Wärtsilä Oyj Abp (WRT1V) Earnings Call Transcript & Summary

Good afternoon, everybody, and welcome to Wärtsilä Capital Markets Day 2021. My name is Hanna-Maria Heikkinen, I'm in charge of Investor Relations, and I'm super excited to host this event today. We published our financial targets yesterday. And today, we will discuss our strategy and Wärtsilä future direction in a more detailed level. Our attendance has been divided into 2 main parts. We will start with the Wärtsilä strategy, which consists of 2 main themes, transform and perform. And our CEO, Håkan Agnevall, will go that to in a detail level. After that, our CFO, Arjen Berends, will discuss our financial targets and actually our plan to reach those targets. After those presentations, we will host a Q&A session. Then we will have a small break. And after that break, there will be deep dives to 2 of our segments. We will start with Marine Power and then continue with Energy business. After those presentations, there will be another Q&A session and also Håkan and Arjen will join that. Please remember that you can ask questions via the chat already during the presentation. Time to start. Please, Håkan.

So it's a privilege to be here with you today, both physically and on the line. And as an incoming CEO, I have had the opportunity to start meeting with customers in different parts of the world on energy side, on the maritime side. I start to meet with our team members, also start to interact with politicians and policymakers and also with you, our investor community. And some reflections from my side. I mean, first, COVID continues to significantly impact Wärtsilä, both on the maritime and energy side. And it will continue to do so also going forward. But if we look -- and when I listen to customers, to our employees, we have some pretty exciting opportunities in Wärtsilä going forward. And today, we're going to talk about those opportunities. And if I were to sum up my experience 10 months into Wärtsilä. And what I feel and what I see, if I sum it up in 1 word, it's excitement. So what is that we are so excited about in Wärtsilä, and this is what we want to show. Let's look at this. The world is changing. And we are a technology leader in an era where technology is evolving very rapidly, and technology and people will help us to get closer at least to the Paris agreement and will help us to evolve in the decarbonization journey. And this will give Wärtsilä a real opportunity to support our customer, and this will give Wärtsilä a real opportunity to create shareholder value. So decarbonization will transform the world. Electric generation will grow with a factor of 3 and renewables by 8 because renewables are clearly the way forward when electricity generation is growing. And the need to grow generation is driven by the electrification of new industries. It's driven by the electrification of transport industry. And that development will only continue. With the increased share of renewables, the balancing power will increase significantly and with a factor above 10x. So that's energy. If we look on the maritime side, we will see an unprecedented rate of change in the maritime in the coming decades. And it's all driven by the decarbonization journey. There are regulations coming in, but there is also a demand side evolving for the green fuels and for the green transport. And in this environment, the good news is that Wärtsilä, we are a pioneer and a partner for the new technologies that will evolve. We are already today a leader in the traditional, but also in the future fuel, which will evolve a lot about fuel efficiency and fuel flexibility. We are a leader in performance-based and outcome-based services. On the energy side, we have a leading position in balancing both on the thermal side with our combustion engines and with our battery storage with our energy storage business. And one word that you will hear a lot today is power system optimization because that is what it's going to be in the future to drive energy efficiency and the lowest cost per megawatt hour. We are also pioneering for other technologies like the electric, the hybrid, like fuel cells, like energy-saving devices. And there, we are partnering up with different players. And finally, common capture is coming, and we are also pioneering that space with -- in the marine sector, really exciting opportunities. Now so a lot of exciting technology. The other positive news, I think we are set for performance. And we are well positioned to leverage the growth when the market is coming back and then when the market continues to grow. We have defined our strategy. We've been working now for a number of months to define a focus going forward, our road going forward. We have been talking and discussing the Wärtsilä way, which is our strategic framework, and I will come back to that later on, which is basically the road map to the future, and I really want to share it with you. We are evolving our culture around performance. We're also going to be crystal clear on our capital allocation and work actively with portfolio management. Now we have a road map. So where do we want to go? As you know, we have communicated new financial targets. And if you look on the growth avenue, we are looking at 5% annual organic growth. And I should say that is over the business cycle. We have also communicated our new profitability goals, which is 12% operating margin. And then the comparable, where are we today? We are around 6%. So we are going to travel from 6% to 12%, which we think are perfectly manageable. It's forward-leaning targets, but clearly achievable targets. And I know many of you are going to ask me, so okay, that's fine. But what about the timing? When will you achieve those 12%. And I'll say it's going to take us a few years to get there because we are right at 6%, and we want to go to 12%. Then setting targets for a global company like Wärtsilä. It's not only about financials. It's also how we can contribute to the decarbonization journey in a very concrete matter. And there, we have recently also formulated our decarbonization goals. And 1 it's about -- and that is the biggest lever. It's how we can contribute to our customers. This is where we have our biggest carbon footprint of products. And what we have said is that we really want to have a product portfolio ready for zero carbon fuels by 2030. Then of course, we also need to walk our own talk. And we have also set an ambitious target of being carbon neutral in our own operations by 2030. And that will be a stepwise journey in the coming years. Good. We are also moving into next phase with Wärtsilä. And we have a proud history. And if we look at the different phases, we cannot go all the way from where we started. But if we look at the recent history, you could say we had 1 era where we successfully made acquisition. We grew our service business. We expanded from the engine business into propulsion. Then we moved into another area where we very much focused on becoming a total solution provider. So we expanded our product portfolio into environmental solutions, and we made acquisitions in electrical and automation. Coming into 2021, we have gone through a time period with focus on Smart Marine, a 100% renewables. And during this time, strong focus on the digital solutions. We also faced negative deviations. Let's be clear about that. There's been action taken. We have created the end-to-end value chain with a very strong ownership of the end-to-end business. And we have also done divestments of the business. Now when we move into the future, it is about shaping the decarbonization of marine and energy. And it's about customer focus in this era of change. It's about service focus. It's about technology leadership and technology partnering. It's about organic growth and continuous improvement. So going forward, I will talk briefly about how we see our 2 major industries evolving. And then I will move into the 2 strategic themes that we have: transform and perform. But if we start with a quick overview of our industries. So marine will transform with an unprecedented speed compared to the past. If we look at the regulatory environment, IMO set targets for 2050, 2023 new regulations are kicking in that will continue -- that will start to really take bite in the decarbonization journey. If they are sufficient that we can discuss, but they will continue to be -- start a bite. You're all aware of the Poseidon principles. It's very important for the financing side. The cost of carbon, which certainly involved. We are all aware of EU Fit for 55 proposal to include maritime in the carbon tax regime, we see there will be regulations evolving continuously going forward. But then and maybe even stronger than the regulatory context is the business demand for green transport. And that will be driven by life cycle -- life by consumer brands, profile consumer brands and retailers that want to have green transport as their customer offering or commitment to us as consumers. And it will also be driven by all of these companies, including Wärtsilä that are formulating the decarbonization targets looking through the value chain and wanting to work with green transport as part of the decarbonization gel. So it's both regulatory and business opportunity. Technology is evolving fast. And it's going to be about carbon neutral and zero carbon fuels. The carbon fuels will still be there for many years. But it's not only about fuels, it's about electric solutions with hybrid and battery systems. It is about abatement technologies and the new steps into the abatement technologies. But I would say that a couple of general themes. One is fuel efficiency. The new fuels estimates are will be 2 to 4x more costly than the current fossil fuels, which will lead to a strong focus on efficiency. The other key element is fuel flexibility and upgradability. You need to be able to use different fuels depending on where you travel in the world. And if you invest in an asset, you don't want to be stuck with stranded assets. And maybe for a vessel, you want to be able to upgrade and shift in 7, 8, 10 years down the line. Now the other key element is connectivity and data, and this is evolving in all industries, but certainly in marine as well. And vessels of data pools, and we can really use these data pools for the decarbonization journey in optimizing the whole logistics chain, but also optimizing uptime and reliability. And this is where we see some really great opportunities also to support the performance-based agreements, which is a major theme for Wärtsilä. Cybersecurity, we -- the focus will only continue to grow. And we start to see autonomous operations supporting vessels also going forward. So those are some of the general trends on the maritime side. If we switch to the energy side, it is the shift to 100% renewables. And yes, Power Systems looks different in different parts of the world. In Scandinavia, in Finland, we have a lot of hydropower, nuclear power. But if you look generally, if you take a broad global approach, the big shift that will need to happen is the shift to renewables, wind and solar. The electricity demand will continue to grow. There will be a gradual replacement of coal and fossil fuel energy generation for sure. And another theme is that the power systems will continue to be more complex. I mean gone -- or the past will be big centralized generation assets. In the future, we will have smaller assets spread in the power system, also generating power at different levels of the power system. So it will become a more complex power system, which needs that you need to work with power system optimization to have the lowest energy cost to have the stability. And this is where Wärtsilä has a role to play. And policy and regulations. I think we all know the commitments, the pledges that has been put out there. We can discuss if they are fast enough or forward-leaning enough. We know EU 2050 U.S., also 2035, 2050, China 2060. Personally, I think that these pledges will evolve, they may accelerate. And if we talk about Paris agreement coming out of COP 26, I would -- yes, it's a life, but it's clearly on life support. The technology disruption will be very strong because the shift to renewables, solar and wind will be strong. And that will drive the need for balancing power because the sun doesn't always shine and the wind doesn't always blow and you need that balancing power. Green fuels will also be part of the balancing journey going forward. And digitalization will create opportunities to optimize these complex power systems. That will evolve. Cybersecurity, I think if I say Colonial, I think we all realize how important cyber will be going forward, and this is clearly a critical theme for Wärtsilä. So those how we see the -- our industry is evolving. And you can see some common themes, new technologies, fuel, balancing, digital, cyber going across the 2 industries. So let's now talk about the 2 strategic themes. It's about first, transform and then perform. And transform, this the decarbonization transformation that will create new business opportunity for Wärtsilä. It's accelerating and we should also acknowledge that it will go with different speed in different sectors and different regions in the world. And this is -- if we start here, this is a marine industry picture. And what we are showing here is the some simulations or studies we have done together with DNV. So we have a close cooperation together with them. And on the y-axis, you see the predictions of carbon neutral or zero-carbon fuel and how it is evolving through the years until 2050. And then you see 2 curves. The first curve, the steepest ones, so to say, that is the curve that we actually need to follow if we're going to achieve the 1.5-degree Celsius target. The less steeper curve or the dotted curve, that is where the IMO regulations, the current regulations will bring us. And then you can have any scenario in between, which is the yellow space, so to say. Now the key thing here is that operators, fleet owners, they need to make decisions today or in the close future where they want to go. Because during that lifetime of that asset that they are ordering now or buying now, this will change. So the operators, they need to decide who they're going to partner up with for their coming lifetime of the vessel. And what will be extremely critical. And when I'm engaged in dialogue with senior leaders on the maritime operators, they want to partner up with somebody that can provide multi-fuel capability, upgradability because it's going to be a journey with blending of fuels. You also want to partner up with somebody that had conversion capabilities. So that's the maritime space. Now if we look at the renewables side, and I think many of you know this curve. I mean, the growth of renewables will be exponential. And this is the EAA numbers and some of the scenarios that they have. And you can see the share of renewables. Then you should also consider that at the same time, 100% is growing threefold. So it's going to be a real growth in renewables. And this is the way forward to create a sustainable future because the energy sector provides 30% to 35% of the world's CO2 footprint today. Now what is the way forward? How do we achieve this? And then I think 1 starting point. There will be no silver bullet in our view. There will not be 1 simple solution. I mean, green is not black or white. So we are entering into an era with a number of technologies and a number of fuels. And if we start to look on the fuels and they will go both into the maritime space and to the energy space. We can start with the carbon neutral fuels, biofuels, methanol. Then this carbon-free fuels, ammonia and hydrogen will evolve. Fossil will be around for many, many years, and that will be a gradual conversion and blends, blending will be a major theme going forward. And also the performance-based agreements will be a major way forward to ensure that you meet carbon requirements and fuel requirements. Now if we then look on specific technologies for the Marine side, it's going to be battery technologies will certainly be there for certain applications. Plug-ins, hybrids, there will be different energy saving solutions. There will be optimization solutions, both for the whole holistic system but also on the vessel level and autonomous will evolve. On the energy side, it's the growth of intermittent and therefore, balancing. And energy storage, the battery storage will grow significantly, but so we'll also the thermal balancing. And the reciprocating engine has -- continues to have some very strong fundamentals because it's an energy generator that is very flexible. It's fast to ramp up and down and can do it frequently. And it has leading fuel efficiency. So -- and also 1 thing that we should recognize. I get a lot of questions on this, is that thermal and batteries are complementing, because they cater to different needs of the power systems. Sushil will talk more about that later on. And the power system optimization, that will be very strong because when you have all these different renewables, you have some thermal, you have battery storage. How do you bring it all together to make sure you get the lowest energy cost at all times and also that you have a system that is reliable and stable. Now a lot of technologies. The good news, Wärtsilä is very well positioned in this. The technology is needed for the decarbonization. I mean, already today, we are a leader in the carbon neutral and zero carbon fuels. And as I said, we are already today ready with methanol and biofuels. And we have been in methanol since 2015, we have also earlier communicated our development portfolio. And we will come with ammonia concept by 2023 and a hydrogen concept in 2025. So we will be ready. Then we need to recognize we are a player in an ecosystem, fuel needs to become available and the whole ecosystem needs to move. We also provide energy-efficient fossil fuels, and that will still continue. But the important element there is to continuously work fuel efficiency, drive down maintenance slip, et cetera. And then the power system optimization. We are leaders in that, given our decade-long heritage from operating in power system actually in fairly challenging environments. We are pioneers in marine electric drivetrains. I mean we did some of the first hybrids. We are cooperating on the complete electrics. We are now pioneering as we speak, marine carbon capture. Carbon capture is at land, but we are bringing it into the marine side. With Voyage, we are also pioneering the marine optimization and route. We had a world's first digital port called, Tanger Med months ago, really exciting step. And then clearly, we will be partnering for other technologies, like fuel cells, like air lubrication systems, et cetera, et cetera. And what we provide to those partners is our competence to marinize things to bring things into the marine space and are, I would say, industry-leading service network. So how do we -- then we are very well positioned. So how do we deal with this in a very practical way? I mean, if we want to lead the decarbonization, we need to have a strong commitment to R&D, and then we will partner up because customers are looking to go green, but they want to have a dialogue with somebody that can talk and have knowledge about basically all different solutions. And these are heavy capital-intensive investments, very strategic 20- to 30-year lifetime. And there is no solution fits all. And this is where we are evolving our competence to basically talk about all solutions and have a balanced discussion about what is the best fit for you. To hand that credible discussion, we will have a fairly broad solution. We will offer most solutions and how we then solve that from a practical view is that we will focus on certain our core technologies, which have also run the combustion engine, battery and digital, and then we will partner app. And what we get from that is the following. I mean, 1 key takeaway. We have been working for decades on many of these new fuel technologies. So the new fuels are not new to us. We can actually do the conversions, and we see this now as we are evolving and testing, we can convert to the new fuels with limited changes of the engines. We also see good strong synergies between the solutions in the marine space and the energy side. So we can manage this transformation, major transformation on a strong commitment to R&D, but a fairly stable commitment to R&D around 3% of our sales. Okay. So sum it all up, a lot of exciting technologies coming. There is no silver bullet. Wärtsilä is very well positioned, and we can manage this transition with a robust but stable commitment to R&D. Now, now we're going to move from the transform to the perform. And here, it's 2 elements. One is to leverage the market recovery and the another 1 is around robust execution. And this is how we see some of our growth opportunity. Wärtsilä is very well positioned as #1 to 3 in core global markets. We will focus on organic growth and decarbonization and services and then complement with partnerships. And if you see here, this is where we see the growth potential on top line, energy, very much driven by services the balancing and both on the thermal side and the energy storage side, it's about the services and the marine power side, the fuel flexibility. On Voyage, it's turning around. Part of Voyage, 60% to 70% of Voyage it's a digital -- sorry, it's a hardware business, and that we are turning around. Then we have a software business, which is growing very rapidly. But that is why the -- if you blend that, the total growth is not as high as in Marine Power and Energy. And on the Marine Systems, we had benefited a lot from the scrubber boom, but now it's a more, you could say, stabilized market. And carbon capture will come, but that is further down. Then we have some growth in Shaft Line Solutions. But overall, I would say marine system is pretty flat. On the noncore businesses, we will continue with active portfolio management and taking a sharp looks on strategic fit and the value creation potential. And I think we have shown that we are managing actively our portfolio. I mean in 2020, 2021, we have done 6 divestments. Now turning to the real growth opportunities. And here, I'm going to give you 3 examples from the services business because service is a major growth generator. And this is showing some of the potential that we have on the marine power side. And in the transactional space, we can see already -- I mean today, about 30% of our customers are what we call smaller accounts, 70% are the larger accounts. And you can see the spend rates here. Spend rate per kilowatt. And you can see the difference between the 70% of the bigger and 30% of the smaller accounts. And here, we see a growth potential. And this growth is actually happening right now, as we speak, because we are leveraging digital solutions, creating more intelligence about those customers to serve them better and work with automated lead management. We are redefining tuning our offering to the needs of those customers, and we have improved and are improving our logistics. This is a really exciting opportunity. Another theme is what we call moving up the service value lab. And this is moving to agreements and performance-based agreements. And you can see this is a little bit similar logic. I mean you could say that 25% of our installed base today is covered in agreements and performance based. The rest is more transactional. And you can see the difference in spend ratio. I mean if the baseline transaction is one, as we move customers up the service value ladder, it's a factor of 2 to 5. And here, we have some really interesting opportunities. Once again, it's about what opportunities digital solutions bring and using data, artificial intelligence, to analyze -- to drive the performance-based business in value creation and creating way and also managing the risk. And we have the successful proof points, both in the marine and on the energy side. Third, growth is that the green transformation will also generate opportunities for retrofits and conversions. And here, we made some estimates, 2.5 billion market. This is our own installed base of 2-stroke and 4 stroke. And you see the marine side, you see the energy side. And the marine, it's a conversion from heavy-duty to LNG and enter green fuels. Energy is in 2 steps. It's from heavy-duty to gas first and then later on to greenfields. And this, we estimate this market potential to EUR 2.5 billion over a time of 5 to 10 years. So those were some what we think, really exciting service opportunities both in marine and energy. If I now move over to the energy side and balancing power and how we leverage the growth of energy generation. If we look at our base load, we think business -- we think it will be rather flat. I mean, compared to 2020. And we do see that a lot of customers are moving to renewables, and therefore, there is a shift to balancing. Now the good news is that we see, and it's not only us, we see balancing really taking off during the coming 10 years. Please notice that time period is not next quarter. But it's over this time, it will grow. And I know that we have had this message in the past, and I know some of you have questions, why is it not happening? But now ladies and gentlemen, it is happening. And Sushil, the Head of Energy, will talk more about that going forward. And I would say this will happen by the laws of physics. It's not Wärtsilä market. And the reciprocating engine is very well positioned. Then on the energy storage side, and we all see it, it's growing exponentially. And we continue to see very rapid growth, 30%. If we zoom in on the energy storage side, what is the Wärtsilä position? I mean, first of all, we are 1 of the 3 biggest players in the world. And where we want to differentiate is in our power system optimization capabilities. We have a complete balancing offering where we can integrate different generating assets, leveraging our background and knowledge of Power Systems. And when we do this, bring the different generating assets together from optimal performance, energy cost and uptime reliability. And we have a software platform called GEMS, which our customer tells me is the leading in the industry. But of course, the software platform, that is just an expression of our knowledge. Then we combine this with strong execution skills. We do bring a lot of experience from executing projects in the power industry, and we are ramping up our team and execution capabilities transferring staff, transferring experience from working with power projects. And we have a very competitive supply chain, and I would even say partnership for the battery side. So it's currently a loss-making business, so we are clear on that. That will be expect to become profitable in a few years. 2021, we expect the order intake to be above EUR 700 million, which corresponds to 6x growth in order intake compared to previous years. And on the services side, we have more than 70% of long-term services agreements. So now leveraging -- switching from leveraging opportunity to robust execution. And -- then 1 of the key things that we have been working with in Wärtsilä during the last months is to define our way forward and how we want to evolve as a company. And we sum it up in what we call the Wärtsilä way. And it sets the scene for profitable growth. And there are some critical elements of the Wärtsilä way. First of all, we upgraded our purpose. Our purpose is to enable sustainable societies through innovation and technology and services. So we put even stronger focus on innovation and technology, and we added services. Clearly, already today, services is like 55%, 60% of our business. We defined a new target position, and part of that shaping decarbonization for Marine and Energy is our new financial targets and also our new sustainability targets. We have strategic priorities, and I will come back to them, and which really sets how are we going to achieve this? How are we going to get where we want to go? And we have also upgraded our values, focusing on customer success on passion and performance. Customer success, we become successful by making our customers successful, the passion, attracting the stellar people developing and providing an exciting experience for people to evolve with a strong purpose and also a leadership that is focusing providing direction and then supporting the teams, delivering on commitment in the performance side, a strong personal commitment to deliver and then continuous improvement. Now focusing on the strategic priorities, how are we going to make this happen? First is to excel in creating customer value. And that is staying very close to the customer because the customers' needs is evolving in this era of change. So the customer is relearning, we need to relearn. We have technologies. We need to train and educate our people to stay close and in this thought leadership dialogue, really interesting avenue. The other is also to provide support and services, and you know it. It services to be successful. You need a great product supported by great people and with a great culture. But if you have that and you get that source in the right way, it's a really strong competitive advantage. We need to continue to develop our teams. And it's about attracting high-performing people, building high-performing teams, excelling on continuous learning and collaboration. Leaders being formulated, leaders providing direction and support then empowering people to act. The third element is clearly to drive the decarbonization of energy in America, and then to do razor sharp investments in new technology to partner up for other technologies, to also decarbonize as we talked about our own value chain and then to provide optimization solution and really work as thought leaders. Services is a major way forward. And we are talking transactional agreements, performance-based and there are so many opportunities. And we are really on the role here on the services side. And then finally, continuously improve our end-to-end value chain. And it's about reducing lead time, it's about improving quality. It's about delivering what the customer is requiring, while reducing complexity, while improving our competitiveness and then leverage digital to help us doing that. And by that, we can certainly improve our businesses that is today. And we clearly see that we can generate the funds needed to transform our businesses, technology and at the same time, deliver good returns for the shareholder and we will continue a clear focus on capital allocation and portfolio management. Now so this is how we want to do it. But what about the cultural aspect then? why it's so important? And here developing, how do you develop a performance culture. Well, it's about engaging in a dialogue as leaders being out there talking about and showing how we make customer success. We are successful by making customers successful. We created a structure with delegated P&L ownership and we can really see that people are taking on the ownership when people get P&L. We need to care for people. If we care for people, the people we care for the customer and we need to develop our people now in the big technology transition. On the risk management side and project execution, and I have the privilege to served in many project businesses in the past. And there's 1 thing I have learned is the criticality of risk management, both when you work in the tender phase and the project execution phase and have the discipline around that. We are a big organization, and we constantly need to remind ourselves that we need to make the decisions close to where the customer value is great to move with speed. And then for me, the live stream of it, all continuous improvement every day. So this is how we want to do it. Now setting targets, the financial targets, I will leave to Arjen to go deeper in. And I will then talk briefly about our decarbonization targets, which are really important for us, and we recently launched. So first element. Our biggest carbon footprint is actually with our products when the customers use them. So the biggest impact we can have is to make sure that we decarbonize our products. And there, we have set a very clear target to have a product portfolio that will be ready for zero carbon fuels by 2030. And we are on the road with the commitments on ammonia with the commitments of hydrogen, we are moving there. And then walking the talk, moving ourselves in our own value chain to a carbon-neutral own operation. So with that, I think that we are ready to go further into the financials. And also have Arjen joining us. So Arjen, please come up.

Yes. Hello to you all. We are set to deliver long-term shareholder value. Why? First of all, we have really good growth opportunities as Håkan was reflecting already upon in decarbonization of marine and energy. And I'm sure, let's say, Roger and Sushil will talk about that even more. Secondly, we have clear financial targets, and we are committed to achieve them. Thirdly, our balance sheet and financing structure support strategy execution. We can do it. And finally, we have clear capital allocation principles with a high focus on R&D and shareholder return. But before continuing, let's move a little bit back and look a little bit back on the past few years and what has happened there. As you know, and we have seen it for sure as well, we clearly have had our challenges. With COVID-19, with project execution, with not meeting all the financial targets and with cash flow, but with an extremely high focus on transformation and performance. Today, our situation is a lot better. We have made a lot of improvements. We have radically changed our project execution. We have in 2020 and also in the first half of this year, and we are very proud of it, record operating cash flow. We have made adjustments to our cost structure wherever and whenever it was needed. We made good progress on divestments for context also. And we have also clearly, let's say, improved our P&L and working capital ownership in the whole organization with the organizational changes that we have made also in 2020. So we are moving in the right direction. But COVID is still there. And this is something that we as a company cannot transform. I think the whole global world needs to deal with this, find a way how to go through this. And if you look at our energy core markets, many of them are in quite a red color-ish countries on this map. If you would make the same map as on the left side of this slide for 1st of January and compare it to this one, pretty much the same colors. At the same time, vaccination rates are low in these countries. And this is good to keep in mind. Håkan stressed it also, but I think we all need to be very well aware that COVID will still be around for time. And not only in energy, we also know it for marine. When COVID hit us in 2020, we immediately started to adjust our cost structure because we have to and we wanted to, and that is part of whenever and wherever is needed, Wärtsilä has adjusted the cost structure. You've seen that in the past, you will see it in the future as well. And this is not an exhaustive list of examples. In a cooperation like Wärtsilä, there's always somewhere at any point of time, big or small optimization actions ongoing, and we will continue to do so. If I go to cash flow, as I mentioned already, record cash flow, let's say, we are very proud of that in last year and also in the first half of this year, really coming from majorly the working capital and what was driving this? First item is the new approach to receivable collection. I would say that's really the big main item. The receivable collection in the past was more an activity of let's say, trade finance, credit management, treasury environment. Today, it's a much broader involvement of many more in the organization, from frontline sales to sales support to project management and even technical people in case of disputes why customers don't pay. And this is not monthly, this is weekly and sometimes even daily. We're also making much more use of RPA tools, robotic process automation tools, which improve the efficiency of collection as well. Global inventory management program, really an important 1 and also an important contribution to our working capital improvement, move away from local stocks move more and more to the central global logistics warehouse in company in the Netherlands. Global visibility of stock make sure that you don't buy a part of 1 end of the world, whether it's the same part somewhere else available. And also just in time, stock for agreements, life cycle agreements that is -- if you know the maintenance schedule in a life cycle agreement, there is no need to have the stock 3 months in advance, get it just on time. Also, we have been able to maintain very good payment terms with suppliers despite the fact that the volume dropped. And finally, let's say, our supply chain finance programs have really been able to say explored in a much wider context. Much more suppliers have joined that. Actually today, about 40% of our trade receivables is covered by supply chain finance. And that's not only good for us. It's also good for the suppliers. They get paid earlier. The good cash flow enabled us to make significant improvements on our debt situation, on our gearing ratio and our solvency ratio. From 2019 to today, basically, we have been able to reduce net debt with more than EUR 400 million. On the same horizon, we were able to improve the gearing ratio from 0.30 to 0.40. And also, we have been able now to bend the trend on the solvency back up again. It's extremely good cash flow and a strong financial position enables us to allocate capital. And then I come to the capital allocation principles. R&D, the first one, extremely important for the future of Wärtsilä. Håkan expressed this also, this is the future. We need to invest and need to keep investing in. We have been spending about 3% of net sales historically, and we are committed to do so going forward as well. We should not jeopardize this. We have a very strong track record in innovations. We have extremely good portfolio capabilities to serve the market, especially now in this area of decarbonization. Second, capital allocation principle, mergers and acquisitions. And they, of course, need to fit the strategy. Otherwise, you should not do it. We will focus mostly on synergistic bolt-on acquisitions in relation to decarbonization, services or digital. Finally, let's say, the third capital allocation principle, profit distribution. And this is basically, as you probably all know already, let's say, at least 50% of EPS to be paid as dividend. And this is also what we are going to have going forward. And we are committed to do so. We have done so, as you can see, and we are committed to do so going forward. If I then move to the new financial targets that were published yesterday. And I will start in the bottom, capital structure and dividend. Actually, they didn't change. I'd say the gearing to be below 50%. And earnings dividends basically at least 50% of earnings that won't change. And we have always met these targets. What has changed is the net sales and the growth target as well as the profitability target. The growth targets we had before, let's say, growing more than global GDP that moved now to 5% annual organic growth. And on the profitability target, we moved from 10% to 14% over the cycle to 12% operating margin. If I go a little bit deeper into these 2 financial targets that have changed. First of all, let's say, net sales. We have with our portfolio and capability, a very good opportunity to grow in the decarbonization space and in the new equipment space. And at the same time, our massive installed base gives also a lot of opportunity to grow on the service side, on the life cycle side. What this slide shows is basically, let's say, what are the main items that drive our growth opportunity. And the pluses indicate, let's say, the share of contribution to that growth. And if you look at this slide, the main 1 is clearly, let's say, storage. It's a fast-growing demand for energy storage and power optimization solutions. We can all see it. You've seen it in our order intake as well earlier and this, we believe in will continue. Secondly, the service, very important also from a profitability point of view, I will touch it later as well. A lot of opportunities, increased share of wallet of customers, deeper penetration of the installed base, customers that don't buy from us today, get them back, let them make sure that they buy the life cycle solutions from us. Very important part, let's say, decarbonization retrofits. Opportunities have been discussed also touched by Håkan and Sushil and Roger, for sure, will go back -- come back on that as well. And then new business models, you can think of software as a service, but also otherwise. Thermal balancing I would say it's back. It's coming. It's happening definitely with the coal phaseout being more and more visible everywhere. And thermal balancing is complementing energy storage. Then we also see that there will be a recovery in Marine. In particular, the important segments for us, cruise and ferry and special vessels, we believe that growth will come. If I move to the profitability target. And this slide is basically the same structure as I had on the growth target, where the pluses basically indicate the share of contribution or the size of contribution to the increased or improved, let's say, operating profit margin percentage. The biggest element is service clearly. In a company like Wärtsilä, and I'm sure you all know this, the service business is the most profitable, that's bringing the biggest margins. And we see tremendous opportunity to grow the service. I mentioned already on the previous slide, being a decarbonization retrofits, being a deeper penetration, et cetera. Secondly, the thermal balancing. It will not only contribute to better factory load and cost leverage, but it also will contribute with margin. Storage, Håkan mentioned already, let's say, it's loss-making today. We want to scale it. We want to improve it and we want to turn it into profit within a few years. Voyage turnaround, you know also from the published numbers that Voyage is quite heavily loss-making today. Things are improving. It has been somewhat the turnaround hampered by the COVID situation, but we are back on a very good track. And also this, we will turn into profit. I'm convinced. Then the bottom 3. First of all, cost inflation. Any company is facing cost inflation. And what we want to do, and we believe we can do it is with pricing, continuous improvement more than offset this cost inflation, as that should contribute to the growth of the profitability. What do I mean with continuous improvement. It's in a fairly wide definition. It varies from temporary layoffs to footprint optimizations to doing more with the same. For example, growing the sales while at the same time, keeping your cost structure low or similar. Our starting point operating margin is low, 6%, and this is after items affecting comparability, just to be clear. And we are committed, and we believe we can do it to make this 12% within a few years. So to conclude and finalize, we are set to deliver long-term shareholder value. Thank you very much. Now I would like to ask Håkan and Hanna-Maria to join me here.

Thank you, Arjen. Now we have a great opportunity for questions. We will start the questions from here, Samir.

[indiscernible] Firstly, question on the financial targets. -- why 5%? Where is that number coming from? Why isn't it 4%, 7%? And I think on 1 of the slides, you mentioned that the starting point is last 12 months. Should we read that as an indication for '21 ending some way starting some way? Is the 5% like a guidance or average for business cycle? How should we think about that?

Okay. If I start -- I mean we like the 5% a prime number. It's always good with prime. But I mean a thought from that, I think this is clearly average growth of the business. So some years, it might be less. Some years, it might be more. Some years might be much more. But over the cycle, 5%. And I think when we see the growth avenues that Arjen talked about, we can clearly get those numbers together.

No, I would say that's basically covering it pretty well, actually. But in a way, whether you take it, let's say, rolling 12 forward, let's say, it's the 5% target doesn't change, right? So if you look at the year-end, the target for the year after is still 5%, so it doesn't change.

And maybe to continue on the 12%, why 12%? I mean the previous target was 10% to 14%. It's now neatly between those -- that level. And the other aim is, of course, to read sort of your previous peak levels of roughly 12%. So when you say in a few years. Should we read that as midterm? Is it 3 to 5 years? What is the -- you must have sort of an internal road map or thought process that, okay, I want to to reach that within 3 or 5 years?

So if I start, I mean, clearly, we had 10% to 14%. I think we never achieved the higher percentage. So that -- from that perspective, because some people is asking is this a lowering of the ambitions, and it's not. It's clearly -- we think that 12% -- I mean, currently, we're at 6%. We want to take it at 12%. So it's forward leaning, but it's definitely achievable.

Yes. And I think it's also a good thing to mention that, okay, we are still in COVID, right? So who can predict the world. and like Håkan said, we believe absolutely in this target is achievable. But there are, of course, factors that we cannot fully influence. So COVID with the pace of decarbonization on the longer term will have an impact to the pace.

And then maybe 2 number questions on -- or 1 another question on the energy storage. How much sales have you created let's say, last 12 months or past 9 months for the business? And can you comment in any way how much loss making is that business? And maybe even going further, what kind of profitability level would you assume that business to be making in a few years time?

So we will not go into the details of the the financials for this year, so to say. I mean, we -- clearly, if you look at what we have delivered and what we have in our order backlog, it's more than 4 gigawatt hours. So that is an element. It is clearly loss-making we think that we certainly can turn it around over a few years' time. And that in a way that it fits into the profitability strategy that we have to 12%.

Yes, I think that's what it is.

It's Erkki from Inderes. You have quite high expectations in services, but aren't some parts, at least some parts of your installed base, especially energy, it's becoming obsolete in the coming years with renewables, replacing old oil and gas-based power stations. How do you -- are you going to kind of fill this void?

So first of all, I mean -- and you know that, to clarify, I mean the thermal business and if you look at the installed base, this is a business that the services are running over decades. Then to your point, what about will they become obsolete? No. Because right now, we are converting to gas. And in the future, we will convert them into the new fuels. Then, of course, and to be clear, there are, of course, engines with different vintages and types, et cetera, et cetera. So it's not as black is white and white as I described it, but the logic is clearly there. We are upgrading the installed base, and it's the customers, but we are helping them to do that. And we take it in 2 steps on the energy side. First is to gas and then is the greenfield.

Andreas from JPMorgan. I wanted to talk a bit about mix in your business. That's always been a big driver historically in profitability. I remember in the past when the business environment was good, the mix wasn't good, and then the business environment wasn't good. You couldn't make the 14% because the business environment wasn't good. So how do you think about mix going forward, particularly when the EUR 700 million of storage hits the P&L in the coming 12, 18 months. I guess, still at losses? Or is that ramp up in margin going to come quick enough for that not to be a big negative mix driver? And then just to clarify, when you say a few years, obviously, it's depending on the language and what people understand on the view, this can be quite difficult to interpret. Some people saying few means 1 to 2 others or do you mean more 3 to 5, just to make sure we all understand what you mean when you say a few, I don't know what the finish word or the Swedish word is for few, but.

So I mean it's a good question. And I mean and it is like I am put it. Part of the equation is COVID and how fast that will phase out or transform. Part of the equation is, of course, also how quick the decarbonization shift will be. So a few years from that perspective is a few years, and it's not entirely clear. And coming back to your questions on battery storage or energy storage. I would say that, that will also take a few years and a few years it's not next year.

It's Tom Horsey over here. Thank you very much for hosting us in Helsinki. It's great to be here. I've got 2 questions. One goes back to the 5% revenue growth. And I'd love to know what governs that 5%. You've outlined these great revenue growth opportunities. And is it a question of what set us internal capacity and risk control that limits the growth? Or is it the rate of customer adoption or something else? And then also, if you could explain your framework for deciding what you develop with your own R&D, what you buy on bolt-ons and how you partner, then that would be great to understand, too.

So when it comes to what are the constraints to the growth, I would say that it's more related to the market adoption then to that we have internal resources or competence constraints. And so I think if the adoption, if COVID evolves in a more positive way, yes, that could be more positive. But it's -- that's why we say 5% over the cycle. Then coming back to your second question, can you repeat it?

When you think about the new technologies, how do you decide what you're going to develop with your own R&D, what you're going to buy with a bolt-on and then what you're going to partner?

So we have clearly defined what is our core technologies, and they evolve around the combustion engine and they evolve around energy storage and evolve around our digital solutions. So these are our core technologies. Then we have other technologies, take fuel cells, take air lubrications. Those are technologies that we don't have in-depth development and manufacturing skills. So I think it's fairly clear for us where we are strong and where we are not strong. And from a technology perspective. And there for the areas where we feel that is outside of this core, we will partner up. And as I said, what the feedback that we have from our partners, what value do we bring to them it is a competence from the marine industry and how you marinize things. I mean how you adapt because it's a pretty special environment to help the partners to adapt to that. And then also, in many cases, our industry-leading service network because all those great new devices, they need to be serviced as well.

Stick to your core competencies. I think that's critical for...

Yes. And the key thing there is so much exciting state stuck in our core.

Manor in Nordea markets. Getting back to the 5% growth target. So I would like to challenge you a bit on that. I mean you're saying you have a EUR 700 million storage business today. And then you're saying that market is going to grow 10x, 15x over the next 10 years. So that means that if you kind of stick to your market share, you should have a EUR 7 billion business in 10 years. So that's quite a lot more growth than 5%. And then I guess you are not assuming that the old Wärtsilä business will decline. So kind of why not a higher growth target? Or are you not targeting the whole energy storage market? And I'm just in light of the numbers you gave me, it sounds quite low.

Yes. So can -- I mean -- so your math is right. I mean we will not target all geographies on the energy storage side Clearly. We will focus on some of the core regions like U.S., like Australia, like U.K., like Europe, et cetera, so to say. So we're not going to be all over the place at the same time.

Okay. Are you able to help us to then understand what rate your end market is growing?

Once again?

At what rate will your end markets grow or how much of the...

I mean I think we indicated 30% overall. And when we look at our targets, it's -- we are looking at the same magnitude of nuts.

Okay. And then getting more practical. I mean, when you look at your quotation pipeline and what you actually talk with your customers and compare that to the numbers you provided us for the end market. So are you seeing that your end market pipeline in terms of quotation on the storage side and on the thermal combustion market side is kind of agreeing with the numbers to get from your consultants that you're seeing a massive increase in those pipelines?

So if I understand your question, I mean, -- If you Bloomberg, DNV, et cetera, I think we are fairly aligned on the value, so to say.

And you see that in your sales funnel, when you talk to our salespeople, they tell you, compared to 2 years ago, we have 10x more quotations?

Where we see growth. And then as I said, and I said it you need to take a perspective over a couple of years. So you cannot look at quarter-by-quarter development. But if we look at the the development over a couple of years, yes, we do see a lot of tender activities, both on the energy storage side but also on the thermal side. And I think you've also seen the order intake on the thermal side is building up. I mean, only this morning, we announced yet another order, so to say. So we are seeing correlation. Yes.

Okay. And then finally, on the profitability targets. So I think you never really achieved a 12% historically. If you look at the reported numbers, pretty close at least what I can track for the last 10 years. But during that time, we've seen the service business growing quite significantly, but then it hasn't really contributed to a higher margin. And now you have a service business at the 2019 sales level already and your profitability is very low. So can you just help me to kind of bridge the 6% to 12% because the service is the biggest driver? And at least I'm struggling to understand how that's going to come from the top line side?

So I don't want to comment your logic the calculation, but I can clearly say that service business is profitable and it's a major driver for...

Absolutely. And Yes, service business is good, is good today. And we are -- okay, we are not exactly for all business lines on the same numbers as we were in 2019, pre-COVID. But things are improving, and that's positive. At the same time, of course, if you look at the total profitability target going forward, there are also negative influences, right? We say we have a loss-making storage business today. So that will direct the numbers down. So it's also a matter of, let's say, how good is your newbuild at each point of time versus your service business activity. And that is different. And that will be different also going forward. It's not a one-to-one comparison that, okay, now we should be exactly the same profitability as pre-COVID because service is on the same level. That's not how it works. Because on the new book side, we have a lot of businesses or business units actually that are still, let's say, hurt by COVID.

Okay. Then we will take a couple of questions from the chat. You highlight storage growth with 1 plus to reach the 12% margin target. Does this imply that storage is just around the level today? Or will it be at that level in the coming 5 years.

It's a good question. Of course, let's say, the plus is in my profit bridge indicate the size of contribution to the operating margin percentage. And okay, the 1 plus is an indication if you compare it to the service part that, okay, it's less than the service. So it's a negative number today. And I think we will not guide, let's say, on margins, but you can do your own calculations here. But of course, the bridge to the zero is smaller than the benefit that we intend to gain from service business.

Then question regarding Voyage. What would be a reasonable time line to turn the Voyage business into profitability?

So if I start on that. I mean, I think I pointed that out before. I mean, Voyage is a turnaround. We have earlier said a couple of years. The turnaround has clearly been delayed by the big pandemic. So from that perspective, the time frame is still a couple of years. However, I would give a lot of credit to Sean and the team. We see a lot of things moving in the right direction. I mean the business is clearly 1 big customer segment is cruising and therefore, Voyage will benefit as the cruising is picking up.

Then another question regarding Voyage. Any more specifics around where the growth is expected to come from region, new technology service?

So I would say that we see -- and I talked about that 60% to 70% is more hardware oriented. And there, we see more moderate growth. The real growth generator is our software business. Force and our whole digital offering. And this is where we see a significant growth going forward.

Yes. I would add to that, let's say, in Voyage, as you mentioned already, let's say, a big portion is related to, let's say, equipment and a big portion of that equipment is related to cruise and ferry, which have been severely hampered by the pandemic. So with that recovering, I think it will accelerate also in the recovery of Voyage on the numbers.

The question regarding the decarbonization on our financial targets. You mentioned the pace of decarbonization has an impact on when you can achieve the 12% margin. Can you please explain why? Does that mean that current mix, 12% is not achievable? Does the target rely on assumption of higher margin on decarbonization offering?

So it's a mixed answer many questions there. I would say that the shift, if we look on the energy side, is very much correlated to how fast renewables are picking up. And I think there will be a strong correlation and we can follow the pickup of the renewables and the need for balancing. On the maritime side, we clearly see that the piloting for the different greenfields, there are different countries like Norway, they are clearly spearheading ammonia. But they are also for the other fuels picking up. And yes, I mean, with new technology, we do see potential for price realization. Also, we see a potential avenue that -- some -- if we look on the 4-stroke side, some segments will be -- probably will be a bit decommoditize because with the green fuels, it's going to be technically more advanced.

Maybe if I can add to that, let's say, if you look at energy, for example, yesterday, the storage business is loss-making business. But the thermal balancing business is not a loss-making business. And that's where we also expect quite significant growth. And that's part of the whole equation as well.

Very true. Question regarding energy storage. Will the Energy Storage business lifetime profitability ever be in line with the 12% margin target considering the lower need for services?

Energy storage. Will it be ever, let's say, on a 12% operating margin, I would say it's difficult to say, might be. But typically, let's say, if you look at, let's say, if you compare storage business, for example, to thermal business, in the thermal business, you have rotation, combustion and whatever spare parts, that's typically not in the storage business. There, I think the profitability growth is probably more coming from, let's say, absolute terms rather than, let's say, on the percentage. But of course, it contributes positively.

And building on that, I mean, we certainly get a lot of questions, okay, thermal balancing, less running hours on the engines and more electric and less maintenance or will you hold what will be your impact on the services business. But what we see balancing that is the possibilities to move up the service value ladder that we talked about to move to performance-based agreements and provide energy or decarbonization as a service, where we work together with the customers to reduce cost of energy, provide uptime reliability.

Then continuing with the storage. I think it's fair to assume that there are different investors interested in a high-growing but loss-making energy storage business and a stable marine service business. Given the valuation we see on some energy storage peers, would it not make sense to spin off our separate energy storage business?

We got a lot of questions on that. And I will say what we see, and this is key message on battery or energy storage is -- and this is where we are -- it's a very fundamental part of our value proposition, it meets this power system optimization, and Sushil will talk more about it later on. And this is where you connect the thermal and the battery storage and renewables, et cetera, to drive an optimal operation, therefore, lowest cost. And so it's highly integrated for us. And also on the business side. Then also on the resources side, we actually are building up our execution capabilities by resources and competence from our thermal side, so to say. So for us, it still hangs together.

We can go beyond, let's say, our competitors in storage in our offering.

Then going back to financial targets, how much of margin increased to 12% would come to operating leverage on higher growth versus mix versus self-help actions on the cost base. This is after items affecting comparability. What do you assume is the underlying margin equaling to the 12%?

We will not go into the details on all these questions. Let's say we don't guide on margin. But I would say, let's say, on the items affecting comparability, I would say that, okay, what we assumed in our calculations is normalized level.

Okay. Another question regarding the margin target. You said it takes a few years, but do you see a steady improvement or back-ended loaded achievement to reach the target?

Okay. That's a difficult question. And of course, it depends to what we have said earlier as well, let's say, how quick is the pace of recovery from COVID, what's the pace of decarbonization. Those are 2 factors that are not fully in our own control. Let's say we can work on the turnaround of voyage. We can turn -- we can work a lot on, let's say, the installed base and getting up to the service value later. But those 2 factors are not so easy to influence. We have a certain view, we believe it will kick off. Let's say it's happening. Let's say, we just reasonably announced a lot of orders. But the pace going forward is still a bit of a foreseeable thing.

What kind of investment levels are required to hit targets and get back to 12% margins? Will they need to increase CapEx from current levels as a percentage of sales? Do you have an ambition to free cash flow conversion? And what is a normalized level of working capital to sales for the group?

If I start with 1 part. I mean -- and this is a key message on R&D, but it actually lows on the CapEx side as well and that's really -- 1 of this is really exciting, but we can -- we actually think we can drive, we can be a leading player in this transformation at fairly stable levels. That's why we say about 3% R&D of net sales. And CapEx will also be stayed so to say.

No, I think that's a correct statement. Let's say, the 3% of net sales for R&D that, of course, will grow in absolute terms when the volume grows, right? When it comes to, let's say, CapEx in plants and equipment, for example, that will be fairly stable. We don't need massive extra to facilitate the growth. No need for that.

Could you comment on the level of OpEx investment you are making in the storage business annually for the next few years? How much does the cost base need to go up to keep up with the robust demand growth?

I don't think details at this stage.

We don't have any more -- yes, please. Yes, please wait until the microphone.

I wanted to ask about kind of how the business works when you close some of these larger contracts in terms of pricing, securing supply and so on. So if you look at something like the LatAm order you recently announced on energy, at what point in time is kind of the price fixed and what happens then until it becomes a firm agreement? And do you have the ability to then to make some adjustments again at the end, given the inflationary environment here in, particularly if you look at Brazil, things get 10%, 20% more expensive every year. So how long is the lag where you have to make a price until you then can lock things in? And also if you look at battery storage, how does it work actually in terms of when you do some of these larger orders, you lock in the battery supply, the electrical balance of plant supply and how do you manage these risks in a very inflationary environment?

So basically, if we go to a general approach in our tendering is, of course, that you negotiate with the customer to the very end. And of course, you have -- in your calculation, you have your cost where you also, of course, include cost escalation and the standard of risk and contingency, so to say. And then when you reach the signing point, you sign and you close that and then you hedge. And then that's it. For the big businesses.

But during the quoting process, we also negotiated of course, with critical large-scale suppliers to make sure that I say we are not facing a surprise, let's say, after we signed that certainly, the price goes up. Those have been prefixed.

So when we sign and we lock it in, so to say, then we have locked in both the sales side and the cost side.

What share of the cost side can you normally [indiscernible]

Can you kind of please repeat the question for the microphone?

Can you lock in a -- like the very, very large majority of some of these costs. So given that some of these cost items now have ramped up very quickly, how much more than you normally budget for? I was asking in terms of backlog margins versus what do we expect for next year when you execute these contracts?

So I would say certain things you can lock in and certain things, you take an approach where you bake in expected inflation. So that's part of your provisions in the calculation.

And logistics is a good example, as you mentioned.

Okay. Then some more profitability-related questions from the chat. Further on battery storage. Why is the business loss-making currently? One would think that fertile business in battery is fairly light costs. So why a loss?

I don't think we comment on that, right? This is the state of the business. We are in an early stage, yes, we take a lot of orders in we still also need to deliver a lot, right? It will in progress as we go.

And it's scaling. I mean you invest in a lot of R&D, you set up a structure. And of course, then you grow the revenues and you scale.

Yes. That's it's a lot of initial investment at the moment.

Exactly. Thus the margin uplift from decarbonization mostly come from operating leverage or a shift in the product mix?

I think decarbonization has many positive impacts. Let's say, we talked about thermal balancing, we talk about, let's say, the different fuel types of the future, the retrofit capabilities. I think there's a lot of opportunities that linked to decarbonization. I would not say, okay, specifically one, it's many.

Your biggest growth driver is energy storage, which is loss-making and difficult to say if ever we'll reach the group target. This must imply that profitability in Wärtsilä core business will have to reach levels well above the 12% margin target, which have been difficult in the past. Can you elaborate how you plan to take Wärtsilä core profitability to higher levels than in the past?

Yes, I think we -- you broke it down in the waterfall.

No, I think that's as far as we go in detailing out, let's say, the margin improvement. But let's say, if you calculate like this, of course, it's a logic conclusion.

Do the comments on battery storage profitability imply that energy margins could go down before improving longer term? Or will improvements in thermal business more than offset the negative mix from storage.

I would say the -- I would say the trend is up. But of course, again, and I repeat myself here and also what Håkan said before, the pace of decarbonization is a question mark. Let's say, of course, let's say, we see a lot of momentum actually with coal being shut down. That momentum needs to continue. Fortunately, many countries in the world have said, okay, by next year, I will be off the call. And many of that is between the period '25 to 2030. So it's happening. People also realize more and more that let's say, if you don't do anything, you will face the blackout, and we have seen that also happening. So I do believe that the pace of thermal balancing power will go up. And okay, if we are good, let's say, with our turnaround and scaling of the storage business, I think the equation might be positive, yes. But pace is a question mark.

Continuing with the battery storage business. Could you discuss the value chain in terms of who makes the money? Is the battery developer or the distributor such as Wärtsilä, who enjoys the strong spot who has the strong position in terms of moneymaking capability in the value chain you think?

No, we are not commenting on that. That's quite competition sensitive, so no comments.

But I mean, from our side, I mean, if you look at our business and why we think this is an interesting business and we can make money is this power system optimization capabilities. I mean integrating these assets in an optimal way, leveraging digital to really provide the lowest energy cost because it's not as simple, just a hookup and battery storage. I mean the storage in itself it's a fairly complicated device. And in the sense of how you run it actually affects lifetime. I mean, how you have tuned the chemistries, how you are running the storage, current utilization over 10 years, it's actually fairly complicated. And to have the optimal point. And second -- the second level of complexity is okay. So you're running this together with the thermal generation and a wind farm Okay. How should you do when the weather changes should you then use the better to use the thermal to have to make sure you have the lowest cost and prolong, for instance, the lifetime of your batteries. So from that perspective, there are great value creation opportunities in this optimization.

Thank you, Håkan. Thank you, Arjen. Thank you for -- Okay. Tomi has 1 more question.

Tomi Railo, DNB. I wrote down 3 more questions if we have time. But the orders, you are targeting storage orders over EUR 700 million this year. We know the third quarter number, EUR 180 million. What is the year-to-date numbers, 9 months number?

I don't have it out of the top of my head, but. We can come back to that.

We have not disclosed it.

Okay. And secondly, what kind of lead times are there in the storage? How much of that EUR 700 million or over of orders are delivered this year? How much next year? Yes. And maybe a follow-up, just how much sales should we need in order for that business to be making profits?

So the one that I will elaborate on is the lead time. And that we will see a lot of these sales happening during next year because I would say there is a 6 to 18 months lead time. So a lot of the order intake this year will hit next year and also going into 2023.

Okay. Last question comes from Erkki then we will have a break.

Yes, this is the last one. Are you concerned, if at all, of the capacity utilization rates in Wärtsilä were seen in the near future and further down the line? I mean are you -- do you expect that the engine market will be sufficient to keep these factories and their people for occupy?

So if I start, I mean if we look right here right now, with successful street that Sushil and the energy team has, I would say, we are running Wärtsilä at a good rate. And in Italy, we are actually bringing in additional resources to help us. So short -- that's the very short-term perspective. If we take a more mid- to long-term perspective, I mean the general loading situation has been lower, but -- it's coming back to Arjen's point. We -- in the past, we have taken actions in the future. We will take actions. The actions we have taken so far is that we have slimmed down the costume, so to say, being low in resources, keeping very careful track of our CapEx. But I would put that in the basket of continuous improvement.

And a good example here is you mentioned Trieste factory. In quarter 2, we made an adjustment there, temporary layoffs in the Trieste factory. Now we are hiring external people to facilitate the assembly because the note is so high. So it fluctuates quite quickly. And again, like Håkan said, the orders now coming in from energy storage, of course, greatly support better factory load, and that's beneficial.

Thank you, Arjen. Thank you, Håkan. Thank you for great questions. Now we will have a break. Please be back here at 3:00 Finnish time.

Thank you.

Thank you. [Break]

Good afternoon. If we look at the maritime environment and look at LNG as a fuel, the maritime environment has been transforming during the last 20 years into LNG as a fuel. We are still at a rate of less than 5% of LNG fuel usage, looking at the whole fleet. Now looking at the transformation we need to do during the next 30 years, we need to see a transformation of the whole fleet that is 60% or more. This is a change in the maritime environment that we have never ever seen before. And if we look at it, it's a change of a vessel lifetime. The time we look at, it's the same as a vessel lifetime. It's 25 to 30 years. It's a change and the speed that we will see that is totally different than what we have seen so far. The fuel flexible engine will be the technology where the industry can transform in a way that makes sense both financially and from a decarbonization point of view. We need to keep in mind this is not about a one-off thing when we talk about decarbonization. If you would go on off, you can't afford it. As Håkan mentioned already earlier, the new fuels will be 2 to 4x more expensive. You need to make this transformation in phases. And this is where the engine technology really suitable because you can look at the transformation where you can combine the financial viability with the decarbonization part that you need to take. And this is the key in the transformation for our customers. You can already see it in the discussion we have with our customers today, it's almost impossible to have a customer meeting today without talking about the decarbonization journey. It's on every agenda for our customers. And the key is how do you do it on the right part? It's too late already to say that you wait and see it. Then you will be out of business. You also need to make sure that you do it on the correct part to keep this balance in place. Our service business drives the stability, the profitability and growth. And we also see, thanks to the decarbonization, definitely more opportunities also from the retrofitting business of the existing fleet. If we take a look at what do we have in the offering portfolio as Marine Power today that supports this. We look at the propulsion equipment. We look at the engines, we look at the energy management systems on board and the fuel gas handling systems. These are all core technologies to look at the decarbonization path for our customers. It's all about how do you make this transition in a part that makes sense. To support that on the life cycle side, then with transactional services, is it then spare parts. Is it our competent field service engineers, it can be related to agreements or performance-related agreements where we share the pain and the gain together with our customers or as mentioned already, project services where we talk about upgrades of the assets. Already today, a key question for our customers when you order a newer ship needs to be, who is the technology provider that will be there with you during your lifetime of the vessel? Who do you trust that we'll be there making sure that your asset value is going to stay and that you can optimize the asset value. Because if you are not on the correct part of that one, it will have an impact of your balance sheet as well as your competitiveness. So let's go into the transformation phase. Håkan already mentioned this about the decarbonization. And let's look at what does this mean for the maritime industry. We have already talked about the regulation framework, which is in place by IMO coming from regional regulations coming from EU Fit for 55, that's 1 part of the change. But more and more, we see other stakeholders pushing for the decarbonization. It's from the financing angle when we look at the Poseidon principles. Making sure that to finance your ship, you need to stay on the development part for the decarbonization with your assets. It's also from the cargo owners and the cargo charter here is a perfect example where we look at where the cargo owners are demanding that you use ships that are on the right path towards decarbonization. And then more and more companies like Wärtsilä, like other companies, setting their own targets, how to decarbonize operations. And actually, the logistics chain here might be a good pathway to make sure that you optimize your footprint. If we then look at it from what we call here the CII index, this is the carbon intensity index, Compare this with -- when you buy a washing machine at home or TV, you have the same marking on these ones. This is the same what we will see now in the shipping world. The only difference is that you don't upgrade your washing machine at home during the life cycle, but this is what will be expected by the ship owners. You will need to upgrade your asset constantly if you want to stay competitive. And the key here is to make sure you do it in a way where you combine the financial liability with the decarbonization path. How do you make sure that your assets stay competitive on the part of the grouping of the CII index? And we already see that this is going to impact the competitiveness of your vessel. And this provides a big framework then for the ship owners to look at how do you stay on the right part in the decarbonization. So let's have a look then what does this mean for you as a ship owner. If we start from the upper part here and look at what do you need to think about if you are planning to order a new build vessel. We see already today talking to customers that they think about 4 examples to say that, okay, can I prepare storage space for methanol as a fuel already know, methanol is the easiest fuel to prepare for from a fuel perspective. Can I make sure I have the tanks, the space for methanol as a fuel. Can I prepare a bit space in the engine room for equipment that is needed when you run methanol fairly small investments in a new build phase that you can do to be much more prepared to say that when the first big dry dock comes 5 years after you have taken the ship into operations, you would convert the engines to run on green methanol. These are the things you need to look at on top of making sure that you are as flexible as possible to bring in energy efficiency devices that you can constantly improve the way that you operate your vessel. If you are then looking at your existing fleet, here today, you might look at can I do improvement looking at the propulsion equipment, shaft generators, installing hybrid installation you go buy wind assistant. You might install air lubrication to improve the resistance of the hull, all of these things, looking at the total fleet to see that how do I stay on the CII curve that we already mentioned. What makes sense financially and what makes sense then from a pathway towards decarbonization. And then at some point in time, you will also get into this question that should I convert the future fuel of the vessel? Does it make sense, looking at what's the remaining lifetime of my asset? This is a constant discussion together with our customers today. And it's definitely at the core of the customer strategy that how do I stay competitive in the industry by looking at the fleet, optimizing the new build vessels to make sure that I'm going to be there where I need to be 5 years ahead and 10 years ahead of time. Let's look at what does this mean then from a fuel perspective. And here, you can see that green is not really black and white. It's a mix of many things. And we are moving from an environment that has been very much a single fuel environment in the multifuel environment, which much more complexity, even regional differences, we will probably see. If you start by looking at the dotted orange line here, this is coming back to what Håkan showed earlier in his presentation. This is the pathway where we look at in this scenario, 1.5-degree scenario at what speed do we need to take to reach that scenario? And how much uptake do we need to see on the carbon neutral and zero carbon fuels. The challenge on this curve is that in the beginning, you have the chicken and egg thing. The green fuels are not available. You will not invest in equipment that can utilize green fuels. If it's not available, the fuel distributors will not invest in green fuels if it's not available, and then you need to solve this circle. On the other angle of the , if you look at 2050, it's to make sure that we have started the transformation fast enough so you can do this in a financial viable way. There will not be enough yard capacity, not be enough retrofit capacity if this is coming too late. And that will impact the asset value of the vessels if you cannot make sure that you are on the right part on this transformation. So you are pushed from both ends, which means that the industry as such needs to move now. It's already moving. And in the maritime context, it's moving fast, but we still need to remember, we talk about decades when we talk about the transition here. So when you look at this curve, it looks like small steps, but in a maritime context, this is big. And it needs to constantly move. Otherwise, you will have an asset challenge towards the end of the life span here. As you see, you will also see, especially in the first part of the timing here that this is a lot about also looking at the blending. So you will blend fossil fuels with bio or synthetic fuels. It can be then either on the diesel side, the liquid fuel or on the gas side talking about bio LNG or similar. And the reason we will see this is more from a financial perspective. Fuels will be 2 to 4x more expensive. How much do you need to blend to be on the right curve. And to look at it also from another angle, then the fuel and the fuel conversion. And when you look at the fuels, it's not just about the fuels itself. It's also about the characteristics of the fuel. And we need to remember when we look at this in shipping, the space is precious. You need the space for cargo or passengers every corner of the ship is something that you will try to optimize. And when you then look at the future fuels, on the left-hand side here, we have the existing fuels. And then you can start to compare if you look at the bottom line here, there we talk about the gross tank size factor. This is not just about the fuel volumes itself, but also the tank structure that you need for this specific fuel. And if we start from the right-hand side of this picture and you look at the battery, you see today it's around 40x more space than if you go with traditional fuels. We might get in the future to something close to 20x. It's still a lot of more space that you need, which means that for this to happen, you need to go short roots only. You cannot have a vessel that is full of batteries only and no space for cargo passengers. You need to optimize the space and of course, depending on the turnaround time, the charging time that you need to do in the port. On short route, this will work well with the additional note to remember, 25, 30 years life cycle of the vessel. You are not going to move this vessel to a longer route during the lifetime of this vessel without doing significant changes. You are locking in the vessel for a short route for the lifetime of the vessel. So this is also good to remember. If that works, this is a good solution. Then if we go to the fuels and looking at -- you hear discussions today talking about hydrogen-fueled vessels. Most of that today is compressed hydrogen. Then we talk about close to 20x the space again and all the complexity that comes with hydrogen. If you go cryogenic and you go to liquid hydrogen, where you need to have it then to minus 253 degrees, then you get clearly less space, but a lot of more complexity due to the cryogenic setup of this one. So for sure, we will see some hydrogen vessels also in the future, but it's not going to be a mainstream fuel in maritime. In energy, it might be different, and that's a different story. But remember, space is precious in maritime, which then leaves us with mainstream fuels looking about future fuels in maritime, methanol, which is fairly easy to handle. It's a fairly straightforward fuel have been running methanol since 2015, together with Stena, Stena Germanica we know how this works. Tank construction wise also, this is fairly simple. Ammonia is a new fuel, and that's also clearly much easier to handle. You might say it's toxic. At the same time, ammonia is used today in many applications, and it's transported also already by sea in big quantities. So this is nothing new. It can be handled. Storage need wise, it's also okay. So these are the directions we will see this going. And then coming back to 1 is then the engine, the key technology here because when we talk to the customer and what we can do already today, it's -- we can start with drop-in fuels. So you can already blend biofuel cider in liquid or gas forms already in the tank today. So you can start transforming with existing technology. It works today. Then you can move in the future to something what we call also blending. This is where you inject 2 fuels into the combustion which you can do as an example, you can blend ammonia with marine diesel oil as an example. And again, we are moving in the right direction on the decarbonization and towards then in the future, depending on price and depending on where you want to be from a decarbonization perspective you are mixing this in the right order. This is not going to be an on off thing. It's going to be a gradual transformation. And the reason for this is that here, you can bring in the best total cost of ownership, both from change needs on the engine and the vessel structure as well as then from a fuel cost perspective. We know these fuels. We have been working on gas and liquid fuels for decades already, dual fuel applications. We know how to run on biofuels. We know-how to run on LNG. We know how to handle methanol. We have also run on hydrogen blends, and we have tested actually better than we expected this summer on ammonia, where we have run an engine on 70% ammonia, 30% marine diesel oil with really good results so far. And this is the way we also believe it will go where you start the mixing percentages, same we have done on hydrogen to test engines on pure hydrogen. Combining that with the electric side where we see here, we will see more hybrid installations where you use batteries to take out peak savings to optimize how you run the engines. And you can also then on top, of course, at the energy saving devices that was mentioned earlier. So all in all, if you summarize the decarbonization journey, visit on the technology where we can be part of the customers' journey on this decarbonization pathway where you combine the financial viability with the greenhouse gas reductions in the most optimal way as you look at your total feet. Let's then quickly look also on the perform part and how we are going to drive this from a service and connecting service to the decarbonization part. We have 4 clear growth drivers. One is what I earlier said that our customers needs to be really, really careful looking at the technology choices today. Who is your partner for the lifetime of your vessel? Who will be there upgrading your vessel in the best potential way? Increased transactional sale, look at fuel conversions. Combining that with the energy saving devices going back to the CII curve, how do you optimize your vessels to stay on that one? And then agreements where we already see today the increased interest of agreements, thanks to more complexity on 1 hand, but also the more value we can provide to the customers on the agreement side. And if I start with the transactional side, this is going back to what Håkan already mentioned in his presentation. And the key here is this is already ongoing. What we are doing is looking at how do we optimize the know-how and the data we have well in advance for when a customer is doing a dry docking. Dry dock is happening around every fifth year. And usually, the customers try to optimize most part of the maintenance to this dry dock because it's more efficient, not all of it, but as much as possible. If we are proactive on being there, providing them the value for these dry docks, we can also optimize the way we do business on these smaller accounts. We have seen good results so far, 12% compared to 2020 and okay, 4% compared to pre-COVID. And here, we have clear growth to target going forward as well. Retrofits. Going back again to the CII curve, remembering the washing machine or the TV, here, we upgrade the equipment as we go. The easy thing now for 2023 targets for the customers might be to bring down and put in engine speed limitation. That's the easy first step to reduce your carbon footprint. After that, it will be to look at energy efficiency devices, how do you keep the vessel on track for that curve and going into fuel conversions later on when it makes financial sense. This is what we have for 4-stroke engines. But as we already announced earlier this week, we are also going to do this for 2-stroke engines where we have launched the concept where we can go from liquid fuel to gas conversions with very limited mean slip. And that will also be a base for us to develop future green fuel developments on the 2-stroke side. So this is really exciting. Then looking at agreements. We have proved from existing agreements that we can optimize the fuel consumption. And this is the case referring to 2.5% fuel consumption. Remembering now fuel bill will go up 2 to 4x in maritime with the green fuel. The value of this 2.5% will just increase payback for doing this will just improve for our customers. And it will not only be about the fuel itself, it will also be about reducing emissions. So combining again the financial with the reduction of emissions. We do this by having the best know-how about our hardware, our equipment, combining that with data, understanding how to best operate the equipment and do the dynamic maintenance planning. And our target is to -- when we look at the agreements we have in place, our target is to double the number of vessels that are covered by agreements. That's 1 thing. But the other target is to push them up the value ladder also from a content point of view and a value creation point of view. On the left-hand side, we start more with maintenance planning, combined with transactional services. And in the other end, you go up when we talk about full performance-based agreements, where we share the pain and the game with the customers. It might be then related to uptime. It might be related to fuel consumption. It's what is important for their installations. And I'm sure we will see more in the future as well related to emissions. How do we optimize the agreements that we have together with our customers. We today have a 94% renewal rate of our agreements, which shows already the value we can provide to our customers. And why they come back again and again to make sure that we are working in a partnership together with our customers. And to take a few concrete examples, I mentioned already 2.5%. This is a lot for the customer, for a fleet of cruise vessels. Second example in the middle, reduction of unscheduled maintenance cost over a 2-year period, minus 69% for a fleet of LNG carriers. And savings by increasing time between overhauls and minimizing interruptions EUR 40 million for the customer, for a fleet of LNG carriers. All these, of course, depends on what operation they have, how critical it is but the more critical vessel, the more critical operation, the more higher asset value they have, the more value we can provide to our customers by bringing together our competence that we can provide, together with the customers' operations. So to sum it up, we are on a path and a change journey that Maritime has never seen before. The key will be here, to combine the financial viability for our customers, together with the decarbonization journey. And we provide the know-how, not only the engine technology, where you can do the transition in a phased way. But it's also with the total know-how as we as Wärtsilä can bring in, to look at how do we optimize your fleet? How do we optimize your installations to be on this part? And we are well positioned to be part and take a leading role on this decarbonization transformation. Thank you for listening. And now, I'll welcome my friend, Sushil then to talk about energy. And based on the questions, I'm sure there will be a lot of interest to listen t Sushil social as well. Please.

Thank you, Roger, for taking us through the decarbonization of Marine sector. Decarbonization of Energy sector, we all know, is a global imperative. But let me start with a small reflection. Imagine yourself in Helsinki, it is February, peak of the winter, outside temperature is minus 20 degrees. Your power and heating goes off for 48 hours. This happened to me, not in Helsinki, but in Houston, where I live, February this year. The Texas-freeze event caused a massive blackout, leaving 4.5 million homes and businesses without power, heat and even water. And for some, it lasted several days. The event caused economic losses of $130 billion. Almost everything in the power system actually failed except Wärtsilä-based -- Wärtsilä engine-based power plant, which kept on running throughout the blackout, to do what it was supposed to do, provide electricity. What we need is flexible firm, balancing capacity to support renewal in our power systems. Our growth strategy is simple. The transition to net zero will require right technology, software, services and skills. And Wärtsilä is in the right position, we are well positioned to provide that support to our customers in their journey. Now today, my presentation is structured in two parts, Transform, where; I'm going to talk about how the energy system is changing, and Perform, how we're going to capture growth in balancing and services. Now, our vision is to lead the transition towards 100% renewable energy. And I'm going to talk about how decarbonization and increased amount of renewal in the power system, is creating immense growth for our business. And I'm also going to talk about how we are going to grow in power system optimization through our leading position in thermal balancing and energy storage. And finally, I'm going to talk about how we're going to improve our business performance through growth in services and project excellence. What is going to be different today in my presentation, compared to the last CMD, is we have proof points to demonstrate that the transition is happening. We all know that the energy sector is undergoing a massive transformation, and the future is renewables. Decarbonization and renewables are fundamentally going to change the way energy is generated. And as Håkan already shown, 88% of world's energy is going to be coming from renewables by 2050. And Wärtsilä role here, is to provide balancing power to support the maximum utilization of renewables. We all know that the sun does not shine always, and wind does not blow all the time. But also, what we have seen this year in Nordics and in Brazil that big hydro countries can also have dry periods. And this is where Wärtsilä balancing capacity will provide needed power. Now, many people in the energy sector is asking this question. How do we make the transition happen? And what steps do we need to make to net zero? I think the path is similar everywhere. The pace may be different. So what we need to do is add a lot of renewables, as quickly as possible. We need to create conditions for investment in thermal balancing and energy storage. Once we have adequate amount of renewals, we need to start phasing out the inflexible thermal capacities like coal. And to make the final push to 100% renewable, we need to invest in Power-to-X to create carbon-neutral and zero-carbon fuel and then convert the thermal balancing capacity to run on those fuel. And at that point, we can phase out the balance fossil fuel capacity, if it is already not done. Now Wärtsilä's technology, both thermal balancing and energy storage will be a key part in this -- play a key part in this transition and be a part of the future energy system. Now, when we talk about power systems, let me show you how the power system work in practice and what our technology actually -- what role they play in that power system. You know that optimal power system is the best solution at hand, at this point of time. In a day, when you have adequate sun and wind, you can produce enough power to meet the demand, and you can store access energy in energy storage. As we approach sunset, the solar capacity comes down, the demand peaks because people come home and switch on their home -- their appliances and lights. At that point of time, you need the energy storage to take part of that peak. The thermal balancing needs to follow and ramp up quickly to take the rest of the power. As we go into the evening, you don't have any solar anymore. Your battery is discharged. Of course, you have low demand, and that should be able to be catered with wind. But you may not have wind. The wind sometimes comes down, and that halts the power generation. At that point of time, you need to quickly ramp up the thermal balancing to provide power for the demand and also for system resiliency. Further into the night, you may have the wind coming back again. At that point of time, you need the thermal balancing to ramp down quickly, to provide a path for the wind to take over. Now, it is really important to understand that inflexible capacity cannot ramp up and down to provide this path for the renewals to take over. On the left-hand side, you see an optimal power system, which has -- which will always be coupled -- the renewables will always be coupled with energy storage and thermal-balancing capacity. This is going to provide us the cost-optimal path or cost-optimal power system. On the right-hand side, inflexible power system will have inflexible thermal capacity, which will mean that we will have to build out or overbuild the power system. And even then, you will have -- because you cannot efficiently use the renewables, you have to curtail a lot of power. So remember, 3 Cs, our balancing solutions, both thermal balancing and energy stories, are complementary, and they provide a reduction in CO2, reduction in curtailment and reduction in CapEx, making it the cost-optimal power system. Now, when we talk about power system, I think planning is extremely important. And when we planned well, when we carefully planned, we can save billions of dollars and achieve rapid decarbonization. Wärtsilä has systematically developed power-system modeling capability over last decade. We have modeled 150 countries and regions around the world. Many of them actually, are with our customers. Now, when we talk about planning -- when we talk about power-system modeling, we just released our last month, our front-loading, net-zero report. And I'm going to talk a couple of -- take a couple of examples from that. Germany can achieve net zero, 5 years ahead of their national target and save EUR 55 billion. India, on the other hand, can achieve net zero by investing in renewables, thermal balancing, energy storage and reduce their power tariffs by up to 48% from what it is today. And at the same time, they can save billions of dollars from fuel import. If you have not read this report, I recommend you to do so. There are very interesting findings there. Now, Wärtsilä's thermal balancing, energy storage are going to play an absolutely key role in the power system. Let us now talk about in the performance section, demonstrate how we're going to capture growth in balancing and services. Balancing market is going to grow tenfold. And we will capture opportunity in thermal balancing, energy storage and services. We will tap into the growth in thermal balancing and energy storage and maintain our top-3 market position. We will create value through our strong power system knowledge and experience in integrating different generating assets. We will grow in our Services business by increasing agreement coverage through performance-based agreements. And last but not the least, we will also tap into 10 gigawatt of conversion possibilities -- conversion opportunities. Now let's take a closer look at the thermal balancing market. The thermal balancing market is growing by 30%. Over the next decade, it's going to grow tenfold. Now, we are one of the top 3 players in the thermal balancing market, and we are a top 5 player in the balancing market. The balancing market is actually moving towards -- sorry, the baseload market is moving towards balancing. And that is making our technology more competitive in the near future. Gas is going to remain a critical transition fuel to replace coal and provide system balancing. 40 countries, if you have read recently, the report from COP26, 40 countries have already committed phase-out of coal, and we think more will follow. Now 90 gigawatts of coal capacity alone, is going to be phased out this year. Hydrogen and other carbon-neutral fuel will be gradually available. And as Roger mentioned, we are working on our hydrogen concept, and we will be ready with the concept by 2025. Ammonia will be earlier. Now, let's talk about some exciting things. We have increased market activities, 17 states in United States have set their target for 100% renewable energy and included thermal balancing as a part of their plan. Brazil is going to procure 12 gigawatt of balancing capacity. They already have a reserve auction, and they will have another capacity auction at the end of the year. South Africa has already awarded 1.2 gigawatt of ICE -- of internal combustion engine, to IPPs. Germany will replace 25 gigawatts of coal with renewables and CHP. And we have done a study with [ EPPI ] of China, which demonstrates that the internal combustion engine market in China, in Jiangsu province alone, will be 8 gigawatt. Now, what does it mean for us? -- as a business and as a company. The market is picking up. And as Arjen mentioned, thermal is back. We announced more orders, this morning. And this time, the wins are from Brazil, where we got 3 contracts, altogether, 150 megawatt, 16 engines from our Vaasa factory. Last week, we announced 2 major deals from Latin America, totaling EUR 418 million -- EUR 480 million. A few months back, a couple of months back, we announced a 156-megawatt contract from United States, from Omaha. We are currently building 6 power plants in Italy for thermal balancing, totaling 380 megawatts. This gigawatt-plus capacity takes our thermal balancing installed base by 20%, up to 8 gigawatt. And all these thermal capacities -- thermal balancing capacities are providing balancing support for renewables and also for weather variability. Let me show you how. You remember, we commissioned a 211 megawatt project, just last year, in South Australia. South Australia is a market, where they have already reached 50% renewables. We did a study of South Australian market by taking real-time operative data, not only from the Barker Inlet plant, but also other plants in the system. And what that study shows is the Barker Inlet plant, which is actually powered by Wärtsilä internal combustion engine, is, by far, superior than open-cycle and combined-cycle turbines. And why is it so? It does because of its modularity and fast ramp and ramp up and ramp down capabilities and efficiency. It is able to follow -- it is able to balance the renewables and follow the demand, continuously. And by doing so, it is able to capture 30% more price spikes in the market. Australia is an open market. So it is able to capture 30% more price spikes, resulting in millions of increased -- millions of dollars of increased revenue. And what is really important is, it is able to avoid negative prices, which results in millions of dollars of savings. Now, we have had a lot of discussions about the market of engines, thermal balancing versus gas turbines. The scenarios that I have presented, the wins that we have, which are -- quite a few of them are against gas turbine, and the real case, that we have demonstrated. And actually, this is now we are able to -- we have been talking about power system modeling -- these in power system modeling, but now we can actually demonstrate this with real-time data. All of these demonstrates that ICE engines are very competitive, compared to other technologies. Now, when we talk about balancing capacity, what is -- what makes our Balancing portfolio incredibly strong, is our other balancing solution, and that is energy storage. Let's talk about it. Energy storage market will continue to grow at 30% for the next 10 years and beyond. We have been growing, quite rapidly in past year by leveraging power-system competence and integration capabilities. Our order intake has grown sixfold. We have already delivered -- we have a portfolio of delivered and contracted capacity of 4 gigawatt hour. Now, the orders, as we -- as Håkan mentioned, this year will be over EUR 700 million. Now, the business is expected to be profitable in a few years' time. And that is the focus of my organization. And let's talk how we can do it. We have deep know-how in power systems, and we will combine deep understanding of different technology and software, integrating, generating assets and maximizing the revenue for our customers over the lifetime. We will continuously invest in -- to maintain our leading position in power system optimization and explore also, different revenue models with performance-based incentive. Now, on the execution side, we will continue to have a competitive supply chain, with partnerships with world-leading battery cell providers. We will grow by combining strong customer base that we have, with our Wärtsilä global network, which provides us enormous strength to grow. And to provide for that growth, we will systematically grow our energy storage organization and leverage our project management capabilities. Now, when we talk about revenue models. And I would also like to talk about how our intelligent energy management system is creating value and capturing it also for us. We signed a frame agreement with AGL, and AGL really values our critical expertise in power system and also our technology. The Wärtsilä IntelliBidder, auto bidding software is able to improve the forecasting -- the day-ahead forecasting and predictability of the intermittent generation for RWE in Texas. And it is also able to optimize their dispatch under the PPA. [ Evol Grid ], among other things, value our critical safety and cybersecurity features. Now, when we talk about smaller grids and island grids, we have a lot of use cases on how we integrate different assets and provide CO2 reduction, lower generation cost and provide reliability for our customers' power systems. B2Gold, where we have delivered a 15 megawatt hour capacity and GEMS, they have been able to save 7% in their gold processing cost, not energy cost, gold processing cost, by -- which is enabled by GEMS because GEMS is able to optimize their solar, thermal and batteries. I'm really fond of this statement by Dennis Stansbury of B2Gold. He says, "GEMS is basically the quarterback of the team. This is what our customers are talking about our energy management system." Now, when we talk about customers, I also like to talk about services. As our Service business is strongly growing. We had a 11% growth in our Service business. We have an extremely strong installed -- operating installed base, right now, of 57 gigawatt of thermal capacity and 2.5 gigawatt of energy storage. And we have focused -- our strategy is focused on increasing agreement coverage. We saw that there are untapped potential. And now we are converting customers to have agreements through performance-based agreements. And that is going to increase -- or there is a potential to increase the euro-per-kilowatt price on the installed base. We are also pursuing heavily, on gas-conversion opportunities, currently. Now, let's take a deeper look at that. Now, power systems are getting complex, and our customers are coming to us because we provide them support on integrating different generating assets, providing them lower CO2 emissions, providing them with lower energy cost. And at the same time, also providing them with reliability and resiliency that their power systems need. And this is driving the need for performance-based agreement. What is really exciting is, the convergent possibilities that we have, which is also enabled by carbon -- the customers are setting up their decarbonization goals and they want to convert their assets. We have a 10-gigawatt conversion opportunity within our own installed base. We have already converted or secured deals for 1.5 gigawatt already. And when the sustainable fuels will be available, we will also have opportunity to convert them, going forward, in the future. Now, we have a great Service business that is supporting our customers, in this time when they are transitioning to a new world. At the same time, we are also able to capture growth through decarbonization services, performance-based agreements and conversion. Now, we have also taken steps in our business and in our organization to deliver robust performance. We have implemented rigid program to improve risk and requirement management, both in tendering phase and in execution. We have strengthened project management and resource planning, strengthened sales and operation planning and [ overall ] strengthened leadership and performance management with continuous improvement mindset. We know that Project business will always have some risk. But with this, we are moving into the future with a healthy portfolio, which will improve our profitability. Now, to summarize, we are witnessing a massive energy transition. We are well positioned, when the decarbonization and increase of renewal will happen, we are well positioned to grow in our business. We will continue to lead -- continue to maintain our lead in energy storage and thermal balancing. And we will also improve our performance through service growth and project excellence. Now, we will lead the transition to 100% renewable energy future. We have the best technology on thermal balancing and energy storage to provide reliability, flexibility to power systems of today, so that neither Texas nor any part of the world will have to see blackout in the future. Thank you.

Thank you, Sushil. And still, congratulations for the deal.

Thank you.

So now I kindly ask Håkan, Arjen and Roger to join for the Q&A. And we will start the Q&A here in .

[indiscernible] markets. You were right, Sushil. The question will probably, be coming to you. But the -- on the storage side, so how big is the addressable market for Wärtsilä. I mean, if it's 55 gigawatts in 2030, but how much actually is something that you're going to target?

Yes. Thanks a lot for that question. Look, we are focusing on some focused market, like Håkan already mentioned, United States, U.K., Australia and South Africa. These are some of the focused markets that we have. So of course, the addressable market is -- the entire market is 55 gigawatts, but we're not present in some countries, knowing that we will not be competitive. And our values will not be valued. So we are only focusing on a certain market. But we will keep our -- as we said, the market will grow at 30%, and we will keep our top-3 position. We will maintain our top-3 position, going forward.

Okay. And within -- I missed the -- you say, what -- is it the whole market you're targeting there? Or is there some specific markets that is not relevant for you?

We are focusing on certain markets, which are big. But we are not going to focus on markets, where our technology will not be valued yet.

And also -- and I mean, the battery or energy storage and thermal balancing market, is not one market. It's like when you go back to the school book, you segment the market. And there are different players in the market. So we have the utilities, the IPPs, the developers, et cetera. Maybe we should develop that.

Yes. I think, when we talk about the energy market, it's -- there are different types of players. You have utilities, which are then buying their own assets, and they are utilizing it. And there's a different way they value assets. So there, we can look at some business models. So that is an attractive market for us. IPPs and developers, IPPs also -- I mean, there's a lot of projects being done by IPPs, nowadays. And developers are also jumping in. And that's where we see quite a lot of value for our technology. I mean, when I talk about our technology, it's the overall technology, including the software, and how it creates value for them. For example, the example that I gave on the RWE side, that's where the IntelliBidder automating system is actually optimizing their PPA and also optimizing -- giving them a day-ahead forecasting and predictability. So we are looking at certain markets, where we know that we are going to be extremely competitive with our technology and also certain customer segment. And then finally, the Small Customer segment with -- not a small customer, it's a large customer segment, but with smaller island and industry. That is where we see tremendous value with our solutions, which can integrate and optimize all kinds of assets and create value for our customers. And we can -- we are looking at revenue models, which can also -- we can gain some from that.

Okay. Then, as a follow-up. If I understood it correctly, you have a 70% service agreements to that EUR 700 million order intake. So can you walk us through, what is it actually that you do? And do you have uptime guarantees? And if you do, then how does an uptime guarantee work? And obviously, what's the risk for you in it?

Well, yes, thanks a lot. Yes, we have 70% long-term service agreements, where, of course, the software is a component in that. The warranty is a component in that. And then, of course, reacted maintenance and keeping the uptime. We have -- of course, I can't talk about what level of guarantees we commit in a certain project because that's also a bit of competition sensitive, and I would not like to go back. But we have back-to-back guarantees with our suppliers on that. So from a risk point of view, I think we mitigated quite well.

Okay. And then, final question for me. I mean, if you're able to save 7% of the operating cost a for gold miner, so I guess, you should be getting a pretty good share of that, if you are able to price your product.

You can reach your own conclusion in that one.

But are you able to price your product?

Of course, I mean, this is still a nascent market, and there is -- all kinds of business models are coming in. So right now, for us, I mean what we are trying to understand is how do we create value for our customers. And we are confident that once we can do that, I think we should be able to make money.

And as we said, we are moving up the service [ value-add ].

Yes.

Also, a question on the energy side. If you look at the [ fossil ] balancing plant, engines versus turbines. You highlighted the benefits and the advantages of engines. The last 5 years, we have seen the market share fall. Can you maybe, explain a bit what drove that and what should change that? And obviously, the ramp-up speed is the key highlight of the engine that's always get put first as the advantage. Is that as important, going forward, where you may use batteries for that rather than an engine or a turbine for basically the -- is it going to matter in the future, whether you're 2 minutes or 15 minutes, if that role is taken by batteries anyway? And if you lose that advantage, what is then, the remaining advantage of an engine?

Right. You have two questions. So let me address the first one, where you said the market share. I think the market -- this is, of course, a market where one big order can change the market share for one player. I mean, if you look at the market share now, after we have released orders, our market share will grow. But also, I think it is important to note that the last couple of years, we have struggled in our core markets. And those markets, not even the gas turbines got deals because they were not awarding any contracts to anyone. They were just coping up with the health crisis that they had. And that is where we have been strong, and that probably has impacted our market share. That doesn't say that the underlaying -- why should engines be used for balancing? I think, leading to your next question. Look, the engines can ramp up quickly and ramp down quickly. That is one of the advantages why they are able to balance the renewal continuously. I think you saw the Barker Inlet plant example. I mean it's the modularity. So in 211 megawatt plant, we have delivered 12 pieces of 18 megawatt engine. Now, with that kind of a size, you can minutely follow the load because if you have turbines of 100 megawatt of 2 pieces, you will have to run on pot load, you can't even go below 50% load in those turbines because the technical minimum is 50%. So you can't really start to -- I mean, in some days, we saw that this plant was actually generating 4 megawatts. And then in some days, it was doing 200 megawatts. So that's another advantage. And the third one is, if you stop the gas turbine and if you have to start 1 hour later, you can't do that. It's just not possible because the technology is not meant for that. With engines, you can do that. You can start and stop, as many times, whenever. And then, when you are starting and stopping a turbine, forget about starting after you stop it because you can't do that. But if you still start, stop many times a day, you incur a lot of cost, with engines, you don't. The efficiency -- because the combined cycles will not play a part in the future thermal -- future energy system because you -- they will do balancing duty. The efficiency of engines are several percentage higher than turbines. So even if you run for 1,000 hours or 2,000 hours, it has economic cost. Look, I can count a lot of other advantages, but what is really important to understand here is, you need to plan the power system with sophisticated power-system modeling tools. And that will give you the optimal path for the future. And that is important. This is no guessing game anymore. This is about, really, systematically plan the power systems.

And also, on the battery, why? I think this is a good question. We all from .

Yes. On the battery, yes. Yes, I think that's a good question. So if you -- if it is 15 minutes or if it is 1 hour, it still requires capacity in the battery that you need to outbuild the system. But then the same thing is, once you have a turbine -- for example, the turbine stops, you stop the turbine because you have enough solar and wind capacity. Now suddenly, you see that the wind has disappeared. You have to start up the turbine. You can't. What do you do? You have to have the energy stored in batteries to provide that pick. So you have to outbuild the system. You have to have more capacity in the energy storage. Similarly, because you cannot cycle the turbines that well. Your solar and wind capacity will not be utilized as well as you can do in an optimal power system. Just imagine -- think about Germany, I mean, during the COVID time last year, the power demand came down crashing because everybody stopped everything, right? In the first month -- first couple of months. And they were producing most of their power -- or actually, the share of renewable increased. What did Germany do? They actually [ dispersed ] power to Norway and paid them. So at the same time, Norway -- because they had flexible capacity, because of hydro, they bought that power and earned money. And that's really what will happen, if you have an inflexible turbine in the system. You will have to overbuild the solar and wind, and then you have to overbuild the energy storage because you need to overbuild storage and you need to save a lot of excess energy, you have to overbuild also the solar and wind. So again, I think it's about building a power system with proper planning that will demonstrate what is needed in the future power system.

And just to build a upstream on that. I mean, one, very simple, If you have rainy days for 3 days, you're going to need a lot of batteries.

Yes. Exactly. I mean, Texas, I was there. It's a place that I live. We were without power for 48 hours. I mean, we were just close to our fireplace. Just to pass by that time, I can tell you, with a little daughter. It's not fun. It's not fun. And I think, that's why it's important to build systems that will work in the future.

I mean, my main focus was the -- I guess, the way you explained it, you need to overbuild the battery system by less, if you combine it with engines than with gas turbines. It's clear that you need that. I'm not debating, whether you need some form of backup for renewable. But do you think the capital cost of the system is lower, if you combine it with engines, than with turbines because you need more batteries, because of a longer cycle time.

Absolutely.

And it's not only that we think it, I mean, with the proof points that we are starting to have, I mean, that view is shared by our customers.

And second question, can you give any indication what share, in a typical contract, that GEMS system is, relative to the overall revenues, just big ballpark, in terms of the core value-add versus the pass-through?

Yes. Look, we can't, of course, go into the detail of the calculations. But of course, Battery forms the biggest part, right? That's what we procure from outside. And I don't think I can give you a percentage number, but GEMS is smaller, at this point in time.

And the big value creation, potentially, is, as we move up the service value and as we can provide energy as a service. I mean, okay, there is a software as a solution, but even more interesting is to move up the services value.

But GEMS, it's very important. It's the quarter back, right?

Yes. It's the quarter back. It's the quarter back of the team.

Next, we will take a couple of Marine-related questions. You say, customers may retrofit existing fleet to decarbonize, what's stopping cannibalization of new build, whereby customers delay new builds until the [indiscernible] is ready and simply retrofit in the meantime.

It's a good question. But I think, as I mentioned during my presentation, the fact, to not do anything, will not work because you will be out of business. If you are not on this -- you remember the CII curve and going back to the washing machine at home, you need to upgrade. And of course, you need to upgrade your existing vessel. But you will also need to get fresh vessels that are more efficient. The newer ones will be upgraded, but there will also be older ones that goes out of the system. So you still need to continue to feed fresh things into the system.

Order levels are at quite low levels, on the marine side, in segments, where Wärtsilä has a strong position. How is this affecting pricing levels on equipment?

Pricing on new build continue to be tough. It has been tough already, for quite several years due to the lower volumes, and that continue. Having said that, of course, our target is with the fuel flexibility to step-by-step improve that situation. But we are still in a tough pricing environment.

What is the portion of cruise today for your equipment revenues and backlog? Cruises are now starting to recover, which is driving your service revenues, but when would you expect your gross new-build revenue to bottom out?

We still have, as part of our new-build order book, we still have quite a lot of cruise ships or cruise ships deliveries in the order book. If we look at when do we expect to see new cruise orders coming in, I think we will first start to see smaller cruise ships. That's the first segment, where we'll start to move. Bigger ones will take some years before we will start to see orders coming in. And if you look at the big yards, they have their order books until '25 around field. So it would be then, probably, 4 ship deliveries after '26. Looking then, at the Service business, we start to be at a level where 60% of the fleet is in operation and continuing to ramp up gradually, during the rest of the year. So it looks good.

If green fuels are already closer to 2030, and vessels are supposed to last for 25, 30 years. Is there a risk that Marine orders will be very limited until 2026, 2027. How easy -- is it just the minor retrofit in existing vessels for 2030 IMO targets to be met?

It's a bit going back to what was asked before because we need to remember, the older the vessel, the less efficient it is. So going back to the CII and the washing machine example, you will not necessarily upgrade, retrofit an old vessel, meaning that you will now start to look at how to phase it out. And we will then need another new capacity coming in. So the demand will be there. It will not be possible, just to look at retrofitting. There will be a continuous demand for new build as well to feed with newer, more efficient vessels that are as flexible as possible.

And I would add to that. I mean please note -- if you note that we said that there is going to be big regional variances. I mean, if we take Norway, a new government. In the governmental program, it stated that one wants to take Norwegian shipping green. Do you think that is a business potential for Wartsila? So we should not be caught in averages. We should look at where the -- some of the action will take place, and that will create significant opportunities.

Then, moving back to storage. Could you be more specific, when you say Wärtsilä is top 3 in batteries? Does mean Wärtsilä top 3 battery distributor, installer or system optimizer or what is the role exactly, behind the express-end top 3? And can you say, who are #1 and 2?

Yes. Thanks a lot for that question. Wärtsilä is one of the top 3 energy-system integrator alongside Tesla and Fluence. I think, that answers the question, right?

And there is Bloomberg statistics too.

And this is identified by Bloomberg.

Then, what is the lifetime aftermarket revenue opportunity in a battery-storage project, relative to the initial project-order value? How do performance guarantees software licenses and maintenance agreement work, in monetary terms?

I think, I touched up on that already. Look, I mean -- of course, we are, at this point of time, in a state of growth. The market is nascent. It's growing rapidly. We are installing a large amount of capacity. Of course, all of these projects are tied with -- or most of the projects are tied with a long-term service agreement, as we saw 70%, so far. And we provide guarantees and warranties, which are backed up with suppliers' guarantee, when we procure stuff, and we charge a fee, at this point of time. I mean, that is what I can say. Going forward, of course, we are looking at different revenue models through our performance -- through performance-based incentive, which is going to come into play. And as the volume grows and we have the fleet to work on, I think there are possibilities.

What is Wärtsilä current [ exposure ] towards offshore vessels, both within oil and gas and wind?

Yes. Offshore vessels, for quite some time, has been a bit more silent, and there have been quite big layup percentages, but that has also improved, lately. The growing segment in offshore is definitely, on the wind side, especially talking about wind-turbine installation vessels. And there, we have a strong offering. So they were, for sure, part of that business opportunity.

Marine upgrade, it seems like that these upgrades are now one of the hot topics. It sounds like the biggest investments will be for the tank system rather than the engine upgrade. Is that right? And does Wärtsilä have any revenues from a potential tank upgrade, from HFO to gas or from HFO to methanol or ammonia?

Yes. It can be, depending on the vessel structure. So it might be, actually. The bigger part of the cost is related to finding the space and putting the tank in, for the future fuel. That's correct. And the engine part is smaller. But we also, for example, today, already, we provide the storage and the tank for LNG fuel. So if you do an upgrade from liquid fuel to LNG as a fuel, we provide also, the tank for that installation.

How much of the equipment sales in Marine Power, today, is for new build and how much for existing vessels, meaning retrofits or replacements? What has this split been, historically?

We are, as we have -- you can say roughly, it's 1/3 and 2/3. So the big share is on the service side. And the big opportunity, of course, coming back to my comments earlier, is related to how do we support our customers with retrofit upgrades then, it can be then energy-efficiency devices or later on, then fuel conversions.

Is Wärtsilä, financially, well-enough positioned for a major acquisition during the period of 2022, 2024, if such a strategic measure should be needed?

Yes.

But as we said, our strategy is much focused on bolt-on acquisitions, making acquisitions of critical competence that is aligned to our core technologies.

Moving back to Storage. In the battery projects, there's a lot of past revenues included. Can you comment how you mitigate risks, regarding costs and EPC execution?

Yes. Thanks a lot. And I think, Håkan, you touched up on that question already, upfront. I mean, we have frame agreements with major suppliers. And then, that's how we, sort of, make sure that we don't have cost overruns, first of all, in the supply side. Now, on many of the storage projects, we are on -- because transportation and logistics are a big thing. So there, we are either passing it through to the customers or taking measures to make sure that we are not going to get into a cost overrun on that side, either taking more contingency or taking a higher cost base on projects. So I must say, I mean, we are -- also, we have strong project management experience from -- for such a long time. And I think, that is probably unique for Wärtsilä, compared to other system integrators that you see in the market. And we -- through that and then through all the actions that we have taken in the past couple of years, we are really ready to make good projects and not getting into cost overruns. So of course, Project business is still going to have some risk, and that is fine. But we're pretty confident with our portfolio, right now.

I think, we are running out of time for the Q&A. So handing over to Håkan for the closing remarks.

Yes. Thank you. So wrapping up the day, and I hope, you enjoyed it. And I think, if we start with the markets on the energy side and the marine side, decarbonization is -- will transform the world, will transform our 2 industries. It's about regulatory changes, but it's also a demand that is coming for green transport and also for balancing. The good message is that Wärtsilä is a technology player in a rapidly-evolving technology space. And we have been in many of our core technologies for decades, and those core technologies are part of the future and will actually make a significant contribution to the future and of course, then, also represents growth opportunities for the future. On the execution side, we are set for performance. We can leverage the markets that are coming back, and that will continue to grow. Yes, we are still heavily impacted by COVID, but we do see very interesting opportunities, going forward. We have a strategy in place. We have that sell away. That is the foundation of how we want to work together as a team, where we are going, very clear direction and how we want to achieve the targets. And the targets, we talked about them. We have new targets, the 5% organic annual growth over the cycle. But we definitely, think it's achievable with the significant opportunities we see in Services, on the energy side, both on the balancing and the storage. On the profitability, the 12%, we had currently at 6%. We really believe, we can take it to 12%, over a few years, driven by growth, but also by continuous improvement. And then, we have set ourselves some ambitious decarbonization targets and both for our portfolio and for our own operation. And I would say, the most -- one of the most important thing is, of course, our team and the culture that we are building, performance culture, making our customers successful, staying close now in the big transition. It's a great opportunity, but customers are evolving. It's about delegated P&L responsibilities, with ownership, accountability, it's about caring for people, so people care for customers. It's about moving in the right pace with the leadership, providing direction and support, and it's about continuously improving our performance. And if I sum up the mood with one word, which I started with this morning, and that is to say, "we are all really excited about the future." Thanks a lot for today.