Wärtsilä Oyj Abp (WRT1V) Earnings Call Transcript & Summary

Afternoon, everybody. Good to see so many of you here, and I hope that the weather is as good as in Helsinki finally also in the locations where you are. Today, our CFO, Arjen Berends, will start with some key messages for Q2 and after that, we will continue with the Q&A. Before that, I would like to actually remind you about our IR blog in which we are making summaries of all of the events. So in the case you did not have the possibility to join our service call last week, we have the recording available and now also the summary, also the slides are available on our IR website. Over to Arjen now, time to start.

All right. Thank you, Hanna-Maria. Let's say, key messages for the quarter 2, of course, has already been announced. We are moving now in quarter 2, parts of Voyage, let's say, NACOS navigation, NACOS automation, dynamic positioning and sensor business from, let's say, the former Voyage organization, which was merged into Marine Power, but now we take these out and we will move into portfolio business. At the same time, we will move Marine Electrical Systems, which was part of Marine Systems business. We'll also move that to portfolio business and both will be divested as also earlier announced. Restatements will come during the coming weeks before the end of June. Also good to mention here again is the start of Anders Lindberg, let's say, our new President for Energy business. He started in the beginning of June and is currently in his induction, you could say, but learning very fast. Last week, as Hanna-Maria was referring to, let's say, we hosted a service theme call as well as a visit to the Schiedam site in Holland. Service is key important to us, let's say, it's a major driver for both profitability and growth. And clearly, let's say, we showed also there that we are moving up the service value ladder, getting a lot of opportunities of increasing the share of wallet in both Marine and Energy. So clearly, let's say, a very important contributor to our future. During the site visit, let's say that the road show in Schiedam was also, let's say, visited, and there was a tour there as well. We also discussed there in that location, let's say, the carbon capture opportunity and for, let's say, more material, I refer basically to what Hanna-Maria also mentioned earlier on the website. If we look at the guidance, let's say, for the coming year that we communicated at the end of Q1, so basically the period 1 year forward. Both in Energy and Marine, let's say, we guided on similar. So similar levels of volume and activity. On the Energy side, we see still a good pipeline, both in energy storage as well as engine power plant, but as mentioned already earlier as well, let's stay, on the engine power plant side, we see the realization. You could say that the final stage from, let's say, negotiation to contract more shifting towards the second half of the year rather than in the first half of the year. So Q2 in that respect will be on the lower end. In the Marine side, also the guidance was similar. Outlook in Marine is a bit mixed per segment. Let's say the cruise outlook remains positive. New product, let's say, in particular, I would say, for the services, on the shorter term, newbuild activity is still affected by cruise lines, so let's say, debt burdens. But there are clearly, let's say, positive signs also for the longer term, potentially a revival of the newbuild activity as well. Royal Caribbean, you might have read or heard, they recorded an impressive consensus beat with their first quarter. And then let's say, also looking at what they book of what we have done here, what they book for the new class Icon of the Seas, it's breaking basically all sales records already. So the cruise demand is still very strong, and it's not foreseen to decline either. If we look at the offshore oil and gas -- sorry, before I go there, let's say, Ferry. Ferry is still a bit, let's say -- okay, there is a lot of capacity running and then less idle capacity than if you go, let's say, one quarter ago. But on the newbuild side, things are still quite slowly progressing, even though the pressure is increasing when it comes to, let's say, decarbonization-related measures. Offshore oil and gas, it's a very, let's say, very positive trend, you could say. The supported energy price environment, the focus on securing energy supply and the awareness also that in the offshore industry that there has been underinvestment for a decade that encourages basically growth in offshore vessel and rig demand against, let's say, limited supply. We don't expect, let's say, newbuild to kick in very short, but let's say, towards the end of '23, beginning '24, if this trend continues, that might actually happen. Offshore wind farm installation vessels, good activity. More and more offshore wind turbine capacities being installed and that clearly gives also good opportunities for us. Gas carriers [indiscernible] extremely high volume last year in contracting. We don't expect that to be on the same level this year. I think nobody expects that really. But still, there is good activity and also bringing good opportunities for us because not all the vessels that have been now contracted at yards have yet ordered equipment already. Container vessels. It's a bit of an unclear picture as you are, for sure, very well aware, and there are a lot of container vessels in the pipeline actually. So a lot will come to the market. Let's say, how that will eventually, let's say, turn out to be utilized. It might be that, let's say, slow steaming of course, requires -- slow steaming is required to meet environmental targets. Slow steaming then automatically needs if you want to transport the same number of goods, you need more vessels, is that in balance, I think time will tell. But let's say the outlook is that contracting for new container vessels will, by far, not be as high as it used to be in the past few years. The interest in, let's say, alternative field vessels, including LNG, I mean here, that will, for sure, continue to improve opportunities and bring opportunities for us. It's more for the long term, and it's in particular, let's say, very focused on newbuild. But I would say with regulation kicking in, I think also on the retrofit, it gives clear opportunities. I would say that is in short a bit on the market update and the general comments from my side.

Thank you, Arjen. Then we will continue with the Q&A. [Operator Instructions]. So Sven Weier, please go ahead.

Yes. I hope you can hear me today?

Yes.

We can hear you well.

Yes. that's good. That's a good start. First of all, just following up on your comments, Arjen, on the thermal orders, second half. I was just wondering, is that still in time with what you have in mind in terms of your earnings this year? Or will it be short delivery orders? And what gives you the confidence that the orders will materialize in the second half? That's the first one.

Like I said, of course, nobody really knows if you get the order or not. But let's say, we are positively looking at the orders that we do estimate to come in the second half of the year and several of them are, let's say, percentage of completion. So that also fits, let's say, our full year sales volume target. So in that respect, I think we are still reasonably okay. In the beginning of the year, if you go back all the way to the beginning of the year, we thought it would be higher, but that's also why we already in Q1 said, okay, it's a bit more skewed towards the second half of the year. So it will be a little bit less than what we originally thought, but I would say still within the frame, so to say.

Okay. Good. And the second question I had was just on Energy Storage and the U.S. IRA local content requirements. I was just wondering if there are any new insights into that? Any progress on -- any new thoughts?

No, not really. I think the picture is pretty much the same as we communicated at the end of Q1. Of course, let's say, there is a lot of push for, let's say, localization. And we are, of course, also, let's say, looking into that with our supply chain but let's say, this will not happen overnight. So this is a journey, so to say. Also, let's say, building the capacity, let's say, for batteries or inverters or the lights than what we need in storage, that takes time to build up actually also in the U.S. So it will take time, but we are definitely working on that one as well because we want to chip in on it as well, actually.

And is the order momentum that you saw in Q2, is that largely focused on the U.S. or also other regions?

No, I would say all markets where we are active in storage, I think, are doing quite well. Actually, I would not -- of course, U.S. is very hot. But let's say, there are also other countries where also storage is very highly active.

The next question comes from Akash Gupta.

Yes. I have one, which is more on the pricing and input cost side. Again, when we look at the picture on input cost, it looks quite different depending on what we look at. You see commodity prices are rolling over and freight coming down, but general inflation is still very high. And maybe if you can talk about how do you see the net of pricing and input cost? And is there any need for you to raise prices maybe in the second half of the year?

Thank you for the question. Of course, it depends a bit where we -- what we are talking about. Let's say, are we talking about, let's say, spare parts transaction or are we talking about labor rates? Or are we talking about newbuild contracts? As we have been mentioning earlier as well, when the escalation kicked in, let's say, March last year, we had a quite high order book and still have an order book, let's say, for delivery. This year that is affected by the tight price increase where we could not change the price to the customer. We have, at that point of time, for newbuild contracts wherever we can, let's say, implemented indexation, take batteries as a good example. If now, let's say, the battery raw material cost, you could say, are declining. Our price towards the customer also declines, in fact, because this indexation is, let's say, following the trend up or down. So it should, in that sense, be, let's say, neutral for us and, let's say, we are not a sponge in the middle. If you take labor rates, yes, we are following it very closely. If field service labor as an example becomes more expensive in the world, then we, for sure, need to adjust our prices for that labor. So that might happen. Let's see how -- let's say -- because also, let's say, salary inflation is a quite mixed picture wherever you go in the world. It's not one size fits all either.

Very clear. And then maybe a follow-up on the phasing of legacy contract. I think the last communication was that it was EUR 1.7 billion remaining that you expect to be mostly out of the goal by third quarter this year. Any comment?

It's EUR 1.2 billion. And then, let's say, we are still tracking or trailing. I'm not sure what the right English word is, but let's say that by end of Q3, this should be more or less done.

So there is no risk of any projects slipping from Q3 to Q4 based on how you...

Not majorly, of course, let's say, there will be something in October still but the major part will be out by Q3.

Next question comes from Max Yates.

Just my first question was just around the timing of that large storage order that you announced. I wonder whether you have kind of any more visibility, will a couple of months come by? Will that fall into Q2? Or will that fall into Q3? How are you thinking about that? What's your -- any guidance you can help us with?

It will be hedged, I think. Let's see if it falls in this quarter or next quarter. It's a bit on the edge actually. It depends a bit on -- there are certain requirements that need to fall in place to make it effective, and they are really at the tipping point, so to say. So let's see how it works out.

Okay. And -- I mean how -- I think there was a discussion of some follow-on orders that could potentially come from that contract as well. Is there any sense of kind of size of those orders, the potential sort of additional orders from that customer and when they might fall? Is that something you're expecting this year? Is it sort of later? Anything...

I think -- okay, I'm not sure -- not 100% of data on the latest -- of the latest on this particular customer. But I would not expect a similar size to come this year, then it will probably be early next year.

And just I guess my final question is just on the sort of EUR 1.2 billion that you're delivering this year. I mean is there any sense you can give us of kind of -- because I think it would be very helpful to understand kind of what a normal margin on that? I mean I assume kind of normal equipment margins to you would be low single digit. Is that kind of EUR 1.2 billion, is that actually loss-making? Is it making money? Just to try and understand what the kind of the difference could be if you delivered what would be considered kind of more normal margin equipment revenues?

It's a quite mix, I would say. Depends on which business line and which project. Is it EPC or not EPC. So there is a lot of variation here. Some of them are loss-making and some still make margin -- positive margin.

Just a very quick final one. Just you announced this biogas order. How -- are you able to help us with sort of what a normal size might be on one of those orders because we haven't seen too many of them before. I mean is it sort of tens of million, sort of mid-double digit? How should we think about that?

I think it could be quite sizable. It very much depends, but I would say, in general, of course, the future need to tell in particular. But I would say, in general, a couple of tens of millions could be very well per order.

Next question comes from Tom Skogman.

This is Tom from Carnegie. I've been missed a bit what you said about storage order momentum this quarter. Is it kind of still accelerating? What's happening in there? And relating to this, I wonder how big risks are you prepared to build up in storage? And it's a new product for you. It's a bit unclear to me what promises do you give to customers when it comes to warranties, et cetera, and performance guarantees. Is there any reason you would just like to slow down growth in order to avoid too big risks here? And what are the risks really in storage projects from your perspective?

I would not say we are holding back on, let's say, booking storage orders. Let's say, we have been delivering quite many projects already in Storage. So -- and these sites perform well according to, let's say, what we have promised and also according to technical specifications. Of course, it's a new business, which is in the ramp up. I'm pretty sure if we wanted to, we could have taken a lot more orders than we actually do. That is, of course, a price consequence, which we consciously let's say, don't want to take either because we want to get this business to a profitable business in the fastest possible way we can. And I think we are well trained on that one. On your question in the beginning on the order momentum, there is a lot of activity in the pipeline. But let's say, with these orders, it's the same as with energy engine power plants. Typically, you work quite a while with these orders. Will it then fall in this quarter or the next quarter or the quarter after, that's always challenging to exactly say. But the momentum and the demand and basically all the markets, not just the U.S. but all the markets that we are actively storage, they are very strong, actually, they are high demand.

But what type of performance guarantees do you give to customers in storage?

I would say it's typically uptime.

Uptime. Not how long the battery lasts or anything, it's just uptime you are promising?

Mostly uptime. Yes.

And how has the success been in over the last 2, 3 years to combine sales of storage and power plants? Have you sold any combined projects? Is there any kind of real evidence that it makes sense to keep storage inside Wärtsilä?

Let's say, the sales force that we are using has been on lot of cases, not in all the countries, but in many countries, it's a combined sales force. They sell both basically. Have we signed combined contracts? No, we don't want that because liabilities on both ends are different, and then we want to clearly separate that in contracts as well. So -- and let's say, contracting is typically separated. But let's say, in the effort, being it in sales support and modeling, et cetera, that's a lot of combined effort between thermal side and storage items.

Then I have to finally ask, I mean isn't the whole idea with GEMS that you can -- with GEMS software that you combine this that -- when is it time to start the engine and so on. If you don't want to sell it in the same contract, I don't really understand why the customer would then be interested in buying both from you?

Typically, it's a conversion story. Let's say, the customer first installs a lot of, let's say, renewable energy, wind and sun. That's the first thing they do. Then there is -- they are probably connected to a grid where there is a coal power plant that backs them up, so they can do whatever they want, basically. But now if coal is being switched off gradually, it's not happening, let's say, overnight, they, first of all, need balancing capacity on the short term, which is the battery. That's typically what they do first. And then they also realize that, hey, I need also something for the longer term, then it comes to engines. So it's not that -- at least I'm not aware of any customer that says, okay, now I buy sun and wind. I install that. I put a battery there and I put also an engine there for the longer-term backup. I don't know of any such case. It always comes in steps. And typically in the sequence, the renewables, batteries, thermal engines.

Next question comes from Johan Eliason.

Going back to the storage. I was wondering, we're seeing lithium prices, I think, they might be down some 30% on average versus average price last year. Is this an opportunity for your margins? Or is it basically all passed through to the end customers and then it becomes sort of an indirect opportunity for you as the client -- customers get more bang for the buck, they might buy bigger volumes or...

I wouldn't say it's really an opportunity because, let's say, the contracts that we have signed after the -- you could say, March last year, sorry, typically having the indexation and the indexation is typically linked to lithium, for example, if it's lithium batteries. So let's say, it goes either ways, right? So if it's up, it's up. If it's down, it's down. I would say, it's not an opportunity.

Okay. So no significant impact from the fact that prices are moving down again. Okay.

Next question comes from Panu Laitinmäki.

I have 2 questions related to this EUR 1.2 billion legacy projects. Firstly, how does the kind of timing of delivery of these happen in '23? Is it like EUR 400 million each of the 3 quarters? I'm just thinking about kind of the impact on your margins in Q2 compared to what we saw in Q1. And then second question is that can you kind of roughly indicate what was the impact on your group margins from these projects, let's say, in Q1 and last year?

I will not comment on, let's say, the impact on the group margins. But I would say between now and the end of Q3 is not so long away. So I would say -- okay, it's difficult to say. There are so many projects and some are with completed contract method and some with percentage of completion. So to give you an exact pattern would be very difficult. But I would probably take it pretty linearly.

Next question comes from Akash Gupta.

I have a follow-up on North American demand for power plants. And again, I mean, I think just to set up the stage. Last year, we got IRA and then we got a lot of excitement on renewable build-out. And now if we fast forward to 9 months, we are still awaiting guidelines and because of higher interest rates and inflation, we see that there is some pushback to build-out of renewables in the U.S. Is this something which is also contributing to your -- like this weak demand in power plant side? Because, let's say, if I was to invest in a large build project, which is delayed by 12 months because I wanted to add electrolyzers there, probably this is also a reason why in some of your discretion customers delaying the decision for power plants, just to see whether this is a driver or not really...

At least, let's say, what I hear from, let's say, our frontline salespeople, I don't hear that as a main argument yet. It might be something for the future, but -- let's say, we have a good pipeline, and we are discussing with many, many parties all over the world, not just in the U.S. In general, I would say the demand is good. Again, I repeat myself, but the order intake is more skewed towards, let's say, the second half of the year in the U.S., specifically, let's say, is that an issue what you just reflected upon? At least I've not heard it as to be a major issue yet. But of course, what is not today can be tomorrow, but at least I've not heard about it as a major issue, at least not from frontline.

Now I did not see any thumbs up. So in the case you have a question, please use Raise Your Hand functionality. We have still plenty of time. Okay. Erkki Vesola, please go ahead.

Regarding Voyage, that is now part of Marine Power, how has the profitability turnaround proceeded there? What have you done so far? And what should be expecting going, say, towards the end of this year?

It's, of course, very, let's say, short after the split. So it's a bit too early to expect too much. But let's say, if we combine, let's say, what we have in Marine Power now, let's say, from the old Voyage and what we have now in the portfolio business from Voyage. If we combine that both together and look at the profitability estimation for the full year, it's significantly better than the performance of Voyage last year. And that's where I want to leave it.

And you don't want to give any ballpark figures? What do you mean by significant?

It's an improvement, at least by more than half.

Next question comes from Tom Skogman.

Yes. So you said that you split the sales force in storage and in power plants. We know that power plant volumes are down a lot and storage volumes are up a lot. So I just wonder how -- what is the driver for how you split the SG&A cost when you say that the storage margin 12 months rolling was minus 3% in Q1?

I did not say that we split the sales force. Let's say, we do a lot of combined sales work. I'm not sure if I get your question.

I understood that you shared the sales force that you have. Salespeople were both selling power plants and storage projects and then you gave a margin -- EBIT margin separately for the storage projects. So -- I mean those volumes are going up a lot. And I just wonder how you split SG&A costs when you give that minus 3%?

Of course, that's a split because there are a lot of resources, not only in sales, but let's say also logistics and project management And, call it, market development, et cetera, that are, let's say, combined in a way. And of course, we do the best possible split to reflect reality. You could say like activity-based costing, you can more or less say. So it's quite artificial or artificial but still sophisticated model to split. We don't want to physically split it because if you really physically split it, you would jack up cost and that's not what we want.

But does this mean that kind of that the SG&A costs come down step by step for your power plant business, so you can deliver healthy EBIT margins with lower delivery volumes?

I would not -- let's say, we have a certain better tactic on what department shall I take, logistics or sourcing. Let's say, if power plant comes down and energy storage goes up, let's say, energy storage pay pro rata more at the point of time. And if it's the other way around, it shifts back but we do it. Yes, you could say, activity-based. So let's say, who uses, that's the one that pays most.

Next question comes from Johan Eliason.

Just a follow-up here. I was thinking about your seasonal earnings path that tends to be skewed to Q4 with good margins historically, at least. And now you talk about this linear recognition of the backlog of weak margins until Q3 and Voyage is improving. Sounds like we could almost expect ballistic margin improvement in the fourth quarter. Now are there some things we need to consider? Or will there be a lot of storage volumes being delivered that will mitigate any seasonal pattern, et cetera. Could you share that with us?

No, let's say, we are not guiding on sales volumes. So I will not comment on that one. But let's say, I would take away the word ballistic. Yes, we think we will have, let's say, probably a hockey stick in Q4 as well as we used to have which is operating most of the years, it's a lot driven by very good service volumes, which clearly, let's say, helped the margin then. And I don't think that pattern will change, then it's more a question about the level. And of course, it's good to remember that there are still businesses and storage is definitely one of them that, let's say, are dilutive to the overall, let's say, the margin percentage or EBIT percent. So ballistic, I would not use.

But it's not...

Hockey stick, I can....

Hockey stick is fine. Yes. Okay.

The next question comes from Panu Laitinmäki.

I just wanted to clarify on Voyage because I kind of missed your answer a bit. Did you say that you expect the EBIT to be significantly better this year and meaning like half -- more than half? So it's referring to minus [indiscernible].

Yes.

Next question comes from Akash Gupta.

Yes. Sorry, if this question had been asked in recent conference call. I'm new to the story, but I wanted to discuss when we look at the interest rates and clearly some of the equipment that you sell is a big ticket item, whether it's power plant or ships where, obviously, engines are not really that expensive within ships, but again, the overall ship value is quite expensive. So -- I mean have you discussed ever like how these interest rates have historically impacted the customer buying pattern? Like is this really something which is area of discussion or concern? Or how do you think about it? Because again, there could be some other drivers like replacement demand or underlying growth like in power plant and storage. There could be a driver that if we add more and more renewable, then we need both of them to provide the backup. So I just want to understand, like holistically, when we look at your demand and products and solutions, how does this interest rates really play out? And was this among the factors behind the recent guidance correction in energy side where you said the demand is going to be a bit lower than what you were anticipating before?

I would not say there is a very strong and direct link to the interest rate. Let's say, we have seen that also historically, let's say, interest rates have been high earlier and, let's say, our order intake went quite well actually. I think it's more about, let's say, one is what are the key drivers in the market? Decarbonization is clearly a key driver. Let's say, if you take ships, with the CII and all the regulation coming, they need to do something, whether the interest rate is high or not. They are in the wrong rate when it comes to CII. Their customers all say, okay, I'll go to your competitor who has a better classification. And then it will be really a big blow to their economic model. So I think often the other drivers are more important than, I would say, the interest rate. Of course, if the interest rate goes really, now I want to use the word, ballistic, then it's, of course, a different story. But let's say, with the current levels, I would not say that's the main driver.

Okay. And maybe just a quick follow-up on upcoming marine regulations. Is there anything in the second half that we should be aware of?

No, I would say not really something new, I would say.

Next question comes from Max Yates.

Just my first question would just be on the longer term margin for storage. Obviously, we've talked quite a lot about getting to breakeven has been kind of the discussion. But I just wondered if you could kind of give us any color on how you're thinking about the longer term margin at storage versus maybe your traditional energy business where we've seen kind of high single-digit, 10% margins. I mean when you look at the business models fundamentally, do you see any reason -- do you see the storage business is structurally different profitability longer term? How do you actually think about that internally? And I guess I asked because you have a 12% margin target, which is kind of where the business as a whole used to be. So I'd love to hear how you think about that in the context of 12% margin.

No, let's say, structurally, let's say, storage margins will be less than thermal because of the wear and tear of rotating parts, combustion parts, et cetera. That's typically, let's say, we have a lot of service business and that is very highly profitable. So in the end-to-end profitability, thermal will always be better than storage. I will not comment, let's say, if you've done single digit or double digit, let's say it's clearly not on the level as thermal will be.

Okay. I guess without trying to be kind of too clever about it, if you have a 12% margin target, which is where the business used to be, then something else has to be more profitable if storage is going to be less profitable than the traditional business. So...

Yes. That's logical.

Yes. So what do you see -- where do you see the kind of real margin opportunities?

I would say the real margin opportunities are in particular in the businesses where there is a high service volume.

Okay. And just maybe a final one. Just -- you mentioned -- kind of you talked about carbon capture at the service day. I would have loved to be there, but unfortunately, my travel didn't allow. But maybe just for those of us that weren't there, would you just be able to give a kind of very short summary and particularly any kind of addressable market opportunities or how big that could be for you? Any sort of high level or any thoughts or figures around that would be super helpful.

Let's say, we have sold, let's say, I mentioned it, I think earlier as well, let's say, carbon capture-ready scrubbers. Let's say, our carbon capture solution is not yet ready. There is lots of R&D effort ongoing, and I would say the tests are going quite well actually according to plan. We intend to bring the whole concept to the market in 2025. And let's say, on your question, okay, what's the potential? We believe it could be the similar size of potential scrubbers, for example, if not bigger. But it's a bit too early to say.

Yes. And that was the message on the site visit as well. So this can be in long-term bigger business than scrubber business was. And the figure regarding the scrubber business, which has been discussed, was the peak orders, which was EUR 750 million. But like Arjen said, the solution is expected to be ready in 2025. So please remember that it doesn't -- you shouldn't kind of put any figures for your models before 2025 and anyhow this is kind of a longer term opportunity. But to give this closure equally to everybody, so this EUR 750 million of orders for scrubbers on the peak was discussed in Schiedam. Next question comes from Sven Weier.

The first one is on the market outlook, Arjen. In Marine, I was just wondering how you see the navy market. It's not a small market. You think it's going to be a few years until you benefit from the higher defense budgets? Or do you see some momentum now already in the pipeline?

I would say, there is more momentum in the pipeline. But let's say, typically maybe orders from, let's say, momentum to order can be a long journey. And of course, I'm sure you're aware, let's say, the documentation and specifications and qualifications and all safety and security around it is a long journey. If you take a fragment, for example, let's say, from initiation to order can be 5 years. So -- and then it's still, let's say, a couple of years building time. Yes, there is more discussion. That's clearly the case. And for sure, let's say, the navy equipment that is out there is very active, let's say, sailing. And that, of course, where we are having our components in support with service business. But I would say on the newbuild side, it's still too early to say. No concrete orders.

I was just going to ask on the service side because I'd imagine in last years, quite some equipment idle, right, and maybe not properly maintained. So do you see the momentum largely on the service side right now?

I would say that navy typically maintains that equipment rather well actually. So I'm not so much on the same page with this contact, actually. They are -- even though they are not sailing, they are maintaining. Even sometimes if it was to use their budget, not to get cut the next year.

Maybe I'm biased in Germany, but could be slightly different here. Okay. The other follow-up question I had is slightly more forward-looking. I know you have the CMD coming up later this year, but -- and you have a proper margin target already. But I was just wondering if we should this time expect also a proper date for achieving it?

I will not run ahead of the CMD in November. Let's see in November.

Next question comes from Antti Kansanen.

Just a couple of follow-ups. And first is something that you said on the thermal side, and I guess the orders are now more skewed towards H2 but still in your framework. So were you referring to what you're expecting for the full year demand or also how you kind of expect to have workload in your factories and fixed cost absorption for the full year? I mean if it's further delayed, are you at some point this year running into issues with workload situation?

Let's say, if it comes in, as we now anticipated with the majority in the second half of the year, I would still -- it should be still okay for a factory. What we said earlier already, we have a little bit lower volume in the factory. Anyhow, already in the second half of the year. But let's say, it should not get worse from what we anticipated, let's say, at the end of Q1 that the full year would be.

Okay. And then the second follow-up was on storage side. And could you remind this kind of indexation that you were talking about, was this something that was introduced last year when the prices shot up? Or is this something that has been included in the business already before that?

No, I would say it was mostly introduced after, I would say. Of course, we have indexation in agreement contracts already for a long time. But let's say, in particular for storage, it was typically happening, let's say, after March last year. And not only us, I think the whole market did the same actually.

I'm kind of -- I'm not sure if you're willing to comment on this, but does it change kind of the earnings leverage or the gross margin profile that you are now delivering on those orders that you have taken, let's say, second half of last year, first half of this year? I mean is the gross margin profile of that business very different on what was delivered last year?

Of course, let's say, in the ratio, if you take margin to sales ratio, of course, if the cost side goes down and the sales side is going down, it has some impact, but I would say it's marginal.

So in a sense, kind of the earnings margin improvement on storage is kind of still driven by scale or volume growth over whatever you kind of invest in OpEx?

Yes.

Next question comes from Anders Roslund.

Yes. So I have a question regarding the, I would say, scrubber business. Could it be any changed legislation versus closed-loop solutions versus open loop that will restart some refurbishment or rebuild demand again?

Are you talking about carbon capture or...

The scrubber business.

Okay. It has been rather silent on that front, at least from what I have heard. Scrubber business anyhow is on a much lower level than, let's say, what we used to see. At the moment, it's a lot of, let's say, newbuild activity mostly. There is retrofit, but then the retrofit is now much more towards, let's say, the carbon capture-ready scrubber because that's where the market is mostly interested in. Is there a discussion about closed loop and open loop? The discussion has been all the time there, but at least I've not heard of any significant change in the discussion.

Now I just read some environmental reports saying that there is a huge deposit of, yes, pollutive...

Let's say, if open loop would be abandoned, that's, of course, the opportunity but that's -- I've not heard that it would be formally done. So -- and of course, let's say the Marine -- in that sense is a bit complicated because, let's say, open loop and closed loop, it's very, let's say, local, right, let's say, whether it's allowed or not allowed [indiscernible] you cannot.

Now I do not see any thumbs up. So in the case you have a question, use Raise Your Hand functionality. We still have time. Erkki Vesola, please go ahead.

You said after Q1 that you had some party interested in the Trieste facilities. Have you seen any progress there linked to this sale?

No, I think it's still pretty much similar situation. We are in discussion but, let's say, I don't want to open up too much about it as this is, in a way, confidential. Discussions ongoing, but progress is being made, although as you have seen also from all the messages about Trieste, it's a slow project.

Is there any pipeline -- or timeline in your head that this could be [indiscernible] by the end of the year?

Of course, let's say, we would like to go as fast as possible but, let's say, it's not all in our own hands. As earlier mentioned, this had become, unfortunately, let's say, also a very political thing. Let's say, our announcement fell on the same spot basically as the Italian government fell. So politicians got involved, and they cannot, let's say, certainly step out. So this discussion, with politicians involved, will continue. And it is difficult to say exactly, let's say, about timing. I personally believe it will not conclude this year.

Yes, one could think that, even when it hasn't gotten political, so it will block some investors or potential...

Also that. And of course, let's say, the local newspapers being very vocal about potential candidates is not helping the situation either. So it's a very complicated process with a lot of, let's say, hooks, where you can easily hurt yourself on. And so we need to take it very delicately and prudently, and that's what we are doing. So we are trying to make the steps in the right sequence, in the right order, involving the right parties at the point they need to be involved. But it's a cumbersome process. And yes, originally, let's say, we have -- we thought okay, this would be done definitely within this year, but with how things went, I'm a little bit more pessimistic about it.

But after the EUR 132 million reservation you made last year, [indiscernible] fully hedged?

Yes, we are still, let's say [ indifferent ].

Mikael Doepel, please go ahead. Mikael Doepel from Nordea, do you have a question?

I do. I was just on mute, sorry about that.

No worries. It happens for everybody.

Yes. No, so just wondering -- I wanted to be clear on the Marine guidance or what you're saying about the outlook there. I mean in the beginning, you talked about the various segments there. But overall, do you still see the market stable overall on the kind of new equipment side? Or do you see it down? Or how do you view it? Or is that down and the aftermarket up? I mean just if you could just clarify that a bit. Is it still stable overall? Or how do you view the market?

I would say it's a pretty stable market overall. But let's say, in Marine side, typically things shift between segments. Let's say, this year, one segment is up. The other day -- or the year, let's say, another segment is up. So if we look back, let's say, container vessels, let's say, we sold a lot of auxiliary engines to container vessels. Let's say, when the [indiscernible] was happening. Earlier years, let's say, cruise was, let's say, booming. Now cruise is down. Next year, cruise might be totally different. So it depends by segment. But overall, I would say it's a pretty stable market. Let's say, looking from our perspective, let's say, volumes -- newbuild volumes we sell.

Right. Exactly. So you're referring to newbuild volumes. And on the aftermarket side, I mean at least in the comments I'm hearing from the market and some competitors, that has continued to be quite brisk and strong. Would you agree with that? Or how do you see the aftermarket?

Absolutely. Let's say, that's why we're also growing strongly in the service volumes. Also you could see on the service call, let's say, it's all about, let's say, of course, it's the market but, let's say, it's also our strategy, moving up the service volume. But activity in basically all markets are strong. Take offshore as a good example that I mentioned in the beginning. It has been dead for many years, now it starts to really -- it started already earlier, but let's say, it's really picking up, which is good.

Right, right. And then just a final one, coming back to the energy storage discussion here. I mean we talked about the margin quite a lot, but I'm wondering in terms of capital intensity of that business compared to the group overall, I would assume it's fairly capital light. So -- or at least lighter than a group average. Just wondering if that's true because what it means is that if you do a lower margin, you could actually still have a quite good capital return. If you could give any comments around that kind of capital intensity of that business compared to the kind of the rest of that, that would be great.

I would say, I agree with your statement, it's fairly light in capital. So that's confirmed. Yes.

Does anybody have any more questions? Max Yates, please go ahead.

Just -- sorry, very final one. We haven't talked about cash so far this call. So I just wanted to understand anything kind of in terms of phasing of cash flow, sort of working capital development? Are you still -- I mean how are you thinking about working capital this year? Do you think kind of bringing down your inventories, you can actually have an inflow? Just any kind of color that you'd be willing to give on how to think about the phasing of working capital and free cash flow more broadly through the year would be helpful.

Yes. Okay. Cash flow has been a challenge as I'm sure you're well aware of. Let's say, last year, we ended negatively on the operating cash flow. I do anticipate clearly, let's say, an improvement this year. We saw positive cash flow in Q1. [indiscernible] let's say, they relate not a little bit, it's quite strongly related to the volumes you need to deliver. Q2, I would say, is a bit more challenging, I would say, typically because you're now building working capital that needs to be delivered after the summer towards the end of the year. Inventory levels, I would say, are -- I think we have good actions ongoing to bring that down, also from earlier time, as I think we also communicated that because of the, let's say, challenging market circumstances on the COVID times and also, let's say, availability of certain components. We have been ramping up inventory in order to be safe that we can deliver to customers. I think that's getting a little bit easier, so we can lower it back down again. Of course, let's say, receivable collection, payment terms to suppliers, this is all being focused. But in general, it relates very strongly to, let's say, near-term deliveries to go out. So -- and typically, let's say, the second half of the year is higher volume than the first half of the year, so that has also a consequence to working capital. But overall, on the whole year, clearly, we should do a lot better than, let's say, what we did last year, positively only.

Now I do not see any thumbs up. So we still have time if somebody has a question. It seems like that there are no further questions. So thank you for being active. Thank you, Arjen, for your summary and good answers, and I hope that everybody has time to enjoy the warm summer now. Take care. See you soon.

Thank you. Bye.