Wärtsilä Oyj Abp (WRT1V) Earnings Call Transcript & Summary

Hello, everybody. So good afternoon, everybody, and welcome to this appraisal and call for Q2 '24. My name is Hanna-Maria Heikkinen, and I'm in charge of Investor Relations. And we have also a couple of my IR colleagues here online, Maija Hongas and Noora Suni. So in the beginning of this call, our CFO, Arjen Berends, will start with the key messages. And after that, there is a possibility to ask questions. And in the case, you cannot use the raise your hand functionality in Teams, you can also send any questions to me by email. Arjen, please let's start.

Thank you, Hanna-Maria, and welcome, everybody, to this call. A few highlights and comments upfront. Q2, so far, I would say, develops pretty much along our own expectations. So pretty happy with the progress. Marine long-term opportunities and service remains good. Demand for services is also on a good level, of course, supported also still by the disruptions that there are in the Red Sea as well as in the levels of water in the Panama canals. Energy, I would say that's also going quite okay in line with expectations. Service order intake last year is good to remember was in Q2 quite much supported by very strong long-term agreements in particular, renewals. And I'm not sure that we will see the same levels this quarter, but all in all, it's progressing pretty well along the lines of our expectations. As we communicated before, the newbuild deliveries, equipment deliveries, in particular, for Energy, they are more tilted towards the second half of the year. So there is no change in that outlook. And also we said it many times, but good to remember that energy equipment business typically is very lumpy by nature. So one big order can make a big difference. We are working on many opportunities, bigger and smaller. So will it fall exactly in the quarter or out of the quarter, that might make a difference on the quarter. But in general, I would say things are moving in line with our own expectations. No update yet on energy storage. The strategic review, that's ongoing. So I will not comment further on that one. Portfolio business develops as expected. Here also, the service side is doing well. But it's good to remind that the service here pro rata compared to the newbuild side is typically a lot smaller than Energy and Marine. If you take MES, Marine Electrical Systems, for example, it's a lot of cabling. So actually, there is very little to know, service business, and that's one of the businesses that we have in portfolio business. Good progress also on the fuel road map. You might have seen the earlier announcement this week about the hydro-ready engine power plant. That's just one step, there are, of course, a lot of things happening in the R&D side as well. But here, I also can confirm that whatever we are planning to do, we are on track with our road map. So nothing special to highlight there. I would say that's in general what I would highlight in the beginning, and I would, for the rest, open up for questions.

Thank you, Arjen. Then let's continue with the questions. So in the case you have questions, use the raise your hand functionality in Teams or you can also send the questions by e-mail for me. So we will start with John-B Kim, please. Maybe let's continue with Sven Weier first. Maybe then John-B can come later.

The first one is just more topical question around your exposure to Meyer in Germany. We've seen reports about state's funding for the company, it seems in trouble. I know it's an important customer probably on the cruise side. I was just wondering if you could say anything around this. That's the first one.

Meyer is one of the few yards, as I'm sure you're aware, that can build these large cruise vessels. So in that sense, they are, of course, connected to our business. We have, of course, continuous business with Meyer there, but that's all I can say. The exposure, of course, varies over time. But I would say, okay, basically, at any point of time, we have some activities with them, bigger or smaller.

Okay. But it's not like a bigger share of the backlog currently? I guess it has come down over the last years now.

No, then of course, it sits -- cruise building as such has let's just say, come down. So I think the exposure is much less than we would have had a couple of years ago. Besides that, if something really happens, we have of course down payments, we have payment security arrangements in place typically for all the contracts. And if the delivery is not taken -- these are not super tailored engines, if you would sell a propeller, which is a build-to-order basically then it's a different story. But an engine, we potentially can reuse. And I think risk profile at least I don't consider it too high at this point.

Yes. And I guess that will be solution somehow. I guess the backlog of them is pretty full.

Yes. And I would also assume that the outlook for cruise is really strong. So I agree with you. I think there will be a solution one way or the other. And I don't have insight, but I think it will come.

Good. The other question I had was just if you had any view from the political fallout in Brussels. I mean, Europe was quite a big driver on fuel taxes, green agenda. I mean I know it's a bit early, maybe, but which you think that's a bit of a setback for the decarbonization agenda at least as far as Europe is concerned.

No, I don't think so. This climate was just approved earlier this week where -- when Austria swapped their opinion basically. So at least from what we know today, and this is -- like you said, it's a bit early, but I would say it's probably not changing that dramatically. But of course, the details already earlier, but now definitely need to be worked out and what exactly comes then through in details, difficult to say. But I think many things will continue. I think many trains have been put in motion. And to stop them, I think, will also be very difficult and cumbersome. So I do not expect too much changes with what I know today.

Then I have a couple of e-mail questions. So in revenue recognition in Q1 '24, project revenue over time was EUR 224 million versus EUR 455 million a year before. Is this a time and place problem or a consequence of the move to EEQ? I.e., will similar dynamics feature in Q2 and beyond?

I will not give exact numbers. In fact, I don't even know them out of my head. But for sure, the change from EPC to EEQ has an impact on revenue recognition, [indiscernible] which is typically applied is EPC is not there in EEQ or to a much lesser extent. It depends a bit. We have also this a bit more extended EEQ. So there might be some deviations there. But the shift clearly makes the difference in income recognition methodology actually. And it's, of course, also timing. There is also timing throughout the year that when were orders booked last year, typically, the year after you have the effect of it in delivery.

Then can you comment on storage/battery pack pricing?

No. Yes, the only thing I can comment is that the prices have come down. It will not make anybody any smarter on how much it has come down. But clearly, the levels have come down and that, of course, also can be seen in our revenue values equally so [indiscernible] we have flexible contracts.

I guess there are no players who would reveal all of the prices in investor call.

We're not going to make any competitors any smarter. But it's a logical question and it has a consequence to our sales numbers, yes, and order intake as well.

Definitely. Any comment on change in shipyard capabilities in the quarter?

Capacity is probably the question, right?

Yes, shipyard capacities.

No, nothing really new to what we have said at the end of Q1. I think the -- yes, this does not change within quarters basically, so the picture is pretty much the same. So -- and there is nothing more I can add to that. Of course, capacity is being built out. But as you can imagine, these are such huge places or yards actually building those. It's not something over months. It's something over years, and a capacity extension of an existing yard takes a long, long time. So this will take time. but it's moving.

The next question comes from Akash Gupta.

I have one, and that is on power plant business. The question I have is that do you track utilization of power plant in your installed base? And if you do, can you tell us about how the utilization has been tracking, not just necessarily in Q2, but in general this year versus, let's say, previous years? And then maybe a follow-up to that is when we look at aftermarket in power plant, how shall we think about the revenues versus utilization? Is it directly linked? Or maybe if you can talk about how does it work in practicality?

First of all, on the running hours, I think we showed it actually in the service call, which is now about 1 year ago. There, we showed that running hours are pretty much holding up, historical running hours and then also currently. I think if I comment on today's situation, I don't think it has radically changed from that picture. The running hours are pretty much holding up, but it varies a lot by location. And I always use Brazil, as an example, if the water levels in the dams are high, engines don't run. But 2 years ago, there was no water in the dams and the engines are on flat out. So -- but I'm talking here on the overall call it installed base average. I would say the running hours are holding up pretty much, even though more and more is shifting to balancing power. But we have also balancing power plants that run more than 4,000 hours. So yes, like I said, it's not one answer to this, but I can only give you the average installed base ballpark, it stays on similar levels so far at least.

And maybe if you can talk about specific -- sorry, to step in. But maybe if you can talk about North America, particularly because we hear that data centers are driving big demand boom there. So are you seeing any higher utilization of your power plants in North America, particularly in the U.S. market?

I cannot link them immediately to data centers. We are, of course, supplying with many of the power plants, power to the grid. And in the grid, there might be a data center. So I would say it's more indirect than direct, in my answering. I'm not specifically now in this call aware of any direct power plant support, I mean power plants supporting directly an AI data center and what the running hours of that is. But I cannot say, but I would assume that they are running pretty much baseload actually, typically.

No, no, sorry. My question was not the engines that are powering data center. But when we look at your installed base in North America, in general, irrespective of data center, do you see any increase in the running hours? Or is it still holding up well at the historical levels?

But here your question is related to data centers or...

I mean obviously, data center is driving demand growth. But again, I mean, when we look at the utilization in North America, do you...

No, no, sorry. Okay. Like I said, I will not, and I even cannot out of my head comment on regions. But what I know from the installed base that, in average, the running hours are pretty much holding up. So that's the answer I can give you. And to your later question, how is it then with the service aftermarket part, it's not just for energy, but I think it goes the same for Marine. So aftermarket correlates with running hours. The more engines run, the better our service business. Of course, we are trying to get more and more service by moving up the service value either by upselling and stuff like that. But then you talk -- yes, that's a bit more longer term, but the direct correlation in, you could say, transactional work is pretty much one-to-one with running hours.

The next question comes from Daniela Costa.

Actually, I have two questions. And one is exactly a follow-up on this point on the data centers. And just to understand a little bit better on technology because when you mentioned it's more an indirectly impact than a direct impact, I think we've seen some other peers or companies in the space like Rolls or Cummins seeing much more upfront about their potential exposure to these. Is it because what supports directly a data center would be in sort of lower megawatt ranges, nonstationary? Or are you also bidding for some of these large opportunities and we just haven't seen them yet? Just understanding if there's anything in technology-wise, while your solution might or might be or not appropriate to go directly on the backup power of data centers.

Depends very much on the system at hand. Is there a power -- sorry, is there a data center that -- and that has solar and wind and use the engines for backup, how much capacity does the data center need as a basically continuous basis. Typically, the competitors you referred to Rolls and Cummins, with high-speed engines, they are smaller, smaller in power, also lowering CapEx. But of course, if you have a baseload for a data center that is in a certain megawatt range, of course, then it's more efficient and effective also probably more to have a larger medium-speed engine than having 5 or so high-speed engines in a row.

I see. That's helpful. And then just in terms of the hydrogen announcement you had yesterday in understanding sort of like the implications for that as we go forward. So you expect commercialization, if I read it correctly, sort of towards '26. What shall we expecting between them? Is that you're going to put CapEx to produce more? Or is it -- what are the implications as we think about this thing getting bigger in terms of financials? And also, what are the bottlenecks on why in '26 and not maybe earlier? Is it internal technology development? Or is it just infrastructure for hydrogen is not there? If you could give us some color on the ramp-up from here.

I would say it's a little bit of everything you say. Of course, this is an ecosystem development that needs to happen. First of all, in the journey to decarbonize and for example, to make power plants run on hydrogen, first of all, there needs to be technology providers that can say, okay, now I have a technology that can run on hydrogen. That's the first step. No, call it, logistics provider or pipeline investor or whatever will, can now my system goes on hold. Can you still hear me?

Yes, we can hear you.

All right, sorry. No fuel producer or logistics provider will invest in hydrogen infrastructure if there is no technology that can run it on the destination of where the power plant is being built. So -- but -- and that's also why we are quite fast now out with, we have a concept to be able to convert engines that now run on LNG to hydrogen when time comes, and we can do that already quite quickly. Of course, we have also said that in our R&D road map, the hydrogen concept will come out in 2025. And this is part of it. So we will sell 100% ready engine power plants for hydrogen conversion by 2026. It's part of our journey that we are doing at the same time in R&D to complete the hydrogen concept. And the fact that we go out is also the reason why I started my comments in the beginning with a fuel road map, things are moving according to plan. Otherwise, we could not make this announcement.

You don't need any specific CapEx because you make this where you may...

Of course, the -- okay, investment in R&D, we definitely need. And for sure, if you want to do testing and test bed running, et cetera, you need CapEx as well in your test facilities. But it's part of our whole R&D spend, which we have, as you know, currently at the level of about 4% of sales, which is higher than what we used to have in our history.

Next question comes from Mikael Doepel.

Just a couple of questions. Firstly, starting off with the service business. You mentioned in the beginning on the energy side, I think Marine sounded like things are moving in a good way there, but you started a bit cautious and then you started alluding to big orders, long-term contracts signed last year. Just wondering, I mean, because I recall, in conjunction with the Q1 report that you actually said that the business was a bit slow in that quarter and you expect a bit of an improvement into the next quarter, but now it sounds like you are kind of taking a step back from that. So I'm just wondering if there is something in the energy aftermarket dynamics that's changing.

No, nothing changes. Then perhaps I expressed myself not clear enough. Last year in Q2, we had in particular for Energy a lot of agreement orders, order intake. And I do see good progress on Services revenue streams, spare parts, field service projects, et cetera. But to hit the same level as we had in Q2 last year on agreements, most likely not. An agreement is like a big project. So you work on it for a long time. And then suddenly, it comes or it doesn't come. I think we are well on track with everything we do. I don't think we have lost really any agreements in our negotiations ongoing, but the timing might not be so that we will hit on agreements, in particular, the same level as Q2 last year.

Yes, exactly. So I guess you're not saying that the overall order take, they couldn't be, but you're just referring to agreements. Okay. I just wanted to....

Specifically to agreements, yes.

Yes. Good. Good. Then another question. I'm just wondering about a bit what kind of pricing and cost trends, I mean, overall you see out there. I mean, we can see that perhaps some steel prices are trending down into the second half that might float into components, which might then be favorable for you in your procurement. How do you see the overall, let's call it, price/cost equation evolving currently? And what's your expectations into the second half?

We are very tightly connected between our sourcing departments and our quoting departments. And that's, I would say, great learning. Okay, we learned it the hard way, to be honest. But let's say it's great learning from the COVID times when everything certainly -- when bananas and logistics was a problem and everything was difficult. So at that time, we really built this very tight connection between sourcing department. So when we get signals from price changes, we immediately inform quoting departments that, hey, this goes beyond a certain bandwidth, we need to adjust our quoting price for that particular part, component, equipment, whatever, so that's well in place. On the cost side, yes, of course, steel price decline or steel price increase, whatever way it goes with raw materials, the same goes for copper, nickel, aluminum, you name it. That has an impact to pricing that we typically get from our suppliers, but it's often with delay because with suppliers, you typically agree a certain price level for a certain period of time. Is it a year or sometimes even shorter than that depends a bit on component. We have also component supply, for example, big steel castings where you have a flexibility component like we have, for example, in battery storage with our customers. So there are variations of contract. But typically, I would say if the steel price goes down today as an example, it will take, and it's very difficult to give an exact average but 6 to 8 months before we see something on our cost level-ish, because many of the orders that we are now building or we are about to kick off in the assembly line 1 month or 2 months from now, the parts have already been bought at a price from before. So there is a delay factor in this price change.

The next question comes from Antti Kansanen.

So a couple of questions from me as well. So first, on the margins and profitability side, which was obviously very strong on Q1, and I guess, largely driven by sales mix. So if I understand correctly, Arjen, it would be a similar type of a mix going into Q2 as well based on the comments on the backlog deliveries. But was there -- just a reminder, was there anything else extraordinary during Q1 that supported margins on that quarter that we shouldn't expect going through the year?

No, I think clearly the mix was the main driver, I would say.

Okay. And the second question was on the comment on the aftermarket and being driven by utilization rates. And I mean I guess that's for the spare parts business mainly. But if we know -- if I would now track your kind of spare parts demand over the past couple of years, would you say that, that is kind of fully driven by the utilization rate in a sense that your self-help actions are kind of market share gains. So what do you really want to do is not really on the transactional side, that's more on the agreement base? Or is there something else in play through the years on the parts business development than just utilization?

I think it all is connected to -- if you have an agreement and you have insight with customers, and you can -- you have a customer, I'll just name a country, in Mexico, and done an overhaul with that customer. You have a similar power plant under similar conditions in another place. To that customer, okay, we did this in Mexico. If we do that for you, x amount of fuel savings or higher efficiency or whatever or better at times, I mean, whatever improvement. To do that, you need spare parts. You need fuel service. So that comes into the spare part bucket. So it's not just transactional spares, people need spares, it's also the spares that you need for overhauls and agreements and everything else. That really helps us to pick up the spare part business actually.

Okay. But sorry, this is a bit technical, but if you just kind of -- if I look at your reporting, what you book under parts and agreements, when you are moving up to the service value ladder, is everything then booked under the agreement side? So the pure spare parts is the transactional client base?

That is normally the transactional client base. Correct. Yes.

Okay. Okay. And then lastly, on that same theme, and you mentioned the challenging comps on the agreement side. So could you elaborate a little bit on that? Because I understand the project side of aftermarket being lumpy through the quarters, but you were referring kind of agreements as a project type as well. So I didn't fully understand that.

No. I mean the way you conclude an agreement is like a project, a long time of negotiation because there are lots of parameters to -- if you want to have -- I'll take an example, performance-based agreement, you need to set the baseline. This is the baseline we start from. And in order to commonly agree with a customer that this is the baseline, that takes more time. It's a quite different, call it, service revenue stream than anything else. Let's say, you do service overhaul projects, for example, you want to convert a diesel engine to a dual fuel engine, that's also like a project. But it's like more like an equipment project, but you put a lot of spare parts in and you convert the whole thing. An agreement is again a different animal. But the way you come to conclusion, that was actually my reference that it takes much more negotiation while a spare part can just be a phone call and I need this part. It takes more time to...

Yes, yes, that makes sense. And then the last is on storage, I guess the demand conditions, I mean, it's part of energy where you have a positive demand outlook, but it can be also a bit lumpy like the power plant side. So any similar comments then on the power plant side on the storage? Or is it more even?

I would say it's pretty much even.

The next question comes from Sven Weier.

I was going to follow up on the yard capacity comment you made. I mean if you look on the merchant side, one way of mitigation was the slot conversions, right, from container vessels, like product tankers, for example. I was just wondering if you see anything whether there is more limitations on that now now that container rates are starting to go back up, the willingness maybe of containership orders to convert? Do you have any view on that -- this one?

To be honest, Sven, I have not heard at least through our channels at all that there is a big conversion going on orders for containers at yard that are being converted, at least I'm not aware of any real case. People might have been thinking about it, but I have not heard of any real case, frankly speaking. That doesn't mean that it doesn't exist, but at least I'm not aware of it and moreover has also not flagged this in bond conversations, for example.

I think sometimes also on the option side, right, when it's not the real order yet, but some of the options you keep that these are being converted.

Yes, okay. Of course, that is -- like the word said, it's an option to buy or not to buy. And of course, if container operators would decide, okay, I don't execute on my option, of course, you free up capacity. But I have not heard of any big size events like that. If it would be really big scale happening, I think we would have, for sure, heard about it.

Now I do not see any hands up. So in the case, you have a question, please, now we still have lots of time for that. I do not have any e-mail questions either. Antti Kansanen, please go ahead, Antti.

Yes, again a follow up on one thing because when we look at your kind of presentation and your investor communication you're referring to the Clarkson numbers for the main engine demand being quite strong next few years, but there's obviously a big jump on the offshore segment. So could you really talk about a little bit kind of what's your addressable market on the offshore side? How do you yourself see developing right now? And does -- where does the big optimism on those numbers come from?

Of course, we lean also quite much on Clarkson specific because it's the only global statistics that really makes sense. Of course, you have also on the offshore side the restart, for example, which is also quite a [ renowned ] agency, there's a lot of publications on offshore. I would say the offshore has potential, definitely, I would say, in Norway. I think there's a lot of talk about ammonia or ammonia-ready engines or ammonia-enabled engines, let's put it that way. I think it's perhaps too early still to say, okay, halleluiah, everything will come. It's again a bit of an ecosystem development thing that, of course, if you want to invest in offshore nowadays, you need to basically finance it from your own balance sheet, right? So there are very little finance institution, okay, I'm going still to invest in offshore. Even though at least from what I hear, opinions are changing a little bit. Offshore was might be 1 year ago over bad still. I think people come a little bit back to it because they also see that, okay, we need fossil fuels in the conversion, in the transition basically, predominantly LNG. But that's still a fossil fuel. Ecosystem development is still one big thing that needs to happen. So if, for example, Norway, and they have clearly said, okay, we want to be the cleanest offshore business, so basically to convert their offshore fleet to run on ammonia, will it happen? Yes, we have lots of discussions ongoing, but I wouldn't say it's really taking off yet. So it's very difficult to say exact timing, but the general anticipation in the market is that it will happen, and the fact that we need fossil fuels for decades to come is supporting that as well.

Okay. But if we kind of take kind of the core segments that you are strong, where your products are mainly used and you take into account kind of phasing of when customers want the deliveries, like in cruise, for example, that it may stretch over years. Then you look at yard capacity, you look at kind of your own pipeline, which of the segments you would be kind of most optimistic on a couple of years timetable that all of these things kind of fit well in together, there are not any big bottlenecks or kind of uncertainties on the demand growth?

I would say, still, of course, cruise. I think ferries as well. There is lots of renewal needed actually in that segment. I'm not negative about offshore, but timing is a bit difficult to say given, okay, it's fossil, right? Also the merchant fleet, containers, et cetera, we are doing really good business on auxiliary engines with merchant fleet as well driven by the decarbonization. They want methanol enabled, for example. We have sold, as I think we have also communicated more than 160 methanol engines already and still ticking on, I would say. So I would not rule out any specific segment, except perhaps for the really simple bulk carriers where there is very little attention to decarbonization still and it's run by a two-stroke main engine. But otherwise, I would say we have opportunities in quite many segments today and decarbonization helps in that respect.

And maybe lastly, kind of on the methanol side. I mean, you've been talking about that you're the leading player there, but everybody has an engine at least on their website. So what's the reality kind of, what's the concrete message behind why you are leading in the methanol side right now?

Why are we leading?

Or kind of like what's really the situation? I mean, you have a commercial product, you have been delivering it. What's the competitive kind of situation from your perspective in that side?

First of all, I think we are a reliable partner. I think we have the longest experience with methanol. Our technology is proven. So in that sense -- and of course, we have a global service network. When people move to new fuels, they don't want to take any risk. They want to make sure that if I have, hopefully not, but if I have an issue with my vessel, Wärtsilä will support me wherever I am with my vessel. And I think that's a very strong argument for many customers to say, okay, I stick to a party that will last and will support me wherever I go. I think competitors don't have the same service network. And especially when you move to new technology, that's a risk you want to mitigate.

Then the next question comes from Mikael Doepel.

I just wanted to follow up on a couple of things here. So firstly, on storage -- energy storage. So you mentioned that the battery pack costs are coming down. It has impact on your order value, revenue values and you are saying you're being flexible there apparently. But my question is really that now that you see that the battery pack is coming -- costs coming down, I guess, the overall project cost for customers are declining. And that could, in turn, then lead to incrementally more demand. I mean at least that's what some of the players in the field are saying and seeing. So I'm just wondering how would you describe the overall demand environment. Now do you see it actually improving given lower battery pack pricing or cost? Or how would you describe it?

I would say, let's say, the decline in battery prices is not something of the last 2 months. I think that has been ongoing for a while already. So within the quarter, I would say, I cannot really see, okay, there is a big change now in the last 2 months. No. I think the demand for storage has been high actually, and it is still high. Is it higher than the high we said 1 quarter or half a year ago? That's very difficult to say. We have a good pipeline, a lot of big and smaller projects. So in that sense, I cannot really give you an answer. It's still high and it has been high. But of course, when CapEx for customers is lower, yes, it's more appealing. The business case gets better, right?

Yes, one would assume so.

Yes.

Good. Then another question on the carbon capture systems, which we have been discussing also previous. Just wondering if there is anything happening there, anything new to report? I mean we have been talking about the -- maybe the infrastructure at ports being one of the hurdles there. So I'm just wondering is there anything happening on that front that could speed things up. And also wondering if you see kind of how the competitive environment is developing. Do you see newcomers popping up here? Or do you still see good room for yourself and yourself as the leader leading the game here?

It's a challenging question, frankly speaking. Of course, there are not so many, if any marine carbon capture solutions out there. For sure, there are competitors working on similar solutions, marine carbon capture solutions, I'm 100% convinced. Nobody is very open on what they are doing, how far they are, when will they, say, really bring it commercially full scale to market. That's, of course, part of commercial tactics, not to be revealing too much to your competitors. And I do -- or at least we expect that it will be a quite different market than what we saw for scrubbers where certainly, there were a lot of players or suppliers, you could say, small and big ones. And okay, also with inside, you can say that many of these smaller ones went either bust. They stopped their activities. We have even scrubber customers that come to us as a reliable partner that, hey, I bought a scrubber from XYZ in the past. Company doesn't exist or the scrubber doesn't work. Can you help me? Can you fix it? Sorry, no. You should have bought Wärtsilä scrubbers. So I think that many have also learned their lesson on the scrubber business that they will not go with any and all party. That's at least our anticipation. Carbon capture, of course, requires discharge at ports of the carbon that you capture. There is more and more talk and plans with, in particular key ports like Rotterdam, Hamburg, et cetera, thinking about carbon capture because they all see that something is coming. Some ports have already facilities. I'm not totally clear how many there are. But we are looking into that as well to see if we can provide a little bit more meat on the bone on this one. But let me come back to that in a later stage.

The next question comes from Tomi Railo.

Tom here. If you can give a little bit similar update, as you did for the storage in terms of thermal power plants? No orders announced. What's in the kind of pipeline activity customers' decision-making, auctions, what we have been talking about then and so on, if you can comment a bit on that.

Yes, it's pretty much similar. Pipeline is good. Activity is good. I'm sure some orders will lend even though not everything might be announceable because that always requires customer approval. But I will not give you exactly what is our forecast. But I think the pipeline is good, and we are taking orders.

Then I do not see any more hands up. If you have a question, please, now we still have time. There's one question by e-mail. Can you please update us on wage inflation and its relationship with service pricing? Is it indexed? Does it lag?

Our service pricing, typically, spare parts is not indexed. You have a global list price. Same goes with engineering -- or engineers, service engineers. So -- and of course, we update -- we think we need to update and that's what I mentioned earlier as well that there is a very tight link between sourcing department and quoting departments that goes for newbuilds, but it also definitely goes for spare parts. So if we see that prices of a certain component goes clearly up because of whatever reason, from a certain supplier, then, of course, we will adjust both in the newbuild side our quoting levels, which is, of course, in the magnitude of a whole engine, it might be a smaller piece, but definitely on the service component pricing, we are doing the same, but it's not indexed. Agreements with -- labor is for sure indexed and also material cost is indexed.

Thank you, Arjen, and thank you for all of the good questions. It looks like that there are no further questions. So Wärtsilä Q2 report will be published on July 19. And I hope that all of us can enjoy some sun before that. So happy summer.

Thank you very much. See you soon.

Thank you. Bye.