Wärtsilä Oyj Abp (WRT1V) Earnings Call Transcript & Summary

Hi, all. Welcome to this event focusing on Wärtsilä's approach on sustainability and decarbonization. Sustainability and decarbonization are in the core of our strategy, it's important for us to continue the dialogue with external stakeholders. My name is Hanna-Maria Heikkinen, and I am in charge of the Investor Relations. Today, our CEO, Hakan Agnevall, will start with the strategy. And after that, Executive Vice President, Kari Hietanen, and Vice President Marco Wiren will describe or model the level how we are planning to decarbonize our operations and products. After the presentation, there is a possibility to ask questions. Time to start. Please go ahead, Hakan.

Thank you, Hanna-Maria, and welcome, everybody, to a snowy day in Helsinki. So sustainability talks. I think it's very clear we have focus the -- that's the agenda around one topic and that is decarbonization. If I sum up the strategy for that going forward, it is about decarbonization. And how we use technology and services to contribute to the journey of our customers and make our customers successful in this journey. And the purpose of today is to go a little bit deeper and hopefully give more insight into how Wärtsilä really can make a difference in the decarbonization and shaping the decarbonization journey of Marine and Energy. We also want to give a little bit more rationale behind the decarbonization targets that we launched in the second half of last year. And then very much looking forward to continue the dialogue in the Q&A with both with yourself, but we also continue the dialogue, of course, with other external stakeholders because this is an area of change. And we, as Wärtsilä, we are part of an ecosystem. And if you want to act in that ecosystem, you need to interact with the different stakeholders of that ecosystem. So welcome here. Now if we start with Wärtsilä and if I sum up Wärtsilä one slide, I would talk about this. I mean we start with our purpose, enabling sustainable societies through innovation in technology services. And sustainable societies is right in the center of our purpose. And I think this is, for us, very real at Wärtsilä. You could say we are part of the problem -- of the CO2 problem, but we also talk to the solution. And I think we feel it very strongly together with the customers and together with our employees that we can really make a difference going forward. When we look at our 2 industries, Energy and Marine, we see that in energy, it is the shift to 100% renewables and the shift to significant increase of renewables. And renewables are intermittent. The sun doesn't always shine, the wind doesn't blow, and then you need balancing power. And we talked about this before. We anticipate -- and it's not only us, we have Bloomberg and the likes that quite a strong growth in balancing power going forward. And on the Marine side, we are up for an unprecedented change of the Marine industry. And in adopting both the latest IMO regulations and IMO targets, but also adopting to, I would say, an increasing demand for green transport. And with that as a backdrop, we have formulated our target position, and we formulated as shaping the decarbonization of Marine and Energy. We also, as you know, we launched new financial targets and the set of '30 target last year, the financial targets, 5% annual growth and 20% operating margin over the next few years. Set for '30 target, it is our decarbonization targets. And there are basically 2 aspects of it, it's to develop a product portfolio and have a product portfolio that is ready for zero carbon fuels by 2030, and also walking our own talk, we have the ambition to be carbon neutral in our own operations also by 2030. Very clear goals. So what do we contribute? I mean, what is the concrete equipment service solutions that we are providing? We have a fuel flexible engines, and that is a critical element in decarbonizing both Marine and Energy. But we also have other technologies. We have the battery solutions. We have energy savings. Have mission abatement technologies. On the balancing technology side, we have both a thermal balancing and on battery storage. And we approach both of our industry with a DNA and a history of energy efficiency, power system optimization. This is where we are coming from. And I would say we have the widest service network in the industry. And we can really leverage that to support our customers going forward and also support the new technologies. And then digital. Digital solutions is extremely important, both for the customers, in customer offering, with Voyage, but also other digital offerings that we have in Marine and Energy. And of course, then also on the internal side, how we can leverage digital tools, uptime reliability and to improve our internal efficiency. Now just setting the context of our 2 industries and their macro environment. If we look on the Marine side, policies and regulations are evolving. You could say too slow, but they are moving ahead. IMO Poseidon, Fit for 55, et cetera. On the technology side, I would say we have the technologies today or in very close future. It is about carbon-neutral fuels. It is about zero-carbon fuels. The carbon fuels, they will be around for many years to come. It will be a gradual shift and a shift involving blending different fuel types. Abatement technology certainly a very important tool in the toolbox. Then we have the battery side with both the hybrid solutions and the full electric solutions. One key for all technologies will be fuel flexibility and also -- and of course, fuel efficiency because the future of fuels, at least initially, will be more costly in the current fossil fuels. And on the connectivity data side, it's coming very strong on the Marine side vessels as data tools, and you can really leverage that to provide uptime reliability, optimization solutions to the vessel, but the route, the whole operation, I think we are all aware of the logistic challenges of today where vessels are really waiting for very long times to be getting support, so to say. We are moving up the service value ladder. We performance-based agreements, where we tap into the savings together with the customer, the value that we can create. Cyber, critical element, and autonomous is also starting to come step by step. If we look on the energy side, and we will see how many similarities between the Marine side and the Energy side. Policies are evolving. And some say it's taking too much time, but they are certainly evolving. On the technology side, we talked about it, wind and solar will grow exponentially, balancing power will be needed. And when we talk about the thermal, it's -- today it's fossil fuel, but in the future it will be green fuel. Digitalization and cybersecurity also very strong on the Energy side. And the growing Energy demand is very strong. And it's, of course, driven by that more sectors will enter and become electrified. And you know the projections, I mean 3x electric generation growth by 2050 expected and renewal 8x, and the balance in growth and then that's 8x until 2030. Another element is that power system are becoming more complex because you generate at different levels. It's decentralized generation and that creates a more complex environment. So this is the kind of macro background for us. Now the way forward for that, we have formulated around 2 strategic themes. It's about transforming in this era of change, but it's also about performing financially and in other aspects. If we look on the transformation side, it's about the shift in the Maritime industry and with the speed that the industry hasn't heard about. Because in a lifetime of a vessel, which is 25, 30 years, that's going to be a major shift to decarbonized solution. Energy sector is also going through, and I think we are just in the very starting point. And key messages, we are really set for performance. And with the technologies that we can provide, we have really the potential to drive. We will be one of the significant contributors in this transformation. And there are many other examples. And if I take only 1 or 2 of these, we communicated last year our testing program. We are really excited about that. Bringing ammonia, technical concept, 100% ammonia, 2023. 100% hybrid concept in 2025. I mean, already, today, all of our engines are capable of carbon-neutral fuels, biofuels or anything, et cetera. And also capable of up to 25% hydrogen, but we are taking the next steps. I mean the latest here, I would say, if we look at #6 here, now we have sold our first -- we got the first order for our next generation of methanol engines with an -- for an offshore wind vessel. So I think we have some really good proof points that this is happening. On the performance side, we set very clear targets, both on the financial side, but also for our own decarbonization journey. I think we have some strong capital allocation principles in place, and we work actively with portfolio management. We know that. We have our extensive service network that is really -- we're really excited about the opportunities for growth there, mid to long term, even short term, looking at all the steps of the service value from transactional to agreement to performance based. And I think we are gradually evolving the vessel culture about performance, addressing some of the challenges that we have had. You know it as well with some big projects that we have an execution challenges with, we are moving in the right direction. Also, continue to evolve on continuous improvement and learning a little every day, becoming a little bit better every day. And then, when we need to address our cost structure, I think we have shown in the past that we take actions whenever and wherever necessary. So we are all set for performance I would say. Now concretely, let's look at Marine, a little bit more fact-based. And I think this is a very interesting shot. This shows how we, together with DNV, how we see the different blends of fuels evolving. And this is, of course, very critical for the whole industry. It's not only about engine technology and all the technologies that Wärtsilä is providing, it's about the availability of the fuel and also the distribution and where you can bank a certain fuel. And -- but -- are designing right here right now on how to operate and how we're going to set up a strategy for this change that is coming because this is, as I said, in a lifetime of a vessel. And I think, when we talk to our customers, some really important decision criteria is the multi-fuel capability. You cannot afford to be stuck with stranded assets. You need to be able to change, upgrade, blend with different type of green fuels and have the possibility to convert from one fuel to the other, not on a daily basis, but maybe after 6, 7, 10 years. On the Energy side, it is about balancing power and there are different balancing technologies, we believe, both in the thermal and the battery storage. We see them as complementary, catering to different need. The reciprocating engine, it's been around for many, many years, but it had some really attractive features that is coming out in a very good way when you need balancing power. First of all, it's energy-efficient. Secondly, it is about its capability to ramp up and wrap down fast and it's still flexible. And today, our power plants are running predominantly on gas. In the future, it will be on the green fuels. And you also know how we worked with our customers, doing power system analysis, network studies. And we also have, you could say, a general approach on how do we take this forward. You know the 5 steps that we have been talking about. I mean first step is to add renewables to the power system. Then as the share of newbuilds increase, you need balancing power. And that could be thermal or it could be the end of the storage, depending on the power system configuration. Then you need to phase out the big inflexible power plants, fossil power plants. And then fourth step is to convert the fuel for the flexible power plants that you have installed before and convert that to green fuels and then finally phase out the fossil fuels for the thermal balancing. And we also talked about, in this new era, we have a new way of interacting with our customers because customers taking very strategic decision, a lot of capital under large uncertainty. And that means that there's a broader set of stakeholders within our customers that are engaged in the decision-making. So it used to be the engineers and the operations. Now it's coming to the CEO office, even to the Board level. And that, of course, is a new environment for us to work. We really want to be a speaking partner to our customers on what is the right solution for you as a customer because green is not black or white. There are no simple solution. The solution that you will choose or need is depending where you're operating in the world, and how your application will look like so to say. And in our approach, we want to be a credible thought leader and a speaking partner. We need to have the capability and competence to talk basically about all technology solutions. Then, to be credible, we need to have a broad product portfolio with most of the technologies. And then how we do this operationally is that we focus on our own core technologies, very much evolving around the combustion engine, battery storage and our digital solutions. And then we partner up for different technologies. And what we offer to our partners is our knowledge on the Maritime space, how you marinize equipment and also the service network. So that is a good win-win. And this is how we manage to do and participate and actually be a driver in this era of change with, I would say, a fairly stable R&D budget. Wärtsilä technology, we have been working with these fuels, light hydrogen for decades, I mean, in our labs and testing, et cetera. So we know these fuels. We can also see now in the work that we are doing that we can reuse or recycle a lot of our technical concepts, and it's a limited number of parts and concepts we need to change in our engines. We continue to see strong synergies between Marine and Energy in this journey going forward. And yes, we think we can execute on a fairly stable R&D budget. Now finally, the Wärtsilä Way, which we introduced last year. And it is a strategic framework. It basically sets the scene, how we mobilize ourselves, our organization, our people in the way forward on the way to decarbonization. We have our purpose. We have our target position that we talked about. We have also formulated the strategic priorities under that, and we have upgraded our value, so to say, focusing on customers satisfaction, passion and performance. So this is the framework for the way forward. So that was quickly a summary of how we strategically see the way forward, and how we really think that we can contribute to the decarbonization of our 2 industries. Now let's go a little bit deeper and pinpoint certain key elements. So Kari, please join me here. It's nice to have you here.

Thank you very much. And warm welcome to everybody from my side as well. So let's have a look at how we decarbonize our products and operations. As Hakan mentioned, we have very ambitious decarbonization targets for 2030. One, to provide a product portfolio, which will be ready for zero-carbon fuels. And this is in addition to the carbon-neutral fuels, which we have already today. And secondly, to become carbon neutral in our own operations. So why these targets, and how will we achieve these targets? About how -- sorry, about why. We go back to where we have a significant impact, and we shape decarbonization in the Marine and Energy sectors. If you take a bigger look, the global greenhouse gas emissions, globally, are about 50 gigatons CO2. And the shipping sector represents about 2% of that. The electric and heat production represents about 30% of that. So together, the sectors we are involving, they represent around 1/3 of the global green house gas emissions. And if you look at the customers, the products our customers are using and which are for Wärtsilä. In both in the Marine and Energy sector, we can estimate that the emissions are a couple of hundred million tonnes a year. So when we decarbonize the usage of our products, we will have a huge impact. But actually, the bigger impact comes from the impact on the sector. Let's take a balancing plant by Wärtsilä. Certainly, when we decarbonize the fuels, it will have a big impact. But actually, the impact on the sector is bigger because that balancing plant enables the maximum use of solar and green energy so the system is bigger. Also on the shipping side, when we have our connectivity solutions, digital solutions, which enable to improve the big efficiency in shipping, that has a system impact. And that is a Wärtsilä's impact on the system level. Then if you go further our delivery chain, that's about 2 million tonnes a year. And our own emissions from own operations around 100,000 tonnes. So when we go to the right here, the numbers become smaller. Then why do we have a target to decarbonize our own operations? Because we believe we have a good control of those developments and we can make a difference. But also because we want to show an example, we want to be our -- a good example when we think about our own operations as well. So let's have a look at the energy sector. It is clear that decarbonizing the energy sector requires favorable balancing power. What comes to the need in the energy sector? It's clear. And it is supported by the requirements from the legislation, globally, nationally, regionally, all of that. What comes to measures, I think the measures are also pretty much known. First, there has to be energy from coal, transition from coal to gas. And over time, the renewables will take over the base load role from fossil fuels. And when the renewables will have a bigger role in the electricity system, the issue of intermittency is increasing. So there will be more and more need for balancing capacity and storage. And then at the end of the path, the decarbonization of the molecules is needed and will be done, but the balancing role will stay there. So Wärtsilä's role in this path is simple. We offer the solutions to support the decarbonization. We have the battery storage solutions, which we supply globally. Battery storage -- or if not generating electricity. So it will not be enough as a balancing solution. We need the dispatchable plants. We need engine power plants, which are flexible. And when we talk about the ramping up and down, we talk about minutes because in order to maximize the use of solar or wind, time is of essence. So if we can -- and we can start engine power plant in 2, 3 minutes, and we can stop it in 1 minute and stopping is as important because when you stop, you can enable, for example, wind to take over again. So we have the portfolio. We have storage. We have the balancing engine power plants, which are also future proof in a situation where we are in 100% renewable energy system. In that system, balancing plants are also needed, but they will be running on carbon-neutral fuels or zero-carbon fuels. And on the way there, there will be hybrid solutions. Furthermore, we have the life cycle services. We know how to do fuel conversions. But it's not talking about that, it's about the digital solutions. It's about optimizing the use of assets of our customers in order to gain efficiency. So what about the Marine sector? It represents around 2% of the greenhouse gas emissions in the world. But still, it's an important amount. If shipping was a country, it would rank sixth in terms of emissions. And furthermore, it is an area which is not so easy to decarbonize. In any event, the price of emitting carbon will increase, it's increasing and it will increase in the shipping sector. We have the EU Fit for 55 package, for example. ETS will be are extended to shipping at least in the European area, and so the price will increase, and that will drive the need for decarbonizing the shipping. What were the measures? The most important one is the decarbonization of the powertrain. If you want to move a ship from place A to place B, we will need engine technology also in the future. So what we need to do is to decarbonize the engine power. The other measures here are absolutely important. It's always important to have the primary solution first and save energy, if you can. And of course, the digital solutions for optimization of the logistic chain will play an important role. But alone, they will not have a solution. So we need the powertrain development. Again, here, we have a wide range of solutions. Wärtsilä engine brand and our engines are in a very central position in the developed markets. So we are building on that. We have the fuel flexibility, which has been our focus for years and years. And now it will be needed more and more. We have hybrid solutions already now, and we are developing from carbon-neutral fuels to zero-carbon fuels. So we have a future-proof powertrain solution. But this is not only that, as I said, there are other needs as well. So the portfolio for providing energy savings, for example, in the promotion area, it will be used, it will be needed as we have it. Life cycle services, again, retrofits will be needed in the shipping area, and we can do that and the performance-based agreements with the customers to optimize, again, their use of assets that will be a good importance there. And digital solutions, they will help shipping sector to decarbonize as well, the data driven solutions, connectivity for optimizing fleets and vessel operations. But it's a collection of quite many measures, which is new. Then if we have another angle, what are the core elements of our decarbonization actions? Certainly, products and services. But it's not only products and services. It's really the system level solutions we have. We improve and we optimize the overall efficiency of the system. We lower the emissions at the system level. Again here the example of the balancing plant, the big impact on this on system level. It's not only in the brand itself, even then -- even if it is using bigger balancing engines. R&D is a key area for us to develop these actions and our solutions as is operational measures and collaboration with the other stakeholders in the ecosystem. We are a front-runner in technologies for decarbonization. This is, of course, a big list of technologies. Some of them, the white ones, are our own technologies. Many others, we go about by partnering others, and then there are solutions in between. The point of this slide is that we understand all of them. We have the competence. We have the experience. We can find the best solution or actually mostly a combination of solutions for our customers on their decarbonization path. Some of these are already existing solutions, some of them are under development. You can see LNG here. In the Marine environment, LNG is a good step in the decarbonization part for Marine customers. I think, by the way, not only about decarbonization. We have to remember, LNG will take care of the sulfur problem and most problems, which are real problems. We have already products which can use biofuels, synthetic methane. And so on, we have a hybrid solutions. When we come back to the product targets, decarbonization target, you can see here, in concrete terms, the actions we are taking in terms of hydrogen, 100% hydrogen blends are already there and green ammonia. And this is one of the -- or these are the avenues, which we are very, very strongly run at the moment, and that development is going forward. And then there are many, many other solutions, which are a part of our toolbox, so to say. Now even if it is about our own technology and our own development, we collaborate with others in the ecosystem. And we do that in order to accelerate the development. Very often, we have multi-stakeholder collaboration. One of the advantages of that is you have various views, but also you have an easier access to external financing. You have here in some of the EU-funded ShipFC project about ammonia storage and fuel supply system. DEMO 2000 project is getting support from the Norwegian government. And we have a major initiative zero-emission energy distribution that's including also the infrastructure. A very natural way for us to collaborate is to collaborate with the customers directly. And we are doing that on a constant basis. An example here is the project with the Koreans ship building company Samsung Heavy Industries, about an ammonia fuel vessel, or another one with Møkster Shipping in Norway, where it is about the engine, but this time, LNG and green ammonia. A lot of these type of collaboration efforts are ongoing and will be ongoing. Then let's have a look at the target about our own operations. So our goal is to reach carbon neutrality of our own operations by 2030, in practice covering Scopes 1 and 2. We know what our emissions are. These are the figures based on 2019. Scope 1 direct emissions are about 50,000, 60,000 tonnes. And the largest sources are interesting activities, whether factory or R&D, but also heating and we know that there are some others which are more smaller. The Scope 2 emissions. That's really purchased electricity and purchase heats 50,000 tonnes per year. So the starting point is clear. And we have a clear plan. We know that we need actions on both fronts, but we have to develop a toolbox for us for the coming years. And it has a number of actions starting from energy efficiency measures to various engine testing solutions also and different technologies for testing. And certainly, we will need green electricity as well. As an example, this year, our plan is to start purchasing green certified electricity in the Finnish operations. And this is one step. This, of course, will be a global program. We have a global target and all the organization parts will be included. I also like to say that we have potential to reach the science-based targets 1.5 degree level without conversation. That is our roadmap. So to summarize the decarbonization targets part, it's clear that we have ambitious targets. But I'm happy to say that we have a clear pathway how to reach those targets, and we have actions ongoing and we have actions prepared to get there. So I am very confident that we will be successful in reaching these targets. Now at this moment, I will hand over to Marco Wiren, who will go a bit further in the discussion.

Thank you very much, Kari. Good afternoon, everyone. What I would like to do here is a little bit describe our sustainability agenda on widest perspective than the decarbonization, which has been already discussed quite a lot. I'm truly excited to share this -- a bit of our sustainability agenda in Wärtsilä where sustainability has an important role in our work -- in our data work. The purpose and our strategy, together with the elements in sustainability strategy part, will give us a clear direction and give us a focus in our sustainability work. And if I start with the social matters, I think that the high ethical standards are extremely important. We want to conduct our business in an ethical way. We have been paying a lot of attention in the high ethics, we have organized ethical discussion in our -- with our personnel, and we do have an e-learning platform where everyone is applied to go through the e-learning concerning the code of conduct. The other important topic is the safety. We have worked over 10 years quite systematically to strive safe working place in Wärtsilä. And we have received extremely good results. I will come back to that a little bit later. Then if you think about the environmental side, I think that the core is our environmentally advanced solutions that we can provide to our customers. And we put lots of effort in R&D and investments, and we threw collaboration, in the ecosystem, which is important to understand what are the needs of our customers. And finally, it's all about meeting the customers and serving the expectations. The whole work is scrutinized in this thinking that we do the collaboration, we put our efforts to the sustainability agenda, and then we meet the expectations. But then I think that it's important to have a clear target, and we do have sustainability targets, and we constantly report that in our annual report. And by the way, Wärtsilä has been reporting sustainability performance over 20 years already. So we are committed to develop our reporting further and leading the -- also the future expectations, which is coming related to the reporting path. But let's go then to the targets. Starting from last year, Wärtsilä decided to focus 3 core areas. And the first area is towards carbon neutrality; and the second is enhancing safety, diversity and well-being; and, finally, being an active and responsible member of society. We have set all together 19 different targets, which are belonging to these core themes. But just for saving some time, I just selected 3 targets and with the highlighted expression how we have been proceeding with these targets to give you a little bit insight of our sustainability agenda. The first target is the future fuel engine tests. Last year, we successfully tested our engines with ammonia, with 70% planned and with the pure high descending in the single suite of engine. And this will -- this work will continue in this year as well and also in the future. The second theme is our long-term injury target, which is related to reaching 0 lost time injury frequency. And as I said, that we have been working over 10 years, and we have come from the frequency of over 15 now to the current one, which is 1.55. And actually, our last year target was 1.6. So this year, we've -- last year, we reached a record low in injury frequency in Wärtsilä. And we are pretty proud on this achievement. Of course, we see that we have lots of things to do because we want to reach the 0. And we are enthusiastic on doing that work in relation to the safety. And the topic that I mentioned was the ethical behaviors. Last year, we revised our code of conduct e-learning. And I was pretty proud that we received 94% coverage of the training despite the fact that the COVID is impacting on the daily business how we operate internally. So this is a pretty good result, and we should be proud of that. Then the next topic is kind of the hot topic in Europe, which is the EU sustainability finance taxonomy. And before we go to the taxonomy itself, it's good to remind us that we have a very strong sustainability agenda in Wärtsilä. And we are one of the key contributors for the decarbonizing the Marine and Energy sectors. EU taxonomy is part of the larger package that EU is now putting together related to the sustainable finance. But we should remember that the EU taxonomy is a classification system. It's not an list of performance related to the technologies or products, it only classifies according to the taxonomy regulation. And we have seen that there are some limitations in the taxonomy. First of all, it doesn't take into account any acknowledgment of system-level index. For example, you could have a power plant, which is benefiting the whole power system. Taxonomy doesn't acknowledge that sort of behavior. It only takes the plant in the stand-alone performance basis. And same could be -- a similar example could be said also in the logistics segment, that if you are able to improve the whole logistics chain, not at vessel level or whatever operational level, that's not reflected in the taxonomy. But what taxonomy brought to us is the obligation to report 3 new KPIs. One is the turnover, then we have the CapEx and OpEx KPIs. And Wärtsilä has done an analysis. And here, you can see the results of the first taxonomy report. I must say that we all are in the learning curve in this. This is a very new thing for all of us. And we are, of course, thinking that this is evolving. Also the touch and regulation is evolving, but also how we are then reflecting with our all operations, our eligibility rates. But the first result indicates that 8% of our revenues are eligible for taxonomy, and they are coming from the energy, especially from the energy storage solution, but also from Marine systems and Voyage, which is to take green solutions. And if we then think about these non-eligible business activities, I think that the services is one of the biggest. Services are not covered in the taxonomy and it represents 52% of our revenues. The second big thing is the Marine technology manufacturing, always -- this thing is included. So even though that we provide technologies for Marine sectors, they are not included in the taxonomy. And third part is the Energy, remaining the energy power plants. We have multiple engine power plants, which are capable of using carbon neutral fuels, but they currently run on for some use. And they are not eligible. And then very briefly about the CapEx, 22% of the CapEx was eligible and 8% of OpEx was eligible in last year. To conclude, we have heard quite a lot of the decarbonization. And then thinking about the taxonomy itself, the taxonomy is not reflecting our decarbonization role. As started out in Marine sector, there are different elements which contribute to the decarbonization of the Marine sector. One is future-proof powertrains, then we have data-driven solutions to make the logistics change even better and then energy savings and energy efficiency in the vessels. And Wärtsilä has all of these technologies available. We can provide for the transition, but we can provide when the whole sector is decarbonized. And in energy, the similar way, renewables would need balancing power energy and storage systems, and we are able to provide them already today. So thank you very much for your attention, and now back to Hanna-Maria.

Thank you, Marco. Now I hand out to Hakan to join us on the stage. Now there is an opportunity to ask sustainability at decarbonization related questions. So if you have a question, please use the raise your hand function. So the first question comes from Antti Kansanen.

Maybe a broader one, and this is regarding Marine and kind of what are you seeing from your customers at the moment? I mean, -- what is the -- you referenced that you have a lot of technologies already in place that provide a lot of fuel flexibility. The fuel mix going forward will be more varied than before. But from your clients' perspective, what is kind of the biggest uncertainty that is preventing investments at the moment? Is it regarding regulation? Is it regarding availability of various different fuels? Or what is kind of the biggest pain point from the customer perspective at the moment?

I think actually, you touched on the most vital drive. I would say foremost is availability of the fuel, and which fuel will be available where in the world because, obviously, this is an industry that operates between different parts of the world so we want to be able to bank them. And this is 1 argument why this multifuel capability of the future is so important and the fuel flexibility. I would say that is a major topic for our customers. A second major topic is, of course, how regulations will evolve going forward. I mean you should all acknowledge, Fit for 55 is a proposal, it's not a decision yet, and it still needs to go through. And what will happen in the rest of the world? So there are uncertainties. And in the dialogue that we have with our customer, I mean, ongoing as we speak, what really resonate now with the customers is the CII and ESI that is coming in, in 2023. Because the CII is a fleet perspective. And our customers, they are thinking how are we going to evolve our fleet through the years because CII is not a fast pay. It's evolving and it puts a requirement to continuously reducing your carbon footprint on every vessel you have in your fleet. So that's why we see that the customers are very active, but the true key challenge is availability of the fuel and which have an issue. And here, the fuel flexibility that we can provide from the Wärtsilä side is highly valued. And then it's also how will the regulatory forces evolve because, obviously, there is a cost to it. And our customers, they want to make sure that they have, you could say, 11 planes.

All right. And then maybe another question regarding the ammonia engines, which is kind of in the R&D phase still. Could you talk a little bit about that road map to, let's say, full commercialization? When -- how much kind of reference cases would you need? What's the time line of that being a mainstream product? And secondly, what type of flexibility would that product offer for prospective clients regarding use of other fuels as well?

So I let Kari handle it. We already mentioned we are now testing. We have some test basis with 70% ammonia, we've been running. We also have pilot vessels coming in, in Norway. And this is where we use mix. I mean you can use LNG, ammonia, and as you have that flexibility. And then, of course, the big milestone for us is 2023 when we intend to have 100% ammonia concept ready, so to say. So the way the -- we already, you could say at 70% and evolving there through different pilots. And I would say, there is a lot of interest and focus on ammonia as a fuel in Norway right now. I mean, I think, there is an ecosystem that is evolving very fast. We are happy to be part of that ecosystem. But there are other -- of course, there is an interest in Japan. They are interest in other parts of the world.

And maybe to -- clearly, the interest in ammonia is increasing. And if you look at the -- some of the examples of our corporate collaboration, they are -- many of them were around ammonia, but for different annuals, one from the angle of Shipyard, one from the angle of the fuel storage, one from the angle of dual-fuel and so. So a lot of different type of interest, but certainly, ammonia is hot topic.

Okay. And then maybe last 1 for me would be kind of do you see in any applications or subsegment within Marine that there would be more drastic changes to the broader setup of how the ship is constructed and how the power is being made? I mean, will it be the normal 2 stroke as a main engine, 4-stroke on the auxiliary engine side? Or will the hybrid solution change this in a significant way?

This I would say that we are, of course, in a very early stage. But I think we will see 4-stroke combined with -- in a hybrid operation combined with batteries, combined with other energy generators. I think there is some potential there to consider as an alternative for 2-stroke going forward. But we are still in early stages of that.

The next question comes from Sven Weier.

The first 1 is on hydrogen concept that you said you have ready in 2025, I think it was. I was just curious, technologically, why is it taking so long? Because I can see there are other engine makers like [ Jan Baha ], who has the 100% hydrogen-ready engine on the market. I mean it's not very relevant right now because there is no green hydrogen really yet. So it's not that you missed something. So it's more maybe from an engineering curiosity point of view what's taking longer there. That's the first one.

And from my side, I think it's the testing. I mean, we need to do very thorough testing. And that takes [indiscernible]. So I think when it comes to the combustion technology, et cetera, I think we have a fairly good view of our way forward. But it requires [indiscernible] durability testing of all the components that are parts of it. It, of course, also requires evolving of safety concept, et cetera, et cetera. But then also to your point, I think what is a very, very important today and will increasingly become important is that you are ready or you have an engine that is ready for hydrogen operation, even hydrogen as a fuel on the energy side might not be feasible in the -- even in 10 years, I think it's very important for our customers when they buy a power plant -- that you buy under the guarantee from the supplier that you can convert this to 100% hydrogen maybe 10 years further down the road.

And does that mean, Hakan, that the current installed base that you have out there is not retrofittable to hydrogen?

It's a mix, I would say. It's a mix. It depends on the vintage of the engines and the technology used, et cetera. But I guess...

The other fraction maybe then that is upgradable.

You cannot say automatically, I say that it's definitely.

And maybe another technological question, if I may. I mean, on the Marine side, I guess, the fuel cells, at least for deep sea shipping are not going to be that important maybe just on its auxiliaries. But what about the stationary power? Do you think there's going to be more competition there?

I mean let's see. I think it's about -- when we look at fuel efficiency, -- it's -- yes, and you look at real fuel efficiency. I think the technologies are very close to each other, then it becomes on flexibility. I think, quite frankly, both solutions will be there. And we communicated that. We have -- we cooperate with certain fuel cell manufacturers. So we see probably as somewhat of alternative technologies. Then of course, the fuel cells have some challenges when it comes to cost. But I mean reasonably, I think it's reasonable to anticipate that those costs should come down.

And the last question I had is just when you put all your decarbonization solutions together as a kind of an average, and I know it's not a financial call, but maybe very general. When you think about your midterm margin target, do you think that the whole portfolio you have is helping you on the margin target? Or is it a kind of a neutral contributor to that? is It accretive?

It's helping us.

Next question comes from Manu Rimpelä.

My question would be related to the cost of this new type of equipment that your customers are buying and the kind of the readiness that they are buying in order to be able to then to convert later on. So are you able to fully pass on all of these costs to your customers, meaning that if they pay 10%, 20%, 30% more for this kind of option of transitioning to hydrogen, methanol and ammonia, 10, 20 years down the line. So if you look at it from your perspective, are you able to kind of charge the same cost? Or is it sort of this ends up being a burden shared by both the equipment suppliers and the customers in the early phase until we kind of reach critical scale? So in a sense, do you see that this is a risk for your kind of profitability if we see this transition before we have all of these fuels available in a big scale enough?

I see it's a possibility for price realization because this is high technology, high tech and is directly related to the Wärtsilä DNA. And I think it's the technology division curve. I think we're all familiar with it, so it will not drag probably.

Okay. And then if you look at the kind of utilization rates of your engine factories and your production sites, so is it kind of exactly the same capacity you can use in order to kind of transition towards these type of solutions? Or do you have to make some changes there? Or do you have some plans which might end up being obsolete or need to be upgraded?

So generally, if we start the technology question, I think we mentioned here before, when we look at how does this -- the engine of this new fuel looks like, it's actually a relatively few number of end imports that we need to change around. So the basic engine concepts, they are the same. And therefore, of course, also the manufacturing, assembly process, et cetera, is it's not drastically changing from 1 situation to another. So that is 1 piece. The other piece, coming back to our manufacturing footprint and capacity. I mean this is -- we constantly monitor the demand side, and we adjust of course, to -- as we need to.

Okay. Perfect. And then finally, do you see that there is -- is there a risk that the kind of older traditional type of combustion engine will end up becoming more commoditized? And then that part of the kind of demand could see more competition or kind of start to see price saturation as the demand moves towards this higher type of equipment?

I would say rather the opposite because with the new fuels, it's new technologies, it's new hybrid technologies. So the systems are getting more complex, more integrated, more opportunities for optimization. The green fuels is expected to be 2 to 4x more costly, even more focus on fuel efficiency. All of this, if you -- talents, I would say to the Wärtsilä DNA. Technology leader, really knowledgeable, cutting edge and so that is driving to the opposite direction of commoditization.

Next question comes from Karl Bokvist.

My first question is just on you talked about propulsion and those transfer technologies, but other areas when it comes to let's say, improvement in hydrodynamics such as improvements to propeller, air lubrication, those kinds of technologies. Have you seen a pickup in demand for these systems now as customers may be more hesitant in terms of ordering the engines?

Yes. Marco, do you want to elaborate on that?

I think that with the energy efficiency and saving as a potential in decarbonization is the must, and it needs to be a crucial element also for the future. Because whatever the future fuel is, we should use it wisely. So any, let's say, way of doing -- using the fuel, which is not efficient is not good enough, so to say. So I would say that this is a reflection of the future that the vessels are 1 entity. And also these sort of solutions, which improves the total vessel efficiency of fuel in it.

And I would say that many of these concepts, like you mentioned, oil lubrication, I would still say that they are in the kind of piloting phase. It's not the BD volumes yet. So it's still early phase.

All right. Understood. And on LNG and the, perhaps, a bit more of importance in a few years ago. But when it comes to methane slip, do you still see a lot of improvements being done here within this deal? Or have you sort of reached kind of a peak and it's more like incremental now?

There is much more to do. I mean we have -- if you look -- if you go back 15 years, I think we have reduced the methane slip applications around 85%. And this year, we will launch a new concept where we will basically have another time. So this is still an evolving area. I mean, LNG, and there is discussion, of course, it's not for fossil-free for sure. It's a fossil fuel. But I think we need to acknowledge this is a very important transition fuel. Both for Energy and for the Marine side. And it's still much better than hydrogen from a CO2 perspective. When it comes to reducing methane slip, yes, on the engine side, we will continue. I mean, and we are taking steps. But I think it's also what is needed is the holistic approach, the wake to well. Because there is a lot of losses or emissions in the exploration of the gas and the transportation of the gas. So there is great potential to reduce the methane slip emissions.

And still negative in the engine, it's fair to say that because it is actually unburned fuel it is in the interest of everybody to make use of that fuel, us, the customer and the environment. So I think the drive is strong to that direction. And the steps are could be [indiscernible] as well.

All right. And then 2 more, if I may. The first 1 is just on the electric side when it comes to these kind of shore power applications that you have a few projects within. I think this mainly concerns the vessel side of the equation. But are you looking into moving more into the shore side of this field?

I mean 1 of the challenges -- I mean, electrical, either hybrid or full electric, they will definitely be there as solutions. I would say, in particular, maybe for shorter operations or operations where you can charge more frequently because the key challenge still, and it will be even as technology evolves, it is the energy density, so to say. Electric is for short time. And then when it comes to making this operation and fees, to your point, 1 of the key challenges is to have a grid infrastructure and a power system onshore that can support, that is stiff enough or enough power to be able to charge the batteries because these will be big batteries much bigger than the car. And there, we have a role to play in our energy side because you will need storage solutions or other power solutions that can support the grid when you have -- you want to charge a lot of power in a short time. So then we are actually in our energy business, exploring elements.

All right. And then just a final one. You released the press release on it, but the scrubber business and the carbon capture potentially. Is that also more perhaps a discussion point rather than seeing tangible demand already for it given space constraints on board vessels and et cetera?

I must say that when we launched the press release, we -- the phones were ringing a lot, I must say, which is, of course, very encouraging. There is a very strong interest. So we are now in R&D program, and we are evolving. And once we come out with this equipment, we -- and this is a fortunate situation. We have a lot of interest. But also carbon capture, you need to consider it's an ecosystem because what we do without knowledge in our competence is that we extract the CO2 and then you store it in the tank on the vessel. But then, of course, you need to -- when you come to the harbor, you need to bring it somewhere else and probably aggregate it. And then what you do is you bring it back into well or you use it for something else. So this is a whole ecosystem that needs to come together. And we are 1 vital part, but I can assure you there's a lot of interest.

Next question comes from Sven Weier.

Yes. Two follow-up questions, please. The first 1 is on the ammonia engines. I was just wondering when you launched them, you think that all the nitrogen emission issues, nitrous oxide and so forth, is solved? Why do you think that takes longer than that will be happening after the launch?

Now I think, already today, you're aware -- I mean, there are urea solution, scrubber solution -- I mean and the catalyst solutions for this -- for the nos. So going to concern....

But I think there's also 1 -- there's further nitrogen emissions, right, that are a little bit more tricky to...?

If you talk and talk. To you, I mean, they are 2 [indiscernible]. There, what we have seen so far on the ammonia, the combustion cycle we are using right now, we don't see a major issue there, quite frankly.

Okay. Good to know. And the other 1 is basically coming back to the previous question, CCS because I think you also launched a concept basically making the hydrogen onboard of an LNG power ship, right? Where you kind of create the hydrogen onboard, you store the CO2 in the CCS. And I think there's 1 shipping company who's trying it out. I mean, will that remain a kind of a niche application given what you've just said on CCS and the storage?

I would say that, first of all, I'm not aware of that. I have to look at my colleagues. So I'm not sure if it's -- if somebody else is still because, yes, the pilot that we are doing it's we have a multi-fuel engine and that can use both -- or plan to reduce both hydrogen and LNG, and we have another pilot for ammonia and LNG. So it's more that -- not that we would be producing hydrogen onboard, so to say. But then we have power to ex projects, but those are on land. So I'm not sure that.......

I have an understanding that there is a kind of the project that is also involved -- but I think that it's more or less reflects also that this is a new area that we are looking at different angles and this 1 angle that the hydrogen is produced on board of ships, but that is -- everybody is looking what could be the solution for the future. And therefore, I think that is important that we look this at the different angles. But what will be then the primer for the future, then we will see.

Now I didn't see any questions on the queue. So please if you have a question, you raise your hand function. We still have 20 minutes time. Okay. Yes, [indiscernible] please go ahead.

[indiscernible] here from Handelsbanken. I was just going to ask, I saw in your latest report that you've done the taxonomy eligibility mapping. Could you tell us a bit more about that? And if you think that you're being cautious at this point because it still have lots of uncertainty. And do you think this is the possibility that you might revise that upwards? Or how do you see the future in terms of taxonomy?

Yes [indiscernible], we are still working a lot of this to continue I think, of course, when we started with this, I'd say there was a lot of material to go through and also a lot of understanding building, which we need to have to do. And as we discussed earlier, the whole taxonomy has been constructed in a way which does not necessarily fit to different technologies, industries or companies. And that brings the problem. For us, really, the big challenge is that a large part of our business by definition it not been considered by the -- this taxonomy, and therefore, we are not eligible -- outside of that, even though that activity in our case, at least very much contributes to the same goals and decarbonization. So that has been the work we have been going through to understand what is the structure. Then the other question is what are the actual contributions of our activity into this decarbonization requirement as the first taxonomy act is called. And while I'm doing this, I think you can maybe describe a bit the process and some of the questions on that.

First of all, I would like to say that, of course, the taxonomy regulation is evolving, and there will be new environmental goals properly introduced during this year. And that, of course, changes the landscape, and we need to do to analyze this once again. And I suppose have been able to do it many times again, some in the future. As also said that we are in the learning curve. So I think that our approach has been that we really try to understand that what is commission after in the taxonomy. And when they have set the substantial goals for the climate change mitigation that how they do reflect in our operations. And 1 good example in our, let's say, interpretation is that we have the fuel flexible engines in the power sector. And they are able to provide, for example, with the [indiscernible] or biogases, which could be considered a renewable in a sense. But due to the fact that they currently operate with the fossils we have been excluded from the taxonomy scope. So the taxonomy regulation is not so clear. There are lots of gray areas where, of course, we would like to have more detail let's say, guidance, but it seems that there is no such guidance coming. So I think that they will be then the market practice that we learn from each other, and that will tell also the future of the taxonomy reporting with what direction is then developing.

And if I may comment, I mean, you might remember the pie shot. I mean if you look at the eligibility for the Wärtsilä revenue in 2021, which we have published, I mean 52% is services. Services is not a definition, not eligible in the taxonomy. Then you also look at the whole -- a whole Marine business, I mean, both marine power, marine system and voyage. I mean, everything that deals with a subcomponent or a subsystem to a vessel is not eligible either by definition because the taxonomy set up if you are a vehicle or a vessel producer, then you can be eligible nor not. And that's the perspective that the EU has taken. But -- and that's in our view, but of course, that is our view. We think taxonomy is good in the sense that it is in a discussion. I mean clearly, with our agenda and our strategic strategy, we are very much in focus on decarbonization, but I think as Marco was pointing out, I think it's a -- this is a learning journey for many stakeholders. And I think we will all learn that we will need a couple of frameworks, a couple of complementary frameworks to assess what is the green investment. I think just looking at is taxonomy, we will be a little bit too simplistic.

Still, back to your question, I mean, you're asking what has been the approach we have, how to describe that. I will describe our approach prudent. So basically, what we have done, we have done it prudently with the best understanding you can have about the taxonomy, and we can stand behind the analysis.

Great. And then a follow-up question as well. We recently saw a new document, a bit controversial, including nuclear and natural gas. Have you had any time to review that part in relation to your operations? I'm thinking more of the natural gas, perhaps, and the power plant side. Is that relevant for you? Or do you deem it not relevant?

I would say it is relevant not the nuclear power part, but the gas part. And the relevance is, as we discussed through, there will be a need for a transition, and there will be a transition for energy. There will be no chance to the future system. And that transition will need gas. And that usage of gas will have different roles or, let's say, purposes. And what we are coming from, we are providing the balancing. And that balancing will use, in the beginning, natural gas. And while using natural gas, our balancing plans will contribute to decarbonization, even if there is natural gas. And building this balancing infrastructure is important for the 100% renewable system. So therefore, we fully support the idea that gas is a part of the decarbonization transition and is considered to be part of the taxonomy. We believe that is needed. And at the end of the day, that gas will be decarbonized gas, but there will be a transition period.

And I would say with -- at least as the proposal is now with 270 grams per kilowatt hour, and 550 kilos per kilowatt per year average over 20 years. The technologies that we provide, they fit very well within that framework.

Yes.

And I would also guess the hole that you need to add 2035 transition to low-carbon gas that also set right up value and with your products?

Correct.

One that is to discuss delegating that it's important as Marco and Hakan said. But then the reflection from our own eligibility that doesn't change it because the manufacturing of gas is not included in that scope, just to clarify that.

Next question comes from Tomi Railo.

Hello. It's Tomi from DNB. Simple question, maybe I missed it approaches for that, but how much of your sales for offering overall, do you think that is currently enabling decarbonization in Marine and Energy industries?

That's -- I mean, that's a good question. I would say a lot. I don't think we have to pan out the percentage. But I think hopefully, we managed to convey the logic that -- look at the marine side, what is -- as we said, we are part of the problem, we are part of the solution. I would argue that it's the engine and the propulsion system that is the key component in deciding the emissions from a vessel. So everything there that we provide is providing an opportunity, so to say. And then if you look on the energy side, our engines are -- can run today in biofuels if the customer choose to do so. And so we are already ready with -- for the carbon neutral fuels. And of course, the steps we are taking is for the carbon fuels. So I would say also there, we are contributing to the decarbonization. And even if you run -- predominantly, if you run our energy engines today on LNG, when they provide balanced power, it makes it possible for the customers to increase the share of renewals. I mean, take Omaha that we had last year, Tomi. I mean we are providing 160 in that magnitude megawatt. And that enables the customer to include a new 600 megawatts of renewable power. So that's the system approach that Kari talked about before. And that's why I think that's the commentation. That is why, I think that's decarbonization, that is what is our strategy.

Next question comes from Sven Weier.

Yes. One more from me, please. And that is again on the decarbonization portfolio. I mean we all know that the battery storage is going to play a very important role in this. And I guess we all agree it's going to grow very, very nicely in the next few years. I guess some of us would agree that also in the long term, it would have a good profitability, but I think, in the short term, and I'm not going to ask you about the size of the losses here, so don't worry. Of course, it felt to me that at the beginning of the year, you saw the need to remind us that there is a mix issue, but the share price has taken it quite badly. So do you feel now that maybe, at the beginning of the year, we didn't take it seriously enough and now the market is overly worried about the situation?

Sven, I learned in the ABC book of the CEOs, I mean, the stock market has its own dynamics. And as you know, I have a lot of appreciation for the work that analysts do and the people in the stock market. But I do not comment on the stock price. I mean, we focus on customers, our people and then delivering results. And then you and your colleagues in the market, you do the magic of evaluating us. So I will not comment on that. I mean, just coming back to what we have communicated earlier, yes, we said that this year 2022, considering some of the big orders that we took particularly in Q4 last year, the mix between new build and services will be a little bit more new build in the normal, so to say. But both, new build and services are grown.

But would it -- I mean, after what has happened now, would it not be worthwhile thinking about it again, whether you disclose the profits because then everybody can make their only evaluation about it, right? But it seems like the elephant in the room, right, and everybody has a certain vision about the size of it. And I mean, your main competitor Fluence, discloses it, right? So it's not a state secret. And then we could leave that topic may be behind us, and it's not everybody is just focusing on this matter.

I give you for the persistency. I mean I think we have taken, you might say, micky mouse steps, but we have taken steps because, as you know, we are now disclosing the revenues. So you can have it. But still, we are not disclosing the profit margin, et cetera. We have said also in micky mouse step that we are loss-making not on the gross margin, but on an EBIT margin. And as we invest a lot in building the business up, we'll invest in a lot of R&D, but it will take us a few years to turn the business around. I'm sorry, I had to leave it there.

I think I appreciate it's just -- I just find it a pity. You have another great presentation today. You had a great update last week. But at the end of the day, 90% of people's time is worrying about this issue, right? And I think just a pity. So thank you.

I appreciate your feedback, Sven.

[indiscernible]. Please go ahead.

Yes. So speaking of the EU, another question on another directive we saw this week coming on the due diligence law that they have proposed, meaning more stringent demands on having transparency on their supply chain and controlling for human rights and social issues along with mental issues. How do you see that in relation to your operations? Do you think it will be difficult to be compliant? Or do you see that's already what you're doing? Or any thoughts on that?

I think there are a lot of initiatives in this respect from EU. I have to say that we have worked on those areas already for years. If you take the area for human rights, certainly, this is something we have been looking at over years. We have our supply chain, we have been working with it to supply chain. We have streamed requirements on our supply chain. We will continue to follow them up in different areas, whether it's human rights, whether it's kind of the otherwise, whether it's decarbonization or other markets. There will be also other requirements that will be with the growing requirements for [indiscernible]. We have a system in place for a number of years. So what I don't think there will be any major change, and there may be some tweaking here and there. Certainly, we are following all of the development and how those requirements developed -- but I had to say that we want to be a forerunner. We don't want to react on those. We want to be better than what the requirements actually are. Marco, do you want to comment something more?

I think that you more or less give the strength message here.

Thank you. Just again for me, it seems like that there are no further questions. And actually, we have almost used our time. So maybe it's time to thanks, first of all. for the great presentations and then also for the great questions and a very active dialogue. The presentation material of this event is already available on our Investor Relations website and also the recording of this event will be there soon. Thank you, and have a great weekend.

Thanks a lot. Have a great weekend.

Thank you. Bye-bye.