Wärtsilä Oyj Abp (WRT1V) Earnings Call Transcript & Summary

Hello, everybody, and welcome to this Wärtsilä call. I hope that you have enjoyed the short Easter break. We have a terrible snowstorm here in Finland yesterday. So there are no signs of spring here, so let's hope that weather is better at your end. I have a couple of my IR colleagues here, so some -- Maija and Noora and then our CFO, Arjen Berends; and Arjen will start with key messages. And after that, we will continue with the Q&A. Please, Arjen.

All right. Thank you, Hanna-Maria. Okay, a few words upfront. First of all, Marine, we have a good momentum in basically all our key segments. Very strongly driven by decarbonization. Cruise, first of all, we see new capacity being ordered as you are, for sure, let's say, read or heard Carnival has placed orders for 2 vessels at Myers and a Royal Caribbean in [indiscernible] Atlantic still pending financing, but things are moving, and that's also needed in order to secure their long-term growth expectations. Our market share has been very strong in main engines for Cruise. So clearly, we anticipate also quite a good momentum here for us in the near future. Engines for these orders that we were just mentioning have not yet been placed, but at least we expect them to be made end of this year, beginning of next year somewhere. Also in Ferries, as I've mentioned in many meetings before, average fleet is quite old, 25-ish years. So new investments are needed to meet, let's say, decarbonization targets also from their end and the signals that we get from ferry owners and operators is positive. More and more of them are committing to either replace fleet or modernize their fleet and want to have discussions with us about their journey what to do, when to do with respect to decarbonization of the ferry fleet as well. Offshore utilization levels are quite strong and have been strong for quite a while, clearly supporting our service business as well. If we look at Energy, we continue to have a favorable long-term demand outlook for both EPP, Engine Power Plants and Storage. Outlook is clearly supported by the transition to more flexible energy systems, driven by, of course, the need -- or the increased share of renewables, but also the shutdown of coal power that requires, let's say, alternatives for intermittence. We have mentioned before, but this energy business is quite lumpy by nature. So that means that order intake but also revenue recognition in energy can vary quite significantly from 1 quarter to the other. We have seen, let's say, last year that we had been EPP in the beginning of the year, some lower order intake which we catched up basically in the later part of the year, same lumpiness we have seen also in ES&O before. So looking at, let's say, these factors that our revenue recognition on the energy side this year is more tilted towards the second half of the year than the first half of the year. Cash flow, I would say, the good development. We're not guiding on cash flow, but the good development that we have seen at the end of last year continues also during the first quarter. So happy with that. As you have noticed or will notice, we have changed our reporting structure that was announced last year. Marine Systems does not longer exist. So going forward, we will have 2 reporting segments, Marine and Energy and Portfolio Business will continue to be reported as other business activities. The restated financial information was published on the 22nd of March. As you can see from these restated figures for 2023, our group comparable EBIT margin, if exclude portfolio business, is already very close to double digit, 9.8% to be precise. And clearly, let's say, we are on the path to reach our financial targets, of course, supported very much by the improved new building opportunities driven by decarbonization, both in Energy and Marine as well as, let's say, moving up the service value like that, which is the biggest contributor as we see it to profitability. We are all the time also in Q1, continuously and consistently working on the development of our organization. In a company like Wärtsilä, global operating numerous small-scale reorganizations or other improvement initiatives going on all the time. This will also in the future happen to be so and cost related to that will be recorded in IACs. I'm sure you've been hearing about, let's say, port strikes in Finland. That is, of course, not, let's say, nice and not helping, let's say, business operations. So far, I would say the strikes have not been of huge impact to us. Inbound, let's say, we can find alternative ways of transporting and also outbound there are certain possibilities that we can do. So far, no major impact. But of course, if the strikes continue for a longer time, the effect will, of course, gradually increase. But currently, if you take our Vaasa factory, which is in particular, let's say, impacted by port strikes and ports difficulties that factory is quite normally operating. Of course, with hiccups in workaround with, for example, component being transported on road instead of -- by ship. Finally, I would like to draw your attention to 2 slides if you can put them up. If you go first and the second slide here now. So I would like to draw your attention to this publication that was done by our Marine business on sustainable fuels for shipping by 2050. I think it's an interesting read. I don't want to go into all kind of details here now. But if you want to understand more about, let's say, fuel and future fuels in Marine, I think this is a good read clearly recommended. If you go to the other slide then. Then Clarkson, they did an update on their forecast. No massive changes, I would say. Anticipation is a little bit more positive for 2024, 7.5%, equal to about 130 ships more than in the previous forecast, which was from September last year. Main increase came from tanker bulker and LPG sectors. In our key segments, I would say there were no major changes. Shipbuilding capacity, which has been a topic in our discussions is increasing and is continued to increase, mainly coming from China, which is clearly, let's say, growing fastest, I would say, in shipbuilding capacity. Red Sea, it is a disruption. Nobody knows how long this will take. I think it depends on many factors, which are not so easy to estimate what it will take. Fact is that, let's say, more and more ships go around, Cape of Good Hope. And yes, actually, Clarkson is estimating that this over the last 6 months basically is leading to a 2.9% growth in ton-mile trade, which is basically equivalent to 1 year of typical trade growth. So it's quite a lot of, let's say, extra running hours for ships. Of course, for us, let's say, service business correlates with running hours, so it's not necessarily negative. In the beginning, it was a bit negative, you could say, because you run into delays on components, et cetera. But let's say, this has not, let's say, caused any problems in our deliveries to customers. With these words, I want to close and give the floor for questions, if there are any.

Thank you, Arjen. So time for questions. [Operator Instructions] First question is coming from John-B Kim. John-B Kim, can you speak or... Could you speak to momentum in storage and profitability?

Sorry, that was the question or...

Yes, that was the question from the chat now.

On storage?

Yes, Could you speak -- I think the question is Could you speak to momentum in storage and about the profitability? Maybe the profitability which we are taking about that when the results are published.

Yes, exactly. That was my first answer. Let's say, we will come back to, let's say, profitability numbers when maybe close Q1. But let's say, on the momentum, I think the momentum is good. Let's say, there's a lot of demand in many places of the world. And that also translates to our, let's say, you could say, opportunity queue. Of course, it's always difficult to estimate, okay, which one will land when. That's also what I referred to earlier on the lumpiness of orders and when to take them in. But I would say, overall, it looks good. Looks promising.

Next question comes from Daniela Costa.

Actually, I have 2 things. One short term and another one a little bit more longer term. On the short term, maybe just an update on how should we think about pricing this year and the balance with raw materials taking into account indexation clauses and other things? And then I'll ask the second one afterwards.

Okay. Pricing, of course, there are many items related to pricing. For sure, let's say, on the Service side, we will always and that's what we have done basically every year, look into pricing, is it on the right levels? Should we increase? Is our cost structure increasing? And of course, we have also seen inflation. So clearly, that has an impact also to pricing. I have not quote or let's say state how much we have increased prices, but we have increased prices on the Service side. But raw material index, as you know, we have in our main part of our storage business and contracts we have this raw material indexation. So basically, how raw material develops, actually our sales price develops at the same time. So we are not being the sponge in the middle. Not anymore.

Okay. And then just more -- obviously, all of us here this quarter you'll get a lot of questions about data centers, there's a lot of power requirements there and a lot of backup that is needed. Can you help us out how does your business tally with that? Is that a direct opportunity or more an indirect one and sort of what exposure do you have today, if any?

That's a good question. I think we are involved in data centers. I don't think it's massively huge yet. I think we are involved both on the engine side as well as on the storage side, in my memory. But that can be verified to be sure, but this is now out of my head. I think we are involved in both. I don't think it's massive volumes here for us.

Thank you. And the next question comes from Johan Eliason.

I was wondering a little bit about this, you talked about not being the sponge in between pricing and the lithium, et cetera. Is that what you say sort of standard practice right now? Or is there a risk that some participants at being more aggressive or so because of not applying this method?

I think it's shifting a little bit, I think. Let's say, a year ago or half a year back, I think it was pretty much standard practice. I think it's a bit shifting. And of course, it's also a matter of, let's say, when do you lock the price with your supplier and also with your customer at the same time. But I would say that many competitors or at least it's to our know-how, they are still very risk-averse when it comes to, let's say, this material cost and try to lock it either a contract, but it is just a fixed price. So you basically agree a price on the material already with your supplier before you sign the contract with customer or you vote for a while and fix it later. So either or happens. Earlier to was very much, let's say, a new order and there was a lot of volatility in the lithium, for example. Now you see more and more happening headquarter, but the impact is the same. So we are not sponging in the middle.

Good. And just then on all the strategic reviews of storage and the disposal of the Gas business, et cetera. Any news you could share on those?

No, not on the strategic review, that's ongoing. And as soon as we have news to tell, we will for sure come out. On the portfolio business, of course, we are actively, let's say, working with the market and I will not open it up too much, but we are trying, of course, to sell those businesses at a good price basically as soon as possible. But we are not in a super hurry. We don't want to make bad deals either. So it might take some time, but it's work in progress.

Excellent. And then just finally on this potential cruise orders. If they are placed with you at the end of this year, I mean, when are the revenue recognition, I understood the cruise shipyards were previously at least pretty sold out until '26 or '27 or so, would that mean that your revenue recognition would be sort of '27%, '28 or so?

Yes, I would say '26 onwards, I would say, ballpark. It depends on the -- okay, first of all, when this the order firm is with us. Then, of course, when is the chip being delivered and what is the building schedule of the ship because at some point of time in the building schedule, the engines need to go in. Otherwise, you need to cut the whole open again. So I would say, I think the later ship, I think, was delivery '28. So I would guess that one is '27-then-ish and the other one is probably '26. So '26, '27, I would guess, sure.

Thank you. The next question comes from Erkki Vesola.

Actually Q4, you talked about a pretty strong Power Plant pipeline in Indonesia, other Southeast Asia and Latin America. Are they moving forward? I mean, have you been actively tendering? Have you lost any bit [ connoisseur ] What's the situation?

No. Let's say, it's work ongoing. I will not go into individual, let's say, projects that we have them already or not. When we can announce something, we will announce something. But things are moving forward, I cannot say more than that.

Okay. I mean -- so none of these have been decided regarding supplier yet?

I will not comment, let's say, because then I would state, let's say, which order we have booked and we need to agree with customers if we want to publish orders.

Thank you, Erkki. The next question comes from Mikael Doepel.

Yes. A couple of questions. So firstly, on the aftermarket business overall, I mean, you have shown quite impressive. So on the aftermarket business, you've shown quite strong organic growth there for quite a few quarters, already double-digit growth. And I guess it's driven by a lot of different things. But my question is really, is there any reason to assume a moderation from here? Or would you say that the underlying trends are so strong, I mean referring to your comment on pricing, on decarbonization, on the demand out there in the market that it's fair to assume that the strength or the growth trajectory will continue going forward as well?

I'm very positive, but continuous growth in service. It's part of our strategy of moving up the service value ladder. It is clearly working. We see it both in Energy and Marine. It's working very, very well. I think there will be more and more demand also for retrofits going forward, which is also part of our service business and also part of let's say moving up the service value ladder. So I don't see any reasons why this would suddenly come to a halt. I'm very positive about further service growth actually.

Okay. And that's very clear. And then my second question is on the carbon capture system. Maybe you could just give us an update on where we are now in that process and what the time frame is, how things are developing, what's the perception in the market and so on?

I would say that perception is very good. I think if we would have a fully released operating system, I think it would be a long queue outside the office. I think there's a lot of demand for it as well. There is not too much alternative fuels available if you really want to do something with CO2 output, I think carbon capture is possibly the best tool in the short term. We are looking for pilot installations. Some have been booked already. Of course, pilot installations is to do some first initial field experiences and perhaps tune it a little bit here and there. I think the major part of the development is pretty well. Also on the test rig that we have for it in Norway actually show good results. Full commercial release is planned for next year and we are on schedule.

Okay. That's very clear. And then just a follow-up on that side. I mean, could you comment anything about the competitor situation in the market? Are you seeing more activity within CCS from your competitors now or would you say still say that you are a first-mover here?

I believe we are still first-mover. Of course, it's very difficult to comment on exactly what competitors are doing because nobody let them look into your R&D kitchen. That is pretty secured by many. We know from also talking to customers that others are working on solutions as well. But listening to all these comments, I would still say we are in the front here.

Okay. And then just a final follow-up on that one. In terms of the infrastructure at the ports, I think we have discussed that previously as well. But is there anything happening on that front, I guess, that could be a kind of a bottleneck. If you don't get that in place, do you see pilots in place there as well or how are things proceeding?

We hear about infrastructure developments for discharging CO2. I'm from Holland, as you might know, I know in the port of Rotterdam, there is clearly, let's say, thoughts about it. There is also thoughts about underground storage in old oil wells or gas wells, et cetera. So I think this is quite well on the radar. Is it going fast enough? That's the question. I think discharging is perhaps not the biggest problem. But then how to store it and where you discharge until you can find a final place, either utilize it in fertilizers or something similar or store it deep on the ground. I think there is a role to go, but it's on the radar that I can clearly see.

Then I have received one e-mail question. It's from Vivek Midha from Citi. This is regarding Trieste. So it's pointing out that there are some press reports that you have signed an agreement for the Trieste site with MSC, could you please walk us through the latest state of play in Trieste and the impact on costs this year?

No, I will not open that up. There is no deal with MSC. So that, first of all, that's very clear. We are discussing with MSC, but that's all I can say at this point in time.

Then next question comes from Antti Kansanen.

Yes. I was just about to ask on Trieste as well. So is there any way to comment on the cost level last year that was still impacted?

I'm sorry, can you...

How much kind of cost from Trieste you still kind of [ accrued ] last year?

Not much. Basically, the people are currently under temporary layoff, which is then financed largely by the Italian government. And the assets have been moved and closed. So basically, not much. Minimum.

Okay. Okay, that's clear. And then maybe on the strikes, and I know it's a pretty fluid situation, but -- and I understand that minimal impact so far. But what's your kind of alternatives, especially on outbound logistics if the strikes linger on for, let's say, majority of April or entire April?

Yes, that's -- nobody knows how long it takes. The alternative transport is basically road. If you take a small engine, you can even drive it on the botnia -- aurora botnia ferry and move it over or you put it on a truck and drive it to Sweden, which is a long way. But -- and of course, at extra cost, this is not cheap. And we should only do it where it's absolutely necessary, also looking at, let's say, building schedules with customers and are they delayed in their schedule and by road. So this is a continuous dialogue and balancing thing. Of course, we are looking ahead, assuming that the strike continues longer than better to be prepared and to be surprised, and we are prepared for road transport and at some point of time, not needed and it's just a good thing. But it's continuous fluid situation and evaluation basically customer by customer delivery. On the inbound side, I don't see there is too much trouble, many components can come in by road as well, actually, utilizing ports in Sweden, for example.

Yes. Okay. But I was just thinking the impact is it kind of delayed delivery is something that then you will catch up on second half or will you just pay the price and kind of take the hit on Q2, whatever it is?

No. That depends again by customer. If a customer -- if according to the contract that we should deliver in, let's say, May, and the yard is delayed in the building structure and only needs it in June, then it's quite tough and very easy to arrange with them, okay, we make sure you get it in June. And we don't take extra costs for transport. But of course, if the yard is in a hurry or there are big penalties on late delivery can also be -- then it might be worth saying, okay, let's put it on the truck. Yes, we pay a little bit more, but that's better than paying the penalty. It's an evaluation by project, basically.

Okay. And then the last one was on the power plant orders. I mean last year, it was kind of a skewed towards second half. Is there any risk or any guidance that this year demand growth will also be more on the second half or would we assume more even year regarding orders?

That's very difficult to say because I mentioned the lumpiness. It's impossible to really say. Okay, second half, first half, there are many orders that might be landing in July actually, so we pull them into Q2, yes, who can say I don't know.

Has it been a lot of announcements on Q1 though?

I don't think we have too many announcements in Q1 yet.

We have a couple of marine deals.

But not energy..

Yes, it was the city of Farmington, but that was booked already in Q4. And storage in Zenobe. Yes...

Yes, the only storage. Yes.

So there is a good list on our IR website about the published orders, also take a look at that. So thank you, Antti. Then there is somebody who has registered as an unknown user. So now it's your time to raise the question. Who is the unknown user. Okay.

Let's move on.

Let's move on. Then Sven Weier.

Just a follow-up question on the margin comment. Arjen, you mentioned earlier in the prepared remarks about the impact of the portfolio business. Now I do remember that I think in Q1, you had the worst impact of the legacy contracts of the pre-inflation contracts. Would you say the dilutive impact was similar or more or less than the dilution from the portfolio businesses?

Sorry, now you're referring to Q1 last year? Or what's your reference? Because this was based on 2023 numbers, 9.8, so not Q1. If you look at the restated numbers, let's say if you take our Wartsila business and you exclude portfolio business, then we are at 9.8%, so moving towards double digit. So in fact, reality portfolio business has been dilutive to 2023. But that was not a comment related to Q1.

But based on your disclosure, we can do the same exercise for Q1, right? And I was just wondering if the dilution from the legacy contracts would be in a similar ballpark or less or just as directionally.

Dilution from the legacy contracts.

So Sven, are you speaking about Q1 2023?

Yes, exactly because I think in H1 '23, you still had impact from the legacy contracts, right?

Yes, during the first 3 quarters...

I think -- yes, exactly, right? And I suppose in Q1, it was probably the worst. I think it's something we need to keep in mind on the year-on-year, right? So?

But let's say these projects have been delivered. So it's clearly better this year, if that your question?

Yes. And I was just wondering if the dilutive impact of this has been in a similar ballpark, right, the negative impact of it last year in Q1?

I don't get it because those projects are not in our books anymore. These have been delivered. So yes, there was an impact last year Q1 that is no impact...

That's what I'm curious about, Arjen, how big the impact was?

Yes, but I will not quantify it for you, that impact is gone now.

So Sven, we have only quantified for last year, it was EUR 1.2 billion net sales for the first 3 quarters. And unfortunately, we are not giving any more detail.

And you didn't say how much of these were by quarter, right? Because I was assuming the biggest part was in Q1, but maybe that's wrong.

Yes, that we will not comment on. Those [indiscernible] better this year.

Thank you, Sven. Next question comes from Johan Eliason.

Just wanted to follow up on your comment about the cash flow still being good. I mean it was really good at the end of last year, but I sort of think you also indicated some early collections of receivables and things like that. But if I understand you correctly, there's no backlash from those net working capital effects in Q4 now in Q1? Will there be any in this year, would you say?

I will not say more than -- I think we have a good cash flow in Q1. It looks good.

Thank you, Johan. And then Sven, okay, maybe it wasn't all thumb. I don't see any -- okay. No worries. So then does anybody still have a question? I do not see any hands up at the moment. I do not have any e-mail questions either. Tomi Railo, please go ahead.

A question firstly, on the Cruise. Is there still a backlog of Cruise sort of orders or contracts where the engine equipment has not been ordered?

I wouldn't say so. I think it's also a little bit changing gradually. And more and more, let's say when a cruise vessel order is placed, it's pretty much already pretty fast concluded let's say which engine types will get into that. And it's more a matter of, okay, when do we sign the contract, what are the terms and conditions we can agree upon that engine type and configuration gets decided earlier and earlier. That's actually the trend today. Because actually, let's say, if you look at cruise operators, the cruise bookings are record high. They have been, let's say, 3, 4, 5 years, not ordering that many new ships. Now suddenly, if they want to meet the growth expectations, which is also, of course, driven by the bookings, they really need to get some new ships because they also scrapped a lot of ships during COVID times and after. And so actually, the ship capacity to meet the demand for cruising is too short. So I think the urge for many cruise operators to start ordering is increasing.

Okay. But there used to be a backlog, I believe sort of the vessels where equipment had not been ordered, but maybe it has been.

I think that is totally gone.

Okay. Second question, any help with the storage review time line? Should we -- I mean, how long can it go on? Is it like a year or half a year, 1.5 years? Any comment on that would be helpful.

I will not comment on time. Let's say, we take the time it is needed for. And of course, we investigate many options and any option is a time line by itself. As said before, we will come out when we can say more, but that's not now.

Thank you, Tomi. The next question comes from Max Yates.

Yes. I just want to quickly ask on the Marine guidance update. And I guess the reason for asking you is when I look at the ship ordering data that we've had in the first 3 months of the year it's not great. So I'm just wondering, can you just remind me and take us through kind of what exactly you're looking at that gave you confidence to guide your business higher because frankly, I just don't really see it in the data. So I'm a little bit confused kind of what it is exactly you're looking at that's making you more confident?

I would say, of course, what we are looking at is the pipeline that we are discussing. And let's say, we have a very good pipeline in Marine. Every would almost say every month, but definitely, on a quarterly level, even more deeply, we review all the opportunities. You made the rating of what do you expect to come in the coming quarter/1 year ahead or even beyond that. And look at, okay, what is your -- what is the thinking also what is our strong position in a respective deal? That, of course, gives you a scoring rate, you base your demand guidance on, which is also what we use, for example, on factory load with suppliers, et cetera. So it's not just a number out of the sleeve, it's a very well-considered number. It might deviate from Clarksons statistics, which, okay, we also know that it's not bad on the long term the trend is pretty much good, I think, from Clarkson. The timing of exact orders, which year, which quarter, I think they are quite often wrong, which is not a total surprise. But we believe trend-wise, it works. We are also looking at it, for sure. But the main driver on the, call it, 1 year ahead horizon is our own project portfolio we work on.

But just so I can fully understand this. Just when you talk about your pipeline 12 months from now, is that based on a ship that has already been ordered? Or is that based on a kind of customer conversation of a ship that might be ordered in 6 months and then you might receive the order 6 months after that? I'm just trying to understand kind of where the visibility of 12 months forward comes from?

It can be anything you just mentioned. Let's say there are definitely now with the decarbonization on the horizon, let's say, ferry operator much investing. So there, you start discussions on what is the best solution for that customer, eventually potentially leading to an order to us? But you work with a ferry operator, which then needs to find a yard that can build it, that you need to be convinced, I want Wärtsilä equipment in my vessel by the ferry operator, and then we get the order. So -- but it can also be that the yard is got an order already for a vessel to take a simple fishing vessel or a tugboat and needs an engine and comes to Wärtsilä for an engine can be very short it can be only a couple of months. So it's all of it. There is not 1 single way that this goes. It's a long list of projects, big and small. Of course, if you take cruise vessels, which the discussion is much longer. You've taken LNG carrier, much longer. But if you take a tugboat, a fishing vessel, a simple offshore vessel, those are much shorter.

So can you -- sorry, to really finish off on this. Can you just help me understand, in something like an LNG vessel or, say, a cruise ship, what is the longest gap between when a ship is ordered and when you receive an order? I mean -- so for example, LNG orders you're receiving today, when were the ships ordered, was it 12 months ago, was it 18 months ago, 2 years ago? Just Help me understand that.

I think every ship is ordered today, let's say, an LNG carrier in Korea that all the LNG carrier yards are pretty full, I don't think we get the ship -- or we get the equipment order delivery is '28 let's assume so, I think we will get it early as '26.

The next question comes from Antti Kansanen.

Yes, I just wanted to ask a bit on detail on the new portfolio business. I mean it's a bit bigger than it was last year. And obviously, the earnings were impacted by the provisions on the Gas Solutions side. So just a reminder, what's the status of these projects? Is there any kind of a risk of further provisions going into this year? And more generally, how should one model it? What are you trying to do there? Are you trying to shrink the businesses on the portfolio side to make them profitable? Are you seeking growth there, turning around to profitability kind of just to get the estimates on a reasonable level for as long as you own the businesses?

Yes. On these, let's say, call it, distressed projects, if you want to call it like that, the ones that we made a provision for in the last year, EUR 48 million. That project is closed to finalized as we also communicated last year or in the beginning of this year, actually related to last year. And I don't see any reason nor risk on extra provisions needed for that project. What are we aiming for with the portfolio business? Of course, profitable growth because the more we can grow and the more we can improve the profitability, the better potential price we have with. And that's our tactics. And then of course, it depends on how quick can you find a good buyer for this business? And that varies a lot. Let's say, the businesses in portfolio business are quite different. Let's say, varying from marine electrical systems, which is largely about, let's say, cabling on board super yards and navy vessels to, let's say, gas solutions, which is regasification, reliquification, waterway, which is another business again. So they are very different businesses. And yes, time will tell how quick we can turn them around. But I think basically, the first target is to get them all to profit and preferably grow them in a profitable way because that enables us to get a better price.

And all of businesses that you have there, you are aiming to sell, there's nothing that you would kind of looking to close down?

No, everything is sold.

Then I have received a couple of e-mail questions. How is -- [indiscernible] do market share assumption for any change to your much assumption for auxillary engines. That is the first question. So the market shares we have in the Capital Market Day, has that changed? I guess that's quite a recent estimate.

I would say that's not a dramatical change, at least not to my knowledge. And of course, let's say, once we have, let's say, quarter 1 close, we can look at it, but I would say it's marginal.

And then how is this market for traditional versus alternative fuel axillary engines developing?

I would say that no major change on a 1-quarter basis. Of course, the methanol has been really gaining traction as we have also seen last year. And I think that is not, let's say, disappearing. It was very much in the container vessels. But of course, with container vessels being less ordered that also as a consequence to the methanol as an alternative fuel. We have launched ammonia engines in Q4 last year that might be the next thing. But the journey forward will be a mix of fuels. It will not be on fuel as the silver bullet for solving the whole marine decarbonization. So it will be multi fuels, it will be carbon capture, it will be hybrid installations and a lot of energy saving devices all combined together that needs to decarbonize marine. But I think we are very well positioned. I think methanol, we have the widest portfolio in the market. On ammonia, I think we are the first. At least I think we are the only one so far in our market segment. So I think we are well positioned, and this will come. I'm truly convinced about it. It's more a matter of time. But let's say, it will not come if there are no technology providers like Wartsila that show that these fuels can be used in an engine, can be run in an engine because now, let's say, the ecosystem needs to follow as well the bunkering, the logistics the production of the fuels at scale, et cetera. Now technology providers like us said it, "Okay, now we have this technology available, fuels can run in these engines, now we need to scale up the fuel. Now we need to scale up the logistics as well on the bunker capabilities." I think that's a journey. It will not be one fuel.

Then important question about Service. What is the service opportunity for alternative fuel versus conventional engines?

I think there is a lot of retrofit opportunities. Let's say, you can convert engines from today running on diesel or gas in the future to, let's say, methanol or ammonia and potentially long-term hydrogen, but hydrogen is more for the energy side, not so much for the marine side. So I think retrofitting and converting engine from current fuels once the scaling, what I just referred to for the new fuels is up and going the bunker capabilities, I think it's worth considering retrofits. Also, with carbon taxes and all kind of other regulation kicking in, customers are forced or operators are forced to make changes. They cannot sit on their hands.

Then one more e-mail question on storage, there has been a fall in the lithium price over the last year. How should we think about revenue growth in storage this year given the pass-through effect of the lower lithium price through your indexation clauses?

Yes, that's a clear impact. I would say that I would say take battery sales, okay, varies a bit by order, but let's say, 50% of the price. So I think you can calculate what the raw material prices ballpark will do.

Thank you. Then next question comes from Panu Laitinmäki.

I have a question on the margins. So can you kind of remind us what are the main margin drivers for '24 and kind of how important they are? I'm assuming you're not giving any numbers, but maybe kind of in order of magnitude, which is the main driver and so on? And are there any things we should keep in mind in terms of like quarterly development? Is this going to be like a front-end loaded improvement against easier comparisons or any comments on that?

I would say the margin development -- the main improvement, basically, I refer to the slide that we have always used also shown in the Capital Markets Day is Service. Service is the best and biggest contributed to an improved profitability. But for sure, also new builds is also clear opportunities, let's say, new build on the energy side, thermal side as well as the Marine side. Bigger volumes, which we anticipate to happen driven by decarbonization, will give a better utilization of the factory and then also better utilization and cost leverage of your overheads. So clearly, there are also benefits from scaling up the newbuild side. Storage. Let's say, we were at about 0 last year. I think there is further potential to grow the profitability. I would say those are the main areas. But clearly, service for me stands out. That's where you make most margin.

Okay. It's interesting that you didn't mention the low margin projects you had last year. So you think that on the equipment side, the growth and scale is more important than what you have last year?

Looking forward or backwards. And I'm positive looking forward.

Thank you, Panu. Now I do not see any raised hands. [Operator Instructions] For me, it seems like that there are no further questions. So thank you for all of the good questions. Thank you, Arjen for good answers. As a reminder, Q1 report will be published on April 26. And then we have quite many interesting events coming up. So we will host the Marine FEED call on May 7, together with the President of our Marine business, Roger Holm; and then at the end of May, we are hosting a site visit the Smart Technology hub here in Finland, it's in Western Finland in Vaasa. And in the case you want to join, I hope to see many of you there. So then it's a easy to combine with Capital Markets Day on the previous day. So perfect time to come to Finland. I hope to see you there.

Hope there is sunshine as well. Thank you very much for today.

Yes. Thank you. Bye.

Thank you.