Wärtsilä Oyj Abp (WRT1V) Earnings Call Transcript & Summary

Welcome to Wärtsilä Strategy call. My apologies for that. So welcome to Wärtsilä Strategy call. I'm Hanna-Maria Heikkinen, I'm in charge of Investor Relations. Today, our CEO, Hakan Agnevall, will discuss some of our key long-term opportunities. And after Hakan's key messages, there's a possibility to ask questions. As a reminder, we will host a pre-silent call on June 17, together with our CFO, Arjen Berends. So let's leave the questions related to recent trading and detailed financials to that call. Please, Hakan. Let's start.

Yes. Good afternoon, everybody. It's a pleasure to be back. I just got back from Greece and Poseidonia, which is, if you're not into it, it's one of the major fairs on the marine side biannual, and we're very interested to meet with different stakeholders of the industry. So I'll share some reflections on that later on. As Hanna-Maria said, let's -- I'll give short summary of where I think we stand on our execution of our strategy and then let's open up for Q&A, so to say. So -- but I start quickly to make a summary from my side. Where is -- as we stand on strategy. So basically, if we start on the Marine side, I think -- yes, if you start overall, it's the decarbonization. That's our strategy, if you're summing up in one word, both related to Marine and Energy. And if we look at Marine side, I sense that the regulatory forces are really there with IMO and also the EU regulation. We talked about that fuel cost in EU will double until 2030, and 2035 we will have cost parity with the greenfields. And there is, of course, upcoming EU election. Let's see what happens in that. And if that will affect the regulatory situation going forward in Europe. But I think the industry is taking the EU regulation seriously quite and IMO will probably follow in one shape or form with some type of carbon tax going forward. I mean the discussions are going ongoing. It's premature to say what will come out of them, but regulatory context is really evolving, so to say. We also see, I mean, some data points. If you look at our order intake last year on the Marine side, 60% of the engines that we received orders for are enabled for some kind of alternative fuel. That includes LNG. So we are clear on that, so LNG and methanol primarily. And you also know, you mean the -- if you look at the order backlog overall in Marine, over 60% are also enabled for some type of alternative fuel. So both Wärtsilä and also the whole industry is step-by-step adapting more and more alternative fuels. I mean half of the fleet is not CII compliant this year. And that's actually a major figure. And if nothing is done, 80%, or close to 80% will not be CII compliant by 2028. And this will trigger action. And of course, slow steaming is the first action, then it's about energy saving devices. It's about hybridization, bringing in electric batteries to complement the combustion engines, but then it's also about new fuels and carbon catch. I think there is a lot of interest in carbon capture. We have earlier said that carbon capture, we see it as a EUR 10 billion business over the next 10 years. And if you look at, I think the investments in upgrading the retrofit -- I mean upgrading vessels in retrofit. I think Clarkson made the estimate that there is a need for close to EUR 20 billion in retrofits. So this -- it looks very promising, I must say. On the regulatory side, clearly a driving force. On the market side, we also see still a small market, but it's growing for green transport. I mean when we talk to some of the key operators, they also see the same. I think the challenge for the industry, I mean, so far, I think we have sold more than 200 methanol-enabled engines, this is the availability of the greenfield. And that is, of course, a transition that would take quite a few -- quite some years, even a decade. But I think the key thing is to have the fuel flexibility. And we talked a lot about that in that the key fuel flexibility because you don't want to sit with a stranded asset and also fuel efficiency because the new fuel will be more and more expensive, so to say, unfortunately. So I think that is a couple of things. And coming out from Poseidonia, I can also see that more and more stakeholders are talking about the new green fuels. Also, the Chinese are talking about greenfields. Also strong, I would say, when I listen to some of the major Chinese shipyards, they talk a lot about ammonia and they see it also from the Chinese kind of ecosystem. If you look at from China as a country, I think there is a strong focus on ammonia going forward. Everybody acknowledges this will take time. It's not a quick transition. But I think people also in general are starting to acknowledge that the technologies that we need to decarbonize the marine industry. They're actually here already. But of course, it's the building up the infrastructure and making the fuels available. That is, of course, a major step. And it will not be 1 major step. It will be many small steps. So I think from our side, it looks very promising. And I think we are right in the middle of this transition. We are a technology leader. We have continued to invest heavily in R&D. We talked about 3% to 4% of our total sales which is, you could say, 7%, 8% of our new equipment sales. So -- and I think we have established ourselves as a thought leader and a technology leader in the decarbonization of marine. Then if I move over to energy, the -- also there that we see the transition continuing. I mean BNEF they say that, I mean, the investments in the energy transition, it increased 17% last year. We see from our side a lot of activities on wind and solar in the U.S., still held back the permitting in the Europe a bit and in China, there is a lot of investments going into wind power. Of course, China is also investing in coal. But if you look in absolute terms, China is probably the biggest investor in alternative energy right now. So there is a lot of things happening. And we do see that the whole concept of balancing power is playing out in the U.S. We talked about it. If you look at our last 12 months order intake, I would say about half is balancing and half is baseline. And the -- where we are growing the fastest right now is in the U.S. because the whole notion of balancing power and the need for it, it's recognized in several states and it's moving forward. In Europe, I think it's still an evolving topic. The market makers that are needed, they are being discussed. And you know the EU energy and electricity market reform is also still under discussion, so to say. So it's an evolving. I think just -- and we continue to work that -- in a kind of a similar way to make the case for balancing. We do studies, power system studies. We work with the different stakeholders and show why balancing is needed and what benefits in terms of economic value and power system stability it brings and what our technologies can do there, both on the thermal side, our engines, and on the storage side, our batteries. We recently did a piece in Finland just as an example for Europe. And I think it was very well received by the ministries that are now working on a specific regulation for Finland. And I think this is a good example of how we're working in different geographies. So we see a lot of activities on the energy side. We -- so we are -- the guidance we have given on the demand side, I think, still holds true. It still holds true also Marine side, I should say. So the strategic review in storage is still ongoing. So no specific news there, nothing new to report. I can just say that we are working actively on it and the drivers are the same. How do we continue to grow the business in a good way, both for our customers but also certainly to create shareholder value and how do we fuel that? And that entails looking at the ownership situation, which could mean that we continue like we have it today, all the way to full divestments and partial divestments. So a lot of work going into that right now. Services, and it is the same story as before. but it's -- you could say boring is good because it's growing in a very good way and the fundamentals are the same. High utilization of our equipment. Of course, the unfortunate situation around Middle East ensues and the extension of routes that gives a little bit of extra kicker to our service business. It's not a major growth driver. The major growth driver is the overall, the high utilization and then moving up the service value lever. And we talked about it before, if you look at growth for us in marine, in general, you -- we are -- our core segments are the segments that we see a lot of activity going on in the forward. Cruise, ferries, I hope you noticed our latest order for Mediterranean -- the ferries for CMA, CGM and offshore and specialty vessels. And we do see continued high level of activities there. But coming back to services, it's really high utilization, moving up the service value ladder agreements. When I'm out talking, as I said, coming from Poseidonia, we continue to sign new agreements, customers see the value. With the new technologies, I think they will -- they are seeking even more value. And the renewal rate is still very high, like we talked about, the 19% earlier. And for me, that is the ultimate proof that we are creating value for our customers. So we are -- 30% of our installed base is under agreement approximately, but it is growing steadily, and that continues in a very similar way. Now so you can hear for those of us who follow us regularly, this is the -- it is the same strategic narrative and it's playing out. It's really playing out. If we talk about a little bit more on, you could say, our operational excellence side. I mean, first of all, if we start with it, the structure of things, I mean production interest is now closed. The final negotiations, hopefully, finally, let's say, negotiations on the industrialization plan is coming into place, involving MEDLOG and the several external stakeholders, but the manufacturing is closed since almost 6 months now. We will still be interested, but R&D services, et cetera. So that is also moving forward, I would say, in a good way. We have revitalized our program around continuous improvement. And I'm very pleased on how this is evolving, mobilizing the whole organization basically in the fundamentals of lean and flow thinking. And this is nothing new in Wärtsilä, but I think we are taking -- we are revitalizing the framework. We are revitalizing the focus. Top management is certainly involved in this and because it's also part of shaping the culture of Wärtsilä. And I think we are taking good steps. For those of you who visited us recently in Vaasa, I hope you had some opportunity to talk to our people. And I think you will find that people are really excited of course, about the decarbonization opportunity and the role that Wärtsilä can play, but also the new innovations we are putting out there and also how we have stabilized our business and certainly moving into higher profitability. The focus on EEQ, I mean, equipment versus EPC in energy, still there. So we would still do EPC, but to a much lesser extent than before. We talked about that if you go back 2022, all of backlog going into 2022. There was, yes, 40% equipment. The rest was EPC, 60% was EPC. Now going into this year, 80% is equipment and 20% EPC. So that is a fundamental shift of our project portfolio in energy. And AI, everybody is talking here. We see this as an opportunity, of course, in Wärtsilä as well. I think we're demystifying AI a bit. I think there are 2, you could say, major streams that we are working on. One stream is about the tools. I mean every company has a suite of tools like Microsoft Office, like Salesforce CRM, like SAP, et cetera, et cetera. So -- and all those tech companies are including AI functionality into their suite of software, so to say. And therefore, we are benefiting from that. And of course, our -- what we are focusing is to excite our people, engage our people. We have some new tools in the toolbox, how do we leverage them in our daily business. So there is a lot of very positive things going on in the company. And I would say in all aspects of the company. Yes, Hanna-Maria, yes, is working on how to evolve Investor Relations, and let's come back to that. But also like in HR, like in marketing and communication, engineering, et cetera, because we clearly see the potential benefits. They vary a little bit, and it's about really exciting people, energizing people and having people experimenting how can we use this tool in a very concrete way. Now this is the first work stream, and you can say all companies, I would assume, all forward-leaning companies are working with this now. So it's probably not a way to create sustainable competitive advantage. Everybody will be using this, like everybody is using Internet, so to say. So that's one string. The other string is more strategic. And this is -- we will take -- make a couple of strategic bets and where we will develop, of course, together with partners and suppliers, more -- that's the specific AI. And this -- one of the strategic bets that we are taking is clearly around the service -- our Service business, both in Energy and Marine. And here it is about big data and how we use that data to increase uptime, reliability for our customers and how to optimize route or optimize any aspect of our solutions that we are providing. And here, we are taking some strategic bets on the services because we see a big, big benefit in really leveraging AI in this area. Another area where we are certainly taking a big bet is our leadership, I would say, of the WISE program that was announced here in Finland. It's a EUR 200 million R&D program where the Finnish government is supporting us and we focus that on basically leveraging AI around autonomous power plants. And so basically, in the future -- today, the power plants are manned how do we create the right tools to actually having unmanned plants that, of course, autonomous power plants, like autonomous cars, the logic is the same. So this is an area where we also have taken a strategic bet. So AI, we are working quite a lot there. And in these 2 streams, the more that everybody is doing and then a couple of strategic bets. I think that -- and I mean, if we look at our service business and leveraging AI, I mean, we have -- nowadays, we have 4 Marine service center and 7 Energy service center on a global scale. So it's a 24/7 business and leveraging AI in those -- in connection with those service centers is very, very strong, so to say. So yes, we are on our way there as well. So I think I'll close there or end there and open up for questions.

Thank you, Hakan. So then let's continue with the Q&A. In the case you have question, use the raise your hand functionality in teams. And in the case, it's not possible for you to use that functionality, you can send an email for me. So the first question is coming from Daniela Costa.

I have a couple of small questions and then maybe a longer one. But in terms of like the smaller ones, my first question is on -- have you seen -- can you quantify or have you seen a visible impact on the service business in Marine this year from the Suez Canal and the longer routes that vessels are taking? How shall we think about that as -- do you see it has quickly as that? Or is that more of a longer-term impact?

No. I think what is happening when the Suez is closed, is people is taking a detour through the Capes, so to say. So of course, they go longer. And it also affects the timetables of the logistics. And that -- since the vessels travels longer, then, of course, the engines run more and they have more service. It's not significant. So I'm just saying that it supports the overall growth. It's not a major driver of our growth of the service business, so to say, but it contributes a bit. So I don't have any X percent of our service revenue for year-to-date. But it has an impact right here right now, clearly.

And then in terms of like, can you talk a little bit on energy? I believe one of the messages on the quarter was there was going to be quite a back-end loaded year where you had some important deliveries towards the back end of the year. Is that what's the latest on that situation?

It's still the same. I mean we also -- first quarter where we had a very favorable mix between services and new build. We also saw that in certainly in Energy, both in our power plant, but also storage business. The sales was low for Q1. And we said and we still maintain that. That was a [indiscernible] effect and also an effect of the lumpiness of the business. So we still -- and therefore, we talked about it, it will be a second half of the year will be loaded with more new build or new equipment sales. So the mix will probably not be the same during the second half of the year. We still maintain the same message.

And then maybe more broadly, just on your point on like the bottleneck on the marine side to the alternative fuels being infrastructure. I guess there is a bottleneck on maybe availability of the fuels. But if I make the parallel like maybe a decade back when we were talking about gas and people were worried that the ports didn't have the capabilities with LNG at the time. When you look at things like ammonia and methanol, what percentage of the ports globally is able to handle these already? Is there a parallel with that gas development or use bottlenecks being different.

It's a fraction. I couldn't even give you the percentage. So to your question about what percentage of ports currently today can handle methanol so to say. So -- but I think it's a little bit different now compared to then. And I'll give you -- because people are -- need -- and they are thinking strategically, fleet owners are thinking strategically about this. And they know that they need to have optionality. I mean they -- nobody can tell them that it's going to be this fuel for sure. So -- and that's why, I mean, as we mentioned before, 60% of the current marine, not only Wärtsilä, but marine order backlog have engines that are enabling some way for alternative fuels. And that, as I said, includes all the -- including LNG. But that for me is a fairly strong signal that something has changed. 60%, so it's quite a lot. Now then when I talk to ports, and I mean, for instance, if you -- we have a very close dialogue with Singapore, I mean, MPA, marine port authorities, it's the biggest bunkering port in the world as far as I know. And they are one -- I would say that one of the most progressive stakeholders in ammonia. If you talk to -- I would encourage you to talk to MPA. They really believe in ammonia as a huge -- of course, they will -- they are also -- they will provide methanol as well. And they see -- they sign up green corridors I think with 6 other ports in the world, including Rotterdam, including a couple of ports in China, U.S., et cetera. And they, of course, are a pioneer on the front run. But it's not on -- so the ecosystem is evolving slowly. And I can say also that if we go back, just maybe 2 years, and we were talking about green fuels. I think everybody is thinking about methanol. And we've said that ammonia will probably be there. There was a lot -- quite a few stakeholders that say, no, it will never work, safety, et cetera, et cetera. Now people are not saying -- they're not saying, no, no, anymore. They're saying, maybe. So I can see just during my short tenure that the industry is evolving.

Next question comes from John-B Kim.

Two questions, if I may. Could we speak a bit about your strategy with the portfolio of business units? I'm curious to know if they're run differently once they're in the portfolio, are there certain metrics, returns time -- a certain timeline to exit of these assets? And the second question on storage. You spoke about a range of potential outcomes between keeping the business to full divestiture. If you do choose to keep and invest in the business, I'm wondering where you see scope to invest in differentiate the products and how you think about the addressable market with the emergence of more aggressive Chinese competition?

Yes. So talking about your first question, I'm sorry, now I lost it.

It was about portfolio business.

Yes, portfolio business. Clearly. So basically, the logic behind portfolio business is -- we put them and we make it public that we're going to divest. And the fundamentals is that we normally see that the strategic fit is not that long term. And also, we are focusing our business efforts on our core. Now when the business units because business units are put there. We continue to operate in basically the same way. I mean they are still led by the same business unit leaders, and they are reporting to Tamara De Gruyter, who is who is in charge of the business portfolio of companies. Now so from their perspective, it's business as usual. I mean, some of this business and quite a few of them don't have a satisfactory profitability. Some of them are going through turnarounds. And the task of the management teams is to turn around the businesses, improve profitability and prepare for divestments, so to say. So it's very transparent. And it's -- so the management teams, they focus on operations, then we have an M&A team that focus on finding the new owners. This is a fairly classical setup. Now the time frame for divestments, it's a couple of years because -- and here there is a little bit of each business unit that is in portfolio has its own story. But first, we try to turn the businesses around. Before with divestment. And this is, of course, to -- for the value creation potential, we try to realize that. So there is -- but it's -- we don't want to drag this over several years, but it will take quite a few years. I think what we have learned is that the model works. I mean, of course, we -- there was a little bit of concern how will customers react, how will our own team reacts, our own staff. But so far, it has worked very well. The customers, they see it, but they still keep giving these businesses business and people stay in general. So yes, that's the operating model. And I mean, we also -- we strive to find the right owners because many of these businesses, they serve our core customers. And of course, we feel responsibility that our core customers are not affected in a negative way, so to say. So -- then coming to your second question on...

On storage.

On storage. Sorry.

And how much the products could be differentiated.

Yes, okay. Sorry, I'm a little bit lost today. So storage and how it could differentiate. I think there are a couple of areas where we are differentiating. I mean, first of all, we need to recognize that the storage market is not one market. Like we -- many of -- we all went to business school, and we learned the fundamentals of marketing and segmentation. And that's why when we look at the storage market, there is not one customer type that only goes for the lowest CapEx. There are certainly that customer segment, but there are also other customer segments and customer segments that focus more on project execution, rest of mind that focus more on thermal stability, I would say we have the industry-leading thermal stability. If you have a fire in a battery storage, it's pretty nasty. It's very hard to put out, and it is really nasty. So we have really focused on, you could say, 3 things. It's about thermal stability, by design. It's about execution skills coming, you could say, a little bit on the Wärtsilä DNA, delivering on time with the right quality, et cetera. And then it's a power system, the third element, it's the power system, knowledge and our understanding how to best integrate batteries with other assets, generating assets in the power system network. And we have our software. Everybody has the software. But of course, it's the thinking that is implemented in that software that creates value. And we probably have one of the industry-leading software, I would say, in the industry for the integration purpose. So this is how we try to differentiate. But to your point, I don't know if it's your point, but there are certain segments in this huge growing storage market that will only focus on the cost per megawatt hour or kilowatt hour and we are not specifically targeting that segment. We are targeting segments where customers are looking for something more. And we have also been very open with our geographical target, which is around U.S., Australia, U.K., a couple of countries in the world.

Then I can see somebody calling from Germany. I can see only the phone numbers. So whoever is calling from Germany can raise the question now, please. Moving to the next one, then it's Mikael Doepel.

Maybe just coming back to the aftermarket or the service business, which you talked about there earlier. It seems that there's quite a good momentum there. I'm just wondering how you would kind of describe the business. Now, I mean, looking at Q1, it was maybe a bit slower on the energy business or the energy side of the service business, whereas it seems to be very strong in marine on the other end. So I'm just wondering how you're seeing this trends developing now going forward?

So I mean, in general, it's developing positively. Why? If you make Q-on-Q comparisons, you should know that there is -- within the energy -- sorry, in the service market, there is the transactional, you could say, spare part business, but there is also project-related business like retrofits and the project-related business, that can vary a bit between quarters. So that's why you can see some swings back and forth. So it's a bit of a mix. So like many time, I say, you need to evaluate more over a little bit longer time because if you only do Q-on-Q comparisons, it can swing a bit because of the project elements of the business. But in general, to your question, we continue to see a positive development.

Right, right. No, that's fair. Maybe just a follow-up on that. I mean you mentioned your installed base and your coverage there, which is currently around 30%, which I guess is at least in my books, it's -- it seems a bit low and so on. Do you have any specific targets there? I mean, where do you see it potentially going in, let's call it, 10 years or 15 years. I assume it's a fairly slow transition, but it seems to be moving in direct directions, trying to grasp the potential there.

It's a very good question that we don't provide an answer to for competitive reasons, so to say. I mean theoretical limit is, of course, 100%, but that is not realistic. But we certainly think that we can grow this percentage, but we haven't communicated any targets. What we have said, and you can see it in the figures also is that this coverage ratio, if I may call it. So it's growing with about 1 percentage units every year. So I mean, 28% to 29% to 30%.

Right. Right. Okay. And then maybe just another question coming back to the percentages here as well. But I mean you have the target to reach 12% EBIT with the current business structure. I think you did 10% in Q1. What are the things you would kind of say are the most important ones to get another 2 percentage points up there? And when can we assume that that could happen?

Yes. And also, I mean, you're fully right, but you looked at the waterfall in our Q1 release. And then you can see that both Energy and Marine, they are about 11% already. So just to make that point. The portfolio drags it up. So that's clear one thing, portfolio to address and divest like we have said. But in addition to that, it's to continue to grow our service business, and it's -- in a profitable way, continue to move up the service value ladder, continue to improve the newbuild order margin, both -- on Marine and Energy, but if we look on the Marine side, that is driven by green fuels and engines with multi-fuel capability. If you look on the energy side, it's this shift that we talked about from more EEQ and less EPC. And then we talked about that also in the future. Voyage, if you go back a couple of years, it was quite a negative. And that business, we have now split them up in 2 parts. One, we are selling, divesting, 1 we are keeping. But both of these are also -- improving the profitability of both of those. And then to continue to increase profitability in energy storage. Those are the major driver.

And if I may just sneak one final in there, as you mentioned, the storage. I mean looking at the Q1 numbers, we had basically, at least according to my calculations, you were loss-making there. And I guess the reason is that the revenues were -- the revenue recognition was fairly low or very low, you could say. I'm just wondering, looking a bit further out, I'm sure -- I mean you said that you're going to see better revenues ahead and I've assumed that we improve the margin. But where do you see -- what is the margin potential in your view for this business?

I'm not giving any guidance on margin. But -- so the drivers, let's talk about the drivers for margin. Yes, there is a volume element. We always talked -- I mean, in storage business, per se, there is a scale benefit. But I will also highlight that the quality of our order backlog and our execution capabilities to execute with good profitability, avoiding significant negative surprises. So there is a scaling effect and -- but there is also, you can say, execution excellence effect in the order backlog.

Then Sven Weier wants to raise a couple of questions. Sven, can you raise the questions? Or shall I do it? Maybe I will do it. So this is about the data centers, which is a hot topic at the moment. So what is the impact of U.S. data center growth on your storage business directly as backup for data centers or indirectly through the growth in renewables needed for powering the data centers and maybe also for engines. So the impact of data centers, especially in the U.S.

So until now, so I talk about what we've seen until now, and then I'll talk a little bit about the future. I mean until now, you could say that -- I mean, data centers are clearly growing, that we all can see. Until now, many data centers, they have had a philosophy of you buy the power from the grid, and then you use often thermal, often high-speed engines, as a kind of backup if the network would not work. Now going forward, we see the data centers increasing in size. And with AI, we all know it takes even more computing power. And therefore, will also take more energy. Let's see how this -- how the data center market will evolve. I think it's a little bit too early for us to be concrete. But I think we have an opportunity here because the need for power will go up and then it could actually be that you will start looking at into thermal power plants to feed energy and also to aggregate. We start to see some opportunities developing in that direction. But it's still a bit premature to say that this is a major way forward. But clearly, data centers are growing in size. They will continue to do so because of AI. They will need more energy, and that might actually shift the market into more our favor because until now, our engines have been -- they are clearly not competitive as a backup power for -- again comparing with high speed. But if you start to talk about energy needs and start to talk about 10 megawatts and plus, this could evolve into something for us. But it's still early stage. So we will come back on this going forward.

Are lower battery prices a stimulus to current project pipeline?

Once again, Hanna.

Regarding storage. So are lower battery prices a stimulus to current project pipeline?

Yes. I mean, clearly, the material prices have come down, and therefore, prices are coming down in general. And that is, of course -- it goes into the business model or the business case calculations of our customer. So it's helping a bit. This is also -- we got some questions about because people are making the correlation between the megawatt hours we have installed and the revenues. And they see clearly that the cost or the price per megawatt hour is coming down because of this. I just -- so that is correct. We still maintain our margin, though, so to say. So in the past, we got a lot of questions around material price indices and how we do that business. I think that is now an established principle. We are not taking on the material price swings, so to say. So -- but I would say, in general, Sven, to your question that, of course, as prices and costs of battery storage is coming down, that is also helping the market. I would say, coming back also to IRA. I mean IRA is certainly helping. But still, I would say for our growth in the U.S., both in storage and in thermal, it's not the major driver of the growth. The major driver of the growth is the increased renewables in the U.S., and that is driven by affordable energy to be quite frank. And with more renewables, more balancing is needed. IRA is good, and it's only contributing, but the whole development is not hinging on IRA.

And one more question from Sven. Do you see the same bottleneck on shipyards low availability in cruise and ferry has emerged?

Well, I would say if we look at shipyard building capacity, yes, certainly, there are bottlenecks in certain segments. I mean, if you talk on the energy carrier, LNG carriers, certainly. But I would say that I see slowly capacity coming back on the shipyard side. I mean I think the whole tide started to turn somewhere in 2020, 2021. It's not the same accelerated growth like if you go back 10, 15 years. But Chinese ship building capacity is slowly increasing, et cetera. There is still some bottlenecks. But I don't see this as a major factor for us at least. Then coming to your question on cruise. Yes, I mean, there are very few -- I mean, there are basically 3 big cruise building yards. I mean yards -- shipyards that can build big cruise vessels. And their slots are slowly but steadily starting to fill up now with options, but also with new orders. So I think owners are thinking about how they want to stage to further growth. So forth -- so far, I haven't seen it holding back our growth. There is quite a lot of activity in the cruise side, on the early development side for new vessels. So that looks promising. But at a certain stage, yes, there are these 3 shipyards that can build the really big ones. And after some time, they will start to be -- will be full, so to say. So -- but we don't see that impacting our business right now, clearly.

Thank you, Hakan. Then next question comes from Antti Kansanen.

I just wanted to ask a couple of questions on profitability, especially on the Marine service side, not obviously expecting you to quantify it. But there's a lot of exciting growth opportunities on retrofits and things like that and then your strategy of moving up the value ladder. But do you feel that you are currently getting rewarded from the kind of critical nature of your technology that you provide for your Marine clients on the spare part businesses, on the field services and things like that. And what are kind of the dynamics that would hold your profitability back? And on the other side, if we see this growth coming through on the agreement side, how will that impact your margins on Marine services?

So I would say that in general, the service business is definitely supporting our profitability. We are creating value for our customers and -- as a good starting point. And I think our customers acknowledge that. Yes, if you -- for instance, if we look on spare parts, there are, of course, pirates, like many businesses, there are pirates. But I think many of our customers, they had some challenging experience during COVID. And they also see that the type of services that we can provide in terms of -- it's not only the spare part, but it's the people. It's the system around it. We add digital services. It's a pretty unique offering. And therefore, I would say that we are increasing the stickiness with our customers. And the only way we can do that is to provide value. I mean they don't do that only because they like us. But I think we are doing that in a good way. And I would say with the future, it looks promising because there is a lot of new technology coming in, which we are clearly a leader in and we know it. And -- and also, it's also -- I think I got some interesting feedback here from some of our salespeople that many of our customers, they clearly see we will be around for a long time. We are a technology leader. And you -- if you own a vessel or many of the vessel owners, they want to work with companies that can work closely together with them to evolve their fleet over the years. This is not only a transactional business. This is really how am I going to deal with CII over 20 years. And taking various steps, making sure I still have uptime reliability, making sure I come down in fuel consumptions. And I think many of our customers, they are seeing that naturally, we are -- we have a fairly -- we have a strong offering, combining the products with the people and the system, so to say. So that's why I'm optimistic. We have a good mix, I mean, of the Wärtsilä offering. So I would say we are strengthening our position.

Yes. I was just -- obviously, we don't know kind of the exact profitability between new build and aftermarket but visiting your Vaasa setup and other things, it's clear to see the profitability improvement potential on the new build side. Just trying to guess that are we then looking at aftermarket, which is growing on a very good pace, but on a level that you are quite satisfied already with and that has more kind of a marginal upside on the actual profitability side?

Well, I would say we have upside both in new building and in the services.

The next question comes from Erkki Vesola.

Regarding the marine retrofit market, where we talk about engine and creates towards multi-fuel carbon capture and other measures. If the first IMO deadlines are for 2030, my question is, do you see a more steady movement in marine retrofits towards 2030 or more hockey stick, say, from '27 onward?

No, I can -- I think it will accelerate, but I see a lot of activities of various owners right here right now. So yes, it will not be this everybody postpones to the very last minute. This was a little bit of the phenomenon. I think you all know it for the scrubber business, I mean, for the Salto regulation. So I see with the retrofit solutions that we are bringing now, we have good traction. It is about hybrid solutions. It's about 2-stroke upgrades. It's about 4-stroke upgrades. But I think it will accelerate over the years. Why I think it will accelerate because now we are engaged in dialogue with the most forward-leaning customers, the customers that have the strongest vision and they want to take actions earlier. Now you remember what I've been saying is that fuel costs will grow -- increase because of regulations, and they will -- it will -- the fuel cost will increase significantly. As this starts to happen, it will make more and more business cases viable for more and more customers because basically, the fuel cost goes up, suddenly, it's worth to invest in upgrade or change or something and so as fuel prices will go up because of regulations, this will accelerate.

But do you foresee a glut of retrofit orders, say, from '26 onward the way you just couldn't deliver?

Well, glut, I think my English will clobber. I'm not sure. I see a steady growth and an accelerating growth. I mean, can we deliver on our potential retrofit business, I think we are very well positioned to be able to deliver.

Next question comes from [indiscernible].

I guess my question is related to the previous one on the retrofits. I was thinking about the repair yards and capacities there because even before higher fuel prices will drive this acceleration in demand, you already have existing regulation that should make vessel owners interested in doing these upgrades. So what is the capacity at these repair yards? And will this, in your opinion, be a constraint for retrofit operations in the coming couple of years?

I'm not sure it's a constraint right now, but I do think it will become a constraint going forward because of the activities that are likely to come. So it's a good -- very good area to look into. I can't give you numbers, but I think mid to long term, this will become a challenge.

Okay. And then a quick another question, different area. But the storage margins, because you have not basically been exposed to the material prices. So should we expect margins since you've been protecting your share of that business? Should we expect your margins to come up clearly now that material prices are coming down to the total project around these.

No. I think you should think about it, I would recommend thinking about it. It's a pass-through. We will not benefit from it in a major way, but we will not -- it will not be to our detriment either.

Right. That translates if your margin -- euro margins are flat and your relative margin, your profitability in terms of percentage should come up, right?

Well, it won't come up percentage-wise. I'm not sure if I follow you. I mean, basically, the material, you could say, component of swings is a pass-through.

Then we have 4 minutes' time left. And the last question comes from Vlad Sergei.

I have a few quick ones. And maybe I will start with how do you see this marine cycle evolving for you? And in particular, thinking about the cruise vessels and offshore. When I look at cruise delivery schedules in the market, basically the next 3 years, every year is a decline. And if there are new cruise ships ordered, then they will probably not be delivered in 3 years. Does the sequence impact your revenue at all?

So first of all, I don't share that view. So I don't know -- I can only say because of course, I cannot say go into the details of the discussions that we have with our customers, so to say. But we see quite a lot of activities in the cruise market, which is very interesting and favorable.

Understood. All right. I was referring to the Clarkson's data...

But Vlad, the Clarkson, -- we have a lot of respect for Clarkson. I have a lot of respect for Clarkson. But they -- sometimes they don't have everything right, so to say. So I can only say from my side, and we see a high level of activity. And for us, that is a strong indicator.

Understood. Hakan. If I can ask you about more how do you see the group structure strategically in a few years' time. Obviously, in terms of the recent moves, you are prepared to think that you can divest storage. That's one of the options. And then the other thing was obviously gas solutions which you put into portfolio as well. Is it feasible then for us to see Wärtsilä in a few years' time in one of the scenarios predominantly dominated by engines?

Well, you could clearly see that we are divesting some of the assets that we consider noncore. And -- but we don't have a strategy that Wärtsilä should only be -- only be about engine, so to say. So I would say that would be overall simplification. But I mean if -- to your point, if we divest -- not if, as we divest portfolio, if we divest storage, which is clearly not a decision that we haven't taken. It will be a business that will have a much larger content related to engines. That's for sure. But that is not an explicit strategy.

Understood. And maybe last quick one for me related to the margin profile of Marine and Energy. If I look at Marine and Energy and try to take out the storage business, the margins were comparable over time and both dominated by engines, both using the same facilities, same structure between new equipment and service. But these margins decoupled quite a bit in the past few quarters. The Energy part, its storage improved a lot. While the Marine has roughly remained where it was. Are there any particular things going on between the two?

No. I think I mean, first of all, you saw the Q1 numbers and both Energy and Marine, and that is, of course, an Energy that still includes storage, they are above 11%. I think that as we said, we have a clear path to our 12%. We talked a little bit about the key drivers for that. I think that Marine is evolving in a good way. It's -- we clearly see new build evolving and with new technologies, there is better price realization. We continue to see the service business growing in a profitable way. On the Energy side, it's a mix between balancing and very slow, but the share of balancing is growing. I think the new build margins are also improving because the major driver is the [indiscernible] it's EPC, EEQ. The service business is also evolving in a good way. Also with more agreement, very similar to storage. So I think both of these legs, if you call them that, they are evolving in a positive direction. I think also the fundamentals, why do we keep Wärtsilä as 1 group is that is the underlying technology that we have and also the service network. There are strong, I would say, synergies between the 2 legs, and that continues to be true also going forward.

Thank you for all of the good questions. So looking forward to see you in Pre-silent in 2 weeks. Thank you.

Thank you. Bye-bye.