Hi, everyone, and welcome to Wärtsilä's Q3 Pre-silent call. My name is Hanna-Maria Heikkinen, and I'm in charge of investor relations. We announce today the closing of the transaction of our joint venture for our global Energy Storage business. Our CFO, Arjen Berends, will show a couple of slides and discuss the financial impact of the transaction on a more detailed level. Slides have already been published on our IR website, and my colleague Nora will share the slides on the chat. After Arjen's key messages, there is a possibility to ask questions. Arjen, please.
Yes. If somebody can bring up the slides. Like Hanna-Maria said, it was good to get the closing of the joint venture now finally done. A little bit delayed than what we originally thought, but anyhow, still good. Not in Q3 as we originally were planning for, but just in Q4. It is, as you know, 50/50 joint venture between us and RCT Solutions. We earlier stated that, the impact of Wärtsilä 2026 operating result would be approximately EUR 40 million -EUR 50 million. With the knowledge of today, of course, balance sheet, et cetera, needs still to be concluded and completely finalized, but it will be less than that, and that is actually shown in the bottom of this page. Also good to highlight that the joint venture or this energy storage result lands in different places throughout the year.
So when we announced this joint venture to be set up, basically at that moment of time, the whole result, you could say, moved to discontinued operations in the P&L, so out of the operating result as such. Now when the joint venture goes live, actually it comes back. So share of result in associated companies is part of operating result as also our Chinese joint ventures are.
So in Q4, we will see still a result, call it operating result, from the joint venture in our books. As you can see in the bottom of this page on the right side, that is estimated to be EUR 10 million -EUR 15 million. And the part before that, which is all discontinued operations, that includes the result of the transaction itself, latest best estimate is basically EUR 10 million -EUR 20 million negative. That's what we are looking at today.
I don't expect that the numbers will materially change outside this range. So in your modeling, I hope this is helpful as well. Good to also mention, if we go to the next page, that next year, again, the joint venture will move out of operating result again, because IFRS 18 will come into force, which basically means the joint venture result is not part of operating result, but a result from investing activities. In addition, also IFRS 18 has impact to hedging cost that will actually move from financial items to operating result in the future. So there are different changes. I would say those are the two main ones, cost of hedging as well as share of result in associated companies. But good to remind that actually also next year, coming back to this joint venture, the result will not be part of operating results.
Keep that in mind. Looking at all other developments now in Q3, I would say business is developing nicely. You saw some announcement already. Australia, largest ever engine power plant, that I think was yesterday, if I remember right, or it was the day before. Time flies. Also, good announcement working with Tokyo Gas on developing data centers in Japan. No concrete orders yet, but this is just a good sign of also activity starting in Japan as well on data centers, and we are working with the most influential partner, I would almost say. Looking at Marine, Clarkson did an update of their forecast compared to their March forecast. They typically do that twice a year, September and March. In general, I would say the forecast is up from previous forecast.
Newbuild market, says actually Clarkson's own words, is exceptionally busy and in good potential for container ships, tankers, bulkers, car carriers, gas carriers, while the other segments that are key for us, like cruise and ferry, stays rather stable on a good level. I would say all in all, positive news actually from the Clarkson update as well. What else to highlight from that update? I would say order book of shipbuilding is actually 22% of the fleet capacity, so pretty much is now in the pipeline for newbuild. Also, Clarkson updated their scenarios and their base case scenario, which they believe is most realistic, is anticipating 2,500 vessel contracts per year, actually, which is a quite higher level than what we have seen over the past decade, I would say, on average. So very good development as well.
On the regulatory framework, the fragmentation as we discussed earlier, let's say continues. Instead of having a global carbon pricing mechanism, vote positively last year, autumn, customers need to deal with patchwork of regulation. EU ETS is already applicable. U.K., also, ETS has its own ETS, which entered into force now in July. Turkey, ETS pilot is expected to launch also still within this year. China has, let's say, launched an own scheme as well. So, it's not so easy for customers. And, let's say that also requires more and more, let's say, that they come to us actually for advice, let's say what to do now and what to do next.
As Roger Holm, our Head of M arine, many times said that, if you go too fast, then decarbonization is not good for you. If you go too slow, it's not good for you either. You need to find the right pace, and you need to work with partners like Wärtsilä that can advise you on what to do now and later, while still, let's say, moving forward in fuel efficiency and decarbonization. From a market perspective, I would say all good and looking positive. That's where I want to stop and open up for questions.
Thanks, Arjen. It seems that Hanna-Maria dropped out of the call due to network issues, so I will lead the Q and A. It seems that we have quite a number of questions already, and the first one will come from Daniela Costa. Please go ahead.
Hi. Good afternoon. Thank you for taking my call. I will ask two things. First, just wanted to see how is your thinking around Trump order, banning potentially bulk power system imports into the U.S. Would that impact you in any sense? Do you have a way to circumvent that? Any clarity on that, I think we lack a lot of details on our side. Then the second one, just interested on the big Google announcements in Finland. How is your exposure potentially over there? What is the landscape of opportunity perhaps for orders for you from that? Those are my questions. Thank you.
On the first one, let's say, with Trump, you never know. Let's say what it will exactly look like, I think nobody really knows. So far, we do not see any, let's say, break on queries coming from the U.S. But of course, anything can happen. You never know, let's say the rules of engagement, as he put it, they can change rapidly. But so far we are not concerned, and I think it will also be a very big challenge, let's say if import would be stopped for whatever reason, because I think a lot of developments which are positive to the U.S. cannot continue. So I think there is also internal, or I would assume there is internal pressure also to, let's say, keep going, because there is a shortage of power equipment. Then on your second question, Google and Finland.
I think the Finland network and also supply of energy is quite good. I do not think, let's say they will immediately go for, let's say, offsite power generation. I think there is good level of, let's say many power sources being it renewable but also nuclear. Let's say they recently installed a new nuclear plant not so long ago. So I do not see, let's say, that being a huge opportunity. But yeah, you never know. Depends also a bit where they want to put it in the future development.
Just a follow-up on the first part. If that order comes to fruition, would you consider maybe moving your capacity expansion to the U.S.? Would you even have the possibility to do so, or how much time would it take you to adapt if that order would become implemented?
I think there are too many question marks around this, Daniela. I do not know. Let's say, I do not think we will put up production in the U.S. Let's say simply because it will not help us. Let's say our supply chain is outside U.S. You still need to import a lot of stuff. Can it be done? Yes, I think we can if we want. Can it be done fast? I think that is a challenge. Let's say we are at the same time, let's say, ramping up capacity, and we have sold already pretty much, let's say the capacity, okay, we are approaching, let's say end of 2029 already.
That is not stopped. Let's say I do not think they can stop those contracts or at least that will not happen, or at least that is our estimate of it. But again, with Trump you never know. So yeah, strange can-
Got it.
can happen, but let's say we have seen it before, and we have also seen many times that things are reversed then later on, and very quickly later on when they realize, okay, this is an adverse effect.
Okay. Thank you very much.
Thanks, Daniela. The next question, Nikita, please go ahead.
Thank you very much, Samu. Good afternoon, everybody. Thanks for the opportunity. I have three questions, if I may, and maybe going one at a time, if that's all right. The first is, following up on your announcement this morning around the collaboration with Schneider Electric and Stanley Consultants. I noted the comments around a faster approach to time to power. Could you maybe elaborate how much adoption you expect of this particular solution of approach, and how much of a potential reduction in timelines can this offer? Thank you.
I think it's a bit too early, to be honest. If we just announced a joint effort to start it, basically. What can we do together? One plus one is actually more than three. That's actually the idea behind it. How can we combine knowledge of process optimization, system optimization, et cetera, together in order to accelerate? In detail, that still needs to be worked out. We now have launched this. Now the knowledgeable people need to sit together and work it out. So it's a bit too early to answer to that.
Understood. My second question is on the quarter and after the second half in general. You have had quite a bit of ups and downs when it comes to the working capital. In the first half, you had some outflows in the first quarter and very strong second quarter. Are there any things to bear in mind about the phasing of cash flow and working capital as we go into the second half?
No. At least not to me. Of course, the biggest swings actually come with the advances received and the payments from customers. Okay, the payments on fixed terms and delivery terms, et cetera, that is pretty well-known. But what you do not know is will you get an order now or next week or the next month or the next quarter, and the advance payments that relate to it. I think that is typically the swing. I am not concerned about cash flow at all, frankly speaking. I think it will also be strong cash flow in the second half. I am pretty convinced about it. Of course, it links very much to order intake.
Understood. My final question is around the Capital Markets Day. As we think about the potential new targets or revisions to targets, more of a theoretical question that last time you gave us a margin target, which was just general midterm margin. Now you have a lot more visibility with the growth in the backlog. Should we expect that you will be guiding for margins, for example, by a given year, given that you have more visibility over the next few years? Or would it be still a more general approach? Thank you.
I will not comment on that. I will leave that. You need to be patient for-
Okay
one month and a little bit more. At Capital Markets Day, we will come back to this.
Understood. Thank you.
Thanks, Vivek. The next questions come from Sven Weier. Please go ahead.
Yeah. Thanks, Samu, and hi, Arjen. First question is regarding data center orders. You announced one for the third quarter, but Håkan was pretty upbeat about demand from data centers in general. Should we assume that this was the only one, or did you have other ones that you just were not allowed to announce yet? That's the first one.
Yeah. Good question. Let me answer by saying that I am convinced we will get more orders. Will we all be able to book it? Because we only book it when the down payment is in the bank. That is for us order intake moment. That I am not sure. Pipeline is good and signing also moves well forward.
Good. We will see then, I guess. The second question is just on Marine Services. Was just wondering if you could add anything to what Håkan said in the strategy call that there has been some slowness on the back of higher fuel prices and container ships running at full steam. Is there anything you want to add from your side on this?
No, I think that is pretty much the story. There are many different reasons for a bit of a challenge on our end. First of all, rates are very good. Do you go in for maintenance while the rates are high, or do you wait until the rates are lower and then go in for maintenance? There is postponement being applied by many. Of course, you cannot forever postpone, so certain critical things need to be done, otherwise you destroy the equipment.
There is also for certain customers, it depends a bit by segment. Some rates are high and some rates are not so high that they need the money actually for the high price of the fuel. The fuel is extremely high also for shipping companies. You can spend the euro or the dollar only once, so you need to make choices. Again, here, I would say it is a temporary blip because at some point of time you need to go in for maintenance. You cannot postpone this too long. At the moment, we face that a bit. Yes, that is correct.
Would you say the dynamic is the same as we had it in Q2, so no worsening of this or-
No
any change?
No, I would not say it is worsening. I think it is pretty much similar.
It is just affecting the spare part bit of the service revenues or also the entire service overall?
No, I would say mainly the spare parts, but of course, you have also a piece of overshoot to the field service, for example. Spare parts when they need to be mounted or used, it often also requires field service engineers. So also somewhat to the field service, but field service in general is quite busy actually because these resources are also used in agreements, for example, and also in retrofits.
Understood. Thank you, Arjen.
Thank you, Sven. Next up, we have Uma Samlin. Please go ahead.
Hi, good afternoon. Thank you very much for taking my question. First is a follow-up that you mentioned that your orders are now approaching the end of 2029. The recent order you have announced was, if I remember correctly, early 2029. Can we assume then that there has been more orders after that, or is there any reason that you
No, let's say it's filling up, I would say, towards the end of 2029. If I look at 2029, either it's booked, so the slot is gone, or it is commitments in outstanding quotes. Then, of course, it's back to what we have also been communicating earlier. If customers don't decide within a certain period of time, their slot is gone and it will go to somebody else. But it's pretty much committed for the whole of 2029 already. Then it can still be that, let's say, if somebody doesn't take it, then there is room for somebody else. But if you're a totally new customer and you would like to, let's say, have engines today, you end up in 2030 pretty much already.
Yeah. That's super clear. My next one is that would you be able to give us a bit more insight on the orders you booked that you announced both in Australia and Japan this quarter? How should we think about that if you compare the contract terms versus the normal or the previous data center orders? Is there any sort of shift in your thinking to more shifting towards other geographies or other customers, or how should we think about the probabilities of these orders versus the U.S. data center ones?
In general, let's say all margins go up because all prices go up. There is more demand than supply, and it's, of course, let's say, what everybody's doing, and we should be stupid if we won't do that. So it's not just for data centers that price is up. I think it's all across the board, basically. I'm very happy, actually, frankly speaking, with, let's say, there's diversification geographically, but also diversification between, let's say, balancing power and data centers and let's say traditional baseload power. We don't want to put all our eggs in one basket, being data centers. That might be a warm feeling shortly, but over time, I think it's not the best for Wärtsilä, and we think long term here.
Yeah. Super clear. Thank you very much.
Thank you. Next up we have Akash Gupta. Please go ahead.
Hi, Arjen.
Hello.
Maybe first one is on Energy Storage business joint venture. I think you are now guiding for EUR 20 million-EUR 35 million total impact from EUR 40 million-EUR 50 million. Maybe if you can talk about what has changed in that calculation, fundamentally, or was it just like you were too cautious in the initial guidance? So that's first one.
No, I think it has a lot to do with, let's say the fixed. I will not open it up to detail, but let's say the fixed transaction price versus the change in the balance sheet. I think that's the main driver.
Okay. Then maybe secondly, when you talk about capacity, I think you talked about 2019. When you look at the slots, they are either booked or in outstanding commitment. But when we look at 2027, 2028, are there still any slots that is still in outstanding commitments, or all of the slots in 2027, 2028 are booked?
I would say, to be very honest with you, let's say we hardly talk about slots 2028 anymore. So out of my head, I would say yes, they are booked. If they are all, let's say, firm in the order book already, I am not sure. There might be still, let's say, some pending down payment. As I said, we only book it when down payment is received. But let's say when we also in the board of management talk about, let's say, slots, we hardly talk about 2028 anymore. It is all about 2029 and beyond.
Okay.
I would say pretty much, let's say, booked and committed. Yeah.
Yeah. Then maybe if I ask another follow-up. I think a lot of people looked into average selling prices of your Korean competitor in four-stroke medium-speed engine, that got some couple of orders, data center orders in the U.S. with your ASP, and it looks like there is a quite sizable difference. Maybe just from a technical standpoint, when we compare your product offering and scope of your portfolio compared to theirs, is there anything that worth highlighting? So maybe when we look at this number, we are not comparing apple to oranges.
I'm 100% convinced that this is apples and bananas. Even within our own orders, let's say it's apples and bananas to compare. If you just deliver the engines and the whole, let's say, generator, fuel handling equipment, filtering equipment, cooling equipment, whatever is done by somebody else compared to, let's say, also doing that. Let's say we deliver equipment, so we are not doing EPC. But let's say the equipment size can be so different. I cannot talk about, let's say, the specific contracts because customers don't allow us to talk about it. But we have two exactly the same megawatt orders in our order book, but the price difference is almost double, and the only reason is scope, nothing else.
I'm pretty sure that, let's say, when you compare our average to, let's say, what now HiMSEN has taken, I don't think you can compare it. That's also why we have said earlier, let's say this EUR per kilowatt is not a good KPI. I understand it's the best you have and yeah, that's what it is. That's also why in Q2 we said, okay, our order book is 500 basis points up, basically. Just to help you. But scope is a big impact item on euro per kilowatt.
I think the bigger question is more the competitiveness, because you are doing everything in Europe with European supply chain, and they are doing it in Korea. Do they have any advantage when it comes to unit cost? Because when we look at their expansion that announced last month, it is way more significant than what you are doing.
I don't know. I don't know their supply chain in detail, but I am pretty sure they have quite similar suppliers, at least for critical components, than we have, because there are not so many players in the world that can do it. Will they get better prices? I doubt it. It's difficult to say. You probably should ask them. But I can only say that I think we are absolutely much more experienced in power equipment and delivering power plants. I don't think HiMSEN has any experience. Now, what we see happening in the market is that because of the shortage of power equipment, many customers go with players that have never done this before. Somehow, I have a deja vu of the scrubber times, that when scrubbers boosted some years ago. We were there, Alfa Laval were there.
We had two or three big players, among us being one of them. Then you had a whole slew of big parties that also delivered scrubbers, lifting on the momentum because there was shortage. Now, what we have seen afterwards with scrubbers is that customers come to us and say, "Okay, I bought a scrubber from this company. Can you help us? Because it doesn't work." I don't want to say this is a one-to-one translation, but there are now many customers going with parties that have never done this before on very critical equipment, which needs a high uptime. Let's see what happens in the future.
But I think many will be disappointed also, because one thing is to sell it, the other thing is to execute and deliver. There you can go really, really wrong. I'm not saying that it will happen to them, but the experience that we have versus what others have, especially the ones that have never done deliveries to power plants, is way different. I can tell you that also we in the past made mistakes, and you learn from your mistakes. But we are very mature. We are doing this for decades already.
Yeah. Maybe if I ask-
I don't think HiMSEN has delivered many power plants, actually. They are very good in marine. In particular, auxiliary engines.
Thank you, Arjen. If I may ask a final one. I think when you look at your marine business, I think historically marine has a bit higher lead times than energy. But now things are turning other way around because you have good visibility for 2029 already in energy, but I don't think you will have same in marine. Do you see any pressure among your customers to bring forward their orders, because otherwise there may be a risk that you might allocate that capacity to more profitable energy orders? Maybe if you can also comment on the pricing that you're seeing on the marine side compared to energy side. Thank you.
I would say in marine, we see also lengthening order books. If you follow our order book statistics a bit over time, you can see that the order books also in marine get longer and longer, actually. Yard order books are on a record long, so it's 4.3 years now, the latest number I hear. Also for yards, they also more and more want to lock their costs. If you want to lock the cost with Wärtsilä, even if the ship is only due for delivery four years from now, you need to place the order with Wärtsilä and put a down payment in. So what we see more happening is also earlier orders, which also means lengthening order books in marine. Are we sacrificing marine slots over energy slots? No. Of course, we can. Our factory is very flexible. But you need to plan it well in advance.
We also want to maintain our reliable reputation in marine. Then on your question, are the prices going up in marine as well? Yeah, I think they are also going up, but it's a very, very different dynamic, and it's by far not similar to energy. In energy, basically the product that you sell goes to the same party that typically operates the plant. So the benefits or the intrinsic benefits of your solution, let's say fuel efficiency, water consumption, what have you, comes straight to that party. You can also then link the life cycle agreement better to it. We can even operate the whole plant for you if you want to.
While in marine, you deal with operators and ship owners that need to convince yards to say, "Okay, I want Wärtsilä equipment in because that's the best total cost of ownership for me." So the dynamic is very different, and the shipyards are typically very cost-conscious, so they want to have the biggest margin in between. So they are tempted to, let's say, squeeze you more on price because they don't care about all this fuel consumption.
For them, it's just the price. So we want to make the owners say to the yard that this is the equipment I want. The rest of the ship, you can do whatever you want, but the mission-critical propulsion equipment, let's say engine and whatever, that pushes the ship forward, that needs to be Wärtsilä. That is a bit more challenging to raise prices. But overall, I would say also in Marine, we see improved pricing.
Thank you, Arjen.
Thank you, Akash. Next up we have Antti Kansanen. Please go ahead.
Hi, Samu and Arjen. Thanks for taking my questions. I have three, so I will take them one by one, and I will start with the shortest one, which is on the Energy Storage joint venture. Do you want to say anything on the impact to net cash position
No
from this transaction?
No.
Okay.
That is a quick one indeed.
Okay. No need to try to dig in deeper on, I guess, advanced payments.
I will not tell you.
Okay. Nice and easy. The second question is related to estimating your energy equipment revenues in 2027, and you provide the backlog split between this year, next year and beyond. If I look at the EUR 1.7 billion-EUR 1.8 billion that you have for next year, if I try to calculate the service portion of it, should I just take a sort of annual service agreement revenues out of it? Is there something else on the aftermarket side that you already have on backlog for next year's deliveries?
The order book for next year, what we show as an order book for next year and the years after, includes also the lifecycle agreement part. Typically what you have in the order book is the new build and the lifecycle agreement part. To a certain extent, especially when you approach the year-end more and more, you have also the transactional part coming in, as well as the, call it the overhaul and retrofit projects. They are a bit like new build, but shorter time in between typically. If you want to estimate, let's say next year, I would say take the order book for next year and compare it to what has the change been compared to the same situation one year ago, and see how much service came in in addition. I think you get pretty close.
But if I understand correctly, you include the expected two years agreement revenues in the order book.
That's why I said so in the next two years, that portion of the order book of that is included. Yes.
Yeah. But I could also look at the agreement orders and revenues you've had, let's say on a quarterly basis and think about
Ballpark, you could get it there. Yeah.
Okay. Cool. Because I was just thinking that your production capacity obviously doesn't grow going into next year, but revenue recognition is another thing. So would you expect next year to have much more kind of power plant startups versus this year, which would then mean that there's an increase on the revenue portion of it?
Let's say we are aiming for continuous annual growth, so I would aim for that, definitely.
Okay. The last question was on something that we discussed on the mid-quarter call with Håkan regarding the Brazilian capacity auction, and he mentioned that no more orders expected from that, largely because the Brazilians weren't fast enough to reserve slots. I'm just interested in who was able to deliver faster than you, because the whole industry experiencing the same trend. Maybe more broadly, if you look at capacity auctions in the future and let's say your traditional baseload utility clients, what are their planning timelines? Is it the fact that you are selling the 29 quite quickly? Will that be an issue in this type of a traditional energy business?
Let's say for us, first of all, on the Brazil case, there were many parties offering with our equipment without having even aligned it with us on the delivery times that were required. If you then win, and you have not aligned it with Wärtsilä, and we have not, in this buoyant market, made a slot commitment or a slot reservation for you, there is nothing. Where they then eventually get their power from, yeah, let's see. You need to ask them. But let's say for the ones that we have firm commitment, alignment as well, we have booked these orders.
We had even more than that. But let's say if they are then consequently not fast enough in their decision-making, well, there is more demand than supply, and we are not going to wait for a year or a half a year while the data center market is booming and we have good opportunity. I think they understand that as well. Where are they now eventually getting their equipment from? Yeah, I hear HiMSEN, I hear China, I hear many different things. But yeah, that you should actually ask them. It's not coming from us at least.
And in general, the long delivery times in the industry.
Of course, that's more and more a challenge, let's say. And I think more and more customers realize that speed is of essence. If you're not fast enough in this whole tendering and, or even outside tendering, in your decision-making in general, when you need power equipment, you might be left outside and not having anything. So that awareness is absolutely increasing, and we see it more and more. Decisions are coming very fast. But that's also why we have said many times that our pipeline is very volatile. Things come in and out very fast.
Also because our validity time of quoting is not so long. Let's say six, eight weeks, perhaps that we will hold. Sometimes a little bit more, depends if it's a very strategic customer for us also in the long term. But let's say if you're not making a decision in that horizon, then slot is gone. You're at the end of the queue, and as I said earlier, if you're now a totally new customer with a new demand requirement, you probably end up in 2030.
Yeah. I was just thinking, how do you look at this cycle? The data center clients is one thing. They have the time to power is very critical, and they might order just based on delivery times. But if you look at those traditional energy clients, are they making suboptimal decisions? Is this a super cycle where anybody who has free capacity will just fill the slot, or are those guys willing to wait the extra year, extra year and a half, so that they would get the exact setup that they actually want to achieve in that? How do you think about it?
I think it's not one-size-fits-all answer. Of course, it varies a lot by region and what is the circumstance in particular parts of the world. I think there are many customers that need. Also because, let's say renewable is still the biggest capacity expansion on an annual basis. They are intermittent, so you need balancing power. It's not just data centers that is, as you say, the sooner the better. That's basically the mantra there. But let's say also on the other side, with more and more renewables coming in, with coal being switched off, you need balancing power. Let's say if you don't have the balancing power, you also face trouble, basically. I think the urgency or the understanding of the urgency is quite high among many customers.
Okay. Just because the first question was so short, I'll squeeze in a fourth one, which is on the service agreements and the aftermarket potential, let's say, on this big backlog that you have built and shipping out. When should we expect theoretically announcements from, let's say, data center service agreements, or in general, how does it work? Is it at the delivery? Is it after the warranty periods? When is usually the time when you will get those? What do you expect to be the conversion ratio on? Because we know that you've moved up on the agreement coverage on your installed base. What has been the incremental conversion on new orders in recent years?
Currently, let's say the conversion rates or let's call it the attachment rate on, let's say, new orders getting eventually a service agreement on it as well, I would say it's 80% +.
Okay.
As we move along. Of course, it's always a timing issue. I think on the big backlog that we have now had, I think the scoring will not be very different on that one, including data centers. I think we will get orders there. Nothing booked so far. I think Håkan mentioned the same. But I'm very positive that we will get something reasonably soon.
Okay. Just I want to clarify, the 80% is for the agreement and the 20% will then be transactional parts. Otherwise, they lose the-
Yeah. Let's say then they don't want to have an agreement with us, that is fine. But then, let's say typically they buy spare parts or field service whenever needed. Yeah.
Okay. Thank you. Thanks a lot.
Thank you, Antti. Next up, Mikael Vehkaoja. Please go ahead.
Hi, and thanks, Arjen and Samu, for taking questions. You touched briefly the balancing power question. Like you say, all in all, energy consumption, speed is of essence. I was thinking about the situation here in Finland. Big data centers are coming, and there is a big increase demand, which leads us to this question of balancing power. Do you want to tell us anything about Wärtsilä's plans? How do you think you could position yourself in the energy mix for the balancing power? Are there any negotiations there?
Yeah.
How do you see the big picture playing out?
I would say long term, the major growth is probably coming from there. Balancing power, we have the best solution for balancing power. We have fast start stop times. The intermittency needs something else. Turbines cannot do what we can do. From start stop times point of view, for derating in high altitude or humid conditions. Water consumption, it's almost zero. So I think we have a lot of intrinsic features in our equipment that clearly makes us stand out in balancing power. And if you follow our announcements and also, what we publish on quarterly basis, you can see how much balancing power we sell. So yes, clearly an opportunity for us. I would say if you look at the buckets in energy, call it, okay, basically three buckets. Traditional base loads.
Here you need to think about Africa, South America, microgrids in the Caribbean island grids, mining, industrials, et cetera. I would say that's a pretty stable market. It has been stable for quite some time already. And we take a fair share of that. Then you have the balancing power, which is really for intermittency of renewable energy, and that's a growing market. And then on top of that, you have the data centers, which is really growing at the moment. I believe it will last a long time, but there are many opinions about that. At least we don't see any slowdown there as well. So these are the buckets and, I would say definitely data centers and balancing power are the main growth opportunities.
And if you think about the balancing power and the CO2 emissions, what kind of impact would that have? It's still there running with fossil fuels.
That's, of course, the choice of the operator. Our engine can run on biofuels as well, if you have biofuels available. We can run on ammonia. If ammonia is available. We can even run on hydrogen if hydrogen is available. So that's the choice, the operator needs to make. And that's also what we said when we, several years ago, defined our new strategy. It's around decarbonization and moving up the service value ladder from a commercial perspective.
And that's also why we consciously at that time said, "Okay, it starts with us." If we cannot show that these new fuels can run in our engines, nobody will invest in fuel scaling, or nobody will invest in bunkering facilities in ports for those fuels. So it starts with us. So we have spent much more R&D in the recent years to really make that happen. Today, we can say that any fuel, we have engines available for that, even hydrogen. They can run on hydrogen.
Yeah, I'm totally aware of that. But the reality, I suppose, is that not that many machines in the present time run with those new-
Oh
fuel solutions. I mean like the present situation, what's the CO2 emission like with the fossil fuels that most of these engines run with?
Most of the engines run on LNG today.
Yeah. But all in all, when they're used in the balancing power, still they are just a part of the solution. I guess in the total mix, the realism is still pretty good compared to coal, for example.
Yeah. Absolutely. Many countries are switching off coal. As an alternative, it's absolutely the best solution available in the market right now.
So where is the limit with these machines? How much can you produce this balancing power? You are talking about shortages in supply, and you say that the demand is through the roof everywhere. So how far can you go there? Because the demand is enormous.
Yeah. That is also why we announced, let us say, two capacity expansions earlier this year. We can say, okay, we want to triple the capacity, but we need to be realistic. When we say, okay, we expand our capacity, we also believe that we can do that. It is not per se our own bottleneck, our own facility that is the bottleneck. Let us say, can the supply chain keep up with you? When I say supply chain, it is hundreds of suppliers. Because if one part is missing, you still don't have an extra engine. So to make sure that the supply chain can follow, that is the critical part. Yes, the demand is high. But let us say if supply chain cannot follow, you cannot expand.
Yep.
Thanks, Mikael. At the moment, we don't have any questions in the queue. As a reminder, if you want to ask a question, you can use the raise your hand functionality or send me an email at samu.heikkila@wartsila.com. Yeah, follow-up from Antti. Please go ahead.
Yeah. Just follow up on kind of my previous question on the expected deliveries next year, Arjen. When you said compared to the situation year prior, just remind me, were you already a year ago sold out for this year? I mean, I'm just thinking that you can't add to your equipment order book anymore on the second half. I suspect that last year you were still able to.
That is a good question. I think it was a little bit less, out of my head now.
Okay.
I have so many numbers in my head, Antti, that I am not exactly sure about this one, but I think it was a little bit less.
Yeah. Okay. The thinking is that the backlog for next year, second half, you will add spare parts, you will add retrofits, things like that, but kind of the agreement and equipment part is already kind of there.
If you think field service and spare parts, typically the order book is, I would say, three months forward.
Yeah.
Then you can still have in that three months, let's say, in for out parts, but let's say that in that horizon you should think.
Okay.
Then let's say spare parts and field service, you should think beyond three months.
Okay. Do you want to provide any color on the more than 500 basis point improvement? How will that stretch over the upcoming years?
No.
Will we see something next year already?
Yeah, I think you will see something next year already.
Okay. Thank you.
Thank you, Antti. Let's wait a moment if we have any other questions. It seems that there are no more questions, so I think we can start ending the call. We'll publish our Q2 report on the 27th.
Q3.
Q3 report on the, thank you, Arjen, 27th of October, and then a week later on November 3rd, we'll host our CMD. We'll catch up again then. But thank you all for the good discussions and good questions today. And thank you, Arjen.
Thank you very much. Have a good day.
Thank you.
Thank you.