to see you soon and by the latest in our half year report call that will be the 25th of July. Thank you all.

Thank you.

Thank you. Bye-bye.