Wärtsilä Oyj Abp ($WRT1V)

Hi all, and welcome to Wartsila Q1 Pre-silent Call and greetings from Helsinki. We have some signs of spring here. My name is Hanna-Maria Heikkinen, and I'm in charge of Investor Relations. Today, our CFO, Arjen Berends, will start with key messages. We will also show 2 slides, which are already available on our IR website. After the key messages we have time for Q&A. [Operator Instructions] Please, Arjen time to start.

Thank you, Anna Maria. And life is always more fun when the sun shines. So nice weather here. Let's start, first of all, with 2 slides. First of all, let's say, about order book and portfolio. So if we start with portfolio business, let's say, we -- as you know and remember, but just to mention it once more as a refresher, we have basically sold all businesses under portfolio business. There are 2 businesses still there to be closed in the coming months, you could say, or quarters, which is Gas Solutions. We expect that to be completed in Q2 and water and waste, we expect that to be completed in Q3. So from Q4 onwards, there will be no businesses anymore left in portfolio business, just as a reminder. If we go to the next slide, which is about order book. Order book, if you look at Wartsila's order book 2026, at the start versus, let's say, 1 year ago in 2025, it was a little bit lower. There are clear reasons for that. I would say, first of all, keep in mind that order book has been reduced for the divestments done. ANCS, Automation, Navigation and Control Systems as well as Marine Electrical Systems was divested in 2025, and that took about, let's say, EUR 900 million out of the order book. So clearly, let's say, having an impact on -- if you make a year-on-year comparison on order book level. Secondly, it's good to remember that, let's say, the order book is more longer in time, as you can also clearly see from this graph that we showed for the first time at the end of last quarter and which we will show every quarter going forward. The distribution of our order book gets longer. Thirdly, as you can see on the left -- sorry, right side of this slide, Energy Storage has been lower on order intake, which has clearly an impact on the order book. I will come back to that later on. And finally, let's say, also good to remember that one reason for a lower order book is also our shift over time from EPC to EEQ. But keep a good eye on this order book development. I'm looking positive to order book in general, not for Energy Storage at the moment, but let's say, for Energy and Marine, it looks good. If we then look at, let's say, some other comments that I want to make. First of all, the impact of the Middle East conflict and the closure of the Strait of Hormuz. If you look at the direct impact, so far, it's limited. But of course, let's say, it will be impacting our customers, let's say, ships might not be able to sail and in particular, let's say, the ships that are, let's say, of our customers in the region. So far, as I said, no major impact to Wartsila. But of course, if the conflicts last longer, I would believe everybody will see the impact through cost inflation. Fuel consumption, also what we have on test beds, so far, we are fine. But let's say, of course, with a longer conflict, prices will go up and also, let's say, for components most likely. But we have long-term agreements with suppliers. So short term and midterm, even I would not be too concerned about it. Let's hope this worries soon, but it's not good to anybody. If we look at the market and the outlook in general, we have guided, let's say, our demand environment, meaning 12 months forward versus 12 months back, better for Energy and Energy Storage and then Marine is expected to be on a similar level. If we look a little bit deeper into Marine, our key segments, they are doing very well. And then also, if you look at, let's say, the estimated CAGR by Clarksons between now and 2030 on our key segments, it's 6%. So that's a good level. In addition, let's say, I think we have a lot of opportunities on the service side as well. Decarbonization despite IMO decision in October will continue. We clearly see it in our customers', let's say, discussions and decision-making as well because the decarbonization will happen in the lifetime of a vessel that you order today. So you need to be ready to convert, when so needed. Like I said, opportunities in service remains good. Our service business correlates with running hours, running hours on many of the vessel types that we are serving is really good. Of course, there might be some issues with ships being stranded in the Strait of Hormuz. But also keep in mind that the majority of the ships there have a 2-stroke main engine, and that is not our business, and that's also not where we make the most service revenues on. If we look at Energy, Energy consumption is anticipated to grow. And I think as time progresses, I think also the estimates of, let's say, how fast, let's say, growth in Energy will be or electrification, it's just going faster and faster, it seems. Electrification expands, industries expand and the need for data center capacity and electricity demand comes on top of that. Also, renewables will continue, which require balancing power. I think 2025 was another record year. So really also good opportunities there. Data centers, clear opportunity for Wartsila. We saw in the last 6 months, a 50% growth in the pipeline. Having said that, it is good to remind and which we have said also before that it is a volatile pipeline. Projects easily come and go. Let's say, typically, call it, classic before data centers, Energy projects between first contacts and discussions and final contract could be several years. Now it's more like months, and it can happen even in a few weeks. And that is unseen in all my time in Wartsila. What is also good, let's say, now with the data center boom is that by, you could say, force, Wartsila gets more and more known. Let's say, we have been fighting the unknown, in particular in the U.S. People in the U.S. when they think power, they think GE and turbine as a standard option in the first thought. But of course, now, let's say, first of all, being driven by, let's say, long delivery times of turbines, being forced to look around for other alternative technologies that we get very, very fast now. And that's good not only for the data center market and the opportunity that we have here, but also definitely for example, imbalancing power in the U.S. Also an increased number of customers understand our intrinsic benefits of the engines, let's say, not just the modularity and the high efficiency, but also clearly, let's say, low water consumption, less derating in humid and high altitudes. So really well recognized. Sweet spot, we have said before is between 50 and 400 megawatt. That's not an exact sweet spot, but it's, I would say, indicative. As you might have seen and known and remember, let's say, many of the projects that we have announced in the megawatt-wise are more in the direction of 500. So yes, we can also do bigger. But it depends very much case by case, what does the customer value. Energy storage, the market is still challenging, and that has not changed in Q1. Let's say it's a very disruptive market. After liberation day with the tariffs, let's say, came to a standstill in the U.S., let's say, all active players moved to the more active markets. Later also the battery cell producers entered the market because they had produced a lot of batteries for EVs, which did not accelerate as originally anticipated. So this was another way for them to get rid of the batteries. So yes, this whole disruptive market caused that in the first 3 quarters of last year, we had basically 0 order intake. It was a good, let's say, Q4. Let's see how Q1 ends, but let's say, the market is still disrupted. So I'm not so hopeful there at the short term. So far, we are not running losses, but it's clear that we need more orders to cover the cost for this year. Of course, the situation is carefully monitored, and we will definitely take, as Wartsila always has done, necessary actions if so required. It will remain for a while, an area of concern and focus. I think that -- sorry, one more comment I would like to make. Decision to expand the capacity in STH, the investment decision that we announced a couple of months ago, well on track. That's the capacity should be available in the beginning of 2028. And so far, no obstacles that we cannot overcome. So we are moving well forward there. That's it from my side.

Thank you, Arjen. Then we will continue with the Q&A. [Operator Instructions] First question comes from Akash Gupta.

My one question is on phasing of OE backlog in Energy business. If you look at last year, we had a big volatility between the quarter with Q1 and Q3 were very weak. Q2 was good and Q4 was very strong. So when we look at this year, anything that you would like to flag on seasonality in new equipment?

I will not open that up, but let's say, fact is that, let's say, things can change quite a bit. Let's say, when you book an order, typically, let's say, with -- let's say, now we book an Energy order with delivery, let's say, '28, for example '27, yes, you estimate at this point of time, it will be in that quarter. But typically, when you are then at that time in '27 or '28, it might have changed already over time. Often, it's also at the request of the customer, let's say, that the construction is not already yet in the state that it is, let's say, good to receive basically our equipment. So there is still, let's say, volatility and shifts between quarters. Typically, if your delivery time is in, let's say, the mid-month of a quarter, May, yes, it doesn't move out of the quarter. But if it is a June delivery, yes, it can jump to July and then you have it in another quarter. So volatility per quarter, I don't think that will ever, let's say, really change. It's driven by customer requirement as we originally agreed to contract with.

Next question comes from Vivek Midha.

Hope you can hear me well. I had a follow-up question regarding cost inflation. Just wanting to get an update here. Thanks for your comments so far. So in 2022, this has been, I guess, quite challenging for many companies, including yourself. There are several things which have changed. You've reduced your exposure to EPC, that's reduced some risk. You've also reduced some of the gaps between your supply chain management and the sales. Demand is in a better place, but also at the same time, your lead times have been increasing. So could you just walk us through what sort of hedging or cost pass-through mechanisms you have, how extensive the coverage is? And maybe if you could quantify, if possible, what proportion of your cost of goods sold are covered by those long-term supply agreements you mentioned earlier, that would be really helpful.

Yes. I cannot answer all the questions in detail, but I'll try my best. You're fully right, Vivek, that in 2022, we got hardly hit. And then where you got mostly hit is actually on the EPC part or on businesses, where you have a lot of integration, where you basically an integrator. For example, Gas Solutions is a good example. Let's say, we got quite some hits on Gas Solutions because we basically buy everything and it's in big pieces, and we don't have a factory to assemble it. If you think about engines, let's say, it's thousands of components in an engine. And actually, also in 2022, 2023, yes, we got some cost inflation, but by far not to the extent that we saw in the other parts, let's say, the integration business as well as, let's say, the EPC part. So that is much better in control. We have also, let's say, for all the components, long-term agreements. Of course, I cannot give you one answer that, okay, this is covered for 3 years out or 4 years out, et cetera, because simply, let's say, it's not all the same, let's say, validity dates for all these agreements, and they are all the time renewed. What is really good, and that is clearly, let's say, a learning from, call it, the previous cost inflation cycle is that the connections between our supply management organization and the, call it, quoting department that makes all the quotes and the tenders and what have you is really, really short. So if somebody in supply management, the category management or strategic sourcer smells that, hey, this component might, let's say, in '27 or '28, see more cost inflation than what we normally standardly assume, immediately, let's say, that's being adjusted in pricing. So the lines are much shorter. And I would say that really mitigates as best as we possibly can. I'm not so concerned about, let's say, the engines and the components. Of course, there are, let's say, clearly Energy-intensive components like blocks, castings, et cetera, forgings that we clearly, let's say, have a bit more attention in these days than the other components. But I would say, overall, so far, so good.

The next question comes from Sven Weier.

Also regarding the topic just discussed more from a supplier perspective because, I mean, as you just alluded to, castings, obviously very Energy-intensive part on the supply side. I mean you seem to be in a relatively good place, but how do you make sure that your suppliers can actually deliver and don't declare force majeure or something else on you because they get into trouble?

Yes, the best way to do that is -- which we are actually, let's say, in a very frequent contract with suppliers. We want to have partnerships, which means that you're open about issues and challenges as well as you want to, let's say, do business and make profit on both ends basically. Yes, that's the best way to help them. And let's say, the sooner, let's say, we get to know these things, the better we can also support them.

And I guess that was also an issue then 4 years ago, right, on the casting side?

Yes. I think then it was also, I think, more a surprise. I think now we are also from the learning, which is not so long ago from 2022. I think everybody is a lot wiser in what to do and what not to do.

But are you dependent on -- I mean, I think on the casting side, there's probably not so much choice between the suppliers. Is that right?

That's true. Let's say, there are -- let's say, for many components in an engine, there are not so many suppliers in the world. If you take turbochargers or big engine block castings, it's quite limited. So you need to make sure that your suppliers survive. You can squeeze them, but it's also risky. You need to find the right balance. And that's part of...

That was -- but that was basically not the issue 3 years ago, 4 years ago that suppliers couldn't deliver and we're getting into trouble.

No.

Next question comes from Antti Kansanen.

It is on the power plant demand and the Brazilian auction that we got the results last week. So Arjen, do you want to comment anything on the business opportunity regarding size, your position? Or how long does it typically take for you to kind of get orders after the auction results come in?

Let's say, first of all, I think it was a good outcome for Wartsila. Of course, let's say, this is towards, let's say, the ones that quoted with our equipment in the tender. In general, we can say, okay, we are happy with the outcome. Then, of course, it depends a bit on, yes, which one will negotiate how quick with us. But I would not say this is more than a quarter out. I think in the coming quarter, we should see or might be a little bit, but I think in this coming quarter, I think we should see something of it. I will not quantify it.

And then next question comes from Daniela Costa.

Hope that works. I just wanted to ask a little bit more color on the JVs you have in Asia, sort of to what extent -- when you talk about like 75% of the technical capacity that was mentioned at the Q4 call that you were working on and then the 30% increase going forward. Can you help us contextualize how you use the Asian JVs? Are they in that 75%? And when you talk about capacity or how much flexibility do you have to ramp up and down capacity from those JVs if you need to supply to higher demand in the -- before the 2028 expansion?

Thank you, Daniela for the question. And let's say the 75% is always related to STH. So that's our [indiscernible]. We are not considering the joint venture because we are not the only party that decides upon that. Let's say, it's also the joint venture partner, which has a say in there. I would say the joint venture actually at the moment are pretty loaded. I would not say they are less than STH, might be even a little bit higher loaded. Flexibility-wise, yes, there is flexibility. Let's say, typically, only on the Marine side, I would say, practically. Of course, we can also make Energy engines in the joint venture, depends on engine type and configurations. But if you think about data center market serving them from a joint venture in China, I don't think that will fly in the U.S. So typically, it's Marine engines being made. I don't know -- at least I don't recall any Energy engine ever being made there because one joint venture makes more of the smaller bore, one makes, let's say, medium and large bore and the smaller ones are definitely not used in Energy and the rest is only Marine. And basically, it's Marine engines for Asian market. In order to, let's have short transport routes. We can, of course, lift over volume if the capacity in the joint ventures allows it so that you lift Marine volume to the JVs. Of course, you need the permission of the customer that, okay, instead of produced in Finland, it will be produced in China. But yes, technically, it's doable. But you need to plan it well in advance.

And just 2 things, I guess, on that. So how relevant for your Marine business is it? Are we talking it's like the majority of the business is run through the JVs? And then how does it work on the actual -- how do you the accounting on how you just book -- on how you book them?

No, it's a minority share of interest. So it's online P&L impact.

But they will do a full engine for you? And how do you do -- what percentage or what is just -- maybe if you can give the percentage and show us how relevant?

If I simplify, you make a P&L as you normally make a P&L. And our share of the P&L, let's say, profit comes to our P&L. There is this online consolidation. So we are not doing a full consolidation of the joint ventures because we have a minority share or a 50-50 joint venture. And you don't have a stake. Only if you have a controlling stake, you can fully consolidate.

Maybe I'll follow-up to not -- the call with questions on that.

The next question comes from Johan Eliason.

I just wanted to follow-up on this capacity, but maybe the numbers were put forward. So it's a 30% expansion you foresee in STH by 2028.

35%.

35%, okay. But you're actually running at 75% capacity. So it's sort of 40%, 45% from current levels. But would you ever run anything on 100%?

I think the fluctuations in your production schedules make that hard, let's say, to run exactly. It would, of course, from a production and efficiency point of view, be most optimal if you can just run it all the time on an equal level, being 95% or 90% or 100%. You can run 100. You can even run a little bit over. But it never comes linear. It's always, let's say, fluctuations up and down. So yes, we try, of course, to optimize as much as possible, but it's the customers' delivery time that basically is the most decisive item when you produce unless you can produce in advance, then you can smoothen it out. For Marine engines, that's more difficult because engines are always classified. So components that you buy, box, crank shafts, [indiscernible] et cetera, also need to be classified. For Energy, it's more easy because it's a standardized engine doesn't require classification and you can shift engines also between projects much easier. So for Energy, it's much easier to smooth and basically production volumes. For Marine, sorry, it's more complicated.

And the mix in STH today between Energy and Marine volumes?

Today, I don't know. I think -- I would not think it's far away from 50-50 now. But to be honest, the exact numbers.

Next question comes from Tom Skogman.

I would just like to ask a bit about data centers. I mean the size of them might grow to several gigawatts in the future. No one really knows. I mean I just wonder what your view is on this and whether there's a risk that your time in the sweet spot becomes very short as they grow on a bigger and bigger base.

Yes, it's a good question, Tom. And I don't think anybody has the crystal ball where this will go. Like I said, let's say, we can do a gigawatt. We can also do 2 gigawatts. It's just more engines. But let's say, is that the smartest solution for the customer. Let's say, if you do a 1 gigawatt power plant, and you have, for sure, seen our, let's say, nice table with all the colors, the traffic lights. If you do 1 gigawatt data center, most likely the best option for you is a turbine. But if water consumption is a problem in the area or water availability is a problem in the area, you want to build your data center, don't go with the turbine because it will not run. You cannot cool it or if, let's say, the gas pressure in the pipe is not good or if it's high humidity or high temperatures, then an engine is a much better solution. So it depends case by case on customers, let's say, what are they after and where are they situated and what is for them, the key features that are minimum to comply to. Of course, there are still data center operators or developers that I just want power and I don't care. But we have seen also many times like that, that they are very far in negotiations, but then suddenly they run into a problem with the permit or let's say, the offtake is not coming and then it disappears. That's what I mean with, let's say, the volatility of the pipeline. It comes and goes very fast. And yes, normally, what was done in years in, call it, classic Energy projects now is months and sometimes even weeks.

I saw in Brazil that in the auctions, I think there were like 19 gigawatts that were auctioned and it's for year '28 to '31 and comparing that with your orders of 2.6 gigawatts last year. It looks like a very large opportunity, especially as it's really about balancing power. But I guess we cannot get too excited about this. I mean there must be some drawback that there's a lot of coal, hydro and other types of power plants. So can you give just some more numbers what you have seen, how large share was for Gas out of the 19 gigawatts, for instance?

No, I cannot and I will not. Like I said, let's say, I think the scoring of the ones that quoted with our equipment was good. So in that sense, I'm happy. I think we will see impact of that already in the coming months. Yes, that's what I can say. But I also believe, and you're right, Tom, that, let's say, it was a lot of gigawatts. I think at the end of the day, some will not happen because there is simply no equipment available.

But basically, they have made a commitment to generate this power basically or this capacity at least to have it available, if there's a drop in hydropower, et cetera.

And I think also some have gambled, let's say, to have equipment and they have not, let's say, confirmed that with the suppliers of the equipment. So then you have a challenge.

And can you give like you seem to have a lot of data, what is the split between engines and the turbines in the Gas market there?

I don't know. And let's say, it's also not a given, let's say, you need to provide power, Gas, if I take Gas as an example, you can have offered with engines or you can have offered with turbines. But then you cannot get the turbine, you go with the engines, but you have a commitment for the power or the other way around, it can also be. So it's impossible to say how much of each it will eventually be.

Then finally, when you raised the market outlook for Energy in Q4, of course, you have the strong data center market, and you have this Brazilian opportunity. But are there other markets that you also kind of referred to when you raised that? Are there other markets that are better this year than last?

No, let's say, we see quite good activities in many places. Brazil is one, let's say, Indonesia, Malaysia. So there are clearly, let's say, more countries than just, let's say, Brazil in addition. But we base our guidance on the total, of course, and data centers is a big piece. That alone, I think, would drive it already. But clearly, we see also activities in other places and good activity.

The next question comes from Akash Gupta.

I have 2 follow-ups, if I may. The first one is on -- a follow-up on data centers. So I think you announced in January, end of January, maybe early-Feb on this capacity expansion. And I was after, have you seen any increase incoming from customers in data centers after that announcement? I appreciate you commented on 6 months, 50% increase in pipeline. But because I guess for a lot of customers, when they see your total power gen capacity and their need, probably you may fit well now with higher capacity than before. And then when you look at this increased talk with customers, what's the prospect of further increasing capacity beyond 35% that you have announced if you have a good pipeline with customers?

Of course, let's say, it's difficult to say. We see a growing pipeline, first of all, on data centers, but it's difficult to say, okay, is that growing pipeline now recently due to the fact that we announced, let's say, capacity extension or not, I cannot say. It's just, let's say, overall, there is much more demand for power production basically. So anybody that can provide equipment to produce power, I think, has a good piece of the market or has a good opportunity in the market. So linking it to exactly this announcement, it's impossible for me to say. Now I lost the second part of your question.

I mean do you see any further capacity increasing further than 35%.

Yes. Yes, let's first -- let's say, our view is that, let's say, whatever we say, we need to be able to make happen. That's, I would say, very strong in Wartsila. If we do demand guidance, if we do financial targets, we believe we can do it. And the same goes for capacity expansion. We believe that we can do the announced capacity expansion by 2028. And I'm truly convinced we will make that happen. What is critical in capacity expansion is your supply chain. We could have said, okay, let's go 50% up. Yes, we can build a factory for, let's say, 50%. But if the supply chain cannot follow, there is still not coming any more engines out of the factory. So it's useless. You overinvest basically. You spend a lot of money for -- which nobody can follow. I'm pretty convinced that, let's say, if this market, let's say, continues to be what it is, I'm pretty sure which we all the time do, of course, with volume planning and long-term volume planning. We'll talk again about capacity.

And second one I have is on your first slide. So you said Gas Solution and Water and Waste, both of them will be out from Q4 '26 onwards. Can you give an indication on proceeds for both of them together or in any form so that it will help us to model because if we have to take out these businesses, then we also want to add in the model what could be approximate proceeds at a high level?

No, I will not give any input on that. We have never done that, and we will never do that.

Is this significant versus your market cap or not really significant versus market cap?

[indiscernible].

Next question comes from Sven Weier.

Just on battery storage. I mean, obviously, the market developed a bit differently from when you exited the strategic review and you broadened out. And now obviously, you already mentioned there's a few auto OEMs coming to the market. So it's getting more crowded. I mean, is there any way you could rewind the strategy to broaden out and focus again just on the niches? Or do you think long term, they are too small to justify a stand-alone business?

It's a good question. And like I said, it's clearly an area of concern. I say we need more orders. Again, let's say, we are not loss-making yet. But let's say, if we don't get orders, then at some point of time, you will suffer from it. So clearly, it's an area of concern. We are looking at many different ways to mitigate being it, let's say, restructuring, which, in fact, we did already a small one, let's say, in January, reducing 50 people. So we are all the time, let's say, on the ball here, but it remains a very difficult situation. And near term, I don't see it rapidly changing either, definitely given, let's say, all the turmoil in the world actually.

And would you say, obviously, we all know that in the coming years, battery storage will play a greater role also in data centers. I mean, would you say that this could be one of the niches that this has higher barriers to entry? Or is it also more commoditized then?

I don't think nor we nor any of our battery, let's say, competitors have booked any data center-related orders, at least not to my knowledge. We have also, let's say, had talks with several parties, but I would not say it's very concrete yet. Let's say it's first talks. And of course, in the long-term future, I could see clearly, let's say, opportunities, but I think it's a bit more further out. If you think about, let's say, longer-term future, now it's about power. And of course, these big data centers, nobody has one up and running yet. Data centers, okay, they never run probably 100% capacity or at least that's our assumption. So let's say, they run at 80%. But in AI, whatever, let's say, companies that use the data center do, sometimes the capacity needs to ramp up very fast, let's say, and you need response times in milliseconds. That's at least what the talks are about. A turbine cannot do milliseconds response that takes half an hour to an hour. An engine can do minutes, but not milliseconds either. So I could see a future, but now I'm talking a couple of years out, where you do the millisecond response with batteries, you ramp up the engine until it's on the capacity required, you shut down the battery, run the engines, charge the battery again for the next cycle, something like this. I think that will be the longer-term future. But so far, it's only very, very early discussions, nothing concrete at least not to my knowledge.

Next question comes from Vivek Midha.

I just wanted to follow up on the data center pipeline. You reiterated you're seeing the 50% increase in the pipeline. I was curious if you'd be able to comment as to the sort of duration of those discussions in the pipeline, i.e., in your latest conversations with customers, are you already starting to see conversations about 2029 slots? I obviously acknowledge that you're still selling in your order intake, say, even some 2027, a lot more 2028. But -- are you having conversations already about 2029, 2030? How far does it go out?

I would say any of those years, '27, '28 and '29 are currently being discussed. It's also good to remind that, let's say, many of the -- let's say, we have still unsold slots for '27, if I give you one example. But at the same time, you all the time make quotes. And what is -- again, back to what I said earlier, if Wartsila makes a commitment to something, they will hold the commitment. So if there is a quote out to a certain customer, typically validity times a month, 6 weeks, perhaps, with a delivery in '27, during the validity of the quote, we hold your slot. If you don't decide, meaning decide, sign a contract and put a down payment in, the slot goes to the next one in the queue. So with that way of working, let's say, many slots are, let's say, locked from a quoting point of view, but they might open up again. So yes, we are discussing '27 deliveries, '28, but also '29, clearly.

No, I do not see any hands up. So we still have plenty of time. I do not see any questions by e-mail.

Yes. And there's a question online.

Sebastian Kuenne. Yes, you seem to be muted. He dropped. Facing some technical problems. Anybody else? Are there any further questions? Yes, now there's somebody else. Okay, that dropped also. Maybe let's wait for a moment. Yes, the same number. Unfortunately, I cannot see the name of the caller dropped once again. It seems like difficult to join. Johan Eliason, please go ahead.

Yes, I was just curious following up on the visit last Friday to this cruise ship, they said basically the shipyard for cruises are sold out to 2035. How far does your order backlog in that segment stretch?

Not to 2035, but I'm pretty sure. No, let's say there are probably a lot of option vessels already ordered at yards, but let's say, equipment orders still need to come. Let's say, definitely not to 2035. I would say I would even be surprised if we are beyond 2030 already.

Okay. And the reason is partly that, I mean, if something is going to be delivered by 2035, I guess there's a lot of technology development that has happened, I suppose.

That has always been a consideration, yes. And of course also market might change. Let's say, at that point of time, even let's say, cruise operators might say, okay, I'm not going to execute the option. Most likely, but yes.

Absolutely. And one other interesting conclusion. You talk about this fuel future basically, but they were pretty adamant that the thing they were going for until 2035, at least was LNG. Do you see any action in the other segments on the alternative fuels that you are making your engines ready for?

Let's say, methanol, as you know, has been quite hot in containers. So I would link that to mostly containers. For ammonia, let's say, we are just, let's say, out with a pilot on a retrofit opportunity and a pilot on -- which is Edesvik and then a pilot on a newbuild vessel, which is CAF both in Norway actually. At least from what I hear, there is lots of, let's say, customers monitoring what happens there. As you know, the Marine market is a very conservative market for seed and believe, but everybody follows everybody. I think ammonia will be a longer-term game. Of course, first of all, it starts with us, technology providers. We need to make sure and show that, let's say, engines can run on these fuels, then the ecosystem needs to follow, meaning scaling the fuel production, bunkering facilities in ports, Insurance companies also need to chip in with making sure that it can be insured, et cetera, et cetera. So yes, it's a good start. I'm very happy with, let's say, these 2 projects, both one on the retrofit and one on the newbuild side. There is clearly interest mainly so far, I would say, from Norway, Singapore, Japan when it comes to ammonia. Yes, let's see how it goes. But this will not be, let's say, a ramp-up like scrubbers in the past. It will be a long-term thing.

Good. And then I'm not fully on top of what's happening with Everllence. Is there a divestment still ongoing? And do you know anything what the progress is there?

Let's say there is lots of discussion ongoing. I cannot say where it is because I don't have that insight. I would be surprised if it would come to us, let's say, given, let's say, the rumors in the market that Volkswagen still wants to have a quite big ownership share. Then, of course, you have also the, let's say, the price indications that float around, which I think is too high for Wartsila. So yes, let's see how it goes. I'm not hopeful, let's put it that way.

Next question comes from Tom Skogman.

Yes. I would just like to ask a bit about timing of deliveries. I know I've listened to your comment, I realize it's a sensitive object, but now when we have everybody on the lines. I mean the seasonality has been so extreme historically in some years with very low deliveries in Q1 and very exceptionally high in Q4. So I just wish you could -- I mean, will it be like similar growth basically expected for Q1 in just in deliveries as for the other quarters? Or will there be any kind of exceptionals in the Q1 that we should take into account just to avoid kind of a really big miss or a massive beat or so?

Let's say, historically, I would say Q1 has always been one of the lowest and Q4 has always been one of the highest. And then, let's say, in between, it fluctuates quite much. It depends a bit year-on-year. I would say that's probably not changing that much. Let's say, the fact that Q4 is always high, personally, I cannot prove it, but that's, let's say, my anticipation. I think it has a lot to do with the fact that, let's say, our customers work with percentage of completion. And they also want to do revenue recognition, which includes, of course, both sales and margin, shipyards, for example, or other. So that's probably why many are in Q4. But yes, Q1, yes, on the service side, Q4 is also typically high in Q4. If you take coastal, Navy, et cetera, their budgets. They won't prefer to be not a cut in the next year. So let's use the budget. Otherwise, we get a cut next year. I don't know if that's a reasoning, but that's an assumption. So typically, Q4 will always be higher than the rest. That would still be my take. I don't see that changing, which, of course, might also have an impact on Q1 because some of the projects that you originally had planned for Q1 are accelerated into the previous quarter. So Q1 lowest, Q4 highest, that's what I think will stay. In between, it's difficult to say.

But I guess then the order book is up so much, you could make a case that you have a better workload throughout the year to be able to deliver. But then you have this moving from percentage of completion to equipment deliveries as well.

Yes, correct. And of course, let's say, the more equipment deliveries, it is the more sensitivities to, for example, changes in the quarter because, let's say, if you have something planned for June on customer request to move to July, you have it in another quarter or the other way around, let's say, a customer wants it a little bit earlier. Is it possible Wartsila? Yes, it's possible in this case. So yes, then we do, then we facilitate. So it can go both way.

But how is it then you move to equipment deliveries? I mean the equipment has its own cost of goods sold and then the revenues and it's booked then when you deliver basically, right? Is it 100% delivery then?

Yes. Most of the time, it is, yes.

But what about the fixed overhead SG&A cost? Are they also booked when revenue is recognized? Or is things be booked below the gross profit basically stable, so...

No, it's only the part above the gross margin.

Exactly. So there's a margin hit on the EBIT level then from this basically.

Correct.

Thank you. Then I have received a couple of questions by e-mail. Could you update us on the business and tenders with naval vessels?

Yes. It's a good question. I would say there's more activity. But let's say, to conclude, let's say, basically from, let's say, an increased budget by a certain government, let's spend more on Navy, then you need to go through, let's say, what kind of vessels do we need. That requires also, let's say, time, then you need to get on the makers list. And in order to get on the makers list, there are many, let's say, technical requirements, service requirements that you need to commit to. We are quite many years down the line actually. Yes, we see more quoting activity. But to really make it land in orders, I think it will take still a bit more time.

Another question. We discussed this already a little bit, but could you update us on the situation with MAN, meaning Everllence? Is there -- are there any thoughts with Volkswagen these days? Sorry, with Volkswagen.

No. This is the only one that we are, let's say, which we have said early and publicly that we are interested in. And I think it would still be a good fit. But given what I just said, Volkswagen willing to have a big ownership share prices that are floating around what this business would cost. I think with these conditions, I don't think it will end in...

Then Sven Weier has a question. Sven?

Yes. Final one for me. I was just wondering on the Energy side. I mean, when you pitch for the projects, I mean do you typically get to know how the projects are being financed by the customer? Because I just wonder the influence of Middle East investors in projects globally is obviously quite high, also sometimes on the data center side. I mean, is that something typically you become aware how these projects are financed or...

Sometimes we even know, but let's say, the details we often don't know, at least not to my knowledge. But of course, let's say, we concentrate on our own piece, let's say, we want to make sure that, let's say, we get paid for what we deliver. So we want, let's say, bank guarantees, LCs, let's say, trade finance instruments, let's say, when delivery is done. And yes, some don't want to open it. That's fine for me as well. But then it's cash up front. Then I want the cash in the bank before the delivery takes place or at least a way big majority of it. There will always be, let's say, 5% or 10% at commissioning, but the rest should be in the bank. I don't want to run any risk on financing. And because that's -- and definitely the transfer of title has happened.

Yes, it's because it's a bit opaque, right, and as an aftermath of the current war, of course, there might be some new priorities on how to spend the cash.

Yes. The good thing is that in Energy, if something happens, okay, first of all, we have a big down payment. Typically, we -- also in the time of the financial crisis, we could keep many of these down payments. And the engines in Energy, they are, yes, quite common. They are standardized. So if it's not used for one project, you can swap them to another project. It's different in Marine because the engines are classified, either DMV, Lloyds or what have you. And that's, of course, not the case in Energy. So it's much easier and much more flexible and the engine is standardized. It's typically V engines 31, 46, 50.

Yes. Remember, even after the financial crisis, there was some flexibility between Marine and Energy to a certain point of completion of the engine, right?

Correct.

Then we have received a quite detailed question. Are you willing to comment on pricing on Brazilian EPP orders versus U.S. data center orders? I think a little bit too specific question.

No, I will not answer that one.

But thank you for the question anyhow. And it looks like that there are no further questions. I will give 1 minute and then we need to close the call, but still 7 minutes to go. It seems like that there are no further questions. Uma Samlin.

Okay. Perfect. Just one question for me. So I guess when the gas prices are higher, I don't know, if you have seen any impact when it comes to the demand for Gas engines. Like can you help us to sort of what's the impact back in '22, '23? Is there any potential discussions from customers as such?

No. So far, we have not seen any discussions. Let's say, like I said in the beginning, direct impact of this whole war with Iran is so far limited. Of course, let's say, the more expensive Gas becomes, the more efficiency becomes an issue. And I think we are scoring very well on efficiency. So, so far, no impact on the running course.

I think now we are ready. I do not see any additional questions. So Q1 report will be published on April '28. Thank you for activity, and thank you, Arjen, for good answers.

Thank you very much.

Thank you.

Have a nice day.

Bye.