Welcome to Wärtsilä Corporation's half-year report, January, June 2019. Here in Helsinki, Wärtsilä campus, I have, as usual, the board of management and Natalie and Emilia from Investor Relations. I will go and have first a short presentation, then we have time for questions and answers. The first six months, stable development in net sales.
At the same time, we have had equipment profitability challenging. If you look at some of the highlights, our services, sales is growing, and we have a very strong order book. Regarding the market at the moment, the market environment, we have expected the vessel contracting in the marine market to recover. That's not taking place at the moment. June vessel contracting was very low, just over 20. The indication towards the year-end is not supporting probably anymore the Clarksons earlier estimates.
At the same time, the segments which are very strong for us, cruise, ferry, LNG, are doing fine, and the outlook is good. At the same time, the whole discussion about scrubbers is, at the moment, a big question mark. The current spread between heavy fuel oil and marine diesel is supporting scrubber ordering, but at the same time, the 1st of January is getting closer and people are a bit uncertain regarding the fuel development, price development, at the same time, the fuel availability.
In energy, the fundamental drivers for our business, which supports the energy demand growth in emerging markets and the increased need for flexibility when going further and to renewable market remain in place. At the same time, we have seen a short-term demand environment very challenging.
Geopolitical risks, transition, economical uncertainty, certainty, and the whole transformation and transition to the renewable integration is slowing down decision making. We feel and see that being temporary. Moving on more to the slides. Our order intake in Q2 decreased 11%. At the same time, we have almost record high order book, which is 10% higher than previously.
In the second quarter, our net sales decreased by 2%. At the same time, if you look at the first six months, our net sales increased by 2%. Book-to-bill at a very healthy level, now 1.13. Our result, 9.3, a bit lower than last year, affected by lower energy new building deliveries. At the same time, we had some challenges on some of our projects, project margin, and project portfolio in the second quarter. Earnings per share a bit lower than last year. Cash flow now negative.
This is purely, I would say, because we are building heavy inventory for the deliveries the second half of this year. Order intake, if you look at the numbers and really the decrease, of course, it's mainly coming from the energy market, expected. The delays in the decision making has been there for some time. We started seeing it already last year.
You remember our third quarter. This continues at the moment. Net sales, as said, the second quarter a bit down, first six months a bit up. Marine is bigger than the energy, but of course, if you start putting the services, then the mix is a bit different. Book-to-bill 1.15, at the healthy level. When you look at the order book distribution, still a lot of deliveries this year.
It's very important to realize the fact that our third quarter is not going to be anything special. Most of our deliveries will be on the fourth quarter. When you look at the deliveries, it's not only, of course, engines. There are a lot of other equipment and solutions and heavy deliveries when it comes to scrubbers. Result, the six months are stable.
The second quarter, as I already explained, a bit down. We had some deliveries on the second quarter where margins were a bit lower and then some of the portfolios on different segments have affected the profitability. Cash flow, a bit negative. There are also higher taxes at the moment, but I believe this is more a timing issue and really building this working capital for the deliveries for the next five to six months. Gearing of 0.33, a bit higher than previously.
Moving on a bit to the different businesses. The vessel contracting, as I already highlighted, quite much down from the expected numbers. Let's see what happens the next six months. Normally, the latter half of the year is more positive, but there is, of course, a lot of discussions about the whole merchant vessel situation. At the same time for us, the LNGs, the cruises and the ferries and special vessels are supporting our development.
When you look at our order intake, compared to last year, second quarter, we have a lot of cruise and ferries, we have a lot of gas carriers. If you start taking, for example, scrubbers out of the deliveries, we are performing quite well, better than previously. The underlying business on Wärtsilä's equipment is developing quite well at the moment.
Looking at our long-term agreements, we have been quite strongly looking at how do we get a long-term agreement and where and why, and you have seen the good development during the years. Now there is the small dip. This is now coming from one customer who had, and I think it's two-stroke engines actually with one customer who some of the vessels in the fleet, the long-term agreement was canceled and the customer continued with the normal transactional business.
Money-wise, no big change, but of course, megawatts, you can see the change. At the same time on the offshore sector, we got, okay, this might be special vessels, by the way. I'm thinking about Saipem as a customer, but pipe-laying vessel, a maintenance agreement, which is five-year and really including a lot of the new asset diagnostics, and ways to optimize the performance of the vessels going forward.
Net sales in Marine are now developing well, again, I will highlight in both businesses our net sales in services part is growing, now 5% both in Marine and Energy. Of course, this is supporting our organizational structure also by our organizational structure, where we deal with customers always with the eye of lifetime solutions.
As you know, we have been acquiring a lot of companies during the last years, looking at the new ways to improve our maritime customers' performance and safety during their voyages, and Wärtsilä is getting more and more new elements on board of the vessels. This is a story about a solution where using artificial intelligence, we can shorten the voyage planning and auto-create a route that is safe and more efficient. These new solutions, new ideas, which are supporting our customers.
Moving on energy, I wanted to highlight once again this Bloomberg New Energy Outlook, the latest outlook, how the world could develop what comes to capacity additions. Here with these slides, you can clearly see the phasing out of coal and heavy fuel oil and more and more moving to renewables. At the same time, if you look at the gas as the fuel, there is going to be a lot of additions in the market.
Specifically when you look at the other part of the slide where we talk about flexibility, flexible capacity as additions, the peaker gas is going to play a major role going forward. There is a time lag here. This is not happening yet today. Decision-making is slow when you look at the different technologies.
At the same time, the market is not yet getting rid as fast as probably expected of coal and in some countries, nuclear. When that finally happens, you start seeing the flexible capacity additions moving and increasing more than before. Our order intake because of this time lag and also geopolitical situation, didn't develop as last year at these moments. As I said, we strongly believe going forward, these elements will be there.
If you look at our long-term services contract, there is one major long-term service contract in Bangladesh. You remember we sold huge amount of megawatts in Bangladesh during the last two to three years, and now these customers are finally signing agreements with us. Very important customer. This is probably the biggest ever service agreement in that country we have signed. You can now see also the effect to the graph.
Orders in the second quarter didn't develop as expected. We got one major deal in Cambodia, which is actually a dual-fuel power plant, basically supporting the infrastructure. At the same time supporting the idea of Cambodia also moving more and more to renewables. Net sales because of the orders and because of the ladder bar deliveries, the second quarter was low and smaller than previously. At the same time, our services again in energy is moving the right way.
Market shares. This is the way how we calculate it. Shrinking market, our market share stays at the level of 13%, 14%, 15%. Once again, a highlight of the quarter was the Cambodia fast track deal. As I started my presentation regarding the market, the demand of Wärtsilä, really I wanted to highlight it once again, the demand for Wärtsilä services and solutions in the coming 12 months is expected to be below that of the previous 12 months.
The demand, if you look at by business area, we have now downgraded our prospect from solid in both businesses to soft. This is the final slide here in my presentation. Now I'm ready for questions. I don't think there will be any questions here in Helsinki. We can straight go to the lines. Please.
Ladies and gentlemen, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the hash key. Once again, please press star one if you wish to ask a question. Your first question comes from the line of Max Yates. Please ask your question. Your line is now open.
Hi. Thank you. My first question is around energy, I think on the slide, you show that your market shares in energy have come down a little bit on a rolling 12-month basis from a high level. I just wanted to ask a little bit around the pricing environment, as obviously there seem to be a lower number of orders out there. Have you had to be a little bit more selective? Have you seen any competitors pricing more aggressively as the market has maybe come under a little bit of pressure? Any comments around the sort of backdrop of the pricing environment in energy as clearly ordering has become tougher.
Thank you, Max. I have Marco Wirén here. He comes just from the market so he can open that a bit with you.
Thank you. Very good question as well. The market share actually is a little bit higher now than previously. It's 0.15% now, but it used to be 14%. It goes up and down just like Jaakko said, between 13% to 15% continuously, depending a little bit the quarter. This is actually one quarter lag on the market shares because when we get the market data, it's not end of June yet.
I would say that the reactions that we get from our customers and actually the banks that are financing or governmental entities that are financing the projects, the time they need to make a decision is taking longer. There's of course the macroeconomic reasons or uncertainty, which is the major reason for this, and this is something we've seen in the past 12 months developing, that decision-making takes time.
It's not the pricing itself that is big change there, but it's just the time that it takes to make a decision about the funding. It could be a bank, it could be also the government, because in many cases, when we sell our power plants, actually the buyer, just like in Cambodia, I had a meeting with the energy minister, so it is the state that is behind many of these deals.
Of course, they have to get the funding in their budget. Of course, when they don't quite know what's going to happen in the world and how that will impact their own budget going forward, that's why they really analyze that very thoroughly before they make the decision and approve the funding as well.
Okay. Thank you. Just my second question is on 2020. If I look at your guidance, where you've talked about sort of orders over the next 12 months being somewhat below the previous 12 months, which was EUR 6 billion. I mean, somewhat below, in my mind, is somewhere between down 5%-10%. Effectively, when I look at it means that your 2020 sales probably aren't growing versus 2019.
I guess what I'd like to understand a little bit is, obviously, you have the tailwind from the cost savings coming through. Do you realistically think even with cost savings that you will be able to increase margins in an environment where your revenues aren't growing? Do you think actually in a zero-growth environment, you need the cost savings just to stand still and offset internal inflation and pressure in the business?
Thank you, Max. Let's get back to 2020 when we are closer to that one. I would like to do it in January. Overall, if you look at our alignment program, which we started at the beginning of this year, we are implementing all the many elements as you know, and they are finally bringing results.
We said that we will have a lot of costs during the first six months, and the benefit starts to get in during the latter part of the year and 2020. Whatever happens 2020 otherwise, we need to get back to that one. Regarding the cost savings and organizational changes, looking at the way how to develop our services is crucial for all these future results. I cannot start commenting the 2020 yet.
Okay. Just the final one is on MAN. I was just wondering if you could give us any updates, obviously, on your perception of what can potentially be done here, whether you think it may be possible that MAN go down the route of carving out the two-stroke business. Obviously, it's a few months since we've spoken last-
There's been limited sort of updates. Any color you can give on how negotiations are going there, whether you're in contact with them, and whether you think that potentially there is scope to do something with that business here in terms of a combination?
As you know, Max, the two-stroke is the only one which we could live with because of the competition. So far, what comes to the final conclusions, nothing has happened. Publicly, as you know, Volkswagen has said that they would like to sell it as one package, but that's whatever we can read from the public sources.
Okay. Thank you very much.
Thank you, Max. Could we, by the way, try to keep it going forward? One question and a follow-up question, and then you can come back to the line. Please, next question.
Your next question comes from the line of Sven Weier. Please ask your question. Your line is open.
Yeah, good morning. Thanks for taking the questions. The first one is a follow-up question on your new guidance and how you define it. You said it's going to be somewhat down, can you frame that a little bit more detailed? Is somewhat down up to -5% or as Max just said, -5% to -10%? Some more color on this I think would be appreciated. That's the first one. Thank you.
Thank you, Sven. We haven't started to open up what's solid and soft and so on. Final is, you all have been quite close to the numbers anyway. Soft really means when you look at the next 12 months going forward compared to the last 12 months, that there are challenges in both markets. I cannot start opening it exactly.
Does it mean this and this, EUR or whatever? The market in both end markets at the moment, when you look at the new building markets, the markets are softer than they used to be. At the same time, we are not guiding services. We only wanted to say that the services activities in both markets are continuing as they are at the moment.
Okay. A follow-up question would be on the project pipeline on the energy side. I do sense from your comments that the existing projects have been pushed out. Have also been projects taken out of the pipeline, or is it just a matter of later decision-making here?
Thank you, Sven. Marco is here to open that one. Please, Marco.
Yeah. Thank you, Sven. A very good question as well. I would say that pipeline is still very healthy. There's a lot of need for energy and depending little where you are in the world. We would definitely see that there's no cancellations. It's more postponements. If you look the fundamental drivers in Western world, it's still the renewables that are increasing the share.
When these countries or regions take down coal or nuclear or whatever, they see that they have a need of balancing power as well. While in the emerging markets such like Cambodia, they need a flexible base load. Of course, these countries, when they see a growth and the need of growth in these countries, they need electricity to be able to supply the industry and the country at large. Thank you.
Okay. Thank you.
Your next question comes from the line of Antti Satulin. Please ask your question. Your line is open.
Thank you. Two marine-related questions. First of all, could you explain the logic when you say that the uncertainty on fuel prices and availability, how does that exactly have to do with scrubber investment decisions? That's my first question.
Thank you, Antti. Very good question. Roger Holm, Head of Marine, he is dealing with scrubbers daily. Please, Roger.
Thank you. Thank you, Antti. A few angles to this question. I think we are in a place today where, as we have told before, we have sold out already earlier deliveries for this year. Any scrubber delivery now or scrubber order coming in would be for delivery next year. We have a situation where many customers are in a bit on wait and see mode because they have lost the 1st of January opportunity anyhow.
They expect the biggest spread on the fuel, than what we have at the moment. They will wait and see that how much is the spread developing. Even if the business case is there today, that's one part of it that would speed up and shorten even further the business case for the customers.
There is another discussion ongoing as well that there is a concern on the HFO availability in all ports. For sure we will see 0.5 sulfur fuel available, but will there then be full availability also on HFO in all places? That's a concern from customer side. What we have seen so far is we believe there will be availability, but since they have lost the slots for 1st of January already, now it's a bit wait and see mode to see what will happen, both on the spread and the fuel availability.
Okay. When you say fuel availability, you refer to HFO fuel, not low sulfur?
Correct. That if you have a scrubber, then investment in place that will you get then HFO next year and the year after in the ports that you need.
Okay. That makes sense. Secondly, you downgraded the Marine guidance. Does this mean that you have become more negative on the really important segments for you, i.e., cruise, gas, and so on?
Short answer to that is no. The cruise and gas segments continue in a positive way. The main reasons when looking at the next 12 months is twofold. The major part is really related to scrubbers. As you know, we had a really good order intake last year on scrubbers. At the moment we are clearly lower on that part. The other one is, of course, we are not totally immune against lower vessel contracting either.
We see a decrease year-to-date compared to last year when we were expecting a slight growth. The good thing for us is that the key segments for us is still developing well. It's the combination of these two that makes it. Maybe another point as well to make regarding order intake in services in Marine.
You see a slight decline on that one year to date. Actually, if we take out the IFRS 15 impact on our contracts, where we do it based on cost-based sales recognition, which is then impacting also the order intake, the order intake is growing in services as well. Just as a clarification to that part.
Okay. Finally, last year, I think you had 355 scrubber orders. Where are we running now on an annualized basis in Q2?
I will not comment on amount of scrubbers. We have order intake wise in Q2, we are clearly below Q1 levels, that's also the reasoning why we are saying that we see a lot in the market that is in wait and see mode. Still there is a lot of activity in the pipeline. It's more the decision making that is our concern on the near term.
The business case for scrubbers are still there. We don't believe in a change in that. At the moment and coming quarters, depending a bit on the fuel spread development, it will be a bit wait and see development. We can say also from a sales point of view that, of course, the sales is ramping up. It will be heavily second part of the year focus. Assuming all the retrofit goes as planned, which are not always in our hands, we will have a delivery of around EUR 300 million sales in the second half of the year related to scrubbers.
Okay. Thank you very much.
Thank you.
Thank you.
Your next question comes from the line of Jack O'Brien. Please ask your question, your line is open.
Hi. Good morning. Thanks for taking the question. My question is just related to the comment regarding deliveries in the second half and it being quite 4Q-weighted. Can you just help me, I'm just trying to digest the fact that the order book's up 10, obviously your outlook by end market has become a bit more challenging. What's your current working assumption on how much of the order book is converted in the second half into revenue? I'm just trying to obviously bridge to a full year sales number, and I'm struggling a little bit at the moment.
Yeah, that's a good question. If you look at what's still left from the order book, of course there is going to be a huge amount of transactional business still, which is always a question mark. Of course, our services is developing quite well. At the same time, we still need orders to be booked for deliveries in energy during this year. I cannot give you any numbers or details on that one, but there is still to get all the numbers done, we need some orders. As we heard from the energy, the pipeline is good and we expect those orders to be signed.
Thank you. Perhaps just a couple of small follow-ups. One on, I noticed your long-term service agreement percentage or your percentage of marine installed base that you cover with service agreements went down slightly. I might have missed that. Can you just explain why that was? Secondly, just briefly on what you expect the run rate of restructuring benefits to be as at the end of 2019. I appreciate most will fall into 2020, just any color there would be also helpful.
Regarding the long-term agreements in Marine, now you need to be careful. It has been measured by megawatts, first of all, so it doesn't really give you the whole indication of the money we are talking about. There was one customer who wanted to cancel part of the fleet long-term agreements but wanted to continue with normal transactional business.
This is a merchant ship, and it's two-stroke engine, so the megawatt numbers are quite high. We are not worried about that at all. Money-wise, it's very small. The renewal rate on normal agreements is at a good level. The development is going fine, this one customer changed the numbers in the graph. Regarding the realignment program, we have said where the savings have been, the estimated saving have been EUR 100 million and the cost of EUR 75 million.
Most of the savings finally will be in the 2020. Some of the costs have of course come in during this year. The run rate, I'm not going to start revealing the run rates at the moment. They are progressing as expected. Once again, the benefit starts to get in during the second half of this year and mostly then 2020.
Great. Thank you very much.
Thank you.
Your next question comes from the line of Edward Maravanyika. Please ask your question. Your line is open.
Good morning, Jaakko. Sorry, actually my question's related to the questions you answered just now, I'm good. Thank you.
Thank you, Edward.
Your next question comes from the line of Robert Davies. Please ask your question. Your line is open.
Yes. Morning, Jaakko. Thanks for taking my question. My question is really around the energy business, I guess what, in your view, is likely to change from an end market perspective over the back half of 2019 and the first half of 2020? You mentioned the elevated reserve margins, the uncertainty in decision-making.
I guess, why is that going to change over the next three, six, nine months in your view? What are customers telling you? You mentioned sort of short-term lift from some of the financing concerns. Is there anything else aside from that that's going on from a structural perspective that customers are concerned about that are causing delays? Thanks.
Yes. I mean, Marco, please. You can say the same. Please go on.
Thank you. Very good point. I would say that what we see and the reason why we actually lowered our guidance as well this off is the fact that we see the market will continue with this delaying decision-making. Of course, the macroeconomic uncertainty is one major reason here. This is how we think it's going to continue for a while, at least.
How long? It's very difficult to say. Of course, we will update you continuously when we have quarterly results and give you more information on what we see on the power plant markets. I would say that it's good to understand the pipeline is there, and just like Jaakko mentioned recently that we still have a couple orders that we expect to get this year,
where we will start delivering the engines already this year, which means that we will get the net sales. It doesn't mean that they will not sign the contract. It's just that timing, it takes a longer time. It's not only customers, as I mentioned earlier, it is also the ones that are actually financing the power plants.
We haven't lost any deal.
No.
Nothing has been canceled.
No, that's correct
from the pipeline.
Yeah. Thank you.
I see. Thank you. Maybe just as a follow-up, could you just flesh out within your sort of emerging market versus developed market regions, how that's sort of different? Because obviously you're serving almost two different customer types. I think you mentioned to 70% or so was going into emerging markets as sort of backup power versus your developed market where you're trying to integrate obviously more with renewables. How is the dynamic different between those two customer sets?
Lately, it has been 25 for the flexibility and 75 for emerging markets. At the same time, we might regard the Cambodia deal as emerging market base power, but ultimately it will support also their story to go more and more to renewables. It starts to be a little bit question mark when you start dividing it by 25. The markets are different, you are totally right. We shouldn't forget that we are still selling well, with a slow pace to emerging markets where countries are still building their infrastructure and they need base power.
Okay. Thank you.
Thank you.
Your next question comes from the line of Tom Skogman. Please ask your question. Your line is open.
Yes, hello. This is Tom from Carnegie. I spot that you announced that renewables make up more or less 3% of order intake for energy so far this year. I just wonder, is this you selling solar panels? You have made quite a lot of news about being able to sell batteries and selling solar panels through partners, et cetera, but it's been very quiet about this for quite some time. I just wonder, have you made any changes to the structure when the hybrid power plant business is a bit delayed compared to the expectations one to two years ago?
Tom, very good question. Marco, please.
Thank you, Tom. Yeah, very good point. Just to clarify, the major renewable or non-gas, oil-based product that we have in energy is the storage solutions. While solar is not a primer product that we sell, if a customer would like to have a combination, a hybrid, then we usually have a cooperation with some other company who is delivering the solar part.
We are not doing that ourselves. On the storage side, we are delivering both batteries and energy management system and the integration of that. There as well, we buy batteries, or we have a cooperation or consortium with a battery company and do that together with them. We take the whole integration part of that. That market is definitely growing.
Just like on slide 19, you can see the storage part as well, that it will emerge more and more 2021 and forward. So far the volumes are quite small, but we see huge interest going into storage going forward. It will definitely come. Here I would say that the key success factor is that you have a very good energy management system, which we believe that we have one of the leading, if not the best energy management systems on the market.
Thank you.
Thank you.
Your next question comes from the line of Sean McLoughlin. Please ask your question. Your line is open.
Good morning. Thank you. Just one question from me. I suppose looking at this slide 19, looking at the flexible capacity addition, this huge jump from 2022, could you maybe relate back to us how that feeds into conversations with customers? Is there a huge recognition on behalf of your customers that they will need to invest in peaker gas in two, three years' time? Where regionally is that coming from? Thank you.
Thank you, Sean.
Yeah. Thank you. A very good point. Just remember, this is only a forecast. It doesn't mean that it's going to be exact like this every year. If you look at the trend is definitely there. When we discuss with our customers, they are recognizing that that will be the need going forward as well when they increase their share of renewables and they take down the coal and nuclear and other sources, and this is quite different depending country by country. If you take Germany, everybody knows that they will take down the nuclear by the end of 2021, and they have a plan at take down the coal as well.
Although the year they are planning is 2038, but when we discuss with our customers, they are saying that they will not wait until 2038 because it depends what is the lifetime of those assets that they have. Most of those assets are quite old, which means that by 2030, most of these coal assets will be taken down, and that will change the dynamics and the need of backup power as well in Germany.
Of course, we see a lot of demand coming from the countries where you see most deployment of renewables today. United States is a very good example. Actually, the past three, four years, U.S. energy mix has changed a lot. They have increased a lot of renewables. When they have taken down coal and will continue with that, not because of environmental reasons perhaps always, but because of the economics.
It is more profitable for utilities and IPPs to actually invest in renewables and then invest in backup power than just investing in coal or actually keeping the ones they have today. That's where we're going to see these increases in balancing power.
We usually talked about when we can come to a 20% share of renewables, that that's where the tipping point starting, that you have to have some kind of balancing power, a backup power. Of course, it depends a little bit what kind of mix. If you have a lot of hydro, that might be different. But if you have thermal energy of those 80%, then you definitely need, which is inflexible.
Thank you. That's very clear. Just a little follow-up on the next slide on the services in energy. I mean, the 12-month trend has been falling from the Q4 peak. Just to understand, in services, what's driving that and how you can reverse that trend.
Yeah, I would say services in general is very good demand, our customers are seeing that when they get a good service and they have agreements, they actually are performing better in their power plants. This is something that we've been discussing with a lot of customers.
Also, we have to illustrate that in a better way, how we can create value for our customers. This is something that we are changing our way of working as well towards our customers. We believe that with the new technology that we are deploying, we can actually analyze our customers' assets in a better way and illustrate what value we can create.
Okay. This is not related to more customers effectively doing in-house servicing. It's more about you using new technology to improve your service offering to existing customers.
Yeah, I would say definitely we see there's a huge opportunity on that side.
Thank you.
Thank you.
Thank you.
Your next question comes from the line of Peter Reilly. Please ask your question, your line is open.
Well, good morning. One question and one follow-up, please. You've been talking a lot about the delays with decision-making in the energy business, and you've mentioned funding in particular. Is it just a funding issue or are the customers also being slow to make decisions about technology, whether it's an engine, a gas turbine, a storage system?
I just want to understand whether it's purely a funding issue or whether you're still having a lot of fundamental debates with the customers about what sort of technology they want to actually implement to cope with the rising share of renewables.
No, it's not only technology-
Yeah
market.
That's a very good point, actually. That's good that you asked it because that's something I want to highlight as well, that in certain countries or states, in the United States, politicians are quite vocal about that now we want to go to 100% renewables. Of course, utilities who have the investment plans, they have to redo the investment plans, but also illustrate what is the optimal mix and why they need a balancing power and backup power as well.
We sometimes call that educational selling, which means that we have to illustrate and discuss with these decision-makers what is the most optimal mix and how this will develop going forward. You cannot go to 100% renewable overnight, because then you need technologies that perhaps are not in place yet.
What we usually say that when you have engines or flexible power as a backup, then you can easily go to 80% renewables, perhaps even more. The final step will come when we can utilize synthetic gases, which are made of excess solar or excess wind energy converted into gases that you can burn in the engines, then you are in the 100% renewable world. We see that this development is going forward quite fast right now.
Certain countries, depending the circumstances, this will be feasible economically faster than in other countries. We do these country and regional plans actually in most of the countries in the world, where we illustrate for the decision-makers what is the most optimal path for you. We've been doing that in many countries where actually decision-makers have changed their energy plans and actually recognized the work that we've done.
This is the way it is going. Of course, always when you have these elections, that usually creates concerns as well, the message will be that no more something else than renewables. Then of course, we see that time will be postponing or they will postpone the decision-making again. The fundamentals are definitely there. I hope that I answered your question enough.
Yeah. I understand it's a complicated topic. That was helpful. Thank you. If I can have a follow-up. Correct me if I'm wrong, it looks like the marine spare parts sales is continuing to be a bit disappointing. You talked about it during last year as well. Am I right that you're still, I think below where you'd like to be in terms of marine spare parts sales? If so, why is that? Is that one of the reasons why the margin development has been a bit disappointing?
Thank you, Roger. I don't think we are. We're looking at the spare parts business.
I think it's actually vice versa. We are happy with the development. If you look at our net sales in services marine, we are growing with 5% with comparable figures. We are having growth in services. We see good activities.
We see some signs even in the offshore market for the service part that we are growing. If you look at the chart where we look at the total sales, remember on this part, we have a huge growth on the new build deliveries, going from 43% to 49%, that's also taking it from EUR 685 million to EUR 801 million. Looking at service standalone, we are growing, and we have a positive development. As I said earlier, also on service order intake in marine, you will see a small minus figure in the report.
This is only because we have contracts and IFRS 15 recognition of those depending on when the costs are coming in in the contracts. Without that one, we are also growing on order intake in services marine. On the contrary, I would say positive development.
It is just the spare parts I was looking at rather than the services overall because your spare part percentage has gone down. I know you were a bit disappointed with spare part sales last year. Does your positive comment also apply to spare parts, or is it only applies to the whole services business?
Yes, it applies also to spare parts. Of course, you need to look at the total, that what goes through agreements and what goes through spare parts. We are happy with the development, and we are growing.
Some of the spare parts are in agreements also.
Correct
which you can't see. As earlier mentioned, both spare part sales in marine and energy is developing better than last year, and it's actually developing as we have now been expecting. It has a good trend.
I think the key figure to look at is the net sales development on services, and as said, that's growing 5%, and that's positive development.
Okay. Thank you.
Next question comes from the line of Andreas Willi. Please ask your question. Your line is open.
Yeah. Good morning. Thanks for your time. My question is on the Q4, which obviously going to be very big in terms of deliveries this year. How will that impact your drop through ability to generate profits when you have an extraordinary level of deliveries in terms of stress on the system or temporary costs that result from that?
What should we expect in terms of basically margin leverage in a Q4 that is basically that high? Is it going to be a particularly good leverage, or are you going to have some extra costs, temporary workers and so on to manage that peak in Q4?
First of all, yes, the fourth quarter is going to be exceptionally high this year. There is going to be a lot of engine deliveries. We are ready for that one. I don't think there is going to be no extra cost regarding that one. At the same time, good to remember, we will have a huge amount of scrubber deliveries also going out on the fourth quarter.
That's not of course, affecting at all the engine part, but probably affecting a bit the marine scrubber business line part. That has also been anticipated. Of course, we see growth in services. We expect that growth to continue, and there will be or should be a good development regarding that one, of course, at the same time, our spare parts deliveries.
A follow-up question on service and marine on the transactional side of it. You've had growth also driven by your longer-term contracts. If you look at the transactional service business, what is normally the expectation when we have a marine industry downturn like now? How and when will that affect service? This may be something different today than in past downturns when service was also impacted by a generally weaker industry backdrop.
Andreas, that's a good question. Roger, please.
I think to some extent, we need to decouple both the new build development and the life cycle part of it. If I take one example, we don't see short-term, any huge development on offshore new build part. We are still in the same extremely low level as before.
At the same time, we see good signs of development on the service side, and this is coming from the fact that we will have more and more vessels coming in from lay-up that get into operations. Still, there are plenty of vessels in lay-up, so there are no short-term good forecast for new build need, but that doesn't mean then that we can't grow on the life cycle side.
As long as the vessels are running and there is a need for existing tonnage, we have a good opportunity for services. Of course, you might say that looking at the last year's low development of new build sales, that means that the existing tonnage needs to be there running. That's a positive base for service business.
When you're in your outlook statement, when you downgraded it overall for marine, none of that relates to your expectation of service being weaker in the next 12 months than in the last 12 months?
Correct. As I said in the comments, it's very much related to new build, and one key really element there is that we foresee lower order intake of scrubbers compared to the very high level last year. That's a major part of it. Then, of course, partly related to the lower levels of new build ordering.
Thank you.
Thank you.
Your next question comes from the line of Tomi Railo. Please ask your question. Your line is open.
Good morning. It's Tomi from DNB. A question on the Energy profit, EUR 37 million clean EBIT for the quarter. First question, is there any contribution from the equipment revenues on the profit line, i.e., is it making profit? Secondly, if and as you are highlighting deliveries more tilted to the fourth quarter, is there a risk that energy equipment is turning to losses in the third quarter? The third question, can you reach for the Energy business full year profit as seen in last year?
Tommy, thank you.
Thank you, Tomi.
Three questions.
I try to remember all of those. First of all, if you look the equipment side, new build side in Energy, we always make our money and sales basically in the fourth quarter. This is the case this year as well, even more than in the previous years, just like Jaakko mentioned earlier. It means that during the year, the profits are not that good or negative.
We get the big impact in the fourth quarter. Also the third quarter, just like Jaakko mentioned earlier in this presentation, that this will be very low based on the order intake that we had a year ago and the delivery schedule that we have in third quarter. New build deliveries side, the third quarter will be very low as well. This is normal business we always have in Energy. What comes to Service, that's more
Stable. Actually growing at the moment.
Yeah, it's growing.
Not stable anymore.
Yeah, I mean, profit-wise, it's more standard business. Of course, we usually have more sales towards the end of the year as well on the service side, that's more budgetary reasons among our customers when they see that they actually have some budget left and they need spares, they usually buy those.
Thank you.
Thank you.
Unfortunately, Tomi's line has dropped. Your next question comes from the line of Edward Maravanyika. Please ask your question. Your line is open.
Good morning, Jaakko. Just on this unusually strong deliveries expected in Q4. Marco Wirén has very helpfully talked through Energy. Does this also apply for Marine? Are you also expecting unusually strong deliveries in the fourth quarter?
Yes, Edward. Yes, we are.
Sort of split between.
Yeah
between the equipment side and the services side.
Yeah. Edward, thank you. Roger, please.
Yes.
It's going to be
It will be. That's clear, we have mentioned scrubbers already before, we have still around EUR 300 million only on scrubbers to deliver during the second half of the year. In general, we have a heavy delivery pipeline for new build on the second half.
Thank you.
Thank you. Let's take a final question. It's already 11:00 A.M. If there is any final question.
There are no further questions.
Okay. All right.
Please continue.
Thank you. Thank you, everybody, and see you then in three months' time in October and, for the ones who are going for summer holidays, have a happy summer holiday. Thank you, everyone.