Hi all and welcome to Wärtsilä 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 two slides which are already available on our IR website. After the key messages, we have time for Q&A. When you have a question, please raise your hand functionality. If you cannot use that functionality, you can also send an email for me. Let's first start with one question per person, and after the first round, we can continue with follow-up questions. Please, Arjen, time to start.
Thank you, Hanna-Maria. Life is always more fun when the sun shines, so nice weather here. Let's start first of all with two slides. First of all, let's say about order book and portfolio. If we start with portfolio business, 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 two 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 & Waste, we expect that to be completed in Q3. 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 Wärtsilä's order book, 2026 at the start versus, let's say one 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. 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, in which we will show every quarter going forward, the distribution of our order book gets longer. Thirdly, as you can see on the 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. 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. 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. Of course, let's say it will be impacting our customers. Let's say ships might not be able to sail. 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 Wärtsilä, 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 testbeds so far, we are fine, but let's say of course, with a longer conflict, prices will go up. Also, let's say for components most likely, but we have long-term agreements with suppliers, so short-term and mid-term even, I would not be too concerned about it. Let's hope this war is soon over. It's no 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 similar level.
If we look a little bit deeper into marine, our key segments, they are doing very well. Then also if you look at, let's say, the estimated cargo by Clarksons between now and 2030 on our key segments is 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. 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 are 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 two-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 consumption is, yeah, anticipated to grow. 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 centers, actually, 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, a clear opportunity for Wärtsilä. We saw in the last six 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, and 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 Wärtsilä. What is also good, let's say now with the data center boom, is that by, you could say force, Wärtsilä 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. 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 fast now. That's good not only for the data center market and the opportunity that we have here, but also definitely for example, in balancing 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 it's clearly, let's say, low water consumption, less derating in humid and high altitudes. Yeah, really well-recognized.
Sweet spot, we have said before, is between 50 and 400 MW. That's not an exact sweet spot, but it's indicative. As you might have seen and known and remember, let's say many of the projects that we have announced 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 disrupted market. After Liberation Day with the tariffs, let's say it 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. This was another way for them to get rid of the batteries. Yeah, this whole disruptive market caused that in the first three quarters of last year, we had basically zero order intake. It was a good, let's say Q4. Let's see how Q1 ends. Let's say the market is still disrupted, so 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 Wärtsilä always has done, necessary actions if so required.
It will remain for a while an area of concern and focus. Oh, sorry, one more comment I would like to make. Decision to expand the capacity in STH, investment decision that we announced a couple of months ago, well on track. Let's say 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. We will continue with the Q&A. As a reminder, let's start with one question per analyst. If you have a question, please use raise your hand functionality, or alternatively, you can also send an email to me. First question comes from Akash Gupta. Please go ahead.
Yes. Hi. Thank you, Hanna. Hi, Arjen.
Hello.
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. When we look at this year, anything that you would like to flag on seasonality in new equipment? Thank you.
You know, I will not open that up. 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 now we book an energy order with delivery, let's say 2028, for example, or 2027. Yeah, you estimate at this point of time it will be in that quarter. Typically, when you are then at that time, being in 2027 or 2028, 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 ready yet in the state that it is, let's say good to receive basically our equipment. 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, it doesn't move out of the quarter. If it is a June delivery, it can jump to July, and then you have it in another quarter. 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 the contract with.
Thank you, Akash. Next question comes from Vivek Midha. Please go ahead.
Thank you very much for taking my questions. Good afternoon, everyone. 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. In 2022, this had 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.
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'd be really helpful. Thank you.
Yeah. I cannot answer all the questions in detail, but I'll try my best. You're fully right, Vivek, that in 2022 we got hard 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're 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. Actually also in 2022, 2023, yes, we got some cost inflation, but by far not to the extent that we saw on the other parts.
Let's say the integration business as well as, let's say, the EPC part. 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 three years out or four 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, 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.
If somebody in supply management, the category management or strategic sourcer smells that, hey, this component might, let's say in 2027 or 2028 see more cost inflation than what we normally standardly assume, immediately, let's say that's being adjusted in pricing. The lines are much shorter. 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 get clearly, let's say have a bit more attention in these days than the other components. I would say overall, so far so good.
Thank you.
Thank you. The next question comes from Sven Weier. Please go ahead.
Yeah. Thanks for taking my question. I was 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 supplier side. I mean, you seem to be in a relatively good place, but how do you make sure that your suppliers, you know, can actually deliver and don't declare force majeure or something else on you because they get into trouble?
Yeah. The best way to do that is to be in a very frequent contact with suppliers, which we are actually, let's say. 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. Yeah, that's the best way to help them. Let's say the sooner, let's say, we get to know these things, the better we can also support them.
I guess that was also an issue then four years ago, right, on the casting side?
Yeah. I think then it was also, I think, more a surprise. I think now we are also from the learnings, which is not so long ago, from 2022. I think everybody is a lot wiser in what to do and what not to do.
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 for many components in an engine, there are not so many suppliers in the world. If you take turbochargers or big, big engine block castings, it's quite limited. You need to make sure that your suppliers survive. You can squeeze them, but that's also risky. You need to find the right balance. That's part
I mean, that was basically not the issue three years ago, four years ago, that suppliers couldn't deliver and were getting into trouble.
No.
Okay. Thank you.
Thank you, Sven. Next question comes from Antti Kansanen. Please go ahead.
Yeah. Hi, guys. Thanks for taking my question. It is on the power plant demand and the Brazilian auction that we got the results last week. 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?
Yeah. Let's say, first of all, I think it was a good outcome for Wärtsilä. Of course, let's say this is towards 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 which one will negotiate how quick with us. 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.
Okay. All right. Thanks. That's all from me.
Thank you, Antti. Next question comes from Daniela Costa. Please go ahead.
Hi, good afternoon. Hope that works. I just wanted to ask a little bit more color on your 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 Asia JVs? Are they in that 75% and when you talk about capacity, or how much flexibility do you have to ramp up and down from those JVs if you need to supply to higher demand before the 2028 expansion?
Well, thank you, Daniela, for the question. Let's say the 75 is always related to STH. That's our heavy advance, and we are not considering the joint venture because we are 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.
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. 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 the smaller bore, one makes, let's say, medium and large bore. The smaller ones are definitely not used in energy, and the rest is only marine. Basically, it's marine engines for Asian market in order to, let's say, 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 JV.
Of course, you need the permission of the customer that, okay, instead of produced in Finland, it will be produced in China. Yeah, technically it's doable, but you need to plan it well in advance.
Just two things I guess on that. How relevant for your marine business is it? Are we talking it's like the majority of the business is run through the JVs? How do you own? You just book on how you book them?
No, it's a minority share of interest, so it's one line P&L impact.
They will do a full engine for you.
Yes.
What percentage or what is just, maybe if you don't give the percentage or 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 one-line consolidation. We are not doing a full consolidation of the joint venture because we have a minority share or a 50-50 joint venture, and you don't have stake. Only if you have a controlling stake, you can fully consolidate.
Maybe I'll follow up after the call with questions on that, but thank you.
All right.
Thank you. The next question comes from Johan Eliason. Please go ahead.
Hi, Arjen and Hanna. I just wanted to follow up on this capacity, but maybe the numbers were put forward there. It's a 30% expansion you foresee in STH by 2028.
35.
35. Okay. You're actually running at 75% capacity, so it's sort of 40, 45% from current levels. Would you ever run anything on 100%?
Yeah. 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 a, on an equal level, being at 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. Yeah, we try, of course, to optimize it as much as possible, but it's the customer's delivery time that basically is the most decisive item in when you produce. Unless you can produce in advance, then you can smoothen it out.
For marine engines, that's the more difficult because engines are always classified, so components that you buy, blocks, crankshafts, sorry, 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 project much easier. For energy, it's much easier to smoothen basically production volumes. For marine, sorry, it's more complicated.
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. To be honest, the exact numbers.
Good. Thank you.
Thank you, Johan. Next question comes from Tom Skogman. Please go ahead.
Yes, hello, Arjen and Hanna-Maria. 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'm just wondering 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, you know, bigger and bigger base.
Yeah, it's a good question, Tom. You know, I don't think anybody has the crystal ball where this will go. Like I said, let's say we can do one gigawatt. We can also do two gigawatt. It's just more engines. But let's say, is that the smartest solution for the customer? Let's say if you do a one 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.
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. 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." We have seen also many times like 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.
Yeah, 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 GW that were auctioned, and it's for year 2028-2031, you know. Comparing that with your orders of 2.6 GW 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 drawbacks, you know, that, you know, there's a lot of coal, hydro, and other types of power plants. Can you give just some more numbers what you have seen, how large it was for gas out of the 19 GW, 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. In that sense, I'm happy. I think we will see impact of that already in the coming months. Yeah, that's what I can say. I also believe 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.
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.
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. You have a challenge.
Can you give like, you know, you seem to have a lot of data. What is the split between engines and the turbines, you know, in the gas market there?
I don't know. 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 can also be. It's impossible to say how much of each it will eventually be.
Finally, you know, when you raised the market outlook for energy in Q4, of course, you have this strong data center market, then you have this Brazilian opportunity. Are there other markets that you also kind of referred to, you know, 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. There are clearly, let's say, more countries than just, let's say, Brazil in addition. We base our guidance on the total, of course, and data centers is a big piece. That alone, I think, would drive it already. Clearly, we see also activities in other places, and good activity.
Okay. Thank you.
Thank you, Tom. The next question comes from Akash Gupta. Please go ahead.
Yes. Hi, thank you. I have two follow-up, if I may. The first one is on a follow-up on data center. I think you announced in January, end of January, maybe early February, on this capacity expansion. I was after, have you seen any increase incoming from customers in data centers after that announcement? I appreciate you commented on six months, 50% increase in pipeline.
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. 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 good top 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 has, I think, a good piece of the market or has a good opportunity in the market. 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 increasing further than 35?
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 Wärtsilä. If we do demand guidance, if we do financial targets, we believe we can do it. 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, yeah, 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, and which we all the time do, of course, with volume planning and long-term volume planning, we'll talk again about capacity.
Second one I have is on your first slide. You said Gas Solutions and Water & Waste, both of them will be out from Q4 2026 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
No.
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? Thank you.
Thank you, Akash. Next question comes from Sven Weier. Please go ahead.
Yeah. Thank you for taking the follow-up. 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 standalone business?
It's a good question. Like I said, it's clearly an area of concern. Let's 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. We need to, 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. Near-term, I don't see it rapidly changing either. Definitely given, let's say, all the turmoil in the world actually.
Obviously, we all know that in the coming years battery storage will play a greater role also on data centers. I mean, would you say that this could be one of the niches that has higher barriers to entry or is it also more commoditized than?
Let's say 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, yeah, 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. Of course, these big data centers, nobody has one up and running yet. The data centers, okay, they never run probably 100% capacity, or at least that's our assumption. Let's say they run at 80%.
If in AI, let's say companies that use the data center do, sometimes the capacity needs to ramp up very fast. Let's say, 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. I could see a future, but now I'm talking couple of years out, but you do the millisecond response with batteries. You ramp up the engine until it's 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.
Understood. Thank you.
Thank you, Sven. Next question comes from Vivek Midha. Please go ahead.
You're muted, Vivek.
My follow-up. Can you hear me now?
Yeah. Now we can hear you. Yes.
Yes.
Okay. Thank you very much for taking the follow-up. 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., you know, in your latest conversations with customers, are you already starting to see conversations about 2029 slots? I will obviously acknowledge that, you know, you're still selling in your order intake dates, even some 2027, a lot more 2028, but are you having conversations already about 2029, 2030? How far does it go out? Thank you.
I would say any of those years, 2027, 2028, and 2029 are currently being discussed. It's also good to remind that, let's say we have still unsold slots for 2027, if I give you one example, but at the same time, we all the time make quotes. What is, again, back to, let's say, what I said earlier, if Wärtsilä makes a commitment to something, they will hold the commitment. If there is a quote out to a certain customer, typically validity time is a month, six weeks perhaps, with a delivery in 2027. During the validity of the quote, we hold your slot. If you don't decide, and meaning decide, sign a contract and put a down payment in, the slot goes to the next one in the queue. If, w ith 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. Yes, we are discussing 27 deliveries, 28, but also 29, clearly.
Thank you very much.
Now, I do not see any hands up, so we still have plenty of time. If you have a question, please use raise your hand functionality or send me an email. I do not see any questions by email either.
Yeah, there's a question online.
Yeah.
Sebastian.
Sebastian Kuenne, please go ahead. Sebastian, please go ahead.
You're muted.
Yes, you seem to be muted.
Mm-hmm.
Sebastian, you can. Yeah. Well, he dropped. Maybe 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.
Yeah.
Yeah. Now the same number. Okay, I cannot see the name of the caller. Yeah, dropped once again. Seems like they're difficult to join.
Johan has also.
Yeah. Johan. Johan Eliason, please go ahead.
Yeah. I was just curious following up on the visit last Friday to this cruise ship. They said basically the shipyards for cruises are sold out to 2035. How far does your order backlog in that segment stretch?
Not to 2035. That I'm pretty sure of. 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 even be surprised if we are beyond 2030 already.
Okay. The reason is partly that, I mean, if something's going to be delivered by 2035, I guess there's a lot of technology development that has happened, I suppose, so.
That has always been a consideration, yes. So.
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.
Mm-hmm.
But another.
Most likely, but yeah.
Yeah, absolutely. One of the interesting conclusions, 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 any other segments on the alternative fuels that you are making your engines ready for?
Yeah. Let's say methanol, as you know, has been quite hot in containers, so then I would link that to mostly containers. For ammonia, let's say we are just out with a pilot on a retrofit opportunity and a pilot on the Eidesvik, and then a pilot on a newbuild vessel which is Karf, 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 see then 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.
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. Yeah, it's a good start. I'm very happy with, let's say, these two projects, both one on the retrofit and one on the new build side. There is clearly interest, mainly so far, I would say, from Norway, Singapore, Japan when it comes to ammonia. Yeah, let's see how it goes. This will not be, let's say, a ramp-up like scrubbers in the past. It will be a long-term thing.
Okay. Good. Then I'm not fully on top of what's happening with Everlance. Is their divestment still ongoing and or 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 the rumors in the market that Volkswagen still wants to have a quite big ownership share. Then, of course, you have also the price indications that float around, which I think is too high for Wärtsilä. Yeah, let's see how it goes. I'm not hopeful, let's put it that way.
Okay. Thank you.
Next question comes from Tom Skogman. Please go ahead.
Yes. I would just like to ask a bit about, you know, timing of deliveries. I know, I've listened to your comment, and I realize it's a sensitive subject, but now that 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. I just wish you could. I mean, will it be like, you know, 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, you know, be a really big miss or a massive beat or so?
Yeah. Let's say historically, I would say Q1 has always been one of the lowest, and Q4 has always been one of the highest. Then let's say in between, it fluctuates quite much. 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. Yeah, Q1. On the service side, Q4 is also typically high in Q4.
If you take the Coastal Navy, et cetera, their budgets, they probably won't have a cut in the next year. Let's use the budget, otherwise we get a cut next year. I don't know if that's the reasoning, but that's an assumption. 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. Q1 lowest, Q4 highest. That's what I think will stay. In between, it's difficult to say.
I guess then the order book is up so much, you could make a case that.
Exactly.
Y ou have a better workload, you know, throughout the year to be able to deliver. You have this, you know, moving from Percentage of Completion to equipment deliveries as well.
Yes, correct. Of course, let's say the more equipment deliveries it is, the more sensitive it is to, for example, changes in the quarter. Because let's say if you have something planned for June, and on customer request, it moves 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, Wärtsilä? Yes, it's possible in this case. Yes, then we do, then we facilitate. It can go both ways, yeah.
How is it when 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?
Yes.
Is it 100% delivery then?
Yes. Most of the time it is, yes.
What about the fixed overhead, the SG&A cost? Are they also booked then when revenue is recognized, or is you know things be below the gross profit, basically, you know
No.
Stable, so?
No. It's only the part above the gross margin. Yeah.
Exactly. There is a margin hit on the EBIT level then from this basically.
Correct.
All right. Thank you.
Thank you, Tom. I have received a couple of questions by email. Could you update us on the business and tenders with naval vessels?
Yeah. It's a good question. I would say there is more activity, but, let's say to conclude, let's say basically from the, let's say an increased budget by a certain government, let's spend more on navy, you need to go through, let's say, what kind of vessels do we need. That requires also, let's say, time. You need to get on the makers list. 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 would you update us on the situation with MAN, meaning Everlance ?
Yeah.
Is there any talks with Volkswagen these days?
Sorry, with?
Volkswagen.
No. I mean, this is the only one that we are, or 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, and I think with these conditions, I don't think it will end in Wärtsilä.
Mm-hmm. Thank you. Sven Weier has a question. Please go ahead, Sven.
Yeah. Final one from me. Thank you. 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, you know, 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 of how these projects are financed or?
No. Sometimes we know, but let's say the details we often don't know. At least not to my knowledge. 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. We want, let's say, bank guarantees, LCs, let's say, trade finance instruments, which when delivery is done and yeah some don't want to open it. That's fine for me as well. It's cash in front. 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% in commissioning, but the rest should be in the bank. Yeah. I don't wanna run any risk on financing. Definitely
Yeah, because that's.
Definitely not when the transfer of title has happened.
Yeah, it's because it's a bit opaque, right? As an aftermath of the current war, of course, there might be some new priorities on how to spend the cash.
The good thing is that in energy, if something happens, okay, first of all, we have a big down payment. Typically, also in the time of the financial crisis, we could keep many of these down payments. The engines in energy, they are quite common. They're 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 DNV, Lloyd's or whatever. 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.
Yeah. I remember even after the financial crisis, there was some flexibility between marine and energy to a certain point. Percentage of Completion of the engine, right?
Correct.
Okay. Thank you.
Thank you, Sven. We have received quite detailed question. Is Arjen willing to comment on pricing on Brazilian EPC orders versus U.S. data center orders? I think this.
No.
This is a little bit too specific question.
No. I will not answer that one.
Thank you. Thank you for the question anyhow. It looks like that there are no further questions. I will give one minute, and then we need to maybe close the call. Still seven minutes to go. It seems like that there are no further questions, so thank you for being. Oh, Uma Samlin.
Yeah.
Uma, please go ahead.
You're muted.
Uma, please go ahead. You are muted.
Now, can you hear me?
Yes.
Yes.
We can hear you.
Okay, perfect. Just one question for me. I guess, you know, 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, you know, can you help us to sort of what was the impact back in 2022, 2023? 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. Yeah. So far, no impact on the running course.
Okay, great. Thank you. That's all.
Thank you, Uma. I think now we are ready. I do not see any additional questions, so Q&A report will be published on April 28. Thank you for activity, and thank you, Arjen Berends, for good answers.
Thank you very much.
Thank you.
Have a nice day.
Bye.
Thank you.