Wärtsilä Oyj Abp (WRT1V) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to this news conference regarding Wärtsilä's half year report January-June 2021. My name is Hanna-Maria Heikkinen, and I'm in charge of investor relations. Today, our CEO, Håkan Agnevall, will go through the highlights and business performance of our Q2 report. And then our CFO, Arjen Berends, will go through the key financials. After the presentation, there is a possibility to ask questions. [Operator Instructions] It's time to start. Please, Håkan.

Thank you, Hanna-Maria, and welcome to Wärtsilä, by the way. It's great to have you on the team.

Thank you. I'm excited to be here.

Good. So welcome, everybody, to yet another virtual quarterly call, but let's do the best out of this. And today, I will be joined by Arjen, our CFO. And we developed a format here going forward. So quickly, what are the highlights? In general I think we have a strong cash flow in the second quarter, but we still have a business that is hampered by COVID-19. Positive side, order intake is up 14%. One should remember that Q2 last year started to get really affected by COVID, but still order intake is up with 14%. And the services journey continues in a strong way, I would say. Order intake is up with 24%. Also on the services side, the net sales increased with 16%. On profitability. Profitability actually improved, while sales came down, lower net sales. The stronger cash flow was driven by the flow from the operating activities. And COVID continues to seriously impact our business. The business is stabilizing, but COVID creates still an environment of uncertainty. And I would like to take the opportunity to thank all of the employees that tirelessly continues to support our customers in COVID times, because it's challenging to work under the travel restrictions, continue to work from home or in the factory, in the offices. So a tribute to our employees in these special times. Okay, overall view of the numbers: order intake up 14% overall, services up 24%. You could see net sales is down 7%, but services sales is up 16%. The comparable operating result, it's up 30%, and that brings us to 6.3% margin on net sales. You could also see that, the comparable operating results for the full half year, that is up 1% only, but you still remember the EUR 20 million net provisions that we took for our challenging projects in Q1. So key message, 6.3% in the second quarter. Now if we look at the net sales of EUR 1.1 billion, minus 7% primarily due to lower equipment deliveries. Service net sales increased by 16% on the back of a weak comparison period. As I said, Q2 last year was definitely weaker. The comparable operating results landed at EUR 71 million, which is 30% -- an improvement of 30% despite the lower net sales. And it's driven by a more favorable sales mix between equipment and services. If we talk about the markets. The marine market is recovering, but it's an uneven progress across the segments. And vessel contracting in cruise and ferry continues to be slow. So if we look at the number of contracted vessels in the review period, it's actually pretty good. It's 829, a significant uptick from same period last year which was at 312, but it's major driven by the cargo sector which has continuously improved from the lows that we saw in 2020, whereas cruise and ferry remains slow. On the positive side, the transition into alternative fuel is increasingly getting traction. And we have seen 170 orders for alternative fuel-capable units during the first half year. If we look on the Energy side. It is expected that the recovery from COVID will take time in the energy markets, but the good activity level in the energy storage market continues. COVID-19 has an impact on the investment environment, specifically in some of our core emerging markets, which is affecting both decisions on new projects but also project execution. It's likely that the recovery will take time because COVID had such an impact. The vaccination programs in many emerging markets are going a bit slower, unfortunately, but on the positive side we have the energy storage markets which is more concentrated to U.S., Australia and a couple of other markets. It's continues in a good level. If we look at the overall -- Wärtsilä's overall market share in the thermal space, it decreased a notch to 8% from previous 9%. Looking at the order intake, as I said, increased by 14%. It increased across all businesses, equipment order intake up 4%, while service really grew in a significant way by 24%. And that reflects the improved economic activity in general. And we see a broad increase in many of the segments on the services side. If we look at the order book, there is a slight decrease related to divestments in our entertainment business, but the book-to-bill is improving. And you see here that, if you look on the 12-month rolling, this -- we are now back to book-to-bill above 1. And the last time we were there was end of 2019, so going in the right direction. Net sales, however, decreased by 7%. And on the equipment side, the net sales decreased by 24%, and that's mainly driven by 2 factors. One is less scrubber deliveries. I mean on the retrofit programs for the container side the rates are very high right now and container vessels are not being brought in to be retrofitted. That leads to fewer scrubber deliveries. And then on the Energy side, we have delays in deliveries, major impacted by COVID. Then the service net sales increased by 16%. Technology and partnerships. This is a very important way forward for us, thinking beyond COVID, so to say, and also supporting our strategy around decarbonization going forward. And this quarter, we were extremely excited to announce our start of the test program for some of the new green fuels. And we're now starting a test program to have a technical concept ready for hydrogen, 100% hydrogen, engines in 2025; and in a similar way, a test program in parallel for having 100% ammonia engines by 2023. And this is an exciting journey we are on now. And it keys -- really plays into our sustainability strategy with the green fuels both on the Marine and the Energy side. In Voyage, we continue our digital journey and also autonomous journey. And this is an exciting example from Rotterdam, where we are now engaging in demonstrating the viability of autonomous intraport interterminal container shuttle in the hub of Rotterdam. And we are providing sensor systems. We are providing the route control, and we are providing the electrical driveline and batteries as well. On the Power-to-X and power to gas in this case, the journey also continues, where we are now developing a cooperation with Vantaa Energy on -- in Vaasa on producing carbon-neutral synthetic methane. And that is also an interesting fuel going forward in the sustainability journey. Now going in, taking a bit closer look on the different businesses. So we will start with Marine Power. Order intake in Marine Power -- I mean, in general, Marine Power increased in all figures in a good way. Service orders increased by 30%. So general order intake up 18%, net sales up 11%. You can see the comparable operating results at 9.1% rolling 12. And you see the key drivers here. I mean sales volumes, on the positive side, is up; equipment and service mix; but also cost efficiency actions. And they clearly balance the counterweight of a factory load situation which is not optimal and also the cost inflation. On Marine Power service agreements. The net sales of installations under agreement, it stabilized after a COVID-19-related decline, which is positive. And we have one great example from one of our key customers at Åland, Eckerö Rederi. They renewed once again the 5-year service agreement. I think this is a great example of how we can contribute in Wärtsilä to our customers' uptime reliability and really develop a strong partnership that creates win-win for our customers. Marine Systems had a very strong order intake, mostly driven by Gas Solutions and the high level of activity on LNG tankers. And service order intake also increased by 34%. So order intake up 54%; net sales down, however, 37%. Scrubbers deliveries, we already talked about that. The comparable operating result, 9.3% 12-month rolling. The equipment and service mix is contributing on the positive side, and -- but the declining scrubber volumes and cost inflation has a negative impact. Voyage, higher net sales. Service order intake increased by 61% and order intake is up 9%. Net sales is up 21%. Rolling 12 is negative. Voyage is still negative but going in the right direction in terms of a less-negative result compared to last year. And it's really the sales volumes that is driving the positive journey, but we -- also in Voyage we are counteracting -- have to counteract cost inflation. Our journey in cloud solutions continue and it's a steep ramp-up. Vessels connected increased by 78%. Then we also continue to develop our route optimization and port optimization. And we are really proud about this Tanger Med example, where we had or together with our partners the world's first digital port call. And it was the container Kobe Express docked in Tanger Med in Morocco using the -- our Navi-Port system. And Navi-Port is a digital platform that facilitates the exchange of real-time data between ships and their destination to allow for accurate arrival time and also avoiding the costly waiting time. So it's -- basically it's about saving fuels, and the preliminary results were very interesting. And we will come back on that going forward. It's about reducing fuels. It's about reducing emissions. Then Energy. Order intake and profitability improved. Service orders increased with 22%. Order intake up 11%, net sales down 9%. We talked about that, deliveries and certain projects affected by COVID. The rolling 12 at 6.5% operating result. And what is driving the improvement is really the mix of equipment and services; and then counteracting lower sales volumes, not-an-optimal factory load situation and also here cost inflation. This is a great example, our latest thermal balancing order from Omaha. And basically we are providing a 156-megawatt thermal balancing station. And by that, we enable Omaha to add up to 600 megawatts of renewable energy. And I think this is a really interesting proof point of the thermal balancing opportunities as an enabler for the shift to 100% renewable power. We also had the going into execution phase of Metaenergia. It was an order we have recognized before, also there providing balancing functionality to Terna and the Italian market and enable the growth of renewables in the Italian system. If we look at the service agreements. Then the installed base that is covered by long-term service agreement has been stable during 2021. And I mean one great example, this time from Nigeria, is where we have optimized the maintenance agreements and signed new agreements. It will be covered by a 5-year agreement to produce 132 megawatts. And we are there, in the agreement, to ensure uptime reliability, peace of mind for the customer. Now let's go a little bit deeper on the financial side. And to do that, I would like to invite our CFO. Arjen Berends, please join us.

Thank you, Håkan. And also welcome to everybody on my behalf. A few words about, let's say, other key financials besides all the numbers that have been shown already. First of all, cash flow. I will say it was a fantastic cash flow now in Q2 again, not as high as last year, in the same quarter that was a pretty much record quarter, Q2, I would say, but very close to that; year-to-date, EUR 312 million. As far as we could trace back, that's a record. Big contributor is the working capital, of course, as you can see also from these numbers. Good cash flow enabled us to also, let's say, reduce our net debt. We were able in Q2 to decrease interest-bearing debt with about EUR 200 million; and at the same time, increase our cash with, what was it, close to EUR 190 million. And of course, this supports very well, let's say the net debt being lower, that the gearing is also improving. Also good development on the solvency compared to last year. And basic earnings per share quite much better in Q2; and year-to-date, [ let's say ], better than 1 year ago. Cash flow in the second quarter. As you can see from the right-hand graph, main contributor is working capital; and in particular, receivables that we saw also. Let's say, last year, in Q2, we had a, what was it, EUR 190 million, if I remember right, working capital contribution to the cash flow. This time, it's EUR 173 million, all these areas being in trade receivables, being in inventories, being in trade payables. Let's say we have a very, very high focus on, let's say, working capital and trying to decrease it all the time, with a lot of initiatives ongoing. If I give the word back to you, Håkan, on the final slides.

So finally, on the guidance and prospects for the future. So we expect the demand environment in the third quarter to be better than of the corresponding period previous year. However, the prevailing market conditions make outlooks in general uncertain. So with that prospect, I suggest, Arjen, that we move into Q&A, but before that, we'd just like to remind everybody that we will have the market capitals days -- Capital Markets Day. It's coming here on the 18th November, and we really would like to invite you all to that and looking forward [ to that day ].

Absolutely, absolutely.

Okay, let's move then into Q&A.

First question on the line, Yuxin Lin from JPMorgan.

Can you hear me?

Yes, we can.

My question is around a regulation proposed by EU regarding the decarbonization of marine industry last week. Can you please elaborate on what this means for Wärtsilä in general and how the proposal compares to what you have hoped before? There seems to be some general disappointment about the slow phasing in emission limits. Specifically, what does it mean for the current 4-stroke [ dual-fuel ] engine technology given focus of reducing total [indiscernible] emissions, which could put your current 4-stroke engines above the limit due to the methane slip?

I mean, first of all, I would say that, if I summarize the Wärtsilä strategy in one word, it's about decarbonization. And it's about our journey into different type of green fuels. And the EU regulatory context, I think, will support that journey. Then we should acknowledge that the industries take time to move. I mean we also have the latest IMO regulations kicking in, in 2023. So I mean I see the EU steps as positive and we are very well aligned. And I think from our side we would like to go even faster, but we also acknowledge that there is a certain dynamics in the industry. These are major assets and they operate for a very long time.

Next question on the line, Max Yates from Crédit Suisse.

Can you hear me?

Yes.

Yes. My first question was just on cost inflation. It's obviously something you mentioned in the report. I just wondered. Could you give us a feel for how much you think that impacted the quarter? And specifically, is this raw materials? Is this labor? And have you tried to or are you in the process of raising prices to try and pass that through to customers?

Okay. So if we look on the incoming side, and then I will talk on the outgoing side, on the pricing side. So on the incoming side, I mean, in what we see, it's raw material related. I mean we have long-term contracts with some of our suppliers, so there we lock in, but we certainly also -- we are impacted by the raw material increases, for sure. On the pricing side, it's a little bit similar there. We have ongoing deliveries there. The pricing is fixed. In future tenders, there will be opportunities to work with the pricing element, but still we need to acknowledge it's a very competitive market. However, also moving into the new technology, I think there should be some opportunities to work with price realization.

If I may add a few comments to that. Let's say we are also facing definitely, let's say, price increases on the logistics sides, both inbound and outbound, let's say. Transportation is getting much more expensive than it has been before. And furthermore, let's say, we also face cost inflation in the use of people, let's say, getting to people around the globe, let's say, with all the quarantine requirements. It's a very inefficient use of people, and that has been mentioned many times in the past as well. And let's say, as long as COVID is around, I think this will continue to affect us. We try to do as optimum as possible to make sure that, let's say, we use the people as efficient as possible; also more and more making possibility, let's say, from remote services, et cetera, but for certain jobs, you need people on the ground and that's not easy today.

Okay. And maybe just my follow-up question is on energy storage. Could you give us an idea of your marine backlog -- sorry, your energy backlog? How much energy storage currently makes up, ideally in a sort of euro value number? And then also given this is going to be a much bigger part of 2022 revenues, how should we think about profitability for the Energy division as this business evolves? Will it look sort of different, either better, worse? Or how should we sort of prepare and think about this for next year?

So still we are not separating out the storage business, so we don't give guidance there. As you've seen, I mean, order intake for Q2, 500 megawatt hours; and there is still a continuous trend. I think, if you look on the lifetime margin on the battery storage business, it is lower than on the thermal side, but we are not providing transparency on that. I -- also, on the question what is the profitability of the storage business, we are not providing guidance. The comments we are making, it's a growth business. Arjen, do you want to comment...

Sorry. What's the...

Okay. I guess the reason I asked -- I mean consensus has an increase of 160 basis points in margins next year, and I'm just trying to understand. Kind of obviously you'll be benefiting from higher volume, service recovering, but will the mix mean that, that may look meaningfully different? Or do you think actually kind of the combination of recovering volumes, services can still allow for that step-up in margins even with more storage?

So we don't give future guidance on margin given the uncertainty. I think one of the ways that we are working with profitability and evolving profitability on the storage side is also to moving up the service value ladder, where we are looking to evolve our type of performance-based contracts, [ so to say ].

Next question on the line, Manu Rimpelä from Nordea.

Continuing on the energy storage theme. How do you see the pipeline? And if you could be a bit more specific in terms of kind of what are the regions where we're seeing that growth coming through. Obviously we've seen a very significant step-up from virtually no orders in the first half of last year and still quite low for the full year then suddenly this very strong growth. So do we see that the first half order intake rates in the energy storage is kind of a new normal level? Or well, how should we think about this business in the second half of the year and also then further years on?

I think the battery storage business is on a significant growth trajectory. And when we see, core market is U.S. It is Australia. It is U.K., yes, and the growth is very rapid.

Okay. And then if I may follow up on that, can you help us to understand that -- what is the competitive advantage that you have against, I guess, Tesla and Fluence, the two #1 and #2? And you are probably the #3 in the market, so what is your competitive advantage? Why do customers choose you?

I think on the positive side we have quite a few of the strong utilities coming back to us. And the feedback we get is that, the way we think around power system and the -- our capability to integrate different assets with the GEMS platform and optimize the operation, that is one element where we stick out. And the other one is also how we continue to evolve certain functionality of the GEMS platform to provide support for trading, energy trading, et cetera. So I would say it's our system knowledge and also how we can optimize operations in cooperation with the GEMS platform.

And I would add definitely also our customer context. I think we have been in the energy market for a long time, and I think that definitely helps us in this journey.

Next question on the line, Edward Maravanyika from Citigroup.

Just had a question on the cash, on the sort of potential use of cash just given the strong cash performance and the deleveraging. Can you give any guidance on whether you'll be more aggressive with use of cash?

I think we will utilize cash for -- definitely for, let's say, R&D -- sorry. I have a strong echo now. We will use cash, for sure, let's say, to continuous, let's say, develop our portfolio, spending money on R&D. I think that will not decrease. Furthermore, let's say cash allocation might be in the area of M&A, but of course, that needs to be evaluated case by case and it needs to fit our strategy. Otherwise, I will not answer anything more. This is what we are looking at, and let's see what happens in the future.

Next question on the line, Antti Kansanen, SEB.

Yes. This is Antti from SEB. And it is a bit of a follow-up on the previous one, on the M&A side and capital allocation. And Håkan, you've been with Wärtsilä for a number of months now, so what do you think about the technology portfolio and especially regarding the decarbonization, the battery storage side? Is the offering complete enough to kind of maintain the competitive edge, for example, on the storage market? Is there something that you should add via M&A or partnering regarding renewables or things like that? What are your first views on that matter?

So I -- if I widen the question before I zoom in on battery storage. I think -- in general I think we have a very strong technology portfolio in the thermal space, if we start there. I mean, with evolvement of the new green fuels, it goes directly to the core of Wärtsilä, which is about fuel efficiency. It's about fuel flexibility. And it's about, since many years, a leading knowledge and experience in different type of fuels and also the systems around the fuels. So there I think we have a really strong portfolio, and we are -- really continue to allocate capital into investing in R&D there. On the battery side I think we have -- certainly with the GEMS platform that we continue to invest in, we continue to evolve there. I think also, going forward, would we consider partnerships? Potentially, if they make sense. And I think this is an area where we need to continue to explore. I think we have a strong base to build. It could be that we need to complement it a bit. And then I will say that, the third element, we should not forget Voyage and the journey we are doing there with FOS, also with the autonomous system. And also there I think we have a core that we can really build upon, but similar, partnerships, probably we need to consider that to evolve, so to say.

All right. And then a follow-up on the storage side. And you mentioned that the lifetime profitability may be lower than what -- on the thermal side, but could you comment a little bit about the earnings pool on this project? How much is the GEMS system and kind of the license payments and regarding -- sorry, recurring revenues and things like that of the total earnings pool that you are looking at on these projects versus kind of the initial CapEx?

I mean today -- yes. And today, I will say that a major chunk is still on the equipment while we're evolving our Software as a Service model for GEMS as we build on functionality and as we also prove our optimization capability. So today, I will still say that there is a high degree of equipment, but we are evolving into the SaaS space, so to say, with GEMS.

Next question on the line, please, Sven Weier from UBS.

The first one is coming back on the decarb regulation. And of course, if we look at the latest EEXI from IMO, it's hardly very ambitious, but I was just wondering. I mean Maersk has recently said that 50% of their clients are already following some kind of ESG agenda and that is really driving the decarbonization move rather than the regulation. I mean, isn't that at the end of the day also what is going to drive business from your customers, not so much the regulation which is not so ambitious but really the ESG move? That's the first one.

No, thank you, Sven, for that question. And I think you're very much right. I mean, when we look at the IMO, I mean, EEXI, it's a design. I mean there will be a lot of speed reduction. Probably there might be some facilitation of air around -- to make the vessel run smoother, but I think the real opportunity or could really make a difference going forward is the CII because, as you know, the classification of vessels in different kind of CO2 emissions categories, that opens up opportunities, and that ties to your point, for the customers' customers, so to say, because -- and I think we all and you certainly know that as analysts. I mean I will say, any company, certainly any industrial company, these days, including Wärtsilä, we are of course getting even more formulated on our sustainability targets going forward. And then you look through your whole value chain from a CO2 perspective, and somewhere in that value chain you have transport and logistics. And I think there will be many industrial companies that wants to decarbonize the transport. That goes for the land but certainly also for the marine transport. And that is there -- I think there is a strong logic, for that will create opportunities for the operators to provide that green transport. And then these classifications that you have in CII might actually give an opportunity to kind of be more specific on what type of sustainable transport you want to purchase. So I think, yes, there is regulation, but I think the business opportunity will also evolve and drive the development. And maybe that will drive the development even faster than the regulatory components.

Yes. And the second question I had was just on the Voyage business because I think here you're aiming for EBITDA margin breakeven in the next few years. I was just wondering how that compares when we look at the [ storm geo ] business or Wärtsilä [indiscernible] obviously already making quite some nice mid- to high-teen EBIT margins. I mean, how does that compare to the navigation bit of your Voyage business? And why are you not more ambitious in terms of the profitability of the business overall?

So I think we first need to acknowledge that Voyage is coming together quite recently. And as you know, we made acquisitions of -- overall it's 5 companies coming together and we are molding this into 1 company. There is a core, which is very much hardware related. And then there is a growth area, which is much more kind of software related and platform and cloud related and optimization related. So the -- Voyage is a mix of those 2 businesses, and the team is working on finding the right balance there and to evolve the software business. And that takes a little bit of time, but I think the program that the Voyage team is running in terms of finding the right balance and finding the right cost structure is evolving as we expect.

Next question on the line, please, Sebastian Kuenne from RBC Capital Markets.

Can you hear me?

Yes. Now we can hear you.

Okay, perfect. Yes, on the Marine Systems and LNG side, the orders that you see currently, the order increase in Marine Systems, is this already kind of related to the boom in the container vessel business? Or is this still kind of the old, let's say, inherited business from the last years? And when do you think the container vessel boom will kick in? The next question, maybe because it's related: How much more business do you think you can make on a new container vessel that runs on dual fuel and needs more, let's say, environmental equipment? Is there a big jump in content per ship? That will be my first questions.

Yes. So container and LNG. I think the LNG-related orders we'll see, it's based on the there has been a growth in the LNG tankers; and because what we are providing there is equipment for liquefication, re-liquefication. It's not engines. It's -- you could say it's gas-handling equipment...

Cargo systems.

Yes, cargo systems. So that is direct related to new vessel being awarded, LNG tankers being awarded, strong correlation. Now...

I mean all the LNG or the dual-fuel container ships. So [indiscernible] mainly dual fuel, and so they probably need much more equipment. And...

Yes. So okay. So coming to the LNG tankers, I mean, from a driveline perspective. I mean these are still where you have the 4-stroke today is in more challenging applications like [ Arctic ] application, where you need variable power. And this is a subsegment in LNG and we have had some success there. Coming to your question on -- as I understood it, on the journey of green fuels and container vessels, I would say that there is an avenue there where the auxiliary engines which are 4-stroke will become a bit decommoditized. And that, we see, should have a positive impact, but of course, since the journey of green fuels will take some time, this development will also take some time.

Okay. So just to be clear: The order increase you saw in Marine Systems is not related to the boom we saw in container vessels in the first 6 months [indiscernible].

No. [indiscernible]

No, no, no, because -- so because -- okay. Marine system is about the handling the LNG as a cargo system. So it doesn't deal -- I mean, the LNG engines, that is in Marine Power.

Yes, yes, yes. I know that. And scrubbers for the new vessels is also not included yet in the orders, I guess, for -- the big boom in containers, yes.

For -- on the -- yes, on the container boom, we see a lot of tendering activity for scrubbers, but those order are not in the order intake so far, no, to a significant extent.

Understood, understood. Perfect, understood. And then for energy storage, could you just again explain? I might have missed it, but what exactly is your value add for energy storage? And who is your battery supplier for energy storage? That would be all.

Okay. So our value add is that we acquire the batteries. And I don't think we are public on the battery providers.

No.

Sorry about that, but we procure the batteries then we integrate them into a battery system which is containerized. Then we do the EPC contract and installation. And we add the GEMS platform to it, which then enables integration with different assets and sometimes also with trading systems, et cetera.

Okay. That would be all.

And also on top of that -- sorry, because I was focused on equipment. Then of course, services. And as I said, the running service of battery storage, there are no moving parts, so there is a limitation, but we are evolving the service business into a outcome-based, performance-based service business where we are warranting uptime reliability and where we are also looking at evolving this even further, so to say, in making commitments on providing available power.

Next question on the line, please, Tom Skogman from Carnegie Investment Bank.

Yes. I have a couple of questions. I'll start with net working capital. Is -- I mean I understand that [ you have been able to cope ] during -- this year during the COVID crisis, but is there a structural change, because of the growing energy storage business, in the way that you can have structurally lower net working capital levels in the future? Or should we just expect that you'll go back to old levels again when demand pickups (sic) [ picks up ] eventually?

I think that depends very much on, let's say, what we can agree with customers. Let's say, of course, the working capital has many elements. Let's say the how do we buy the batteries, for example, is a very important factor. And also, let's say, how do we agree, let's say, contracts with customers? What are the advanced payments, the intermediate payments, et cetera? I will say in general, okay, we don't guide on working capital. That's first of all, but I wouldn't say it would deteriorate tremendously, at least not with what we see today.

So I think you need to clarify. It will not...

No. Let's say I don't think our working capital will be majorly impacted from, let's say, what we have seen in the past. That's what I mean.

All right. So eventually [ we'll -- might tie up ] again EUR 0.5 billion more in net working capital basically. Then what insight do you have to these cruise vessels that have been ordered but where construction has been delayed due to the pandemic? Please help us to understand what's happening there. Will these ever be built? Or what's really going on?

I think there are delays. I mean there -- as you know, there has been orders with options, and I would say many of these are sliding in time. And I think the industry needs to see a market recovery on the passenger side, and let's see then how this evolves. So far, to my knowledge, there hasn't been any cancellations. They are being postponed.

And then if you order a dual-fuel vessel, is there a strong incentive still to install a scrubber if you're prepared to run it increasingly on gas against the backup? Or it could be kind of low-sulfur fuel in the future and not HFO?

Well, I think that every customer has his or her own view on this, so to say, but I must say that there are -- for instance, if you look on the new container ships that are being built now, there is a lot of scrubbers that's going to be installed still.

And then I mean I realize you have the losses in Voyage, which makes it a bit perhaps troublesome to acquire other companies with future technologies, but there seems to be a lot of things popping up, like sails coming back in shipping as a way to decarbonize logistics, et cetera. Are these losses in Voyage kind of holding you back from being brave and trying buying mainly small companies with different technologies? Because there seems to be so many things happening out in the world.

Yes. I think we are still brave, but -- or we hope we are, but I mean, to your point, for us, Voyage is a growth story. And the whole digitalization space -- sorry. There was a noise -- the whole digitalization space, there is a lot of M&A activity, as you know. And certainly, as Wärtsilä, as a group, we are in a position to be active in the M&A space. And we have a continuous process where we are looking at M&A opportunities not only in Voyage. I mean in different businesses. So if we find something interesting in the digitalization space with the right valuation and the right cultural fit, we can still definitely do acquisitions.

But what do you think specifically about this modern way of sailing with cargo ships? Is that going to be a thing or not?

I personally -- we believe very strongly in this. I mean the way how you can optimize the routing and therefore the fuel consumption and therefore the emissions. And both -- there is significant value both in the fuel and emission reduction and in the time save, so this is for real. Then one should also acknowledge that this is an ecosystem. It's about the vessels. It's about the port, different parts of the port. So it's a journey and it's not a quick fix and easy fix. Another element is, of course, also that with certain size of container vessels the infrastructure in certain harbors might also be a bottleneck, but I mean we still see a very strong logic for the value creation potential in the route optimization space.

But the question, my last question, was really about sails, likely going back to the age of having sails on large cargo vessels.

Sails, okay.

Yes.

Yes. I mean we have a partnership with one of the providers for rotor sails. And this is also in the journey going forward. There will be multiple solutions, and they all have their pros and cons. They all have their sweet spots. So yes, there are certain applications where sails would make a lot of sense, but there are many applications where it probably wouldn't make sense. So is this going to be a major solution for the future? I think that remains still to be seen.

Next question on the line, please, Antti Suttelin from Danske Bank.

This is Antti. And the question is about your reporting practices and in the storage business because I can see that, last year, you spoke about megawatts when you reported storage orders. Now this year you have been talking about megawatt hours, so I would just like to update myself what -- on the value per unit. So when you get a storage order, how much worth is 1 megawatt hour, please?

Yes. And these, we don't disclose, for competitive reasons, so to say, but just coming back: the shift. Because you're fully right. The -- we did a conscious shift from megawatt to megawatt hours because, if you want to assess the value, even if we don't disclose the value, for competitive reason, you need to look at the energy stored in the storage and that is measured in megawatt hours. Because a lot of megawatt hours is a big battery. You could have -- I mean theoretically you could have a lot of megawatts but with -- lasting a very short time. And then the megawatt hours will not be so high, and the storage and therefore the value will not be so high. So that was the reason why we moved to megawatt hours.

But given it's such a central part of your business these days, it would be really quite helpful to have a ballpark how much is 1 unit worth.

Yes, yes. And we appreciate that, but we don't want to give that away to competition either. So that is, of course, a balance that we need to strike.

Next question on the line, please, Erkki Vesola from Inderes.

Can you hear me?

Yes, we...

Yes.

Okay, very good. On the marine engines, in your presentation [ you talk about it's ] 170% alternative fuel-capable units being ordered in the first half. Is it the number of engines? And if so, how many vessels does this transfer to? And I've got a couple of follow-ups on that.

No. It's the other way around. It's the number of vessels. It's not the amount [indiscernible].

Number of vessels, okay, okay.

Yes.

What were these fuels actually? What is considered as alternative fuel?

It could be different type of hybrid drivelines. I mean you have batteries combined with ICE. It could be biogas. It could be methanol a little bit, et cetera. I will say everything that is not diesel and pure LNGs -- and pure diesel or pure LNG.

Okay. And finally, where does Wärtsilä stand in this regard, regarding these numbers?

Out of -- that was 107 (sic) [ 170 ]. How many do we provide that's -- the drivelines for? Do we have that figure?

No, I don't think we have that figure. We have a market share figure. And that should [ work ] more or less like that, but I think, let's say, we can offer solutions for any of these, right? So I don't think we have that figure exactly, but our market share should give a good indication.

Yes. So we are providing hybrid solutions. We are providing for biofuels, et cetera, and for methanol. So we have a very broad offering, but we don't have the exact, out of those, how many has Wärtsilä drivelines. No, we don't have that.

Next question on the line, please, Antti Kansanen from SEB.

This is more detailed regarding the near-term profitability outlook and kind of the P&L impacts of the cost inflation. So I mean you have a lot of positives going for you. Book-to-bill is above 1. You are seeing a positive mix from service recovery, but how cautious should we be that we'll see kind of a de-acceleration when the bigger impact of the raw material cost inflation, logistic cost inflation hits, let's say, Q3 and seasonally important Q4? You have a lot of fixed-price contracts, so Arjen, could you give us a little bit of a bridge about the positives and negatives going into the, let's say, second half of this year?

Thank you for the question. And yes, of course. Let's say I can understand that this is a question that many of you have, but let's say, as you know, we are not guiding on profitability. We are indicating. And I think that, that picture does not really change a lot, but yes, we face challenges on the supply side, let's say. Raw materials have been mentioned as well. I think it's also good to remember that COVID is not gone, so let's say all these restrictions and complications that we have in utilizing our resources globally as well as, let's say, in the logistics chain are still there. Let's say we need definitely, let's say, a recovery from COVID. And then, let's say, okay, how raw material will develop over time, let's see. On the short term, I think we are reasonably well mitigated. Let's say we have good contracts, longer-term contracts also with our suppliers, but also in this whole supply base let's say certain contracts are due and up for renegotiation. And then it might be a different story. So yes, we have pressure. I think it will get a little bit worse on the product costs, component costs side. So this cost inflation, I don't see immediately disappearing. I think it will stay there, at least on the [ short term ].

And then specifically on the services side, I guess, where the lead times are maybe a little bit shorter, what type of inflationary pressures are there? And how quickly can you adapt with, let's say, price increases?

I will say that -- all right.

[ Then you're going to be -- going to ] recover it, yes. Sorry.

I will say the contracts that we have with many of our suppliers cover both newbuild and services. So I -- it's -- let's say if you buy pistons or whatever and, let's say, component. Let's say it's a long-term contract where we combine, of course, let's say for scalability and volume reasons also to suppliers, let's say, all the volume together and then get the best price basically. So let's say what happened -- what applies to newbuild also applies to service.

But then how about the pricing in the, let's say, more transactional service business that would be more dynamic than...

Yes. I think there you have better possibilities to be a bit more, let's say, dynamic on the shorter term, let's say. If you have, let's say, a contract agreed with a customer on the newbuild side and the delivery is next year, I could almost say, 99% of the cases, it's impossible to renegotiate that, let's say. I don't know of any case where a customer would have had -- accept it on the service side. It's, of course, a bit more flexible and so we can maneuver a little bit with, let's say, global price list.

Okay. And then lastly, can you say anything about kind of the seasonality on Q3 versus Q4? Because last year, there was not a typical quarter-on-quarter margin expansion. Now given what you see on the environment and on your outlook, how should we think about this year?

We are not guiding on that. So let's say we are guiding on demand and order intake, and that was in the prospects. We are not guiding on sales and profitability. Sorry.

Are there any further questions? It seems like that the presentation was very clear. Thank you for great questions and excellent answers. Please remember that our Capital Market Day, like Håkan already earlier said, will be on November 18. Save the date on your calendar. And before that, please enjoy the summer. Stay safe and healthy. Thank you.

Thanks a lot.

Thank you. Thank you.