Portfolio that is ready for zero- carbon fuels, making really solid progress. Roger will talk more about that. This quarter, we will launch engines ready for ammonia. The 2025 plan, ready for hydrogen, we are on track. Continuing on to safety, well-being, and employer engagement, we are making solid progress. Safety, key dimension for Wärtsilä. We have a lot of our employees out supporting our customers in the field, both in Marine and Energy, and health and safety is really, really key. And we see when we track our indices, we are moving in the right direction. We have a fantastic purpose in Wärtsilä, and we can really see that it excites the Wärtsilä team. It excites our customers also, quite frankly. And we see that our engagement from our own team is increasing.
We are going in the right direction. We have set ourselves in the transition to try to aspire to be a thought leader, and I think we are making some good progress there. We are working in ecosystems. In both of our industries, we cannot do this transition alone, clearly, and we need to work with our industrial partners, and we are doing that in an organized way, also bringing academia with us. I think one recognition that we were really proud about is the award from Time magazine, where they awarded us, Wärtsilä, as one of the 100 most influential companies in the world, 2023. I think we are very humbled by that recognition, so to say. It's in line with what we wanted achieve as Wärtsilä. Now, we are a team.
It's all a team game, and to me, with me today, I have three other members of the executive team, so let's shortly introduce them. We have Arjen Berends , our CFO. Then we have Roger Holm, who is President of Marine Power. And then we have Anders Lindberg, who is President of Energy. And Anders has quite recently joined us. He comes with a very solid experience from project business, both from the commercial side and from the execution side, and leading also complex project business in Energy. So really good to have you on the team. And Anders will give you some more of his own personal reflections coming into Wärtsilä, and how he sees the way forward here later today. So we...
You could also make a reflection here when you see this fantastic picture. It's the men in blue. And we are an executive team of eight, and we have actually three female in that team, and we should also highlight that they are a critical part of the team. So we also have Teija. Teija, are you here, please? Head of HR. And then we have Saara Tahvanaine n, Head of Marcom. And Tamara de Gruyter, who is heading Marine Systems and who will now focus on portfolio. She's not here. She got caught up in Poland, could actually not join us, but she's a very valuable member of the team. But these are part of the team that we'll be presenting today. So let's look at the agenda.
I will start by outlining the strategy and also giving you some more flavor on how we will improve profitability and continue to grow. Then Arjen will come and add more flavor around the numbers, and I think you will hear Arjen presenting pretty interesting perspective where we are right now, but also, of course, the steps we want to take to reach our financials and targets. We then have a first short Q&A and a quick break, and after the break, Roger will come back and talk more about how Marine Power is really leading the decarbonization of Marine. A lot of exciting things going on there.
Followed then by Anders, who will outline how Energy will continue to improve the profitability and how the growth then is really fueled by the decarbonization going forward. We will have a second Q&A, and then I will come back, and we wrap up, and we close the day at 4:30 p.m. here, Finnish time. So that is the agenda for today. So let's start from the very beginning, and it starts with the purpose. Our purpose: enabling sustainable societies through innovation and technology and services. Wärtsilä is all about innovation in technology and services. And we have two strategic themes, Transform and Perform. And Transform is all about us being able to support our customers in the biggest transition in decades, maybe even ever, in Marine and Energy, and we are right at the center of this transition.
Then the Perform side, it is about how we are improving and will continue to improve our operational performance on a clear path to reach our financial targets. So today, we're gonna talk a lot about the future, but let's spend a short time reflecting on what have we achieved since last CMD. So since last CMD, we have achieved some really significant milestones... And on the Transform side, we are now a clear market leader in four-stroke main engine. We are a clear market leader in engine power plants, and also clear market leader in hybrid applications for Marine. If you ask our customers, I'm convinced that they will say that Wärtsilä is a technology leader in the future green fuels. We are also pioneer in carbon capture for Marine applications, and all of this has translated to some pretty significant growth since last CMD.
I mean, 25% growth in services, 17% in thermal balancing, and 3x growth Energy Storage. on the Perform side, we have taken important steps. I mean, continuing to grow services, moving up the service value ladder, service agreements, really good growth. Also, creating additional customer stickiness and customer satisfaction. We have now worked out, we've been talking about that, the order book that was heavily impacted by inflation going out to Q3, we have worked out that, and we do see an improved quality of our new- build margins. We Energy Storage around, and as you've seen, going out to Q3, now in profit. We divested several businesses, and you also see in our recent announcement, we will continue to divest certain businesses, and we have also revitalized the team.
The executive team, three out of eight, are new since last CMD, and coming from, from outside of Wärtsilä. In Energy, we have also made, I would say, a major reorganization, establishing clear global P&Ls. So we have been moving. Then, we have had some headwinds, clearly. 2022 was a challenging year. There was war, there was accelerating inflation. But I mean, what we see now going forward, with the changes that we have made and also the direction we are setting, we are confident, and we have a clear path to 12% operating margin. Okay, let's go into the Transform and Perform themes. And Transform, it is about the attractive growth opportunities that the decarbonization transformation is bringing for Wärtsilä. So let's first look at the Marine, and then we look at Energy.
And if we, if we start with the Marine side, there are two drivers, so to say. First of all, the market fundamentals are very strong for Wärtsilä's core segment, and then on top, we have the decarbonization journey. So if you look at the, our core segments, cruise, ferries, offshore, merchant, the growth is expected, based on Clarksons, based on our own analysis, to be double-digit the coming years. Then on the decarbonization side, I think we all see how the regulatory landscape is evolving. We have IMO, MEPC, making the new commitments for carbon neutral in 2050. In EU, with the current regulations in place, the fuel costs in Marine will double until 2030. Double. Roger is gonna talk more about that, but that is a fundamental shift.
Then, it's not only about regulation, we also see a small but growing market for green transport. The switch, the transition, it will take time. It's large capital, heavy capital goods, and it's gonna be a blending journey. It will not be a digital shift, so there will be drop-in fuels, but it will not only about fuels. It will also be about hybrid solutions, it will be about abatement solutions. And everybody is looking for a strategic path for their fleet to avoid stranded assets. Now, if this is the market and environment, what is Wärtsilä's position in this market? And the good message is we are a clear leader in this. So we are industry leader in medium-speed main engines. We are already ready for the biofuels, the methanol.
We are getting prepared, and we, as I said, we will launch this quarter, ammonia. So we are very well-placed. We are the industry leader in hybrid solutions, and the new hybrid solutions we are bringing to the market, and Roger will talk more about this, will mean the comeback for the four-stroke drive concept. We will come back where two-stroke has been dominating, especially on the LNG side. We are looking like 10% fuel savings compared with the new concepts. It's really exciting. We are then a pioneer in carbon capture on the Marine side, and this is a market that we expect to be a EUR 10 billion market over a 10-year period, and we will have our first commercial offering coming in 2025.
Services, 60% of sales, and we continue to grow in all steps of our service value ladder. I will talk more about that. So that's the Marine context. Look at the Energy context. It is really about the shift to renewables, and we know it's ongoing. And it's gonna accelerate. And when we have the renewables, the sun doesn't always shine, the wind doesn't always blow, we need balancing power. And if you look at the growth trajectory, it is significant. I mean, we are double-digit + growth, both on the thermal side and on the Energy side. And actually, if you look at the number in 2022 for thermal, you're talking about five GW. If you look at the 2020 number, it was two. So from two to five GW in two years.
So the growth is there, and it will continue. And it's fueled by growing renewables, but also evolving regulatory landscape, and also subsidies and other supporting policies, including the IRA, for flexible power. And we have talked about it before, we see thermal balancing and battery storage as complementary technologies. They cater to different time zone demands. Now, where is Wärtsilä in this space? And the good news is, we are in a leading position. We are clearly the market leader in engine power plants. I think we will have about 70% market share. And on our storage, we have experienced this fantastic growth since 2021, and storage is now profitable. And on the power plant side, we have what we believe is the winning technology.
Our technology is flexible, it can ramp up and down fast when the power from renewables varies, and we have an edge versus the established gas turbine technology. Hydrogen, we have already been running with in commercial operation, with 25% hydrogen blend, volumetric blend, and we are still committed to having a hybrid 100% hydrogen concept by 2025, and with pilot plants in 2026. On storage, we are one of the top five players in the world, with a clear focus on profitable growth. And the attributes that caters to our core customers, delivering on time, with the right commitments, with the right quality. It's about thermal stability, quality of the product, and it's also an industry-leading software solution. Also, on the Energy side, services is key.
40% of sales is key, and it's a similar story like, like on the Marine side. We are moving up the service value ladder, and it's creating customer stickiness and profitable growth. Now, we all know we have made a recent announcement around our storage business, and I get questions, "So Håkan, why are you doing this, and, and, and why now?" So, so, so basically, we are saying that the storage business has been a fantastic growth story for us, and we wanna look into what is the best way to support our customers, have exciting jobs, and create shareholder value in the continued growth? There is ample market opportunities.
But we want to take a step back in a business we have, we're growing it to EUR 1 billion, we have it now at profit, to make that analysis, how do we continue the growth in the best way? And that's the driver for this strategic review. The timing is related to that. We feel that we have reached a milestone now, EUR 1 billion, profitable. During the strategic review, we will continue to run the business as normal. We will continue to invest in it, we will, of course, continue to build and support our customers, et cetera, et cetera.
In the strategic review, we will consider all ownership alternatives, and one ownership alternative is that we continue as full owner of this business, we continue to operate it in a similar way like we operate it today, but we will also explore different ownership alternatives, partial divestment to full divestment. When it comes to the timeline of this strategic review, we have not communicated a deadline. We wanna take a proper time to make a careful analysis to make this decision on how do we best support the growth, profitable growth, of this business. So that's the story around the strategic review Energy Storage. now, looking at the transitions in Marine and Energy, we also have renewed our approach to our customers and also how we think around R&D.
Now, you could say that our customers, in general, wanna go green, but green is not black or white. There are no single simple solutions. You need to adapt your solution depending on which industry you're operating in, which segment of that industry, and where in the world you will be operating. And that means that customers wants to have a proactive dialogue on their strategy for their fleets, whether it's in Marine and Energy, and we wanna be a credible speaking partner in that dialogue. And to be that credible speaking partner, we are upskilling ourselves to be able to talk knowledgeably, with knowledge, and with confidence about all technologies. But to be that credible speaking partner, we need to have a fairly broad product offering.
If you only have a hammer in your toolbox, the customer will say, "Here you come with a hammer again," because it's the only tool you have. So you need more tools in your toolbox. And how we do that, in an era where there is a plethora of different technologies evolving, is that we focus on our core technologies, and we partner up for other technologies. So our core technologies are revolving around the combustion engine, storage, and digital solutions. If you look at some of the technologies that we are partnering up for, it's like hydrogen, it's about, you know, some of the Energy-saving devices on the Marine side, et cetera.
What we bring to our partners is normally two things: one, we have the knowledge to marinize equipment, and two, we have, I would say, the industry-leading service network. All new technologies need services. So this is a new way for us to approach our customers, and it's a very strategic dialogue we have these days, and Roger will talk more about that. Now, the other thing related to R&D, so we focus on our core technologies, but the good thing here is that we have been working with the new fuels, with ammonia, hydrogen, et cetera, methanol, for decades. So it's not that we're starting from a blank sheet of paper. It's also so that the piston technology, the piston engine, it's a very versatile technology. So it's not that we need to develop new engines from scratch.
We can actually, you know, reuse a big chunk of our engine technology. The synergies between Marine and Energy are very, very strong on the technology side because it's basically the same technology platforms, but it's not, quite frankly, not only on the technology side, it's also in the manufacturing system and also in services. So we do see a very strong synergy between our two major legs, so to say, also going forward. And with everything this into consideration, we can actually go through this transition at a relatively stable R&D spending, so about 4%. We are ramping it up from 3% to 4% of the net sales. Okay. So summing up Transform: Marine, growth in our core segments, further fueled by decarbonization, and a...
And we are very well-placed as the clear technology leaders in four-stroke main engines, and we are coming also on the abatement side. In Energy, renewables are growing, the need for balancing power is clearly growing, double-digit, and we have a leading position in a winning technology to provide balancing power on the thermal side, and we are one of the top five players in the world on the storage, on the battery storage side. And finally, the new era, it's a new market approach for us. In dialogue with our customers about all solutions, and then having partnerships to be able to provide a broad offering to our customers.
If we look at our core technologies, it is actually a very flexible technology, which means that we can live with about 4% of net sales in R&D. So let's move to Perform. And Perform, it's about improving our operational performance and increasing our profitability. And one key element in improving our profitability is clearly to continue the good path that we have had in services. So growth with 25% since our last CMD in 2021. It's about EUR 3 billion. And I think one very strong proof point of the customer value that we are creating, on the agreement side, we have a 90% renewal rates from our customers. I mean, if the customers would not value, they wouldn't renew. This is very strong, and this is actually both on the Marine side, on the and on the side.
Then, you know that we have the concept of moving up the service value ladder. And what is this service value ladder? Well, there are four steps. The first step is the transactional side with spare parts, service hours. Then we go to maintenance agreements. There are different types of maintenance agreements. We go to retrofits, and then we go to the final step, which is p erformance-based agreements, and this is where we have long-term agreements, often ten-year agreements, and we share up and down sides with our customers. And there, of course, risk management is very, very important.
The key thing about the concept of moving up the service value ladder is the potential for scaling. And we talked about this before. If you look at the spending EUR per kilowatt, installed kilowatt, you can have a multiplier effect from one bringing a customer all the way up to two to five times growth. We do see it playing out, not taking all customers from the first step to the fourth step, but moving customers successfully we are along, and this is fueling our growth. Good thing is that our installed base continued to increase. So our installed base since last CMD has grown with 5%, fueling the 25% growth in transactional alone. And retrofits, we see a potential to double that business by 2030. It's about upgrading existing engines and equipment to the new fuels and to make them more Energy efficient.
This translates also, as we communicated before, to a EUR 2.5 billion market opportunity for us in the next five to 10 years, because this is all Wärtsilä installed equipment. But Perform is not only about services, Perform is also about operational improvements and also some structural changes we have made. So first of all, we have improved, and we will continue to improve, the new build margins of our order book. Energy now has a higher share of equipment relative to EPC in its order book. So going into 2022, we had about 40% of the order book in Energy was equipment. Now, when we go into 2024, it's about 80%. So a significant growth of equipment, which has a better, normally has a better risk-reward balance and a better overall profitability.
Energy Storage, we talked about it, is now profitable, and Voyage losses have significantly reduced. As you know, we have split Voyage in two parts. One, we're gonna divest, the other one we are keeping. But if we bring them together again from a kind of accounting perspective, and we will look at losses, yes, we are still at losses, but they are much less than they used to be. So we are in, clearly in the right path to improving profitability in Voyage. Then, we have made structural changes, as you know. I mean, ramping down, we have now ceased the manufacturing of engines in Trieste, and the forecast still holds. This will generate a EUR 35 million saving annually for Wärtsilä. Of course, this is a very painful process.
It's a big decision for Wärtsilä, and we are working with the stakeholders in Italy on the reindustrialization plan to find new owners for our manufacturing facilities and also to ensure that our employees in manufacturing has continued jobs, so to say, with a new owner. We will still be in Trieste, but more focused on R&D and services, et cetera. Then, we have divested businesses out of Portfolio Business, and we will continue to do so. We will, and you've seen recently, that we are continuing to actively managing our business portfolio. And if we start with the most recent announcement, and that is that, Marine Systems, as a business or a division, will be discontinued, or is planned to be discontinued, from the first of January next year.
The whole thing is about further simplifying the group structure. So Gas Solutions, that we put Portfolio Business for divestment, it's a leader in gas processing systems and solutions, but it's a business that doesn't have very strong synergies with the rest of the group, and we need to focus the group, and that is the rationale. Then the other business units in Marine Systems, so Exhaust Treatment and Shaft Line Solutions, they will be moved to Marine Power. This will be one step in further improving the quality of our revenues. Now, if you take an overall look, what business units have we moved Portfolio Business so far?
And you see them here, Water and Waste, MES, Automation, Navigation and Control Systems, and now Gas Solutions. That is about LTM 2023, about EUR 650 million of revenues. But once we divest, it's about 1 percentage unit uptick in profit margin. So that's the magnitude. To drive our strategy, we have put in place our Wärtsilä Way, and it is the overall strategic framework of the group. And this will be with us in our journey going forward. It's how we talk about strategy in Wärtsilä. It's also how we engage in dialogue with our customers on strategy, starting with our purpose. Also, clearly, the outlining the target position with our financial targets and sustainability targets, our strategic priorities, of course, an execution plan, how do we make it happen?
Building on solid values, leadership, and also a framework for continuous improvement. So this is how we talk about strategy. This is how we execute strategy in Wärtsilä. If we look at our strategic priorities, they are the same. There is consistency in this, and I think one should be humble. This takes time to execute and evaluate, and we're gonna be consistent and continue to execute in the right direction because we really feel this will bring us to the targets that we have set. So number one is about customer focus and excelling in creating customer value, really being close to our customers and understand them, because customers' operations are changing now. Also, helping the customers when customers have problems. The second focus is about people and attracting the right people. I may already mentioned the purpose.
We can really see people wanna join Wärtsilä because they see us as a change agent in the decarbonization transformation. It's for real. And when we talk about creating great teams, focusing on two really important dimensions: how we cooperate cross-functions and cross-geographies, and how we support and drive continuous improvement. The third one, decarbonization, we talked a lot about. Clearly, it's about innovation, it's about partnership, it's about supporting our customers. Service, we also talked a lot about really putting focus on the service, and it's giving results. And then the fifth, continuous improvement. And this is an area which we are now step by step revitalizing and driving in a more structured way. And it's the classical focusing on what creates customer value and eliminate the waste, drive down lead times, improving quality, et cetera.
Now, strategy is good, but culture is even better. And, and if we talk about how we are Transforming our culture, it's, it's about creating a performance culture. And, and what the hell is a performance culture, then? Well, for us, it means focus on customer. We are here to make the customer successful. Let's have that as a North Star for us. Then, we believe in delegating responsibilities, delegating profit and loss, but also further responsibilities to people, to our Wärtsilä, so they can take decisions, move with speed, and serve our customers. Caring for people is key. It's also part of our purpose. And then in our execution, be disciplined in our risk management.
When you run project business, risk management is one of the most important dimension in your business, and I think here, also under Anders' leadership, we are taking risk management to the next level. And also with a clear focus on equipment before EPC. We will still do EPC, but the focus is on equipment. Continuous improvement, very important. We need to continuously evolve and use all the brainpower that we have in Wärtsilä to find smarter ways to work together. So if I sum up the performance theme, it's about services, growing services, moving up the service value ladder, but it's also about operational improvements. You know, we are shifting the composition of our order book. It's about risk management, being more mature and formulated on risk management.
It's about the structural changes that we are doing, and also continuing to manage our business of portfolio, Portfolio Businesses. and then the Wärtsilä Way sets the framework of how we communicate with both internally but also externally. So that's the performance. So to round up where I started, it's the strategy going forward, it's really about improving profitability, continuing our growth, and we feel really excited, and we feel really confident and committed. We will reach our financial targets and our sustainability targets. So that was my first section, and now I would like to invite Arjen to add some more colors in terms of numbers to this strategy. So Arjen, please feel free. Please welcome.
Hello, everybody. I'm really excited to be here. Why? Because we see good progress towards our financial targets. After a very challenging year in 2022, with respect to profitability, we see now the trend improving, and that is really encouraging. First of all, I want to say that we are firmly committed to our financial targets. Håkan said the same, I want to say exactly the same. 12% operating margin, more than 5% organic growth annually, having a gearing below 0.5, and paying more than 50% of our EPS out as dividend. We are making good steps towards those targets. Håkan mentioned a few already: moving up the service value ladder, changing the focus from EPC more to equipment delivery, turning storage into profitability, et cetera.
All targets are important, but the key focus is on profitability, because that has been the most challenging one to get traction on as well, due to COVID, due to the exit from Russia, due to the extraordinary cost inflation that we have been facing, and not only we have been facing. My key priority is clearly on profitability improvement, making sure that the trend that we have recently seen in upwards direction continues also into the future. Decarbonization is a great opportunity for us. We believe it will make us grow and make us really, let's say, stronger positioned in the market with our customers. And both Anders and Roger, in their respective slots later on, will talk more about that. We have a strong balance sheet, and we have clear capital allocation principles.
That allows us, and that supports the execution of our strategy, as well as the funding of R&D, capital expenditure, M&A, and dividend payments. On the next slide, I would like to take you through, let's say, what happened to our financial targets. What is the progress in our financial targets since the last Capital Markets Day? We see good progress, as I said, despite the headwinds that I also mentioned earlier. If we look at sales, on the sales side, we see good growth, despite the fact that we stopped our activities in Russia, and also took out EUR 240 million of Russia-related projects out of our order book in the first half of 2022. On this horizon, on group level, we see 5% growth, which is all driven by services, 11% on the service side.
If we took a little bit longer horizon, or concept the same, from 2021 on group level, we see 29% and 25% in services. So really good, good traction. Of course, if we compare to 2021, there is an element of COVID recovery as well. If we look on the right side of this slide, looking at our capital structure and gearing, as well as on dividend, we have clearly exceeded the financial targets. Gearing is clearly below 0.5 and trailing down, 0.17 today. And despite, let's say, a loss-making situation last year, we paid in absolute terms, more dividend per share than what we did in 2021. If we look at profitability, comparable operating margin is improving. But both the years 2022 and 2023, what you see here is clearly burdened by this extraordinary cost inflation still.
We have worked out the order book that has been affected by it, Håkan mentioned it as well, and now let's say it should get better. But it's clearly, let's say, still burdening in this picture. If we look at the operating margin, 2022 was clearly burdened by items affecting comparability. Biggest one being the Russia exit, but also, let's say, the closure of the manufacturing in Trieste was another big item. Together, they are about, let's say, close to EUR 300 million impact in 2022—sorry, 2022. If we now next, I would like to drill down a little bit more in the 7.7% comparable operating margin that you see on this page. Earlier this week, on Monday, we announced, let's say, that Marine Systems will cease to exist from January 1, 2024.
Gas Solutions will move Portfolio Business for divestment, and Exhaust Treatment and Shaft Line Solutions will move into Marine Power, later to be renamed Marine. If we simulate on that and look at the performance of that, over the last 12 months, there are a few highlight points we can make. First of all, Marine, now including Shaft Line Solutions and Exhaust Treatment, combined with Energy, engine power plants, so the thermal side of Energy. If we combine the two, they are both on comparable operating margin and operating margin, double digit, and we are very happy with that. It's also an excellent growth rate on that part of the business, 11% CAGR, which is really, really good.
What is also really good is that we have grown storage, and that we have turned it from a loss-making situation into a profit-making situation, which is also really good. I'm really happy with that. But it is still, as you can see also from this picture, dilutive to Wärtsilä profitability percentage. Finally, we Portfolio Business. this is still part of Wärtsilä today, but of course, and timing is very difficult to say here, over time, this will not be part of Wärtsilä today. The intention is clearly to divest it. But as you can see, it's also there, a dilutive number to Wärtsilä profitability. So once again, our focus is on profitability improvement, and we are on a good track. Here I want to highlight a few things. First of all, the quality of revenues.
That, of course, includes moving the focus from more EPC to equipment delivery, but it also includes moving up the service value ladder, because service volume growth puts a lot of stability to both the revenues as well as the profitability, and that is clearly a quality item in our view. What I also want to highlight here is the shift from EPC to EEQ means something also for our revenue recognition. This is a bit of a side note, because typically, EPC goes with percentage of completion and EEQ with completed contract method. As Håkan mentioned already, let's say there is a clear shift happening from 40% when we entered into 2022 in the order book of Energy. Now, going out of this year into next year, it will be more than 80% equipment delivery.
What I also want to mention here is portfolio management, very important for us, and also, of course, actions to address our cost structure, big and small. Of course, the big one is the Trieste closure. There are other big ones as well, like the sale of the production facility in Spain, in Santander, or other, let's say, the joint venture closure of propulsion in China. There are all the time in Wärtsilä, on a global scale, happening smaller actions as well to address cost structure. We will continue to do this. We will continue to take actions wherever and whenever needed to adjust our structure, cost structure, to what is required in the market. If you look a little bit at capital allocation, we believe, and we are convinced, that decarbonization will bring us a lot of opportunities for growth.
But in order to capture these opportunities, we need to invest in R&D, otherwise we cannot capture them. We are a technology leader, we are a market leader, and Anders and Roger will talk also about that, and we want to stay there. That's also the reason why we have increased basically our R&D spend quite recently. We used to be at 3% of sales. Now, recently, it's more like 4% of sales. And that's for a reason. We want to stay the front runner, and the market is also actually asking for it, for these solutions to decarbonize the world, basically. M&A, we of course always keep our eyes and ears open to M&A. Opportunities might come or might not come. They need to fit our strategy. They also need to fit our financial targets.
If and when, let's say, opportunities come, we will evaluate them against these very clear criteria that we have mentioned here. We do, however, believe that with the current capability in-house, we have what it takes to execute on our strategy already today. Finally, our dividend policy. We are firmly committed to also, in the future, pay more than 50% of EPS out as dividend. That will not change. What I would like to do next is show you our bridges. That's our growth bridge and our profitability improvement bridge. If we start with the sales bridge, on this slide and the next, the pluses and the minuses indicate what each driver's contribution is to the increased sales or the improved profitability in absolute terms of Wärtsilä, how we see the future from the status starting point today.
If we look at sales, as in CMD 2021, also today, we Energy Storage and Optimization as the main growth engine when it comes to sales. That did not change. What is different, though, let's say from the 2021 CMD material, is that at that time, we had thermal balancing power and Energy as the number two, and Marine as the number three, basically. Now it's the opposite. We see a lot of traction in the Marine industry on decarbonization, and Roger will talk more about that later on today as well. Moving up the service value ladder, very important, very solid, very steady, clear contributor, and also very important for our profitability. We need to continue to increase the share of agreements, and by doing so, also increase, let's say, the share- of- wallet of our customers.
Decarbonization retrofits clearly being a tailwind for us as well. Finally, on this Portfolio Business. it's quite big now today, especially when you now add, let's say, also gas, gas solutions, and that's exactly the reason why this was not on the list in 2021 CMD, and it is on the list today. In 2021 CMD, it was actually insignificant compared to what it is today. If we look at the similar bridge for profitability... If it shifts, yes, it shifts. As in CMD 2021, same today, moving up the service value ladder, clearly the biggest contributor. We are trailing very well on this one, and I'm extremely happy about it because it's really, let's say, a solid foundation on all the Wärtsilä financial numbers.
But it's also good to see here that, let's say, both the thermal side on the Marine side, as well as the thermal side on the Energy side, are also really good contributors. Also very important to get that going, and we anticipate it will happen like this, as the market is really asking for Energy Storage and Optimization. we are at zero profitability today, as you could see on my earlier slide, but it's not where we want to stay. We, of course, want to continue to improve further on the profitability, and I believe we can do this. So that's also clearly a positive contributor going forward. And then finally, let's say also on this Portfolio Business on the list here for the same reasons as I mentioned on the sales side. It's now much more significant than what it was earlier.
We need to continue with continuous improvement and price realization of our solutions towards our customers. Getting more value out there because customers are willing to pay for it, and we can differentiate. At least we need to offset cost inflation, but of course, preferably, and that's of course, also the aim, that we are seeing that it will be more than offsetting the cost inflation. So can we execute our strategy? Do we have the strength to execute our strategy? Is our balance sheet strong enough? I would say yes, definitely yes. We have a strong balance sheet that enables us to execute on our strategy.... We have seen recently, and already that's ongoing for quite a long time, good development in working capital.
And we are currently only at 1% of sales, but historically, we are more like 8% to 9% of sales, so really good level at the moment. Of course, good working capital, combined with improved profitability, provides us also very strong cash flow. So cash flow also, as you can see from this picture, clearly trailing up, currently at 8% of sales. Just for reference, this level of operating cash flow is about 85% to 90% of EBITDA, which is really a good level. Gearing, as mentioned already before, clearly below our financial targets, now at 0.17, nicely trailing down. And we have a very good solvency ratio as well. So can we execute? Yes, I believe firmly that we can execute. So to conclude, our financial targets do not change.
The whole of Wärtsilä is absolutely committed to realize them, and we have a clear path to get there. Thank you very much.
Thank you, Arjen, and thank you, Håkan, for the presentation. Please, Håkan, join the stage for Q&A. Now we will start with the questions from Salmisaari. My colleague, Nora, will bring the microphone, so in the case you have a question, please raise your hand.
Hi. Thanks. It's Erkki from Inderes. Just regarding this share of equipment versus EPC, how much have you or are you going to lose business or due to this refocus?
I mean, so far, we are, we are not losing any business, no.
No.
It's... I mean, we are often very early in developing projects on the power plant side, and this is part of our business model, and this is also where we, in a dialogue with the customer to be, so to say, we have a dialogue on how do you structure a tender and how you share different risks in a project in the most efficient way overall. So far, we are not losing.
But of course, the scope is. That's probably what you're after.
Yeah.
Let's say, the scope is lower. That's correct.
If you mean, if you look at the order, if you look at 100% order value, I mean, how much is the EPC part? Yeah.
Ten.
20% to 30%
Yes
... something like that. So from that perspective, you know, you could say that a project doesn't give us the same top line, but it certainly gives us a better quality of the profitability.
You don't have any customers there for whom it would be either EPC or no deal at all?
There are certainly those customers out there, but so far, we haven't lost anything, so to say. What I know, and, and Anders, you can comment on that as well.
Okay, thanks.
As I said, also, just to underline, we are not stopping with EPC. It's a shift of balance. And in certain markets, with certain customers, we certainly do EPC going forward. So it's not from 0 to 100, but it's a shift of gravity, and you can see it's a fairly significant shift of gravity.
Hi, John from Deutsche. Thanks for the opportunity. I'd like to spend a little bit of time talking about the service value ladder. You had a slide earlier that shows that your future revenue opportunity, 2-5x, a base commoditized or ad hoc service. Can you give us a sense of your ambitions to in 2023 from your current levels when you think about the group as a whole? Is it more driven about moving people to service contracts, period, or moving those customers to higher aspects of a service contract, I suppose?
So, I would say, in general, I think the biggest shift in the ladder, actually, the first transactional step has grown quite significantly. Then I would say, in terms of moving up the service value ladder, it's really moving customers into different type of agreements. Moving customers from customers that haven't had any agreements to their first agreements, and for customers that have had agreements to a little bit more advanced agreements. Performance-based, which is the fourth step, which is this 10-year commitment, et cetera, these are typically rather big deals that are negotiated over time, and they are complex.
So once you put them in place, they are big, but in terms of where have we seen the most growth, and I think also going forward, is really to have more customers on the different shades of agreements.
From transactional to agreements, yes.
Yes.
Thank you.
Hi, everyone. Thanks very much. It's Vivek Midha from Citi. So my first question is on Portfolio Business, which has clearly grown quite a bit, and so potentially you're you know, divesting quite a lot of revenues. You've indicated potential bolt-on M&A, but if you were to get a sort of meaningful amount of excess cash, could you talk about priorities around how inclined you'd be towards transformational M&A or capital return, and so on? Thank you.
You wanna start, Anders?
Yeah, I think the main focus, right—like I said, also, let's say that we have, we believe that we have the capability to execute on our strategy. So we don't absolutely need to acquire a certain capability to be able to execute our strategy. So in that sense, it's, at the moment, it's more the focus on, let's say, bolt-ons. Is there small knowledge opportunities that yeah benefit from in speed of development or getting solutions to the market, rather than any, let's say, really big one. We have said many times before that, of course, MAN two-stroke has been many times discussed. It's not that hit the market today, but if it comes, we will for sure look at it.
Interesting. Thank you. If I may, a second question, just on those financial targets. I appreciate it's unfair, given that, you know, you've just started the review, but I guess the targets appear to be based on, you know, Portfolio Business, but constant perimeter or otherwise. And so just hypothetically thinking about, suppose if storage were divested, how would you have to think about those financial targets? I mean, storage is the biggest contributor to your organic growth. So would you need to reconsider that organic growth target of 5%+, or is the rest of the business still growing enough to meet that? Thank you.
I would say clearly, the rest of the business is growing enough to meet the target.
Absolutely.
And also because I think, which is a very valid question, you know, should you revise your financial target, considering... First, first, we need to do the strategic review, and we really need to land it. Let's do that first. But to, to your question, the underlying business clearly supports 5%.
Thank you very much.
Hi, Tomi Railo DNB. Starting also with the storage, have you received any interest since you announced the review?
Well, we will not talk about that. Clearly, I mean, I think we all know the process here. First of all, we are doing a strategic review, where we are looking at how do we best support the growth of the business, huh? And then we will look into, you know, what are the strategic ownership alternatives, so to say. So, it's premature to talk about that.
Then on the EPCs, to what extent is this an active own decision, or the fact that the business hasn't really been there so far this year, at least?
No, this is a very active own decision. I mean, I have personally, I know Anders and his leadership team. As I said, we are engaged with dialogues with our customer, where we have clearly shifted scope. So, this is a very active strategy.
And, the third one, is, the plant business loss-making currently because the sort of, delta, potential to improve the, profits and profitability is higher than the storage?
Sorry, the power plant?
Thermal plant business.
I will not comment on, let's say, profitability of individual parts. Sorry.
But you see bigger potential to improve-
Absolutely.
In plants-
Let's say the pluses are based on the situation today and looking forward. Correct.
Thank you.
Hi, it's Antti Kansanen from SEB. I'll try to ask one question on the storage, and just to understand your starting point for the review process. If you look at kind of future growth potential in that business, what do you think are the biggest hurdles for you as a main owner of that business, that some kind of a different ownership model could unlock? And also, what have been the key synergies between the storage and the thermal energy business in the past two years?
So if we look at, you know, there is, of course, a balance on how aggressively you wanna grow the business. That's one dimension. On the synergy side, there are synergies with the group, clearly. I mean, especially on the classical functional support, finance, HR, and certain things in sales, so there are synergies.
All right. Then second question on the services growth, and I mean, it's been impressive in the past couple of years. I would just like to understand better, what have you been able to achieve with these kind of a self-help actions with moving up the value ladder? I mean, there's been a lot of noise, there's been a lot of pricing. The cruise has recovered in the past couple of years. So what has been kind of the impact of the agreement coverage? Have you walked away in some type of a service business? Just to understand better, what's the runway left for next couple of years when we most likely have less kind of a cyclical tailwinds in services.
I mean, Roger, I'll ask you to comment as well. But I mean, please, and you will see that, you know, we have about 30% installed, of our installed base on the service agreement right now. We've been growing it. But 30%, there is still 70% to grow. Of course, getting to 100 might not be realistic, but I think there is definitely a growth opportunities now. And I mean, don't forget this 90% renewal rate. I mean, if we were not adding value, real value, the renewal rate will not be 90%. But Roger, please comment.
If I add on to what Håkan said, one pathway that is coming, I will talk about that later as well, is we will see more complexity in the industry due to the transformation to green fuels. This is going to push also for more value in the agreement, so this is what we will see. The other angle is the retrofit business on the service side. More efficiency, more fuel conversions, and this is a part we have just about started now and will continue during the coming decade.
All right, and then last one is also on the EPC versus EEQ. And, and you've been quite, quite straightforward in saying that you see a better demand on the power plant business in the next 12 months, and you have talked about some auctions, perhaps some things that you have on the pipeline. So are we talking about EPC or EEQ? I'm just wanting to understand. Perhaps a bit of a repeat of the same question, but are you still competing on the same deals on EEQ basis at that earlier you, you had perhaps been on EPC? Or, how should we understand the market dynamic here?
So, it's a bit of a mix, but Anders, you are really into the details, so to say. So I ask you to comment.
... Oh, so, we still have the same opportunity, but it might be structured differently than where we have an EPC partner that we go with instead. If the customer still wants to have it as an EPC, we will partner up with an EPC partner.
Partnering up, I mean, then the partner would take the lead, and we will be a sub-supplier. There are different ways to have a commercial setup.
Also, as Håkan mentioned before, we still do have markets where we do EPC, so there is still room for EPC as well, but we have less of that than what we have had in the past, and that's the important.
All right. Thanks so much.
Thank you. It's Panu Laitinmäki from Danske Bank. I have two questions related to targets. First of all, on the growth, you changed the order of Marine and Energy power plants. So is this because you are, like, relatively more optimistic on Marine, or things are taking longer in Energy to materials, or is the EPC reduction kind of playing a role here?
No, I think the key driver is that we are more optimistic on the Marine side, and we really see the growth for the decarbonization solution. So far, Roger will talk more about that, but so far, we for instance have a order backlog of 100 methanol engines, et cetera, et cetera. And then, and we do see that the strategy is playing out in a very favorable way. So it's really Marine Power accelerating.
Okay, thanks. And then secondly, on the margin targets, I mean, it's, it's the same 12%, but now in- you include Portfolio Business divestments, which is, like, more, more than you planned two years ago. So has this kind of changed your view on the, on the business that's, that's, remaining in, in Wärtsilä?
I think the targets that we set in 2021, they, of course, included all the business. When we talk about the 12%, and they still include all the businesses. But as I said, the strategic review of storage, and it's premature to talk about it, we will have to think on. Once we have concluded the strategic review, how we go about the financial targets, so to say.
Correct. Yeah.
But I mean, the Marine divestments, if you are divesting a few hundred million EUR more of lower than 12% businesses than you said two years ago, so should we, in a way, increase the target?
Yeah, but I mean, as I say, it's premature to... You can draw your conclusions. What I'm saying now, first, we need to execute, and then we will have to think through on the balance of everything, because you can see there are quite a lot of cogwheels moving in the equation. Should we think about revising the target?
I think exactly, I was about to say the same. Let's, let's first reach the target, and then we think about revision.
Yeah.
We are still quite far away.
Yeah.
The progress is very good, definitely recently. Let's first reach it, then we can reconsider.
Okay. Thank you.
Yes, good afternoon. This is Tom Skogman from Carnegie. I followed Wärtsilä many years, and I remember that, turnkey power plants used to be kind of one of the most profitable businesses, and now we have had, like, five difficult years, and now we are working not out, but you reduce the risks with EPC projects. So what, what is kind of the... What, what has really changed? Because this used to be a good business. It's just that it's, you know, trouble with lawyers in every country, and the business is moving to, to countries where there are more lawyers involved or, or, or, competition has not really changed, but you have, you know, the performance is not what it used to be.
So, Tom, I always like your questions. I will start, and then Anders can continue. I think we should really let Anders introduce himself, because when you know his background, I think his answer also carries quite a lot of gravitas. I think that clearly, and you, as you followed Wärtsilä for quite some time, I think if you go back, like, 10 years, we did a lot of EPC in Asia and South America.
Africa.
Africa. We did it in a very profitable way. Then we went through an era where we started to do EPC in Germany. I think both Anders and myself, with our experience, would say, "Don't do EPC in Germany." Very few people that do EPC in Germany make profit. So clearly, there has been a shift of markets and also approach, so that is one thing. I think another element in what has changed is the experience of the senior leadership in project business, and that, Anders joining, me joining, others in Anders' team, has also made pretty significant shifts. We have strengthened the leadership competence in running EPC business in a bit more challenging environment, but to run it profitably.
There is, I would say, a shift, and I... You can complement because you saw-
Yeah, yeah
... Wärtsilä for long, but there's been a shift to more focus on risk management, quite frankly.
So should we think this, that you, you're happy to sell EPC projects to emerging markets, but this balancing power business will be more of selling equipment? And as a follow-up, if you look like, you know, the next five years, how do you envision this? How large share of power plant sales will be balancing power, and how much will be traditional baseload power?
So first of all, I don't think we should mix baseload, balancing with equipment EPC. That's a matrix. Now, let's not make it too complex now, but so don't mix that up. I mean, we can do, do, equipment or EPC on balancing and on, on, on, on, on baseload, so to say. So for the, the, the risk management focus, it's, it's much more about which customers, which are the, you know, legal, boundary conditions, and can you have sound legal boundary conditions to run EPC? It's also about the maturity of the customers, you know, how, how are they approaching EPC? So I would say it's much more, you know, a case-by-case evaluation using solid processes and senior leadership with solid experience from project business. But Anders, please comment, and Arjen, you also comment on this.
Yes. No, I confirm what you're saying, Håkan, that it’s not so simple, it’s only countries, it also depends on who is the customer. Also, what kind of supplier and contracts do we see in the country? How stable are they? This is what makes us decide if we can do EPC or not. But I do confirm that, of course, what you asked, is that we see the balancing market, the first markets that develop, and I will show that later on in the presentation, is, of course, the more mature markets, and there we do not do so much EPC.
While, as you alluded to, that in the developing markets, we have done a lot of EPC successfully, and we will continue to do so, but we see less of balancing in those markets, so that plays, of course, a role.
Do you expect the Energy equipment sales will be more balancing power or kind of emerging market traditional business used to have? Because it's been... The recovery after the pandemic has been very slow in emerging markets, but how do you kind of envision the next five years? What is this business? Is it about balancing, or is it about building Africa and Asia?
It's about both.
Yes.
I mean, one, one doesn't exclude the other.
We will show later in the presentation.
I suggest we wait until Håkan or Anders has done his presentation.
Yeah, you can see in the presentation-
Yeah
... how we see the baseload market. That, that is bigger, but it will, not grow as much as we see the balancing market grow. So there will be a shift, but it will take up to 2030 for that shift to happen, yeah.
Let's go-
Sorry, also, Arjen, because I wanted to give you an opportunity, because both Anders and myself, we are fairly new to Wärtsilä, but you have some-
No, I think many things have been said, but let's say if you go 10 years back in power plants business, I. And looking at it today, let's say the geography is totally different, as you said already. I think also the whole risk-reward balance is then also changing. I would say the contractual paragraphs in Africa are somewhat different than the contractual paragraphs when you go to the U.S. or whether you go to European countries, Germany was mentioned as an example. This has clearly contributed to our, also our own shift in thinking that, okay, we need to be much more strict on evaluating, where do we want to go with EPC? The first entry when we offer, the initial intent is EEQ. We have not ruled out EPC.
We will still do EPC, but the risk-reward balance in the contractual terms and everything around it, if you take more risk, you should also get premium payment for it. If it doesn't come, then we don't do it. So far, we have not lost anything.
Okay, now we will take a couple of online questions. So just to make sure that everybody understands the discussion, so could you please open EPC versus equipment deliveries point of view? What does EPC mean exactly?
Ah, okay, that's a very good question. So EPC, it's engineer, procure, construct.
Mm.
So basically, in the most extensive EPC, because within this fairly big header, there are many shades of. But the most complex scope in an EPC in the traditional EPC contract, it's that when we get awarded a contract for a complete power plant. I'm just looking behind me, like an installation behind me, and we do everything. When we come, there is jungle or there is a cornfield, and when we leave, the plant is there. So we do the civil, we do all the surveys of the ground condition, we do all related to civil installation project, and we deliver the equipment. We also have auxiliary equipment coming from other supplier. That's a complete EPC package-
Mm
... the most complex one. Then if you talk about equipment, under that header, there is also different shades of complexity. The most basic one, we would only deliver our own engines and control system. But then there are shades of gray when we add the auxiliary equipment, and we deliver the equipment. I hope that clarifies.
Thank you. Then continuing with the questions regarding our financial targets. Why do you not tighten gearing target from 50%?
That's a good question. Let's say we have had this gearing target for basically as long as I remember, and I think it's important that, let's say, we Perform accordingly. We have always been performing accordingly. And I think that's also, let's say, a good level. Let's say, if you all the time adjust your gearing level up and down every time, it's different. Let's say some time ago, it was even negative.
Mm.
So, I think, I think it's good to keep a stable base.
Mm.
We need to be below that to have a healthy balance sheet, and that has been the main focus.
Thank you. Then continuing with the margin target questions. We discussed this a little bit from, with different assumptions, but do you still aim to achieve 12% margin, even if you were keeping storage and gas solutions, given these were still core when you launched the target in 2021? And by when will you achieve the margin target?
Okay, so the first answer is yes. As I said, the targets have been formulated, including all businesses that is currently with us.
Mm.
And when? Over a few years. And that is what we said in 2021 as well. We talked about 2022 has been a very challenging year. We talked about that. So that, of course, that has added a year, so to say-
Yes
... to the over a few years.
Yes.
... It's a few years plus one.
Thank you. Then please expand on your comment, what do you expect four-stroke engines to start cannibalizing the two-stroke market? What will be the catalyst? What timeframe will this require? Will it only be for new builds? How will you educate a highly cost-sensitive customer base in a different market segment to your core niches to make the switch?
So very good questions, but I would actually propose that we save them-
Yes
... for Roger, because he will touch upon this in his presentation. So let's make sure we come back to that, because we will have a Q&A after Anders and Roger's section, and let's bring it up again then, so to say.
That's a good idea. What is the long-term operating margin target Energy Storage and Optimization business unit?
We do not communicate targets per business units, and we haven't done it in the past, and we do not intend to do it going forward.
Then do you see better demand due to delayed investments, due to interest rate increases? When is that floating in the order stock?
I'm not sure I understand the question, but I mean, interest rate, if we talk about that.
Mm
... we do see impact of that primarily on the Energy side in the decision-making speed.
Mm-hmm.
I mean, the investors into Energy installations, they have a long-term perspective, I mean, 30, 40 years. So it's not so much the short term, it's more the long-term interest rate. But of course, we do see that it... people step back, and they think through their calculations. So we are not seeing so far projects being canceled or taken off, but there are certain projects that are a bit postponed, clearly. Anders, maybe do you want to come?
I just confirm what you said. We see that the auctions and the projects are happening, but there might be timing delay due to that the customers wait to see what happens with interests. Often business cases need to be recalculated and get some new approvals from respective boards, typically.
Short term, so there is no hesitation about that. You know, we have communicated that we do expect the order intake in the second half of this year for our power plant business to be better than the first half, yeah.
We still believe in that.
We truly still believe in that, yeah.
You said you take time for the storage decision, but isn't the uncertainty hurting morale in storage and creates uncertainty among clients?
Yeah, decision-making, of course, and uncertainty, when you cannot be 100% clear, that it creates uncertainty. But I think also we need to have a very... We really want it to come to the market, because when we start this strategic review, when we look at, as we talked about, different ownership alternatives, there is of course a risk that rumors will spread, et cetera, and I think that would be even more-
Mm
...detrimental to morale and engagement. I think a key learning from our work with Portfolio Business, because, of course, our announcement on storage is still rather fresh, so it's too early to comment. But I think some key learnings from Portfolio Business, i think that our colleagues, the teams that have been working in those businesses, have been very much committed. I mean, people have stayed in the business. And I think we have been able to manage the business, we have been able to attract buyers, the right buyers to the business-
Even grow the business.
Even grow the business.
Yeah.
So, I think from that experience, I think we have a rather good track record.
With continuous improvement of the value chain in mind, what single area do you see the most important to improve within the service value ladder, and how, how you will get there?
I mean, the very fact that we talk about continuous improvement, it's many small improvements all over the place, and there are so many fantastic examples. But I don't see one. I think the key thing is to mobilize every brain in the game. How can we work smarter, serving the customer and do it in a flow-efficient way? And you know, there are, just to give very concrete examples, you know, how we schedule our service resources and how we make sure that we use their time in the very best way, because now sometimes we don't plan it efficiently, making sure we have the right competence in the right place. There are many of those examples. Anders and Roger, you want to mention?
I think it's first of all, it's a cultural issue, that, as Håkan said, that everyone thinks about it, because the waste removal in the flow is the key, what we are going for to improve the customer service. And I would say the best value you get when you have the mass processes, which typically is in services. So field service is a good area. I'll come back to one example in my presentation as well. It's when you have enough volume and you can remove waste in small bits and pieces, that's where you get the big values.
Okay, now let's continue with the questions from Salmisaari.
Yeah, thanks for the follow-up. This is, Håkan, a question for you, and I wanted to understand a bit better what you are now kind of seeing. As we've seen a lot of businesses going into the portfolio side, you're taking a step back on the storage business. So it seems to me that you're really kind of tightening around being an equipment technology provider and doing the aftermarket. So could you talk a little bit about... I just wanna understand, for example, future M&A and capital allocation. Why isn't this kind of a wide offering, for example, to the Marine side? Why hasn't that worked? Is it just a reflection of the actual businesses that you are now kind of divesting? Is there more in play?
How do you see your role in, let's say, next five to 10 years from offering point of view?
... So I think, as I said, Wärtsilä is all about innovation and technology and services. So a little bit to your point, focus going forward, technology and services. And I think the fantastic opportunity that we have now, which is different than if we go back five, 10 years, is the whole decarbonization transformation, because we see it's fueling growth, profitable growth. It's right in the core of what Wärtsilä is about. So it's a fantastic opportunity for us to participate in and benefit and support our customers in. When you come to those assets that we have in portfolio, you can say that many of those were kind of augmentation to the core business, and that was a way to drive and fuel the growth traditionally.
But I think what it shows is that it has been very hard to bring those businesses all the way to the profitability expectations that we have of businesses in Wärtsilä going forward. So it is a focus, but it's also a growth strategy because we are in this significant decarbonization transformation, and we are benefiting both from the equipment side and from the services side. And I would say that another thing, and that was created way before I came in, where we have the end-to-end ownership of both the new build and the service. Many of you know that before we used to have a separate service division, but we kind of broke it up, and both Anders and Roger, they have end-to-end responsibility of both the new build and services.
We actually see that drives growth and profitable growth in a very strong way. It's this ownership, and also, of course, in Anders and Roger's organizations, Tamara's organizations, we have broken down the P&L responsibility, the ownership, and that is really really fueling the profitable growth in a good way, so to speak.
Makes sense. Second is a bit more detailed question to Arjen, and it's regarding cash flow and kind of the working capital, which has been great in the past couple of years. So could you remind us kind of what has been driven that? I know that you don't have any targets for cash conversion or working capital to sales, but what's kind of realistic for you guys for the next strategy period?
I think there are many, many factors. Let's say we, we run a working capital improvement program already for, for several years, concentrating on many different things. Collection, I think we have done great effort in collecting, also very old debt. When we started this program a couple of years ago, we had a lot of old debts, actually, and you can clearly see if you... Okay, I will not open it up, but let's say if I look with my statistic and my dashboard, the age of the receivable is clearly moving leftwards, so less overdues. If they are overdue, they are more fresh, and it's even the management team, Roger himself, Anders himself, it escalates. If it doesn't pick up, it escalates much faster to a high level, and then we make a decision.
Do we deliver to this customer the next service order or not? Even on that level. I think so that's, that's one action. Inventories, as I mentioned also earlier in other meetings, let's say we have been seeing an increase in inventories over the past years for reasons we very well understand and also, yeah, accept in a way. One was increasing the inventories to facilitate the fast service spare part growth, and I'm fine with that as long as the ITOR rate is going in the right direction, and it does. Secondly, the inventory increase was due to all the transfers that we have been doing now from the old factory in Vaasa to the new factory, from Trieste to Vaasa at the same time.
In order to make sure that we are not falling on our knees and customer deliveries can continue, we needed to increase our inventory. Having done that now, there is a clear plan now to bring it down again, and it's working. Payables to suppliers, clearly one other factor. Our average payment time to suppliers clearly going up. So there are many factors. It's not just one. We are working on multiple areas at the same time. Another one, which I forgot to mention, is advances received. So the payment terms we get from our suppliers, sorry, from our customers, also clearly, clearly improving. Much more, let's say, front-loaded in the down payments.
I would say we clearly have cash flow on the executive agenda. I mean-
Absolutely, yes. Every week.
Good to hear. The last one is a technical question regarding the Trieste factory closure and kind of the saving number that you're pointing out. Which year should we compare that to? I mean, I assume that the workers have been furloughed for a while, so which year compared to which year is the saving for 25 to be achieved?
I would say 2021, probably, Roger, right?
Yeah.
Yeah.
Before we started-
Yeah. Yes
the whole exercise.
Okay. Thank you.
Yes, it's Tom from Carnegie again. I kind of noticed that many companies are now pumping up the margin, but they're also trying to decentralize the business, you know, splitting up the P&L and balance sheet in many pieces. Wärtsilä did this, you know, perhaps 10 years ago, but I don't really know what is the direction at the moment when you are kind of... Do you need to take kind of a firmer grip from the head office when you're pumping up the margin, or do you want to kind of increase moving of responsibility in organization?
So I like your term, "pumping up the margin." Yeah, we are improving profitability. Okay, but to your point, I mean, in big corporations, this is my experience, I think many of us share that experience, there is always a pendulum swinging back and forth on centralization and decentralization. And we are clearly moving in the decentralization space when it comes to profit and loss, and giving responsibilities for the business unit to drive their business. I think, to answer very short, clearly, to make the business critical, it's out not only with Anders, and Roger, and Tamara, but also with our business unit leaders and their owners of respective business, and this is how we wanna drive it.
Then, there are certain things that this is at least our view, that you benefit from keeping together. Let's take the whole AI and IT development. There is so much happening, and I think we see very strong synergies. For instance, on the service dimension, having the digital solutions that is actually required to drive this performance-based service business, there are very strong synergies between Energy and Marine. So, to identify, and there are a couple of those. We talked about the industrial system now in producing engines. I mean, it's one system producing for Marine and engine. So clearly critical dimensions where we have very strong synergies, but in general, we want to drive decision-making out decentralized to speed up the decision-making process and staying closer to our customers.
How do you monitor it then from the head office? I mean, do you have scorecards that or?
Yes.
How often do you get reports on how things are going, and how many levels do you have, and so on?
To add on what Håkan said to your question, Tom, only five years ago, Wärtsilä was one reporting segment. We had a completely different divisional structure. We had Wärtsilä Industrial Operations, we had Service, we had Marine, we had Energy. Since then, we have moved several steps. First of all, it was Marine Energy, then let's say we had Marine Systems, Portfolio Business. now, we are actually going back. It doesn't mean that, let's say, underneath, if you call, let's say, Marine and Energy a business, we have business units underneath. The P&L structure, for example, underneath is the same. It's just that you move certain units under a different division, if you want to call it like that, under a different segment reporting. Dashboards are coming. Now, it depends a bit on what the parameter is.
Spare parts, I can give you a clear example, I look at it every day. Other things come every month, but typically, let's say, nothing really comes more longer as a frequency than a month.
And then finally, I realize that Roger probably will talk about this, but, I mean, there's been a lot of talk of moving out of the engine room in the Marine business, and now you divest a lot of these other products. But what are the main products that you will keep that are, you know, not in the engine room?
It's the auxiliary equipment, but I think Roger will come back probably later on that. It's probably better to wait for his presentation.
Let's now take one online question: Regarding the service value ladder, is there an age range in the power plants of the Energy segment within which the owners of power plants no longer see it beneficial to take maintenance contract?
Yeah, I think there is. I mean, clearly, on the Marine side, we see a sweet spot on the assets. I would say it's between five to 15 years, something like that, and on the Energy side, Anders, what would you say? It's a little bit similar, I would say.
I would also say similar.
Are there further questions from Salmisaari? I think, Erkki, you raised your hand earlier.
Yeah, just a couple of more housekeeping question. Gas solutions, do you already have a shortlist of potential buyers, and how easy is it to detach the business from current Wärtsilä? What's the timeline here?
I think it's too early to have already a long list of, let's say, potential buyers. We just made the decision, and yes, it's not so difficult to carve it out.
And then coming back to Trieste, are there still any loose ends in Trieste, and has the engine portfolio that was manufactured there already been fully transferred to Vaasa, and it's all up and running?
So I don't know what you mean with loose ends, but okay. So Trieste, we have stopped the manufacturing of engines in Trieste, so those engine types that were manufactured in Trieste, they are now manufactured in Vaasa, so that's one thing. Then we will still be in Trieste for the long run, doing R&D and service, but the manufacturing has stopped. And now what we are doing with the manufacturing plant and also the employees, about 450 employees, originally working in manufacturing, we are in the so-called industrialization process, working with the stakeholder environment in Italy to find a new owner that would be interesting to take over the facilities and also the employees.
What, what happened to all those engines that you had in Trieste?
They are now produced in Vaasa.
Yeah, I mean, all the equipment that you had in Vaasa.
There are no engines anymore in Trieste.
So, Roger, do you want to comment?
If you mean production-
Production equipment
... Yeah. Some have been moved, and some is still there. Then, of course, when we find a reindustrialization solution, we will see what happens with the rest. Either something might be reused, or then we will move it out or sell it.
Now, you refer to the equipment?
The equipment.
Yeah.
Yes.
But it's not a big item on your P&L?
No.
No.
Or balance sheet. Thanks.
That is a consideration already in the write-off that we communicated earlier.
The last question: Which are your plans for Latin America?
... Ah! We have fantastic plans for Latin America. I mean, there are auctions coming in Latin America, probably next year. We are very well established. I mean, Latin America, in general, is one of the regions, not countries, where we often have done EPC, and where we'll probably most continue to do EPC. And there is a lot of things happening in Brazil, in Colombia, et cetera. But Anders, please feel free also to comment.
No, I just, to add to what you're saying, we are well established in many countries, Argentina, Brazil, Ecuador, Colombia, and Dominican Republic. So we also see auctions coming up there, so it's of great interest to our business. And also Chile, we shouldn't forget. Especially Chile is one of the countries that have a lot of renewables, so also very interesting for both storage and thermal when it comes to balancing.
Thank you for a very active Q&A session. Now, for all of you who are following us via webcast, we will take a short break, so please be back at 3:00 p.m. Finnish time.
Have you seen the rain is gone today? Hey, yeah. Oh, and the sun is shining so bright. Yeah, yeah. Hey, yeah. Oh, you know what I mean? Have you seen the rain is gone today? Hey, yeah. And the sun is shining so bright. Yeah, yeah. Oh, you know what I mean?
So welcome back from the break, and let's talk about decarbonization in Marine. Decarbonization in Marine is going full steam ahead. If we look at where we are now with the decision from International Maritime Organization, IMO, to go for net zero 2050, this is a speed that will be extremely fast in maritime. We talk about the next 25 years, which is about the same as one vessel lifetime, when maritime industry will decarbonize. But this is already happening today. If you look at the picture of the vessel that we see here, Aurora Botnia, a ferry going between Finland and Sweden, they already have carbon- neutral Fridays. This means that they run on biogas, thanks to Wärtsilä equipment, and can be carbon neutral already today. It's a perfect example on something that is happening already today.
If we look at the status at the moment and how we lead the decarbonization journey of Marine, if we start from the fuel transition, this has already started. If you look at container vessels orders this year, more than 50% of the capacity being ordered today has been container vessels powered by methanol as a fuel, and this is already today strengthening our market position. I will come back to that. As technology leaders in decarbonization, we are evolving from being an equipment supplier to a strategic partner of our customers. Every single customer I meet today, we have the same discussion: How do you combine the financial viability with the decarbonization journey? You cannot be too slow, then you are out of business. You cannot be too fast, then you are out of business.
You need to find the optimal way to do the decarbonization journey, and this means that we are at the sweet spot of this discussion. I've been 26 years in Wärtsilä. We have never been this well-positioned in front of our customers as we are today. This is the perfect position to have on this journey. Our service business is driving growth, stability, and profitability.... Decarbonization is adding more structure and more possibilities to this. For example, today, we have around 700 vessels under some kind of an agreement, and this is a business, as we discussed before, that we want to continue to grow. So before going into the next steps of the journey, let's a bit look at what we talked about in CMD in 2021, and recap on the progress so far.
We said we want to play a central role in decarbonization in Marine. Since then, we have contracted more than 100 methanol vessels in the maritime environment. We will, this quarter, launch the first, first ammonia engine into the market, and we are number one in hybrids in maritime sector. We said we want to maintain the leading position in the four-stroke main engines and grow the auxiliary engines. We are the indisputable number one on four-stroke main engines in the market. We have been growing the market share on the auxiliary engines, and we are even stronger when we talk about sustainable fuels in the market. I will come back to that later on as well. We have seen a clear growth on retrofits, 46% growth in retrofit net sales.
Transactional services has been growing with 27%, and 55% growth of sales to installations under an agreement. Talking about climbing the value ladder, we have 42% more installations under a Guaranteed Asset Performance agreement. Really, really good progress since 2021. Let's then move into where are we today, and what do we see in the market today? If we start with the Transform part, we are a key enabler for the customer's decarbonization. A key event was in July this year, when IMO decided to accelerate the target for the decarbonization of Marine. Going from a 50 minus 50% target in 2050, we are now targeting net zero in 2050, and all of this happening in one vessel lifetime.
This is an enormous transformation that will happen in the Marine industry, and it's spot on with our strategy and the portfolio that we have. We can already today enable the customer's transformation, both with the intermediate targets as well as the 2050 target with our portfolio, and we have even more in the, in the pipeline. On top of this, we have the EU regulations coming in. So if you look at the vessel operating in EU waters, by 2030, you will see the fuel cost double. If you continue like you do today, due to the emission fees based on operations in EU waters, the fuel cost will double. And if you look at this curve, it will increase even further after 2030. And this is a major shift from a money perspective, and usually, money talks.
This means that there will be clear focus on how do you create the maximum flexibility of a vessel? How do you create the upgradeability of a vessel? Here, already today, by being perceived as a frontrunner in the industry, it's improving our positioning in the market. 'Cause when you order a vessel today, you have to think about, how do you create the maximum flexibility for your vessel during the lifetime, to maintain the asset value, also when you want to either keep it or sell it after 15 years, as an example. What does this mean then, from a fuel development point of view? We will see a progressive switch to green fuels. LNG is still today the number one alternative fuel in the market. Methanol is gaining traction.
As I mentioned already, more than half of the container vessel capacity so far ordered this year has gone for methanol as a fuel, and we see also ammonia going to pick up. The key challenge here will be availability for, of green fuels. The key challenge is not our technology. The key challenge will be, how do you get the green fuels to power this transformation? But it's not just about fuels. The fuel price, either you pay it through emission costs or to the green fuels, the fuel cost for our customers will go up. So this means you will have more focus on efficiency, we see—which is, again, spot on with our strategy. You will see focus on different hybrid solutions.
You will see focus on different energy-saving technologies, because any saved fuel, regardless of the fuel you are using, is also a saved emission, so you will have a double benefit of this one. So we will see a gradual transformation going into carbon-neutral and zero-carbon fuels in the industry, and then a ramp down of the fossil fuels over the time. But you need the green fuels to be able to do the net zero targets by 2050. This is very clear. The next picture, you have seen a previous version of in the last CMD. We have upgraded this one a bit now... If you look at the reference point, last time we used heavy fuel oil as a reference point. Now we use the low-sulfur fuel oil as a starting point, because that's the most common fuel used in the maritime industry.
And if you look at then the last row of this picture, where we talk about the gross tank size factor, this is also a lot driving of which green fuels that will be used in the maritime industry. And if I go to the far right side and look at the hydrogen first, this is also the reason why we believe hydrogen will not play a major role as a fuel in the maritime industry. It just takes too much space. 7.3 times if you are on liquid hydrogen, which is as such, a very complex fuel, and up to 20 times if you are in compressed hydrogen. You rather have space for either cargo or passengers as well on a vessel, not just have a vessel full of fuel to reach the endurance.
So we see that hydrogen will not play a major role. The key will be here, moving to methanol and ammonia, and then the green versions of methanol and ammonia, because that's a good compromise on the fuel and the space need. But then we come to the real interesting part here of this page. If you look at the mid row here, and we have said before that green fuels will be two to four times more expensive than the existing fuels. If you now then look at the vessel operating in EU waters in 2035, and with the emission costs coming on top, we will be already at a level playing field between green fuels and fossil fuels for these vessels in EU waters in 2035.
This is an extremely short time period in the shipping industry, and this also means that for you, as an owner-operator in EU waters, after 2035, it will become more expensive to operate on your existing fuels than to move to the green fuels. Now, we come to the fact that money talks, and this will be a key transformation of the maritime industry. IMO has the same curve on a global level. The difference between the EU rules and the IMO rules is that the EU rules are much more clear on what it means on the financial measurements. Here, you can calculate the euro, cents, and dollars. What does it mean for you to operate on a certain fuel in the EU waters?
IMO still has a bit of work to do on this one, but I'm certain that when the rules are upgraded around 2025, we will see much more clearer financial targets as well, coming from the IMO regulations. Today, what you need to do is you need to stay on the curve. So in the big picture, the curve is still the same, but what it means is that if you are too low, low on what we call the CII index, you need to make improvement plans and show how you get back on the decarbonization curve. This is still not clear, equally clear as what we see on the EU regulations, but it's coming. So we will see the financial incentives to play a significant role in this transformation.
As early as 2035, we will be at the level playing field, which is very, very soon. For us, having the most comprehensive offering for decarbonization, this is a perfect position to be in. If we start from the engines, we are the market leader in four-stroke, medium-speed main engines. We have the industry's fastest and broadest future fuel roadmap, and we have already six methanol engines launched to the market, either as new build or as retrofits. We will launch the first ammonia engine still in this quarter, and we will have the technology concept ready for hydrogen in 2025. On top of this, when we talk about electrification, we are the market leader in hybrids, with more than 26% market share.
We have launched, as Håkan talked about earlier, the new hybrid electric concept last quarter, which I will come back to, and we have the world's biggest hybrid vessel is powered by Wärtsilä. On top of this, we have the carbon capture, where we will pioneer with the first full-scale carbon capture in 2024, and with a commercial release in 2025. And we see this to be around a EUR 10 billion opportunity market within the next 10 years. So we are extremely well-positioned for this transformation. Then hybrid electric. We got a question already earlier on: What does this mean? Hybrid electric will change the concept for LNG carriers. If you look at an LNG carrier today, it's a conventional two-stroke solution, where you have two-stroke main engines, you have four-stroke auxiliary engines, and it's designed for 19.5 knots.
This is what the design speed on almost all LNG carriers is. The problem is that most of the LNG carriers today has an average speed of 14.5 knots, and this means that you are far off the optimal usage of the main engines. This means that you are not at all optimal in how you operate the vessel. What we are now then introducing together with our partners, with Shell and Hudong-Zhonghua, is a four-stroke concept where we use smaller engines, but more of them, which means that depending on the speed you need on the vessel, you just use the amount of engines you need to have at optimal speed. And on top of that, you have a battery as a spinning reserve, so you don't even need to have any power reserve.
You just kick in the battery if you suddenly need more power. And with that, you get a smaller engine room, so you have 6% more cargo capacity in the same hull. More cargo, you will have more than 10% less fuel consumption and emission, 20% lower fuel cost, maintenance cost, and much more flexibility also in the future if you want to do upgrade of these vessels. So this is our new concept for LNG carriers that we have now brought into the market, and we see good opportunities for this concept going forward, changing the LNG carriers into a different engine technology, thanks to the decarbonization change in the market. If we then go continue with our main engines, we are the leading provider on four-stroke main engines in the market, with a market share of 45%.
On the auxiliary engine side, we have a market share of 15%. This is a more, diverse market with more smaller players as well. But the interesting part here is, both when you look at the main engines and the auxiliary engines, when you talk about sustainable fuels, our market position is even stronger. Here you see what it means to be the market leader on the sustainability. Customers today have to think about who to partner with when they select technology for a vessel that will be used during the whole decarbonization era. This is a key technology choice, and you see it in our positioning in the market.
Our sweet spot, the four-stroke main engines, if we deep dive a bit more into that one and look at the key segments using four-stroke medium-speed main engines, it's a market estimated by Clarksons to grow annually by 11% during this decade. And in the key segments that we are talking about here, ferries, we today have 65% market share; cruise, 85% market share; and offshore, 55%. This is our sweet spot in the market, where it's estimated to grow clearly during the decade. So to summarize where we are today in the market position, we are very, very well positioned to support our customers during this journey of decarbonization. If we then move to the Perform part, how we grow in services and drive the decarbonization.
We can look at the Marine Power sales today, and we have three distinct revenue streams, and these three distinct revenue streams in services is already today more than 60% of total Marine Power sales. Let's start with transactional. This is about parts and field service supporting our customers in transactional services. Here, the growth driver is very much the installed base growth that we see happening, and the focus areas for us is to have the best customer service in the industry, but also about service offering and taking care of the long tail of customers, meaning installations that are getting older. If we then move to the agreement and retrofit side, here we will see clearly the same growth drivers: increasing cost of fuels, increasing cost of emissions, and to some extent, also the increased complexity.
All of this will drive the interest for agreements, because we can support the customer in optimizing the fuel cost. We can support the customer with looking at the downtimes or any other outcome-based needs they might have. So here on the agreement side, it's really about the service-level differentiation, also using digital tools. No one else in the Marine industry have the same level of agreements that we have in the maritime industry. This is really a competitive edge that we have. On the retrofit side, if you look at the cost of emissions that you're seeing, you have to look at anything related to efficiency upgrades and also, at some point in time, how do you start using green fuels. Also, already, again, fitting very well to our retrofit offering.
Today, talking to our customers, we actually do quite a lot, either looking at a vessel or a fleet together with the customer to look at, again, how do we optimize for that customer to be on the right balancing path between the financial viability and the decarbonization journey? We have the toolbox to support our customers with that. This is also a unique positioning, that we have enough of the offering to help the customer to find this sweet spot. For us, this type of consultative services towards the customer is something that we already see increasing. Going back to the agreement and how we move up the service value ladder, Håkan mentioned this already earlier, that we target to move customers to the early phases of the agreements, but with a clear target to move it up to the Guaranteed Asset Performance agreement.
Here we can talk about response time, uptime, fuel consumption, and I believe in the future, we will also talk about emissions on these type of agreements. What this means is that we can use the benefit of scale here with AI technology data and our know-how about the equipment and the industry to support the customers on this journey. I can pick one recent example of Guaranteed Asset Performance agreement. We signed this year an agreement with Corsica Linea for the newest ferry going between Marseille and Corsica, where they opted for a Guaranteed Asset Performance agreement for response time, and partly also for uptime of the newest asset. It's a good example of a value proposition that we have to our customers. If we then look a bit more on the agreement side, we have seen a 17% growth on vessels under agreement.
A bit of the key metrics of the agreement business, 90% renewal rate. This is again showing the value we provide to our customers. We have seen a 26% growth in sales to agreement to vessels versus pre-COVID level. We had, yes, a dip during COVID, especially for cruise, partly through ferries as well, but we are back on that track and even above the levels we had before COVID hit us. Today, we have 29% of our engine installed base is under agreement. Then looking at the customer benefits. When you are under a Wärtsilä agreement, 90% of the issues we can solve remotely, and we have 29% average of reduction of unscheduled maintenance. These are clear values to the customer.
If I take an example of a fuel savings of a cruise fleet over a six-year contract period, it's clear money for the customer and partly for us as well. More than EUR 60 million saving of this fleet during this time period. The key issue here on the agreement side is really to combine AI and data analytics with the product know-how, the industry knowledge, and the benefits of scale. In the maritime markets, you see many digital solutions that indicate that, "Take this in use, and you will save X%." But it's more than just the digital connection. It's to have the AI and the data analytics, but you also need to have the know-how of the product, the people that understand it, and understand how it's used in the field.
This is the sweet spot for the customer, and we see it already in the way that the agreement business is growing. This is where we can help our customers to improve and help our customers to decarbonize. If we then move to the retrofit side of the business, again, driven by the tightening regulation and actually the additional costs that you will see for the emissions. Today, 48% of the fleet are not CII compliant if you don't do anything, and this will increase to 72% in 2027, if you don't do anything. Then the easiest thing to solve this for many and most ship owners has been to take down the speed. You reduce the speed of the vessel, you improve the CII, and that has been the easy to start with, but that will not either be enough.
We will need to see more upgrades of different types, energy-saving technologies, hybrid solutions, and step by step, going into fuel conversions as well. A few success stories from this year. We have sold the first four-stroke methanol conversion. We have delivered the first two-stroke radical derating in the market. First time ever done, where you take a large size two-stroke engine and actually change all the cylinders, everything related to a smaller cylinder. And what you do is actually you optimize the existing engine to be less powered for the slower speeds that they are using today. Outcome is that you have a vessel with more than 10% fuel savings for our radical derating solution. We have done multiple hybrid retrofits, and as I mentioned earlier, we see increasing demands for decarbonization services.
Everything we can do to support our customers to find an optimal solution to do the decarbonization journey. So to look at this then from a performance point of view, we have many drivers here, but if I start from the growth drivers, we have a really favorable mix of the vessel contracting coming up, a good growth. Uptake of future fuels has to happen. This is the only way that you can decarbonize the maritime industry, and you will see higher focus on fuel flexibility, efficiency, upgradeability, all spot on to what we are doing and what we can offer the customers. On the service side, we have a growing installed base. We see an increasing agreement coverage, where we and where we climb the service value ladder with more complex agreement, and we will see more retrofits due to the decarbonization needs.
Then moving to the other side, to the profitability, we have done and are doing structural changes, and we focus a lot on continuous improvement. Recent examples, we already talked about ramp down of manufacturing in Trieste on the engine side. On propulsion, we have exited Santander and Zhenjiang factory in China. The Voyage service turnaround is on its way. We have taken good steps on the new operating model on the cost base. We are not yet where we want to be, but the direction is good. And on the flow efficiency and continuous improvement, this is a good example. On the field service side, where we have a lot of volumes, we have seen 20% better ratio of non-billable versus billable resources on the field service side. This is a perfect example of continuous improvement. How do we step by step improve the way we operate?
On the price management side, it's about the value that we provide to the customer, how to maximize the value-based pricing, and to look at the indices on the agreement side to make sure that we are on top of the price development and cost developments in the market. So to round up and look at where we are today, we are in a really, really good positioning in the market. Fuel transformation has started. Good example, container vessels— more than 50% already ordered this year for methanol. Being the technology leader in decarbonization, we are at the centerpiece of our customer strategy. The customers have to look at a score of their strategy, how to do the decarbonization. If you are too slow, you will be out of business. If you are too fast, you will be out of business.
Wärtsilä has the positioning in the market to be the best one to support that, the customers on that journey because of the offering we have and the portfolio we can provide. And this we see also in the Service business. We see it as growing needs for agreement. We see it as growing needs for retrofits, and it's all driven by the decarbonization. So ladies and gentlemen, maritime industry is a very exciting business to be in these days. It's a long-term journey. It's about 25 years. But in maritime timeframe, this is like everything has to happen now, because you talk about one vessel lifetime, and that's extremely fast. Thank you. Now, next, I'll invite my colleague, Anders Lindberg, to talk about Energy. Please welcome Anders.
Good afternoon. You just heard Roger talk about the decarbonization and the role it plays in Marine. In Energy, decarbonization also plays an important role for our customers and for our business. Let me share how we will improve our profitability in our business and also how we will execute on the growth opportunities coming from the decarbonization. We see three ways that we can create significant value in Energy, and the first one is, of course, about profitability. It's the Perform. We are on track to deliver on our targets. As you have heard, Håkan also mentioned before, these are in different areas. First, with the new- build, where we clearly can see that we have an improved risk- reward. We have the profitability continuing and also the growth in Service by moving up the service value ladder.
We also drive the profitability Energy Storage by increasing the value- add in our products, and I will come back to that. We also have a good growth opportunity in engine power plants. The market is developing very positively, wth 90% per annum, up from 2022 to 2030. We are the most global market leader in engine power plants, and as Roger also have explained, we have the engines and the capability to convert to the future fuels that we will see. The third part is, of course, Energy Storage, where we also have a good growth opportunities of 17% per annum between 2022 and 2030. We are a top five global leader, and we have a differentiated approach compared to many of our competitors regarding project execution excellence, safety, reliability, and also fully integrated design.
As has been said here before, it is under strategic review that we have started. Let's now look back to what has happened since the Capital Markets Day in 2021. If we look on the Perform side, we have improved the profitability in the ES&O, and it is now profitable on a 12-month rolling basis. We have achieved a good growth in service, +31% in total order intake. We are +41% in agreement order intake, and we are +29% in performance-based agreements. We also have improved the new build margin in our order book. If we look on the Transform part, there, we have captured growth in thermal balancing.
We are up 17%, and we also have captured growth Energy Storage, where we're up 35% in the order intake. As you know, I started in Wärtsilä five months ago. I have worked my whole career in project businesses, and I have led an EPC arm of a leading renewable wind developer. Since I started, I have met many of our customers, suppliers, and a lot of our employees. And let me share then, three conclusions out of these meetings that I have had the first five months. The energy transition will create very interesting opportunities for the Energy business. Also, when I met with customers, they confirm that we have the right products and services that our customers need. And I can also say the actions that we have taken are in the right direction to improve the risk-reward, and thereby the profitability in our business.
Then I will go through the Perform side, and there is no, there is a reason why I start with the Perform, while my colleagues have started with the Transform, and that is that, that is our number one priority in Energy, is to improve the profitability of the business. And I will cover this in three areas. The first one is with the new build. And in the new build, we have a new organization that we have implemented since the start of 2023, with global business units being responsible for the profit and loss. Also, making sure that we have common processes, that we capture learnings in one area and bring it to the next area, and also that we keep the discipline. We have also had changes to the leadership team.
Four out of 10 persons are new in the leadership team, coming from the reorganization, also including myself. We have new governance, and we have also updated our processes when we have introduced this new organization. If we look at the offering and the risk management, as we have heard before from Håkan, our EEQ is the preferred offering, and we only do EPC in selected markets. I want to point out, we still do EPC. If we look in our order book, in 2022, we had 80%—no, today, we have 80% going into 2024 in EEQ. We had 40% in EEQ in 2022. It is already a big shift in terms of what we offer. This will lead to less volatility, and there will be less risks in our portfolio.
Then, oh, another important thing is the discipline that we have regarding risk management, because risk management is key in project management and these type of projects. And also there, we can see that this is already paying off by having a stronger order book going into 2024 and the coming years. Then, let's look at the second area, which is service. Here you can see from 2021 until today, we basically had 14% growth per annum. This is a very good growth. To the right here, you can see the drivers, which is, of course, the installed base, but also how we continue to move up the service value ladder.
And just to point out a few points here, first of all, it's about securing the new agreements, or securing that we have a good agreement coverage, and we have 90% renewal rate of our agreements, and we also sell—When we sell new power plants, we sell, try to sell these with agreements from the beginning. Also, if you look at the share of agreement customers, we have increased that, and we have now 18 GW, which is 3.4 GW more than what we had in 2021. And we continue to move up the service value ladder, so performance-based agreements today is 7 GW, and we have added 2 GW than 2021. If we then look at Energy Storage, that has grown three times since 2021 and is now profitable.
Also there, we have a commercial approach, where we are focusing on some major markets, because we want to have a certain critical mass when we are in the market. So we have selected markets, like U.S., U.K., Australia, to mention the most important ones. The other thing is that we are very selective on types of customers and also the projects. So we do not only want to compete on cost, we want to also compete on differentiation and where customer acknowledge that there is a difference between the different suppliers in Energy Storage. so this is the second box Energy Storage that's important. I can say that having talked to major customers, they recognize this difference between the A and the B suppliers.
So excellence in project execution, key for customers, that we are reliable and a leading global player with a reputation. We have an industry-leading design, especially regarding safety, and also the certification that we have in fire safety. This is key, and here we also can differentiate ourselves. And also, if you look at our track record, we have had no fires in our equipment. The other thing, also, of course, we are a fully Energy Storage solution with a scalable design, and we have our GEMS, which is very leading Energy management system, which also differentiate our solutions towards our competitors. Then, of course, we also need to work on the cost- competitiveness, where we work on developing hardware and software to have a competitive product.
And we are also looking at the supply chain, where we work actively with the supply chain, and we also announced 1.5 months ago that we signed another supplier on the battery side. And we, of course, also need to do this to meet the regional requirements for localization. Looking into transformation, clearly, decarbonization is driving this business of balancing power, and we have two balancing solutions. We, of course, have Energy Storage, and we also have the thermal balancers, but it's all driven by the increase of renewables. So that is the first thing that happens, and here you can see that from 2022 up to 2030, it increases from 30% up to almost 60%, and then it continues up. This is what's driving the balancing business.
If you look at the thermal balancer market, we expect that to grow close to 20% per annum. If you look at the base load, which is also an important part of our business and will remain so, it grows with 4% per annum. So these two is what makes up the thermal power plant business. And then on the engine power plant side, we are in a strong position for this balancing market, and let me explain why. First of all, for the balancing market, engines are superior to gas turbines, and the reason for that is the faster start up and shut down. We can cycle many, many times without no cost impact on the maintenance, and we have high efficiency.
This makes it possible for us to catch the price spikes that is on the market and make better revenue, and I will come back and show an example of that. We also have a very good modeling capabilities. We have modeled 190 markets in the world. And with this capability, we are a good partner to the customers for designing their energy systems. Also, when the customer sees that the engine is the best solution for the balancing, we can also say that we are the clear market leader. It varies between quarters and even between years, but we normally have between 50% and 70% market share. We are also a leader when it comes to developing solutions with new fuels, as Roger have showed earlier today on the engine side.
We also proactively develop these markets when the renewable is increasing. Looking at some of the interesting markets for thermal balancing, we can see US, Australia, Europe, and India. To the right here, you can see how big these markets are in 2027 and also what is the growth rates. However, we should also not forget that we have additional potential markets where we also see a big interest in balancing, like Brazil, Argentina in South America, China, Japan, and Vietnam in Asia. Let me now take you into an example, and we have taken Texas as a proof point for the thermal balancing market. The reason why we do that is that it's sized as a... yeah, France, in this case, as an example, but it's a, it's like a country in Europe in size terms.
It has a very high amount of renewables, so already 40% renewables in Texas. It has also very granular price signals on the market, and it also has a good policy support for balancing. And I saw that the day before yesterday, they also passed a new, Proposition 7 , that makes good interest loans if you build balancing power in Texas, so that's actually very good news. Also, Wärtsilä has a good installed base in Texas, 1 GW of thermal balancing and 1.2 GWh of Energy Storage.
If you then compare two engine power plants that we have in Texas with two gas turbine plants and look at the prices that has been on the markets and the starts and stops, you can say that the engine power plants can earn 1.6 times what the gas turbines can earn on this real-time market. So that is how good the engines are compared to the gas turbines, if you have the right market conditions. The balancing market, we also see very similar conditions in other markets. So if you take in the U.S., it's not only Texas, but you have the whole Midwest. And for those of you that are familiar with the different areas of power in U.S., it's also the SPP and the MISO areas.
That's the whole Midwest, where you also have a lot of renewables and very similar conditions. We can see the same thing forming in Australia, and also in many countries in Europe. Not all countries in Europe, but many countries in Europe. So we think that this is a very good case of also predicting what we will see in other markets that I just mentioned. Also, going forward, we have a good and credible roadmap for our engine, and also the possibility to convert into these new fuels and avoid stranded assets for our customers. Because the same as, Roger said, with the lifetime of the vessels, of course, if customers are going to invest in new power plants, they need to know that this is also, good assets for the future, and this we can show by having the different types of fuels.
And it's especially hydrogen, we think is the most interesting fuel, where we already have been running on 25% hydrogen blend in 2022 with a customer in U.S., which is first of the kind for engine power plants. And we also are working to make the whole power plant ready in 2025, and also to start a pilot in 2026 when it comes to hydrogen. And also on the ammonia side, we are developing a concept for ammonia, because there will be customers that prefer ammonia. Especially if you have to transport these fuels, ammonia is in a better position than hydrogen. However, hydrogen will be interesting in these hydrogen hubs that we, we've been starting to build. So we need to have several opportunities in our portfolio, because I don't believe that there will only be one solution for the future.
Then the third area Energy Storage, where there is a very strong outlook for growth. And some of you might then say, "Okay, it's only 70%. Last time at CMD, we said 30% growth." But what you then need to know is that in 2021, the addressable market in 2030 was only 55 GW. Now, it's 83 GW, so we have actually increased it. But also the base has increased to 24, and that's why the percentage has gone down. So in actual terms, it is higher than what we said in 2021. And we will continue to focus profitable growth, not only growth, but profitable growth, and we want to maintain our top- five global position.
But I can also say that some of the core markets, like the U.S. and U.K., we are top three, and we intend to remain in that position. Then, looking at the total picture, profitability, growth, we can see that the new build margins are on the way up. We have introduced new organization, new governance, stronger risk management. Also, operational leverage from growing the new builds will improve the profitability. We have the continuous improvement, which is many projects that we will run all over the business. We have the new build sales, where we see very strong opportunities for thermal balancing, but also Energy Storage, and that we have a future-proof portfolio. And then, of course, we will continue to drive the growth in services with the installed base, but also to increase and move up the service value ladder.
So I have shown that we are on track when it comes to improve the profitability in Energy. We also have growth opportunity in the thermal balancing, and we have an excellent opportunity to continue the profitable growth Energy Storage. thank you very much, and now over to Hanna for the Q&A.
Thank you, Anders. Now, I also ask Håkan, Arjen, and Roger to join the stage. Thank you. Let's start with couple of Marine-related questions we have received online. First, coming back to this question, which was raised already during the previous session and which we did not answer. So please expand on your comment that you expect four-stroke engines to start cannibalizing the two-stroke market. What will be the catalyst? What time frame will this require? Will it only be for new builds? How will you educate a highly cost-sensitive customer base in a different market segment to your core niches to market the switch?... Quite a long one.
The driver here is decarbonization. As I mentioned earlier in my presentation, it's a lot about how can you show that you have lower fuel consumption over the power curve of the LNG carrier, because we talk about LNG carriers in this concept. And it's not about what the design speed is, it's about what you actually are running the, the vessels at. And there we have shown that our hybrid electric concept is, is much better and at the average speed they are running. So yes, we talk about new builds, and it's about the decarbonization as a driver.
And if I sorry, if I may add, money talks. I mean, 10% fuel saving, that is immense savings in dollars.
Thank you. Do you see hybridization as a key for e-fuels to make the solution affordable? High price of e-fuel versus current fuel requires OpEx increase.
I think these are two, two separate drivers. Yes, we see hybridization happening, but that's irrelevant of the fuel you're using, because hybridization will drive more efficiency of the vessel operation. That can be done with all different fuels, so I see these as two different drivers.
Mm-hmm. Thank you.
They're synergetic, right?
Mm.
Yeah.
Then question regarding IMO: regarding the IMO greenhouse gas targets, it is one thing to aim for a 70% emission reduction of the fleet by 2040, but another, another thing to actually enforce it. So how does IMO plan to implement these targets? How enforceable are these targets, and can you give concrete examples that show how ship owners are forced to invest in new, efficient engine solutions?
It's a very good question, and as I mentioned earlier, I think IMO still have a bit of work to do on the regulations on this part. But it's clear that this will happen, because what happens today on the CII curve is if you are in the two lowest categories, meaning the D and E categories, then you have to create a plan that you submit to show that you are actually going to improve on your energy efficiency. But what's happening on top of that is that we also see it, both on the chartering side and on the financing side, that you need to be on certain categories to, A, to get financing for your vessels, and, B, to get charter agreements. So it's also driven by other parties than IMO as well.
As I said, I expect this to be tightened and more clarified when we get to 2025 as well.
If I may comment, I mean, it's clearly so. Please note, with the current EU regulations in place, fuel cost in Europe will double to 2030. I think it's reasonable to assume that that will also have an impact on how IMO sees the future framework for regulation related to carbon tax and the goals that we set.
A good question regarding services: what proportion of new equipment sales customers today ends up taking out a maintenance contract? If possible, explain by both Marine and Energy businesses. Has this channel, new equipment orders moving to service contracts, changed significantly in the past three to four years?
I think that from Energy side, we're definitely trying to increase the amount of service orders that we can sign at the same time as the new build order. I must say, I don't know exactly the percent that we have today.
If you look at on the Marine side, we see a clear increase on, on demand of agreement driven by the decarbonization, but it's a bit different than in the Energy side, because first we sell the new equipment package to, to the yard, even if we already at that stage always talks to the owner. So we, we have dual discussions ongoing at the same time, and we early talk about an agreement. But what in practice usually happens is that we then sign the agreement later on when it's closer to when the vessel come into use.
And I wanna go back to the previous question, sorry, also about the fuel and the... And Roger already pointed out that the key, key challenge to the whole transition is the availability of the new fuels. That's clearly so. But if you look at the investments in vessels that are being made right here, right now, you need to design in flexibility, and that's why Roger mentioned, you know, 60% of, of the container vessels so far contracted this year are enabled for, for, for methanol. It doesn't mean that methanol is available. There is clearly not enough methanol to fuel the expanding fleet.
But owners have a very strategic view, 25 to 30 years lifetime, "How do I create that flexibility?" And that's why, on the equipment side, this is a market that is taking off now, although, of course, all the fuel is not available yet. And it's a little bit similar on the Energy side. I mean, when we think about hydrogen, you will rightfully say that it will take years, if not decades, until we will have a significant amount of green hydrogen available. But if you wanna build a power plant for balancing or for base load, it needs to be hydrogen-enabled to get planning permits and to move onwards. So that on the equipment side, customers are already focusing on the new sustainable technology, although the fuels will come in later. So I just want to make that clarification.
Thank you, Håkan. Then a couple of questions about storage: how big part of the storage market in North America, Europe, and Australia is such that the customers recognize and value the characters that differentiate Wärtsilä from the others? i.e., how big is the actual addressable market for Wärtsilä versus the total gigawatt hours that are being tendered?
... I can only say that the major customers that I have talked to, and these are major customers in these markets, they do value the capabilities, and reliability of having a major player that can execute on time the products. It's important for their business cases. They normally also, in many cases, do this together with solar, and it is important for the business case that this is delivered on time.
Thank you, Anders. Then continuing with another storage-related questions. Regarding the strategic review of storage, in case you end up divesting the business, what would physically be sold from the group? Has there been a dedicated group of salespeople and engineers in storage, or has the business been run with a joint organization with a thermal business? Would the sales of GEMS make it more difficult to compete in the emerging market thermal baseload space?
So, I think there was a couple of questions in there.
Yeah.
First of all, we have set up the business, and already in the beginning of 2023, we set up this BUs with profit and loss responsibility. After the summer, we also included all the sales personnel that is needed for the storage business in the storage BU, so it's really an end-to-end responsibility. As Håkan mentioned before, there are certain functions, like group functions, and also functions in Energy that still support. But I would say the core of the business is in this BU, and is also measured, so there will be no transfer of extra people in the core of the business, the main functions.
Then when it comes to the GEMS, that is, of course, important, and we have products together between the power plants, the thermal power plants, and storage, and that we will have to solve, that there... And there will exist a solution also in a potential demerger, then that we would still make sure that we have a capability also for the thermal power plants to do the management of the energy system.
Thank you. Then moving to services, is there a significant margin difference in services from transactional contract and retrofits?
I would say on that part, it depends a lot what we are talking about, and there are big differences in depending on the value we provide to the customer, so I think it's difficult to answer that question.
Mm-hmm.
Yes, there are differences on the profitability side, yes.
Any questions from Salmisaari?
Thank you. John from Deutsche again. I just wanted to spend a bit of time on Energy. Can you talk to us about the outlook for baseload demand, and the role you wanna play in that? Second unrelated question: You seem to have super normal or above average market share in these dual-fuel designs. How should we think about the margins on, say, a three to five year view in your original equipment segments? I imagine you can charge more because you're offering more. How sustainable do you think that is, or should we think of it more as a factory utilization and absorption of fixed cost? Thanks.
So, starting with the first question, baseload, I showed in the presentation that it... We see a growth of 4% per annum on that, and starting from a higher level than the balancing is. So, we see that we can grow at least with the market rate also on the baseload side, and it will remain an important part of our thermal power plants. I chose to talk a lot about balancing, because that is what has been discussed, and that's also what changes with the Energy transformation. But the baseload also remains important in many markets going forward, and also then for our business, obviously.
And then, thinking about your questions about margin development, et cetera, I think with a, let's say, a 70% market share in engines, we have a lot of respect for our engine competitors, but I think we see the gas turbine players as our major competitors. And I think here, you know, with the intrinsic benefit of our piston technology, when it comes to flexibility and, and, I think that... And also with the good operational improvements, you know, we are bringing value. We will capture some of that value, so it's not only a volume play.
Yes.
Yes, this is Tom Skogman from Carnegie. I wonder about this LNG solution. You spoke a lot about the savings, but what is kind of the CapEx side of it compared to the two-stroke?
If you look at the total vessel cost, it's too early to say it, since none have been contracted yet, but it will not be any significant difference from a CapEx point of view for the vessel compared to a traditional two-stroke solution, which is the important question from a customer point of view.
And then all these batteries on board vessels, I mean, we had a horrible situation in the Netherlands, and you are increasing the number of batteries in vessels, and of course, passenger ferries have their own challenges. Do you have any kind of solution for passenger ferries here? And what kind of risks do you carry if there would be a fire in a vessel with your batteries in it?
So I think if I start on what... I mean, I think the Dutch incident you're referring to, that was a vessel carrying electric cars. So the electric car industry needs to sort out their answer to your safety concerns, all right? When it comes to the Marine industry, these are not the same type of design of batteries as the car industry... and the whole regulatory framework around batteries for Marine is very much different from the car. I'm not saying it's better or worse, but it's certainly different. And I think with the whole concept in Marine industry of class society, which needs to approve everything, I think there is a very stringent focus on safety aspects. But Roger, please.
Yeah, and to add on, we already have today a lot of hybrid solutions for passenger vessels, so that's, you can say, it's normal business today as well.
But how do you make sure that there is no fire when you have large batteries in them? And if it would happen, what kind of risk would that mean for you?
If you look at the safety aspect, you already today, from an engine room point of view, have these contained compartments. So you, even from an engine room perspective, usually separate two, even two engine rooms. So you already in the design of the vessels take this into account. So you can say battery or engines or power technology on board is already considered. And to add on what Håkan said, the class societies are monitoring this. So you can say in a vessel, this is already normal way of working.
If you have the fire in the battery, you can still run the vessel.
And then, about fuel cells. You developed fuel cells at some point yourself, and then you decided to walk out. Now, I think you said you will do partnerships there, but to my understanding, the Chinese are putting a lot of effort on developing fuel cells, and then we have, like, small nuclear reactors, et cetera. So can you perhaps... I mean, what is the latest in this field? How certain are you that the engine is the kind of superior technology, not only against gas turbines, but against these other technologies 10, 20 years out?
I mean, it's a good question. I remember when I graduated from school in 1990, I went to Japan and I saw a fuel cell, and I was told by Toyota at that time that that is technology of tomorrow, and I still think it's not in mass commercialization. But nevertheless, we think that fuel cells are important, and it's important to monitor and also work with partnership in order to be prepared if that technology will be the dominating technology in the future. But we don't see that yet, and we still believe that the engines have a good role to play in the future, and at least for the foreseeable future that we have in our strategy.
So we need to continue to monitor and form these partnerships, so we also can handle if technology will develop in a different way than what we think today. That would be my answer.
No, I mean, I think there are two aspects to the answer. I mean, there is the Energy aspect, which Anders talked about. I mean, at the end of the day, it's about thermal efficiency, it's about ramping capabilities, and we are following the technology. And I would say I think we are fairly confident in our technology, but of course, we learn, so we should be humble. So we keep on monitoring. On the Marine side, I think Roger pointed very clearly, pure hydrogen is, it takes too much space for big Marine. So there, if you want to go for zero carbon fuels, it will be more ammonia. There are safety concerns on ammonia, but step by step, I think this will be resolved.
So there are a little bit different facets, but, I mean, we are not arrogant. We keep on the partnership. We are learning together with our partners, but we do see that the thermal efficiency, the flexibility of our engines, it's pretty good also compared to the new technologies.
And if I can add to what you say, Håkan, also on the Energy side, we see hydrogen as important because they are building these hydrogen hubs now in the U.S. and also in Europe, and there hydrogen will play a role. But it's very difficult to transport hydrogen, and you need the new infrastructure if you want to do the piping, et cetera, for transport. So we also see that there will be other fuels. So, and of course, the fuel cells works with hydrogen and not other fuels, so we definitely think that there will be several of these fuels in the future, and we need to be able to have a solution for all of them.
Hi, it's Erkki from Inderes again. Roger, you talked about container vessel orders running on methanol, but container vessels have not traditionally been that important a segment for Wärtsilä. How much of other vessel type orders are methanol-powered? I mean, what's the trend there, and what's your competitive position?
Yeah, it's on the container vessels, it has been mostly the auxiliary engines from our side. But if we look at the main engine side, we have seen we have published a heavy lift vessel that is main engines from methanol already. We have seen movement on the cruise side already and also on the passenger side. So it's also happening in other segments. It's I would say, across all our different segments, this change.
Do you see that the trend is slower there than in container vessels?
I think percentage-wise, yes, it has been clearly the biggest, because that's where it started, and that has been the biggest trend so far. So percentage-wise, yes, the biggest there.
Do you see that all the other vessel types are kind of following suit?
It is following suit, yes. Now it will come back to what Håkan said earlier. Now the owners are investing in the flexibility. Now the fuel availability will need to follow, and that's where we are not there yet on the green fuels, both methanol and ammonia.
Okay. Thank you.
Mm-hmm.
Yeah, hi, Antti from SEB. The first question is on the EEQ versus EPC on the Energy side. So I mean, the benefits are quite obvious regarding kind of project risk profile, but you're bringing essentially somebody in to carry those project risks. So could you describe how kind of a client-facing are you when you do equipment only, does it compromise your ability to take service agreements, get aftermarket opportunities? What's kind of the downside of not doing EPC?
Now, first of all, when we do EEQ, we have the same capability to and same opportunity to capture the service business. We are an OEM, and of course, all the parts, et cetera, we have control over, so to say, when it comes to the engine. So I don't see the difference in the service opportunity there. As you say, the risk will be lower with the EEQ than EPC. There are some markets where we definitely see an opportunity and where we have the experience and capability to do EPC, and we will continue to do so on those markets.
And I would say, I mean, one typical situation in some market is that we work a lot with power system studies and project development, and this is kind of long-term development. And then you develop a project, and we establish a good customer relation. Then we structure, and sometimes then there comes in a civil and installation contract, and they might be prime, and we are the equipment supplier, so they sign the contract. But we have been in relationship with this customer for years, developing the power system thinking. So it's not that we are, you know, three steps behind, and we don't have a customer relation. That is a fairly typical situation, I would say.
No, I'm just then wondering why to do EPC at all, other than to get a bigger top line?
No, I mean, in certain markets, it could be so that to make a project happen, we need to take a step forward and, you know, bring it all together, because in that market there is very limited experience from engine power plants. So... And if we can find the right conditions with the right risk reward, we will still do that going forward. But, I mean, if you take markets like the U.S., that is an EEQ market already today. I mean, you don't do EPC in the U.S. I think that the whole industry is structured like that. Germany, I think we will not do EPC in Germany going forward, so-
But I would like to emphasize what you say, Håkan. It also depends on the market. In some markets, there are very well-established EPC companies that do this for a living, and in other markets, there is not such companies. And of course, that also affects what is our approach to it.
Okay. And then on, on the Marine side, I mean, just a question on your client base's kind of investment appetite. I mean, you, you mentioned that the regulation, IMO, has taken a couple of steps forward, your technology has matured. So are we kind of past already of the phase that the clients were very hesitant to invest, because there's so much uncertainty regarding technology, regarding regulation? And then, I guess, the other aspect is more cyclical, that vessel costs have gone up quite a lot, financing is more difficult. So from these aspects, how do you see the situation?
I think from a movement point of view, the customers have to move, because if you don't move, if you look at the fuel emission cost curve, you will be out of business, and if you move too fast, you are out of business. So you need to continue moving. That's very clear. You can't have a strategy to wait. Then it's clear that we are moving from a fairly single fuel environment to a multi-fuel environment. So the key question from our customers is a lot, "Please tell us, which is the fuel of the future of the maritime industry?" No one can answer that question. It will be a multi-fuel industry, and you need to create the flexibility in your vessel, and that's where we can help the customer on that flexibility. So yes, the customers need to invest.
You see it in the container vessel segments now. It's very much to be on top of the decarbonization curve, but then the flexibility needs to be there.
Okay, and then a final one on the same theme. I mean, from financial perspective, kind of, how do you make money out of this? I mean, are we talking about higher profitability, because you're adding more value? Are you seeing yourself winning market shares? What's really kind of... From numbers perspective, how would this play out in Marine side?
It's starting, of course, by targeting growing market shares. As you saw on the sweet spots that we have, the sustainable engines have higher market shares in the market. And of course, moving into the money talks part that Håkan mentioned already, that the carbon cost or the emission cost will create a higher fuel cost. So it means that the payback period for the customers for any upgrades will be clearly shorter. And that means, of course, that we are looking into our value-based pricing in the same way to see how do we optimize then the value for the customer?
Okay. Thank you.
Thomas, I think you have a question.
Thomas, yeah.
Thanks, and thank you for inviting us here, and very informative presentations. I've got a math problem that I'm hoping that the men in blue will be able to help me with. You set the 5% revenue growth target in 2021. Since then, inflation has taken a step higher. All the businesses that you took us through today, apart from thermal base load, are growing quite a lot quicker than 5%, and also, I guess, Portfolio Businesses are growing less than that. So what, what's the component that I'm missing that makes the 5% still the relevant target? And-
Well, well, I think we look 5%... I mean, you're fully right in your analysis first. I think we look 5% over a longer time horizon, because right now we are growing faster than 5%, clearly, yeah? And we said before, with or without storage, you know, the business is growing more than five. I think if we take a longer-term perspective, we have the 5% target. If we supersede it, that's good.
... Thank you. Now we have time for one question. That will be the last one.
Thank you. It's Panu Laitinen from Danske Bank. Just on the Marine outlook, you presented the Clarksons forecast for the sweet spot, which was quite optimistic. How big part of your sales is this segment? I'm just thinking of the 12-month market outlook that you gave, that it's a similar demand, but then you sound quite positive on the services and also on the sweet spot, so what is coming down, or are you kind of less optimistic than Clarksons on this sweet spot next 12 months?
Of course, when we look at what I showed, what's up to 2030 for the medium-speed main engines and we will see a growth during that period, clearly. Then, of course, we have many more aspects of what we provide. Where we see more challenging market today is, for example, on the service on the container vessel, because it's clear that the prices have been coming down on the container vessels, which means that we will see more challenges on the services business related to that segment. So it's very segment-specific, while others are actually growing quite a lot. So it's a mix of different parts.
Okay, thanks.
Thank you. Now handing over for Håkan for the final concluding remarks.
Thank you. So we are coming to the end of the day, and, and, as I started, we are really excited about where we have Wärtsilä today and, and the future prospects. And we've been trying to reconfirming our strong commitment and our strong belief in our financial targets, in our sustainability targets. We have a clear path. Yes, we had a challenge in 2022, but we have a clear path going forward, and we start on improving profitability. It's about service, moving up the service value ladder. It's about operational improvements that we have done with rebalancing to equipment, working with a better order book, yeah, continue to improve the profitability in storage, with less loss-making, a lot of operational improvements made.
Also structural changes that we have made, ceased manufacturing in Trieste, continue to manage our business portfolio, continue to prune the portfolio, making the divestments, and then having Wärtsilä Way as the overarching tool to communicate, both internally and externally, our strategy, and really bringing the people with us in a performance culture, where we focus on customer and the difference we can make. Continuing growth, I think it's very strong when Roger, with 26 years of experience with Wärtsilä, says it's the strongest position he has ever experienced in these 26 years. And we have a fantastic opportunity with the decarbonization journey. The industries needs to move on the Marine side, double-digit growth in our selected segments.
On top of that, decarbonization with escalating fuel prices, fixed by regulation, but also green market, evolving market. Market-leading positions and technology lead are clear in Marine. And then on the Energy side, renewables will grow, will continue to grow. There might be some hiccups on the way, but it will continue to grow. Then you need the balancing power. We have some of the winning technologies for the balancing power, and we are clear market leader in those technologies. So I think we have some really interesting growth prospects going forward. So with that, we feel very confident when we are reconfirming our targets and our commitments to improve profitability and continued growth. So thanks a lot for today. Hanna-Maria?