Good afternoon and welcome to Alfa Laval's first quarter earnings call. Fredrik and I will give you an update on the quarter and then open for questions. As always, in the first quarter earnings call, we have to move on to our AGM directly following, so we will stick to the timetable today so that also the visiting shareholders have a chance to meet us. With that, let me then go to a couple of introductory comments first. Demand was stable in the quarter and in line with expectations across all divisions, supported by a strong quarter for transactional business and service. The execution of the order book continued well and supported a solid invoicing quarter and a positive margin development.
Last, the balance sheet is seldom in focus, but today we should recognize that we are essentially debt-free and the 24% ROCE is a healthy number indeed, if I may say so. With that, let us go to key figures. Let me first clarify the order intake numbers for the quarter. Due to big currency movements in the order book of SEK 52 billion, it was affected to an unusual degree, and the revaluation in the quarter of the order book amounted to SEK 900 million. We have always reported order intake net of revals and cancellations. Looking at the last 40 quarters, this way of recognizing orders has reflected the underlying market conditions fairly. In Q1, the NOK versus dollar movement affected the marine division specifically and therefore included the reval of the order book into the bridge now and going forward.
In all, orders were stable at -3% organically, both sequentially and compared to last year. The order book stands at SEK 52 billion, and the margin in the order book is not affected by reval. Moving to the invoicing, it increased with 10%, and with a good mix effect, the margin grew to 17.7%. On to the divisional review, starting with the energy division. Order intake was largely in line with expectations, and HVAC orders were well supported by demand in data center applications. The recovery in the heat pump business is still a quarter away or so. The pipeline of large orders was a bit slow to convert to booked orders, maybe partly due to macroeconomics. Sales and margin were operationally stable and reflected well the underlying business conditions in the quarter. On to the food and water division.
A stable quarter overall, with a very solid and continued growth in the transactional business and service. The execution of the order book progressed reasonably well, with invoicing growing 12%. The margin improved mainly due to a positive mix, and the product business had both positive and negative deviations, in all neutral to the margin. The marine division. As indicated earlier, the orders booked in Q1, excluding revals, amounted to SEK 6.4 billion approximately, just below last year and sequentially in line with guidance. This was expected to be the last quarter with elevated demand in cargo pumping, and that guidance remained. We now have a massive order book in cargo pumping covering 2025 and 2026 and partly beyond. The other marine businesses are still not fully reflecting the strong ship contracting of 2,400 vessels in 2024 in the order book at present.
Invoicing developed as expected at +16%, and the margin improvement continued, driven by both mix and volume. Service was again a strong service quarter with SEK 5.8 billion in service order intake. It was a new record with some margin. It was an unusually high share of orders, especially in the marine division. Please note that adjusted for the reval in marine, the service share would be 36%, not 42%, but it's still a very strong number. In terms of the market development in the regions, most regions performed well with limited deviations compared to last year. Northeast Asia was again affected by both the reval of the order book and also a slight decline in the marine orders. China continued to perform well, especially in the food and water division.
Southeast Asia was flat, lapping a bit on large orders, but with India and the Middle East growing well, mainly driven by high capex spending in the Gulf. Europe was stable with some variations between north and south. Latin America and Brazil continued on a good level, but compared to last year, did not fully compensate for large Petrobras order. The US was overall stable, but slowing capex decision was a negative factor in the quarter compared to what could have been. Finally, a couple of comments on Fives Cryogenics, the outstanding acquisition. For a long time at Alfa Laval, we have considered our options in cryogenics, and we are excited to welcome Fives Cryogenics to the Alfa Laval Group, pending the needed approvals. Fives Cryogenics has a strong technology platform in heat exchangers and pumps, complementary to ours. They have a strong position in the LNG business.
Alfa Laval has a complementary market position with the same customer base in LNG and, in addition, a firm position in hydrogen and carbon dioxide, important future markets for gas liquefaction. We expect revenues in the short term to be at SEK 2 billion-SEK 2.5 billion, at a margin somewhat accretive to the group. At the price of approximately EUR 800 million, the multiples are a bit more attractive than early market estimates. There are no synergies included in the forward-looking numbers. We will continue to invest in capacity and technology for further growth in Fives Cryogenics, so synergies will be exclusively related to driving volumes and benefiting from Fives Cryogenics' technology in some other areas and applications important to Alfa Laval. We will brief on the business case further once the transaction is completed, possibly around September this year.
With those comments, I hand over to Fredrik for some further details.
Thank you, Tom, for that. Let's start with a quick recap for context on order intake. Order intake in the quarter amounted to SEK 16.8 billion, a contraction of 8%, of which almost 5% is related to currency revaluation of the backlog with some SEK 0.9 billion. Most of the revaluation effect is in the marine division with SEK 800 million. Otherwise, the organic contraction of 3% is related to project order bookings, where the final investment decisions are delayed as a consequence of current market uncertainties. Transactional and service business are on a good level and, in many cases, on a continued growth trajectory. Despite the rather significant order book revaluation, the order book stands at a high level of SEK 52 billion, of which almost SEK 32 billion is for invoicing this year.
Our judgment is that the quality of the order book is high and pricing is in line with the market cost level for inputs. As of this moment, we do not see any major disruptions to supply chains that would cause delivery delays, but we continue to monitor the development closely. Revenue in the first quarter followed normal seasonality from a sequential perspective, but posted a good growth at 10%, supported by a strong order book, as we just discussed. Our manufacturing units report stable operations, and deliveries are in line with expectations, with no abnormal customer requests for delays in delivery. Revenues in the quarter contained a balanced mix of project, transactional, and service business, which, in addition to positive purchasing price variances and good manufacturing utilization levels, yielded a gross profit of 36.8% compared to 34.9% in quarter one 2024.
SMA cost increased with 6%, which is a couple of percentage points above cost increases where additional FTEs become annualized. R&D spend also increases with 8% as we continue to invest in new product development. Drop-through in the quarter is on a good level, increasing operating income with 27% and boosting EPS to SEK 4.82 per share. The adjusted EBITDA result increased with 20% to SEK 2.9 billion, which increases the adjusted EBITDA margin to 17.7%, which is better year on year and sequentially. For the last five years, we have been on a growth journey, and it is worth noting that despite some variations on margin levels, we are now back to a high margin level with an almost doubled adjusted EBITDA result if we compare between quarter one 2021 and quarter one 2025.
Cash flow from operating activities is burdened by advance payments to suppliers, prepaid expenses, and annual invoices, as is usually the case in quarter one. It is also burdened by paid assessed taxes in Sweden that, over time, will be compensated by other tax jurisdictions. Capital expenditure of SEK 634 million reduces cash contribution to a free cash flow before acquisitions of SEK 771 million. Financing activities has a negative swing in relation to quarter one of 2024, primarily related to positive revaluations in that quarter, while interest, debt cost, and lease amortization remained on approximately the same level, bringing the final cash flow for the quarter to SEK 457 million. The SEK 457 million in cash flow contribution has increased our cash balance to SEK 8 billion, which in net debt yields a net debt in comparison to the last 12 months' EBITDA of only 0.13.
The current balance, combined with our BBB plus rating, puts us in a good position for our capital structure post the Fives Cryogenics acquisition and the upcoming dividend payment. Finally, some guidance in relation to quarter two and the whole year 2025. Estimated CapEx for Q2 is somewhat higher than Q1 at SEK 0.8 billion. Whole year guidance remains on the same level as previously indicated. Currency impact, given current FX levels, points towards a positive currency contribution of SEK 50 million in quarter two and SEK 200 million in the whole year. PPA for amortization does not include the Fives Cryogenics acquisition, as the PPA will only be prepared after closing. Tax rate guidance remains in the span of 24-26%, and there is a recommended dividend of SEK 8.5 per share to be approved by the AGM later today.
Finally, we can also communicate that, given the uncertainty that prevails, we have started an internal initiative to control costs as a preemptive action. It will not affect product development projects and should not be understood as a cost-saving project, rather a cost prudence initiative addressing discretionary costs. With that, back over to Tom.
Thanks, Fredrik. A couple of forward-looking comments. Let me, for simplicity, just start with the divisional outlooks. Regarding the energy division, we believe that demand will be somewhat stronger in the second quarter compared to the first quarter. For the food and water division, we expect demand to be on about the same level as in Q1. For the marine division, we expect demand to remain on approximately the same level as it was in Q1, that is, including the reval effect, so the posted number. For the marine division, it is important to remember that all parts of the portfolio, excluding the cargo pumping, are expected to continue to grow, while, as we have guided you earlier, the demand in the cargo pumping after exceptional quarters is coming down to a lower level for a number of quarters ahead.
I think we are ready for questions.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone. In the interest of time, please limit yourself to one question. Anyone who has a question may press star and one at this time. The first question is from Daniela Costa, Goldman Sachs. Please go ahead.
Hi, good afternoon. Thank you. I will focus on a question on margins, actually. You had very strong margins in marine. The orders are coming down, including what you flag in pumping systems, particularly, which I believe you have said in the past is accretive. Can you talk through the margin sustainability going forward, and how do you see this balance between that and sort of maybe orders slowing down in coming quarters?
Yeah, thank you. I'm not going to give guidance comments as to where margin is going to go, but reflecting on where we are, it is true that the cargo pumping is accretive to the marine margin. That had some effect. We have also, as you know, worked with profit improvement programs, specifically in the boiler segment, where we had a nice improvement coming through in the quarter. On top of that, we've for some time seen a strong service business developing in parallel to the capital sales. All of that makes us very comfortable with where we are and both the current order book and the pace of short-cycle businesses in marine. To some degree, that holds true also in food and water when it comes to service, when it comes to short-cycle. We were ending the quarter on a good note.
Thank you. The next question from Klas Bergelind, Citi. Please go ahead.
Yes, hi. Tom and Fredrik, Klaas and CP. You highlighted, Tom, slow decision-making there in energy and food and water on the larger side. If we zoom in on marine, the other half of the business outside cargo pumping, have you started to see any sort of hesitation thinking about, obviously, this is a business that should benefit here from the early contracting, of course. Given the global trade backdrop potentially changing, I wonder if conversations had started to change a bit ex-TROM as well? That was my first one.
No, I think it's difficult to jump to a conclusion on that. I think what has been true for some time is that the contracting was unusually strong in 2024. The forecasted numbers were exceeded towards the end of the year. It is no surprise that the first quarter, in terms of contracting, is starting on a somewhat slower level. I don't see any meaningful impact on the current marine activities in terms of the business from the current trade disputes.
Yeah, it's probably too early. My second one is on Fives Cryogenics. It seems like a very nice fit. Can I just ask you on the longer-term growth prospect? It seems like you imply in the near term, high single-digit CAGR, which is not too different compared to the energy division. If you think about a bit longer term, is this kind of sort of a 10% growth business if we look further out, if we want to sort of look at the prospects? Also, it's a decent deal, but you have a very strong, obviously, a very strong balance sheet, a lot of firepower to do more deals. If you could sort of help us a little bit with the remaining white spots and how you think about the balance sheet at the moment. Thank you very much.
Yeah, the Fives, as I indicated, has two exposures going forward. One is on the LNG side. Compared to when these discussions and dialogue started, the LNG market has, for several reasons, strengthened now and going forward in the next five years compared to where we were a couple of years ago. The LNG application will remain important. At the same time, the carbon capture application, the hydrogen application, is developing a bit slower than expected. That is obviously, in our world, a very significant growth opportunity for us going forward, where cryogenics is absolutely crucial. What the growth rates will be, I think, will largely depend on what you believe on the transition and the climate policies going forward. We still hold to the transition leader strategy. We believe that things are going a bit slower than we hoped.
Over time, that's where we're going to go. It will be a fantastic story for us if the world develops the way we want to. If it doesn't develop the way we want to, it's going to be an okay investment. I think that's how it's an okay investment with an optionality that is super important. I would add to that that the part of the technologies that Fives is using is very advanced and is very interesting for us in some other heat exchange applications as well. We're actually gaining access to a know-how and a technology that is a bit more useful for us. We are very excited about this. I dare to say that also at Fives, the team is quite excited to join us.
Good to hear.
White spaces, there are many, but it's very difficult for us to speculate in terms of our next coming acquisitions. Let me just say that probably in the region of SEK 10 billion-SEK 20 billion is still sort of available should we have the right opportunities going forward. We are continuously scouting. There is a pipeline. Yeah, this may not be the end of the story this year.
Thanks, Tom.
The next question from John Kim, Deutsche Bank. Please go ahead.
Hi, good afternoon. I'm wondering if we could just spend a little bit of time on the energy division. HVAC, it'd be helpful to get a bit of color on what you're seeing on commercial versus residential. I know that the change in refrigerants has prompted an opportunity to upsell or resell into the base. Just wondering what traction looks like on that. Given current outlook, when do you see an HVAC trough, I suppose, or a turn?
Yeah, I think we've passed the trough on HVAC. I don't have a real good split between residential and commercial for you. I don't know if you have a better update, Fredrik.
No. In the current levels, it's probably 60% in favor of commercial and 40% in residential.
You initiated the new refrigerants projects way back then. Maybe you want to comment on that.
Yeah. No, it's nice to see now finally that the natural refrigerants are starting to take a real position in the market, both when it comes to process chillers, but also heat pumps, where it's two different refrigerants. One is, of course, carbon dioxide, and the other one being propane. It will higher the efficiency. It will enable the substitution of all hung boilers. I think that's an important part of it because the temperature program that you're able to reach with propane is much higher. Of course, the environmental footprint of both the new refrigerants is much lower. It is also to the advantage of our product, which then has a lot of features that are enabled by the two new refrigerants. Of course, it serves also as an entry barrier. I think it's an exciting prospect ahead.
It really allows for the substitution of fossil heating.
Yeah. Should we think of it more as a growth factor or margin improvement?
Sorry?
Should we think of it more as a growth factor or margin improvement?
Our growth sector is where I would place it. I don't know, Tom, if you see a different way.
I think you have to have the R&D muscles to be able to follow this. I think we are the technology leaders in this area. The more difficult it gets, the more it is to our advantage when it comes to market position. I think it puts us in a good space. We are ready with the product program. I'm actually showing it at AGM today, so I wish you were there. It is in a good place. I just wanted to add on the HVAC side that we think we passed the trough. We are a bit cautious where we go on HVAC in Q2, but certainly on the second half of this year, we expect to have better traction, especially on the heat pump side, where we're going back to some sort of normality after a long period of very, very weak demand.
It remains an upside for us going forward.
Thank you.
The next question from Vlad Sergeevsky, Barclays. Please go ahead.
Yes, gentlemen. Good afternoon. Thanks very much. If I can ask on marine profitability, please. Do you think there is more upside versus Q1 level from the mix or operating leverage as you move through 2025 into 2026? Are there any meaningful parts of marine business which are underperforming compared to your own internal expectations and could catch up, supporting the overall mix?
I think on your second point, I would say, no, we are pretty much where we want to be. There are always a little bit of this. If the piano was playing everything clear, I would love to see that day. There is always going to be a little bit of slips and things. I think for us, the quarter in marine was quite clean. I do not think there are improvements. We did restructuring activities in the end of 2022. We are still restructuring and working on an improvement program for the boiler business. We are not completed there. That completion will take this full year, so into 2026. We know we will be a bit better. Where the market prices and competition will be, we do not know. I have to say it was an okay quarter for us.
In terms of the mix, I do not see that changing dramatically in the quarter to come. We are on a good level with the order books and sort of invoicing accordingly. I think in my book, this was a fair reflection of our operational performance in marine in the quarter.
Thank you very much. If I can ask about energy as well, how do you see demand, which is related to oil and gas segment, given the recent direction of commodity prices? Also, would you be able to give us some more clarity on what was or how big was this inventory evaluation effect on the margin last quarter?
There was no inventory revalue effect last quarter. Last year, I think it maybe which was elevated. Let's go back. We expressed during a couple of quarters the fact that we were working with an elevated margin in the energy division. That was partly supported by revalue effects on the inventory. I think the difference Q1 last year and now is about a percentage point. I'm looking at Fredrik. About a percentage point. Around half the difference. This level here, we think, is, as we expressed, a good reflection of the operational performance of the unit, bearing in mind that we are still not fully loaded back on the heat exchanger side for brazed heat exchangers on heat pumps. That's kind of where it is. In terms of the fossil side, it's okay. It wasn't a super strong quarter for fossil.
We believe we are mainly driven by the gas application. We do not see an immediate change on those announced projects and where they are going. For us, it is too early to call the investment cycle over. There are a number of products in the pipeline here. I think for the short term, it will not change dramatically for us.
Excellent. Thank you very much.
The next question from Andreas Koski, BNP Paribas Exane. Please go ahead.
Thank you. Good afternoon. A couple of questions. First, it looks like you have changed the phasing of the backlog deliveries a bit. Is that based on customers postponing deliveries, or is it just based on your internal judgment of when the backlog will be delivered?
We're continually looking at our backlog. Of course, that's in tight dialogue with our customers. Sometimes it is about fitting our manufacturing windows, and sometimes it's about fitting their ability to receive the projects or the components. It is a bit of both. We continually assess the facing of the backlog. When it's large projects and it falls on the wrong side of the year, it results in a complete movement in backlog. We will continually do so. I don't recall there being particularly large movements. I think what you see is more pronounced invoicing in the quarter that causes a movement in how the backlog is faced.
Okay. Can you explain why the backlog did not move in size despite a significantly stronger CEAC? I guess the backlog is based on the currency rates at the end of Q1.
Yeah. Without getting too technical about the question, the big movements in the backlog or the revaluation of the backlog happen when we book in a currency that is not the same as the reporting currency. I'll use the example of Framo since it's the most apparent one here. Most of those orders, or the majority of those orders, are booked in US dollars. The Framo entity reports in NOK. That causes a revaluation. It's a revaluation we do every single month. It's nothing particular to a quarter. It's something we do every month. In fact, if we had done the revaluation a few days later, it would have had a completely different outcome. That's beside the point. The point is we have always chosen to have a backlog that reflects the invoicing value of that backlog.
When I say backlog, of course, I mean the order book and not delayed orders in any shape, way, or form. It is the movement that you see then from 52 to 52, despite the movement of the order intake, that is the difference. That is the revaluation in this quarter.
Okay. Lastly, on the outlook, you had orders of SEK 16.8 billion, including the revaluation effects. My understanding is that is included in the outlook for the second quarter. Is that outlook also based on, say, current currency rates? The Swedish krona is so much stronger now.
The answer is yes. We do not speculate in the currency. The order book stands where it is until we revalue it. It is correct to understand that I would make the bridge for you this way. If last quarter we came down SEK 900 million because of currency, this quarter we see that corresponding decline on the cargo pumping side. We are back to approximately the same level as we were in Q1, assuming that the currency is not moving one way or another. It could go both ways, obviously.
Sure. Absolutely. Thank you very much, both of you. Thanks.
The next question from Sven Weier, UBS. Please go ahead.
Yeah, good afternoon. My question was also exactly around that point because I was also wondering if the starting point for the group guide is the 17.7 rather than the 16.8. I think you just said the 16.
You basically said the starting point is SEK 16.8 billion.
It is.
I might still not understand.
Yes.
Okay. Thank you.
The next question from Fredrik.
I think at this point in time, if I just may, we looked at the difference between revals over the last 40 quarters. There have been very few quarters with any meaningful numbers. Although we are going forward, including that in the bridge, we do not expect that, generally speaking, it will be a difficult factor to take into account for. All we know, it will remain pretty stable. Anyhow, for clarity's sake.
The next question from Sebastian Kuenne, RBC Capital. Please go ahead.
For taking my questions. The first one is on the energy side. You spoke of very strong demand from data centers. Could you maybe give us a bit more detail on whether this is liquid cooling or conventional air cooling with the gasketed heat exchangers? What portion of the energy business that is currently on order intake? That would be my first question.
I think currently, and take into account that these numbers can move quite rapidly. If I would take sort of a running 12-month rate, we are somewhere around SEK 2 billion, SEK 2 billion plus in order intake. I'm not sure what the exact split we have, but probably a bit less than half of that is gasketed applications and the rest is. We are moving, the mix for us has been moving clearly into liquid.
Excellent. Second question is again on the currency. This revaluation of the order book also means you then book lower revenues for existing contracts. You give some indication on the FX translation transaction effect. I think this is not related to the existing contracts. It is just transaction. I guess you have some hedging for the existing contracts in place that go below the EBIT line. Could you shed some indication of whether we will see some tailwinds from this hedging of the contracts that you had to write down or revalue? Thank you.
Yeah. No, and you're absolutely right. I mean, the revaluation of the order book is related to currency and affects the invoicing value to the extent that it reflects the same value as we have in the order book. However, when we enter each one of these contracts, of course, we do put a hedging contract in place as well. That is, of course, to protect us against these currency movements. From a generation of profit, the order should be protected, assuming we keep the same timeline as the contract is based on. The answer to the question is, if we have done everything right and the timing clicks as it should, it should be profit neutral from the expectation or from the level that we took the initial contract on.
Yeah. Profit neutral, therefore margin accretive for at least for the time that you bring those contracts through the P&L.
Sure. If you assume that the current FX level stays exactly where it is, then your assumption is correct. I would not make that assumption.
Yeah. Thank you very much.
The next question from Max Yates, Morgan Stanley. Please go ahead.
Thank you. Good afternoon. I just wanted to ask around tariffs. I imagine you, sort of like everyone else, have been doing quite a lot of work internally to try and better understand how it may affect your business. I guess the first part is, is there any kind of direct impact that you've uncovered as this has been rolled out? I guess the other question in the US, I'm just wondering, given your market leaders, you have a kind of good view of the market. How much of the market comes from China, i.e., nothing to do with your business?
Is there an argument that you may have a competitive advantage in the US if you produce locally because some of the sort of lower end of the market gets knocked out because competitors can no longer export from China? Just thinking through some of the indirect impacts as well. Thank you.
Thanks. Good question. If you take a brief answer on tariffs, the answer would be it does not have any meaningful impact the way we can see it in the quarters to come. We are either covered in contracts or have implemented price increases accordingly. We do not feel that is much of a topic for us. In terms of our imports into the US, they are to the degree they exist mainly related to Europe. It is almost a non-existing part that goes from China. That is related to the fact that there were tariffs on China already before. We had redone our product flows several years ago. It is not too much of an issue for us. The question is more, where is the macroeconomics going as a result of it? That ties on to your second question. It is a good question.
I cannot give you a super clear answer. It is clear that there are, among other things, in the spare parts market, pirate copies from China coming into the US on the heat exchanger side specifically. I hesitate to say that it is to our advantage. It is a disruption for customers and everybody. I do not think we are disadvantaged versus the market when it comes to our presence in the US or how tariffs will affect us or the dependency on China. I think we are possibly somewhat positive in that scenario. I do not want to make too much of a statement around it.
Okay. Just really quick follow-up. On your energy guidance of demand up, I completely understand it's almost impossible to guide in this kind of environment. I just want to understand kind of what it is that you're seeing in your business that is making you, presumably it's related to one of the subsegments. Is it because you're a bit more optimistic on HVAC? Is it something else that you're seeing? Is it because of timing of some orders and some may be slipped into this quarter? Just to understand kind of the thought process behind that. Completely appreciating it's hard to guide in this environment.
I think the short-cycle business is running in an okay pace. We don't see big changes on that up until the end of the quarter. We don't feel it's prudent to change our outlook in the quarter when there is not a clear signal on it. The project pipeline is always subject to some sort of probability calculation. Of course, the probability is difficult to set specifically. If we look at the pipeline per se and the projects in the pipeline per se, that project pipeline is not weaker than it was before. There are some opportunities in that. There are some things we would like to see differently. All in all, when we look at those numbers, this is, to the best of our knowledge, the most probable outcome that we have.
We are clearly aware that should market go more negative, it could affect some of those decisions. I think our line of sight is pretty much as good as it was last quarter, last year. I am not exceptionally worried about the outlook. It is our best representation of what we see.
Understood. Thank you very much.
The next question from Karl Dalienberg, Carnegie. Please go ahead.
Thank you very much. Two questions from my side relating to the energy division. I wanted to come back a little bit on the margin development here year on year. If you could just remind us the magnitude of the effect of the underutilization you're facing on the brazed side and also the magnitude of the revaluation effect that you're mentioning here in Q1. Is that roughly half-half of the 200 basis points contraction? Or, yeah, in a sense, that would be helpful just to understand what that could look like in H2 if we got a little bit better volumes in the back.
Yeah. Let's put it this way. I think when we look at the utilization levels for the brazed heat exchangers to address that question directly, we have a real good tailwind when it comes to the data centers and the heat exchangers for liquid cooling. That means that a lot of what would have been an undercapacity driven by the lower heat pump volumes is to an important degree mitigated. Of course, that is something that we have said from the beginning that if it was not going to be the very quick ramp-up of the heat pump volumes, we saw that the conversion to liquid cooling was going to come on the horizon. Are we being able to utilize everything to the optimal levels? The answer is no.
On the other hand, it's on a good level that doesn't necessarily have too big of an impact on the result or the margin of the energy division. Then to your question of the revaluation, I think Tom already to a very large extent answered it. It's not so much that there isn't an absence of revaluation. It's the gap between one being there and not being a large revaluation at all this quarter. It's more the delta between them than it is the substantive value of it.
Yeah. Yeah. Fair enough. Then just briefly also coming back to the data center side, I mean, I just wanted to hear your own thoughts also. Given that there's been coming out a couple of, let's say, mixed signals out of the US in the last couple of months, I guess we've been seeing quite a few suppliers, OEM, reporting quite good numbers here in Q1 while some hyperscalers are postponing or canceling some leases. I appreciate that you cater a much wider offering than just capacity expansion. Have you sensed any change in discussions for demand patterns in that side of the business here in one Q?
I don't think so. I think as we discussed here previously, we've been relatively speaking late in the cycle. We feel we are still in an early phase when it comes to the contracting. Our line of sight for the next quarter is quite good. We don't see any changes of that. I think we are very much in the operational mode and to some degree a growth mode still.
Okay. Very well. Thank you.
We have the next question from Huma Thamling, Bank of America. Please go ahead.
Hi. Good afternoon, everyone. Thank you so much for taking my question. I just have a follow-up on tariffs. From memory, you do supply, for example, the heat exchangers from your Italian factory to the US. How does that work with the tariffs for the things that you're supplying from Europe and also for your existing contract in the US? How does it work? Does it mean that your customers will just have to show the entire burden of the tariffs and pay an increased cost? That also applies to spare parts, for example. Thank you.
I can take the first part of it. Then Tom can take the second part. I mean, our supply to the US from Europe when it comes particularly to brazed heat exchangers, but the same thing applies actually to gasketed heat exchangers, is that we are shipping over components or subcomponents. The final assembly and the final value added is actually done in the US. A substantial part of the value of our product that is sold to the customer in the US is actually created in the US. It's only the subassemblies or the plates and in some cases gaskets and bolts that come out of Europe. From that point of view, the exposure that we have on the tariffs is on what is the important value of those components and not on the total value of the product. Yeah.
It means that we are generally speaking in the 10% tariff aspects. If we recalculate prices depending on the amount of value added locally in the US, the amount of value that we have to recalculate is relatively small. It is a fraction of our $1 billion in turnover in the US. That fraction needs to be multiplied with somewhere between 1.05 and 1.1 depending on product groups and the value added. The pricing effect is there for customers. Nobody likes it. That's where it is. We've taken the policy decision that we calculate the tariff costs without margin. That part of the price increase that we put on is reflecting purely the cost of covering the tariffs. We think that is the right way to deal with our customers. We're not going to make money on tariffs.
We do not feel that is a fair way to price our product. You could say that to a very limited degree, if these tariffs remain in place at the current level, there will down the road be a very marginal margin effect on the US. Given that it is only a part of our products and a part of our turnover, I think it will not be noticeable in the group accounts.
Thank you very much. That's super helpful. That was the last question. I would like to turn the conference back over to you, gentlemen, for any closing remarks. Thank you.
Thank you very much. Some of you maybe we will see at the AGM in a little while. We are going to display some of the fantastic new products in launching phase, including some from Fredrik's old unit. We are looking forward to that. Thank you very much. We speak to you in a quarter at the latest. Thanks.
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