Good morning, everybody, and welcome to this news conference for Wärtsilä half year financial report. My name is Hanna-Maria Heikkinen, I'm in charge of investor relations. Today, our CEO, Håkan Agnevall, will go through the group-wide highlights, segment performance, and then after that, our CFO, Arjen Berends, will continue with key financials. After the presentations, there is a possibility to ask questions, let's take one question at time. Håkan, please.
Thank you, Hanna-Maria, and warm welcome, everybody, to a summary of a second quarter that was definitely a step in the right direction. Improved profitability, and we continue to grow in the services side. Order intake up by 17%, net sales increased by 3%, and we continue to see the good progress in services. Service order intake up by 13% and service net sales up by 16%. Comparable operating results increased by 26%, and it's really supported by the good development in services and also a positive journey on energy storage. A challenge, a headwind on the operating result was the EUR 19 million provisions that we needed to take in Marine Systems for a single sizable turnkey project in gas solutions that has suffered from a combination of supplier quality issues and cost inflation.
Cash flow from operating activities also improved. Overall, a step in the right direction. If we look a little bit further into the numbers, order intake up from EUR 1.4 billion to close to EUR 1.7 billion, up 17%. Organically, it was actually up 21%, and we continue to see the growth both in services and in equipment. I think the positive thing here is that all businesses are growing order intake, and they are growing order intake in both equipment and services, really good.
If we look at the net sales, up from EUR 1.4 to EUR 1.45, 3%, organically up 7%, and we continue to see a good growth on the services side, up 16%, a little bit more down on the equipment, periodization, down 9% from EUR 700 to EUR 650. Book-to-bill continues to develop in the right direction in a very good way, I would say, and this is actually the ninth consecutive quarter where we have a 12-month rolling book-to-bill above one, so going in the right direction. If we look at comparable operating results, we do see improvements in our profitability up to 7.4% compared to 6.1%, same period last year.
If we look at the marine market, we start overall, I think we see higher prices on new ships and also challenges with availability of shipyard capacity. There is a lot of ships, of vessels being built, and that limits the growth in new build investments. However, for Wärtsilä, our market sentiment remain positively for our key segments. Overall, the number of vessels ordered in the review period, looking at the 12 months, increased to 773 compared to 701 corresponding period last year.
The uptake of alternative fuels remain more limited now with 187 orders reported, which was 24% down from 34% of overall contracted vessels, and but that is mostly driven by a changed mix of contracted vessels. The further investments into LNG liquefaction capacity continues to drive demand for LNG carriers, despite activities easing off from record levels in 2022. Still, the projections are it's gonna be higher than 2021. Demand for new cruise ships capacity remain limited as cruise lines are focusing on managing the current order book and delivering leveraging their debt levels. In general, the cruise industry has a very strong patronage, so to say, and volumes cruising volumes are back and supersedes 2019 volumes.
Service demand was supported by increased activity, increased active capacity in key vessel sectors. We look at the energy market outlook, I think we have seen some solid long-term opportunities. More short-term commodity markets are easing while interest rates rise. Looking at the 2023 first half year, it has brought relief in some commodity prices, especially in the battery raw materials, while the rising interest rates increase uncertainty. Natural gas prices continued decline, despite a slight price rebound in June. Prices are still above historical levels. The trend in transition to renewable energy sources continues, being a key driver in the development of the battery energy storage and the thermal balancing technologies.
We can see that there is a good market activity and outlook in leading energy storage and thermal balancing markets, such as the U.S., U.K., and Australia. Order intake, as we said, increased by 17% overall, 21% organically. Equipment up with 23%, service up by 13%. We have a strong order book, and rolling book-to-bill continues above one. One thing that we really would like to point out, that the remaining order book for the current year is lower than last year, so that needs to be considered. Profitability continued to improve in a good way, I would say. Net sales increased by 3%, 7% organically, and comparable operating results increased by 26%. Net sales, we talked about it.
Equipment net sales decreased by 9%, service net sales increased by 16%. If we look at technology and partnerships, really on the road to enable the decarbonization of marine and energy. Some recent examples, we are taking the next step in the energy storage fire safety technology. I would say that is becoming one of the strengths of our storage business. We have a very strong thermal incident track record. So far, we haven't had any thermal incidents, and we have a strong focus on being on the front line of thermal stability. Now we have qualified our GridSolv Quantum for the latest NFPA 69 standards.
This safety standard is about requirements for explosion prevention and provide security and confidence for this type of authority, having jurisdictions, fire service, and other stakeholders. On the engine side, or related to the engine side, but this is more how we deal with the systems that needs to support the engines. We have the WARMS, Wärtsilä Ammonia Release Mitigation System. We have received now the approval of principles from DNV for this. It's a innovative system that mitigate the risk associated with ammonia release, which is, of course, a hazardous substance, so to say.
With this, you can deal with leaks and in a green and safe way, and it's really an alternative to venting by diluting with air or bubbling in dirty water tanks. This is quite innovative, cracking the ammonia and reducing the risk for leakages. Let's move into the different businesses and how they are performing. If we start with Marine Power, we had a very good development in the comparable operating results. Good service performance continues. You can see order intake up 21%, net sales also up 21%.
If we look at the journey to double-digit EBIT here, I think the good service performance is a major driver, and still we have a headwind in that we are still absorbing cost for the transformation of our manufacturing footprint. We have Trieste, we have two factories in Vaasa, and we are consolidating. In spite of this, we are making a very positive journey. Service agreements continues to develop in a very good way. The net sales from installations under agreements is strongly increasing. We have about 29% our installed fleets is now under agreement. You can also see here in the graph that the net sales from agreements is clearly trending in the positive direction, and it's also above, clearly above the pre-COVID levels.
Agreements are signed across multiple segments. LNG carriers, for instance, the agreements grew by 28% the past four years. Cruise slightly declined because some of the capacity has been scrapped out. I think the key metric here is the renewal rate, i.e., customers that have used these services coming back, and we have a renewal rate of over 90%. That is a very strong testimony that we are adding value to our customers. Also the decarbonization journey when it comes to the fuels, new fuels, continues. Here we have the latest cooperation with Stena. We will convert some of the Swedish ferry operators' vessels to operate on methanol fuels, and the conversion will include the fuel systems supply, engine modifications, and integrating the new installations with the ship's existing systems.
The contract will equip the vessel with unmatched fuel flexibility and therefore making an important milestone in Stena's journey towards becoming a leader in sustainable shipping. The conversion is scheduled to take place in 2025. One of many examples to come. Marine Systems, we love our equipment. Marine Systems order intake increased, the comparable operating result declined due to provision taking in a single sizable turnkey project in gas solution. Order intake, you can see up 20, up with 21%. Net sales is down with 36%. We see good development on the services side, of course, EUR 19 million provisions in a single sizable turnkey project has a significant impact. We are not doing, since several years, we are not doing turnkey projects anymore in gas solutions.
This is a legacy from the past, before we took that decision, and we are working this project out, and we're going to finalize it. We will not enter into new turnkey project solutions for gas solutions. Energy. The order intake and comparable operating result increased. Good, also here, good development in services that continues. Order intake up with 15%. Net sales, a bit flat, and partially related to periodization. If we look at the EV drivers, good service performance, improved profitability in the energy storage business. On the headwind side, we have an inefficient factory capacity utilization, because we are a bit low, as you have seen in our thermal sales, and this leads to an inefficient factory capacity utilization.
What I would say is on the order intake for thermal, we do see a more active second half year, I would say, for order intake. If we look at energy storage, the journey continues, the positive journey continues. When we look at the rolling 12-month comparable operating result, we are now at -1, so at, in Q3, -3. We started -4, -3, -1, and we are continuing in a positive direction. If we look a little bit closer to the positive development on energy services, here you can also see on the graph how we have grown the percentage of our fleet under coverage. We also now actually 29% coverage also in energy, and you see the growth trajectory there.
To give one of the many examples here, it's a very important long-standing relation with the Brazilian customer, Gera Amazonas. We have renewed an existing agreement. It's a two-year renewal with Gera Amazonas, so they can meet the power purchase obligations. The agreement covers the Ponta Negra Power Plant in Manaus, and it's a plant that has been in place since 2006. The plant is basically running 24/7, and our obligation is to ensure that we have high uptime, high reliability, and that is maintained at all times. We have many of these types of businesses. Here is the bridge for the development of the EBIT from 6.1% to 7.4%.
You can see Marine Power double-digit now, EBIT margin. Of course, Marine Systems, negative impact, but you can also see that energy is improving and portfolio is also improving. As we said, comparable operating result increased by 26%. Arjen, other key financials?
Yes, thank you, Håkan. If we start with operating cash flow, good performance, I would say, in quarter two, as well as in the first half of this year. Definitely, if you compare it to previous year, the same periods, they were all deep negative. The cash flow was very well supported by both improved profitability as well as, let's say, changes in net working capital. We had to increase our inventory somewhat. We got a lot of money also from the customers. Net interest bearing debt, sorry, improved. Went down actually, compared to the end state of last year. Financial debt, at least, is somewhat increased. We definitely got more increase in the cash, making the net interest bearing debt going down.
Gearing stayed more or less on the same level as at the end of last year, around 0.23. Obviously went somewhat down in the first half of the year, mainly due to the fact that we accounted dividends into the equity in the first half of this year. Basic earnings per share, little bit low on the quarter compared to, let's say, previous year, the same quarter, of course, related to the impairment that we had to do in portfolio business. Also good to remember that on the -EUR 0.16 that we had first half last year, we took a EUR 200 million provision in that related to the exit from Russia.
If I move to the next slide, cash flow from operating activities, as mentioned, good performance in this quarter, clearly trending up. Definitely after a negative operating cash flow last year, this is a very welcome trend, and we, of course, aim to continue that good trend. Working capital to sales ratio on a good level, I would say, definitely comparing it to long-term historical levels. We are around 2% now, and basically, it's the same as we had at the end of Q1, and also very close to what we had at the end of last year. And let's say long-term historical average was 9%. I think we are on a good track here. Of course, it doesn't stop us from further improvements.
We are working with operating working capital elements all the time in many different ways. With these words, I give it back to you, Håkan.
Thank you, Arjen. If we look at the prospects and demand environment, we expect the demand environment for the next 12 months to be similar to the comparison period for marine and also for energy. It's the same outlook, the demand environment to be similar for both marine and energy. That wraps up the presentation.
Thank you, Håkan. Thank you, Arjen. Now we will continue to Q&A. Let's take one question at a time, please.
Also please keep your mic muted while you're not talking. Thank you. First up is Max Yates from Morgan Stanley.
Thank you. I guess if it's just one question, I'll focus on the energy storage margin, because that looks to have been a sort of pretty important driver of the energy profitability. I mean, if I try and kind of back out of that rolling margin, it looks like you're at sort of low single digit margins in the second quarter for energy storage. I guess what I wanted to understand was, is there anything exceptional in that? Or is that a kind of reasonable estimate for how we should think the rest of the year should continue?
I mean, we don't give specific guidance, but I would say I mean, we communicated the plan is to turn storage around, and I think we are executing on that plan, and we will continue to see storage moving in the right direction.
Okay, there was just, there was nothing exceptional, though, that you'd call out that means that shouldn't be. A level that we were at isn't sustainable?
No, I think this is the journey that we see is part of our turnaround program.
Okay, great stuff. Thank you very much. I'll get back in line. Thank you very much.
Next up is Vivek Midha from Citi.
Hi, everyone. Can you hear me?
Yes. Hello.
Perfect. Thank you very much. I have a question on the margin side. Excluding the provisions, you appear to have shown a strong sequential margin improvement over Q1. How should we think about margins going into the second half and the moving parts within that? For example, how much is left of the legacy backlogs, whatever, and so on? Thank you.
Okay. So we don't give guidance for margins, but of course, we, you know, if we look at how our business will evolve going forward, we continue to see a strong growth on services, we know that's normally a very strong generator of profitability. Also, to your point, we are working through, as you know, we still this year, we said we had EUR 1.2 billion of order backlog from orders we took before the big inflation set in, so to say. We have earlier communicated that the majority of this we will have worked through by Q3, that still holds. The turnaround program in storage, you can see yourself, we are on the right way. Turnaround in Voyage, yes, it has been delayed.
That is one of the reasons why we have made the structural changes, as you know. We do see that the. You know, if we look at combination of Voyage services, which is now in Marine Power, and ANCS, that is now in portfolio business. If we bring them back, so to say, we can see that, you know, the turnaround program is now actually in speed and is going in the right direction.
Thank you very much.
Next up is Sven Weier from UBS.
Good morning. My question is on the outlook statement, which you kept stable despite somewhat tougher comps, when we look at the current quarter. I was just wondering, how you see the outlook between the equipment and the service side?
Well, I would say that, I mean, both will... I, the demand for cash relates to both. I think when we still keep the similar level, it's related to the level of uncertainty we see looking 12 months ahead. I don't know, Arjen, if you want to-
No, let's say, I think that's exactly as you say, let's say we see a very active, let's say, service business, so that we also believe that will continue to be a good business going forward, at least on the near term. Of course, let's say single, big newbuild projects, let's say we have 200 newbuild in or out, that may change the mix quite significantly on a certain, let's say, definitely on a short-term horizon. It's very difficult to give an answer to this. It can swing a little bit. It's lumpy on the newbuild side, that makes it difficult. Service remains solid. Yeah.
... you said on the thermal side, right? You said you expect these orders to come in at the end of the year, beginning of next year. I mean, has there been any development during the quarter that has raised that confidence relative to last quarter?
I think what we're saying is that during the second half year, we do see a stronger pipeline on the tendering side in some of our core thermal markets.
Okay, thank you.
Thank you.
Next up is Antti Kansanen from SEB.
Hello, Håkan and Arjen. Hope you're hearing me well.
Yes.
I had actually a follow-up question on the profitability side, if we think about the second half and knowing that you don't guide for margins. On the equipment side, we should see benefits from fading of those legacy projects. At the same time, I guess, the fixed cost absorption is trending a bit down. Should we kind of think about the normal seasonality going into Q4 a little bit higher, a little bit lower? How should we balance out those two things in the equipment side?
Yeah. Not giving any guidance, as I said, but, you know, I think we will see the normal seasonality with a lot of activities in Q4.
The hockey stick, yes.
Yeah.
All right, I'll get back to the line.
Next up is Panu Laitinmäki from Danske Bank.
I wanted to ask about these legacy projects again. I'm just wondering, like, how did they play out in Q2, like, in a year-on-year comparison, because you don't mention them as a driver for the result in any of the divisions. Was it, like, similar profitability still, compared to what you had, last year, and then there should be an improvement going forward, or how was it?
I think I mean, if you look at Marine Systems, where we made this EUR 19 million provision, it's related to one specific project, and that is a kind of a one-timer related to, you could say, a turnkey business, which we are not doing turnkey anymore.
Sorry.
Yeah.
sorry, I actually meant with the legacy projects, I meant this, like EUR 1.2 billion.
Okay. Sorry, I misunderstood you.
Related to inflation.
Okay. I missed your question. Can you restate your question? I misinterpreted you.
Yeah.
Sorry about that.
Yeah, yeah. The question was that we have been discussing these projects for several quarters, but then if I look at your slides, you don't mention them as a driver for the operating result in year-on-year comparison. The question is basically that, was the profitability of this business similar in Q2 as last year, should we expect kind of the improvement going forward, or how does it play out?
Well, as we invoice these projects, they are currently impacting our profitability. What has happened after, you could say, first quarter in 2022, because this is where we set the line, is of course, we have adjusted our price levels on the new orders that we have taken on the equipment side, so to say.
I think the question is.
Okay. Thank you.
Q on Q comparison, if I understand you right.
Yes, we had a big impact of cost inflation in Q2 last year, and we have also a big impact on cost inflation this year. In that sense, it's not significantly different, otherwise, we would have mentioned it.
Okay, clear. Thanks.
Next up is Erkki Vesola from Inderes.
Hi, Håkan, Arjen. Can you hear me?
Yes. Welcome.
Yeah, just a clarification. How many gas solutions legacy projects are there still in the Marine Systems backlog? I mean, how do you see the risk of similar provisions being made in the coming quarters only to this EUR 19 million?
I would say that this particular project is rather exceptional in the portfolio business, in the business portfolio. Of course, Marine Systems, there is a lot of project in that project portfolio. In project business, you will always have some project that performs a bit better than expected, some that performs a bit worse. This particular one is an exceptional one. I would say that the rest of the portfolio is more within the, what you would expect from a normal project business.
What's this? Would you like to disclose how big this turnkey gas solution that turned out to be sour was?
No.
In your reference.
Sorry, I will not go into those details. Sorry.
It was, this turnkey project was part of this EUR 1.2 billion low margin backlog, was it not?
That, those projects were taken before, way before. You could say yes, it could be.
Mm.
Yes, you could say that.
Yes.
It's part of the inflation impacted projects. Correct.
Okay, very good. Thank you.
Next up is John Kim from Deutsche Bank.
Sorry, good morning, everybody. Wanted to chat a little bit about storage. In the statement in the quarter, you talked about customers delaying deliveries on batteries due to lithium or battery pricing. Can you give us a sense of how prevalent that is, and is that a problem that's clearing? Should we expect this on an ongoing basis, and how does that affect your, call it, profitability? Do you have take or pay clauses in these contracts? Thank you.
Basically, the mechanism here is that the raw material prices for battery cells have been coming down. We have material price indices, so it's a pass-through for us. Of course, some of our customers, they see this trend, and then, you know, some of the customers, they say, "Well, I will wait to place my order and firm it up, until I've got confident that the raw material prices have bottomed out." That the kind of mechanism. It's not impacting our profitability, because in storage, because we are covered by the indices, so to say. How prevalent is this? It's a mix, so to say. How long will it be there?
Well, I think the answer to that is what type of volatility we will see on the raw material price side, and I think that is hard to predict.
I think that's what it is, and then, of course, with the indexation, of course, if price go up, let's say, if the raw material price or costs actually go up, then let's say our price goes up, and equally, so it goes down. When it goes down, and of course, in that sense, we are secured with our margins, and I think that's critical for us. Of course, customers, at least certain customers, not all customers, but certain customers, wait for an opportunity, perhaps. If they have the time to wait, then they might wait a month and think that the price might further go down.
Okay, thank you. Next up is Sean McLoughlin from HSBC.
Good morning. Can you hear me?
Yes. Good morning.
Thank you. Again, another question around energy storage. We've seen a trend, particularly in Europe, for transmission as a service, working directly with the transmission operators rather than, let's say, a kind of a generation co-location thing with solar. I mean, is this a trend that you're seeing? Are you also aiming for this market? More broadly, where are you differentiating in the storage market? Thank you.
If I start with the second part of your question, how we differentiating on the storage market? I think the one critical element for us is the power system optimization. I mean, with the heritage we have and the knowledge we have built, I would say we are rather strong on power systems and how you manage them for lowest overall energy cost and also the best uptime reliability. We try to implement that knowledge in our software systems, which we use not only to manage the battery in itself, but also to optimize how the battery is interacting with different generating assets in the power systems. That is one factor where I think we stick out, at least when I talk to our customers.
A second one is our project execution capability in storage, because I think we have a strong track record on executing on time and under the right with the right delivery, so to say. There's been a lot of dynamics in the industry, but I think if you ask some of our core customers, they will say that Wärtsilä is reliable, and we execute in a good way. The third element where we are also sticking out is the what I talked about here earlier, I think we have a very strong track record on thermal stability.
If you look at some of the fundamentals of how we have designed our battery systems, they have an edge in how we have set up our product architecture, you could say, to cater to thermal stability and avoid fires, et cetera. I think those are some of the areas where we stick out. I mean, coming to your first part of your question, I think we will see... We are clearly on the utility side, so we are clearly on the front of the meter side.
If you look at how to provide stability in a power system that will have more and more renewables, strengthening the transmission system is definitely one way of doing it, but it's not always the easy way to do it because of right-of-way issues and permitting and cost, et cetera. I see, you know, there will be different tools to provide balancing, there will be this, you know, working with the transmission system, but there will, of course, also be the approach to working with different type of generating assets, like a thermal, like our machines, but also with battery storage. It's gonna be a palette of different solutions, and there will not be one solution fits all.
Very helpful. Thank you.
Next up is Max Yates from Morgan Stanley.
Hi. Thank you. I just wanted to ask about the services business, because obviously, you're putting in sort of very impressive service growth rates, kind of much faster than, I would say, any of the normal kind of indicators for that business would suggest. I guess what I really wanted to understand, when you talk about kind of capturing more of the companies on the service ladder, moving up the service ladder, when you talk about kind of capturing more in the installed base, kind of where are we in that journey? I guess what I'm trying to get to is, should we expect sort of outsized service growth rates to continue because you're halfway through this journey?
Would you say, kind of moving a lot of those customers up is more or less kind of done? Where are we, how do we think about future growth rates? It's clearly a lot above your kind of 5% ambition.
I would say, and you saw the figures we've been presenting. We are close to 30% coverage for both energy and Marine of our installed base, so to say, and we think there is still significant growth potential. I mean, just looking at the coverage. We have the other element, and that is moving up the service value ladder, i.e., moving customers from, you know, transactional to the first type of agreements and moving agreement customers to more advanced agreement customer, et cetera, et cetera. You know, this notion of moving up the service value ladder. We have seen, we have communicated about this before, I think we will come back to this at CMD, that there is a scaling factor.
If you take from the first step to the last step, I mean, there is a scaling factor of revenues to two to five. If you look at revenue per kilowatt, per customer, so to say. Now, of course, you will not move all the customers from step one to all the way to step four, but I think it gives you a feeling for there is, in our view, possibilities for really interesting growth going forward.
Okay. Just a very quick follow-up on the power plants business, because I guess I'm struggling a little bit with this business because there's not many businesses I look at where orders are below kind of COVID levels, and this business is one of those. I appreciate kind of the environment is challenging, but it was also very challenging in COVID, and you were generating more orders. What is really happening here? When you look at quotations, I mean, can we kind of very quickly see this business go back to above EUR 1 billion, considering we'll probably be at EUR 650 million this year? Is it just waiting for certain regions to start ordering? Is it the U.S. coming back? I mean, what's really going on here?
The numbers are incredibly low.
I mean, we have had certain countries that were very important for us actually going through COVID. If you take Indonesia, it's one of our important customers. It's not until now that they are coming out with the big tenders. There is actually ongoing tenders there. That's a very concrete example of how kind of COVID impact has lingered on for quite some time. If you look at another significant growth opportunity is the US with the balancing, because renewables is moving very fast now in the US. You have, you know, states like Texas, they are currently have 40% renewables in their energy mix. We have installed close to 1 GW of balancing power, and we see it's gonna continue to grow.
What has happened a little bit in the US, as you know, there are the different independent system operators, the ISOs, and there is queues of permitting projects in each ISO. They call about the interconnection queues, and that has also put a little bit delays. This is what we are seeing. We see a lot of interest, we see potential, and there has been certain delays. As I said before, in H2, we do see a pickup, and we intend to grow this business going forward.
Okay. That's great. Thank you very much.
We still have plenty of time for questions, and also follow-up questions are warmly welcome now.
Next up is Vivek Midha from Citi.
Thanks very much for taking my question. Could you please talk a bit about cruise as an end market? You've called out cruise as supporting the equipment order intake in Marine Power. Could you maybe elaborate on the developments you're seeing in that end market? Thank you.
If we look at the cruise industry in general, first of all, if you look long term, it has been a very resilient industry through economic downturns, actually. Even if people have had challenging personal finances, people have been cruising. Of course, COVID has been very challenging because of the COVID situation. I think that was probably the first real crisis for the cruise industry. COVID is kind of over, and people are cruising like never before. In U.S., very strong demand. Also, Europe, strong demand. Even now, cruises are coming up again in Asia, so to say.
The cruise bookings are also higher, actually, than before COVID.
Yeah, the cruise bookings are higher than in pre-COVID.
Mm-hmm.
If you look at the industry association of cruise companies, they expect a cumulative growth of, I think, 6%.
6%. Yes.
You know, through the second half of the 2020, so to say. Of course, during COVID, the capital structure of many of the cruise, big cruise operators has changed because they had to take on a lot more debt to go through the tough period. I think what they are doing now, I mean, this is a cash-rich business, so the demand is good. They will get the cash in, and they will deliver a bit. It's only after they have found the balance sheet to have the right structure that they will come back for big new orders, so to say.
I think we will start to see, order for some of the smaller mid-size cruise vessels, but for the big, it will probably be a year or two.
Yeah.
more, so to say.
Mm.
It will come back. When I talk to our cruise customers, they are, I would say, in general, very optimistic and positive about the future, because cruise as a, you know, holiday destination is has a lot of growth potential overall. That's why I'm saying when we look at order intake for vessel, for new build, it's still fairly muted, so to say. For services, it is very strong because the cruise operators are cruising, and then, I mean, we are providing them with services, so to say. Here, the cruise industry has been one of the important pioneers in this concept of moving up the service value ladder.
We often talk about the Carnival project, where we are basically providing this type of performance-based agreements to Carnival and their fleet, so to say. It benefits both parties, and I would say, Carnival gives us very positive feedback on this. To sum it up, new build cruise for us is still muted, but it will come in a couple of years. On the services side, it's right here right now, and it's very strong.
That's very helpful. Thank you. A very quick follow-up on Marine Power. You've highlighted the effect of the large order, methanol. Could you maybe quantify how large that Stena Line retrofit project was, just to get a sense of base orders versus large orders? Thank you.
Sorry, we don't give out the order values for competitive reasons, so to say, sorry about that.
Okay.
Next up is Tom Skogman from Carnegie.
Good morning.
Good morning.
Uh-
Good morning.
You have said that the ammonia and hydrogen concepts will be presented in 2023 and 2025. I would like to get an update on this and also get some kind of understanding, when can you sell, you know, larger quantities of this, you know. If you present the hydrogen concept in 25, when can you really start to sell volumes of these engines?
If we start with hydrogen, as you said, we are communicating. Sorry, if we start with ammonia, as you pointed out, we have said that we're going to have a ammonia concept this year, and for hydrogen, it's a hydrogen concept by 2025. In both of these cases, we will have the technical concept ready, and then we will see a little bit where the market is going, how fast we will evolve and how fast it will pick up. It's very hard to predict, you know, how fast this transition will go, because it is influenced by externalities like the IMO regulations, also by the evolving green market.
If I talk about ammonia, I think we will have the concept this year, and we will be looking for the first orders, probably by the end of this year or beginning of next year. You know, from that to the, you know, full commercial breakthrough and full steam ahead, it is a bit hard to predict. Because we will have the engines, we will also have interested customers, I can assure you of that, but then the rest of the ecosystem will need to follow. The ammonia needs to be available, you need to be able to bankable, et cetera, and that will take time to evolve.
For risk mitigation reasons, let's say you always start first with a pilot before you go to full release.
Yeah.
Yeah
... to give you another perspective as well, if we look at methanol. Methanol is, as you know, it's not zero carbon, it's carbon neutral, but there is a lot of movement now on methanol. We are selling methanol engines in commercial volumes. I will not disclose, for competitive reasons, the volumes, but we are clearly selling. There, we have the commercial breakthrough as we speak. I think one tidbit of information, I think if we look at the, the contract or container vessels, I think 60% of them, I mean, that has been contracted this year, will be methanol ready, so to say.
Enabled, yeah.
There it's happening. I think also, there are parties that predict, I don't know if it was IMO, that predicted that by 2030, 20% of all new orders, vessel orders, will have some kind of methanol enablement, so to say.
My understanding is that, you know, from 2026, you could sell big quantities of hydrogen, and it's not like, just like going to be trial products. I mean, you already depends on them availability, basically. Is that like the right understanding? That it's not just presenting your concept, but you're not really prepared to sell volumes.
For ammonia, I think you're right. For hydrogen, we will have the concept in 2025, to have full-fledged commercial volume, that will probably be a couple of years after. That is depending on the market and the demand side that we see.
I mean, gas turbines are also evolving, you know, and moving to hydrogen-based solutions, and the Chinese are investing a lot in fuel cells. To me, it's very hard to understand how competitive the engine solution will be in the hydrogen world compared to in the, you know, the.
I mean, I would say, we are optimistic. I would say that, because if we look at the thermal efficiency of the engine, of course, we are still evolving. If you talk about the hydrogen concept, we are still evolving, so we are still in a R&D stage. But I would say we are optimistic with the thermal efficiency and also with, as you know, the ramping capabilities of the our engines compared to the gas turbines. The fuel cells, you know, there are different technologies, there are different efficiency, thermal efficiency of those, there are different ramp capabilities. I feel strongly. I mean, we are very optimistic about the future and some of the fundamental properties of our technology, I must say.
There we, of course, we are doing a very careful technical analysis of the different, you know, options that are available.
Finally, why is it more difficult to bring out the hydrogen than the ammonia solution?
No.
Why would it take longer time?
Well, it's one thing is that we want to stage our development. If you try to do too much at the same time, you know, you will strain your whole system. That is one element. The second element is, of course, also related to how we predict the pickup will be. Because at the end of the day, we need to get to a commercial stage where we make the money back that we spend on R&D.
Okay, thank you.
Next up is Erkki Vesola from Inderes.
Hi, thanks for the follow-up. I'm still on storage. Where do you guys see yourself trending in terms of storage market share vis-à-vis Tesla influence, say, on a rolling 12-month basis?
I would say that we are currently probably around the top five players. We have a growth trajectory and growth target. I don't say that, you know, we have a specific market position target. I think we need to be big enough to be relevant for our supply chain to work with, because there is clearly a scaling effect. I don't think we have a target for which position we want to be in.
You said top five, not anymore, top three?
It depends, because if you take Eraring, almost 1 GWh , that really moves the needle. You know, it's a lumpy business, so depending on, you know, how which products you have taken, it could vary. One to three or one to five...
Okay.
It depends.
Okay, very good. Then lastly, just to make sure, are you going to book this, AUD 300+ million Australian storage project order in Q3?
No, we have already booked it now in Q2. We booked it at around-
Okay.
We booked it in Q2, and it was at around EUR 275, so it came down. Why did it come down? Because of raw material price indexation. We have booked it in Q2.
Okay.
Yep.
Very good. Thank you.
Next up is John Kim from Deutsche Bank.
Hi. I just wanted to touch on the low margin backlog again. EUR 1.3 billion, I think, was the guide at the start of the year. Is that progressing to plan, and how lumpy is that number? Can it execute in a timely fashion, i.e., smaller orders, or is it quite by forget it or signed it to one or two projects? Thanks.
it's not... it's a couple of projects. I would say maybe two handfuls of something like that. I mean, it is a, you know, a step-by-step journey. As we talked about, by Q3, we should be, we should have invoiced and recognized this, so to say.
Progressing well.
And that is pro-
Yes.
That is progressing according to plan.
Yes. Thank you.
Next up is Sean McLoughlin from HSBC.
Thanks for taking my follow-ups. I guess, firstly, what is the risk of provision on these low margin, these two handfuls of projects that you talked about?
No, I mean, there are risk provisions like, you would have in a project, a portfolio of projects, you always have risk provisions. Also.
I think he's talking about these inflation projects, right? Am I misunderstanding?
Well, I'm just wondering, the low margin-
... projects that you're delivering, the 1.2?
1.2.
Yeah, okay. Just to clarify, yeah. This, the story is that, you know, we had a certain order backlog at the end of the first quarter in 2022. This is when we, in that year, we saw a significant increase in inflation that was partially related to the war and also to the COVID situation in China. We were then having an order backlog that we had kind of taken at price levels before the inflation really took off. For some of these projects, we could not renegotiate prices with customers, so we had to eat it, so to say. That's why we call it low margin. We have now. Of course, we deliver equipment, we deliver projects, and then we kind of invoice, and we eat this out.
For this year, we said that we still had EUR 1.2 billion to invoice. We said that by Q3, we will have invoiced a clear majority of this. The low margin is not related to operational performance, it's related to that they were taken before the inflation really took off.
Understood. Thank you. If I may, just on a separate topic, in your comments, you talk about companies, shipping companies facing pressure to decarbonize, but more incentives are required to accelerate the pace of investments. I mean, what is missing in your view? What should we watch out for?
I would say that if you take a step back, and if we, if we take it like a 20,000 meter perspective, I think we need to create a level playing field between the, you know, the green solutions, the green fuels, and the fossil fuels. There is a need for a kind of carbon tax regime. That doesn't only cover Europe. I think Europe will actually go ahead, as you know, with the ETS, et cetera, but it has also been discussed on IMO level. I mean, in MEPC, there was no agreement on it, but it will need to come, so to say. Because you need to create this level playing field. Why? Because the new green fuels, they will be two to four times more costly compared to the fossil fuels.
There is the element. Now, having said that, when I talk to some of our, you know, customers on the merchant side, they say, and we've been talking about this before, that they see a small but growing market for green transport, i.e., where they have customers that are willing to pay a premium for shipping green. Because it's part of their, you know, these companies offering to us as consumers, or it could also be industrial companies. They have made their, you know, carbon emission commitments, science-based targets or others, they have made commitments to reduce their carbon footprint, then you need to go through your value chain, there is transport in the value chain. That's why we are saying there are two things happening.
First, the regulatory context needs to evolve. MEPC was a step in the right direction, but it's far from, you know, what is needed, but it's a good step in the right direction. Then we will see a market for green transport evolving. This is what is needed. I would say that right now, for instance, we talked about the methanol, you know, that we actually have a commercial breakthrough here as an industry. Many of those vessels, initially, they will be running on the traditional fossil fuels because there is not enough methanol, green methanol, to available. That will develop over the years, but owners and operators, they want to build in the flexibility for the future.
Just if you look at methanol, some data points, I think they are really, really interesting. I mean, if you look on the annual consumption of the marine industry, of heavy fuel oil, it's something like 300 million tons of fuel every year. If you want to substitute that with green methanol, you need double the amount. You need 600 million tons of green methanol. Today, there is about industrial needs for about 100 million ton of methanol. If we wanna make all methanol in the world green, you take the 600 from marine plus the 100 from industry, you need 700 million tons of methanol. Today, the green methanol production is 400,000 tons, 0.4 million tons. 700, 0.4.
We understand this will take time, but ship owners are strategic because these are long-term investments. If you buy a vessel, you build a vessel, it's gonna last for 25, 30, 40 years. Operators are already investing in this flexibility, so they are building in the methanol capabilities. Initially, it will might run on a blend, or it will run on heavy fuel, but gradually the methanol will come. This is a little bit the journey also for the other green fuels, like for ammonia. It will be a gradual shift.
Thank you all for active dialogue. Before closing the call, I would like to remind you of our upcoming IR events. On September 4, we will host an R&D call together with Juha Kytölä, and Juha has extensive knowledge about future fuels, which were discussed also today. That will be a good discussion opportunity to get more information about our solutions. On October 31, we will host, we will publish our Q3 results, and our capital markets day will be here in Helsinki on November 9. I hope that you can also enjoy the warm summer during the next few weeks. Thank you.
Thank you.