Wartsila Corp B Shs

Good morning and welcome to this new session for Wärtsilä half-year result presentation. My name is Hanna-Mari Heikkinen and I'm in charge of investor relations. Today, our CEO, Håkan Agneval, will start with the group highlights, business performance, and after that, our CFO, Arjen Behrens, will continue with the key financials. After the presentation, there is a possibility to ask questions. Let's first take one question per analyst and then follow with the follow-up questions. Håkan, please.

Thank you, Hanna-Maria, and welcome, everybody, to the summary of a strong second quarter. I think a solid quarter. Order intake, profitability, cash flow all improved. Net sales increased by 7 percent. Order intake increasing by 10 percent. And we are Jättene in a quarter with an all-time high order backlog at about 7.6 billion euro. Comparable operating results increased by 63% and we are at double digit comparable operating margin. The good progress in service continues. Service order intake increased by 8%. Service net sales increased by 3%. And Strong cash flow. It continues. We are in a very good streak there. €216 million for Q2. If we quickly look at the overview of the numbers, as we said, order intake growing from 1.7 billion to 1.8 billion, 10% up. And we see that both services and equipment is growing, 8, respectively 13%, so bigger growth in equipment. Order book up to 7.6 billion euro. Net sales growing both in services and equipment, overall 7%, from 1.4 billion to 1.5 billion. And then 3% in services, 12% growth in equipment. So also continued faster growth in equipment than in services. Book-to-bill now, 13th consecutive quarter with a book-to-bill bigger than 1, 1.19. And the operating results are following. Up 156% from 66 to 168 million euro, basically 10.8. And then on the comparable operating income, up 63% and reaching 11.3%. So a solid quarter overall. If we look at the marine and the market sentiment, it's positive for us in our key segments. And we see a continued good appetite for new ships in the second quarter. The number of vessels ordered in the first half year was increased to 1069, up from 773. Investments in new ships were higher than in the first half of 2023, driven by increasing demand for ship capacity, solid average earnings across cargo segments, low order book, mainly in bulk carrier and tanker segments, and continued fleet renewal. If we look at the alternative fuels, the uptake remains on healthy levels with 242 orders reported during the first half of 2024, accounting for 23% of all contracted vessels or 39% of capacity. New build ship prices continues to increase. And this is despite we see a growth in shipyard capacity, especially in China and South Korea. So for us this indicates that there is still an ongoing shortage of yard capacity. If we do a similar outlook on energy, we see solid mid- to long-term market opportunities. There is continued uncertainty in the market environment in the second quarter. The macroeconomic development in Q2 was influenced by protectionist policies with trade risks elevated by development of the recently imported tariffs by US and EU. The market for engine power plants was stable with good activities, especially in the US. The natural gas prices rose in Q2. Commodity pricing overall was stable despite elevated uncertainty on the geopolitical side. The energy transition continues to advance, and if we look at the latest Bloomberg numbers, Bloomberg expects wind and solar to continue to grow. Wind with 6% and solar with 32% in 2024. And AI, there is a lot of talks these days about AI and its impact on the global electricity demand for data centers. Today, data centers account for about one to two percent of global electricity demand. But we see this increasing and potentially doubling its share until 2026. Looking at the numbers again, organic order intake increased by 12%. So order intake increased by 10%. Equipment order intake increased by 13%. Service order intake was up with 8%. We have a record high order book and the book to build continues above one. Order book delivery schedule in marine is slightly longer due to constraints in the shipyard capacity. This is something we already saw in Q1. We see it in Q2 as well. You could also see that we are building up a healthy order backlog, not only for this year, but also for next year. Organic net sales increased by 9%. So net sales increased by 7%. Equipment net sales was up with 12%. And service net sales was up with 3%. Profitability continues to improve step by step. Net sales, of course, helped with increased net sales of 7%. Comparable operating results increased by 63%. Now, Technology and partnerships. As we all know, it's about innovation in service and technology. Focusing on enabling the decarbonization of marine and energy. I think we had two great examples here during the second quarter. First, we launched the world's first large-scale, 100% hydrogen-ready energy and power plant concept. So this is a 100% hydrogen ready engine power plant concept based on our 31 engine. And it has now been certified by TÜV SID. And TÜV SID, they have a certification process that consists of three stages. And we have now achieved the first stage of certification, which is about the conceptual design of the engine power plant for 100% hydrogen. And we expect to open up for for orders in 2025 and also having the capability to deliver in 2026. Now, another very interesting examples from for also from energy and related to data centers, we have recently signed an agreement, a cooperation agreement with AVK to deliver on site power generation for data centers. So basically it's us and the energy solution business AVK SEG. We have signed a cooperation agreement aimed at meeting data centers' unique power requirements. And data centers, as we know, are essential in ensuring that businesses and organizations can store, process, and manage their data and operations securely and efficiently. We will provide our engine equipment and maintenance support, and AVK does the integration. And Wärtsilä and AVK, we actually already have two energy projects running in execution for data centers on Ireland. And the cooperation agreement was signed in May. Now, looking at our businesses, and we start with Marine, the good performance continued. Order intake, net sales, and comparable operating results increased. Order intake was up with 17%. Net sales was up with 8%. And if we look how the comparable operating result is evolving, we could see positive drivers in higher service volumes and also recovery of new build margins. Then, dragging a bit, is the increased R&D cost that we talked about before. We invest overall in Wärtsilä 3-4% of our net sales into R&D, focusing on decarbonisation. If we look at marine service business, there continues to be good development. Marine's net sales to agreement installations is increasing. You see the curve here. It's going in the right way. It's a positive underlying trend. We also have our retrofit business. So we are bringing a great example from a recent retrofit win. It's basically we're going to work together with Scandi Lines to convert two of their ferries to plug-in hybrid operations. So we will provide the electrical systems needed to convert these two ferries to plug-in hybrid solutions. The project involves replacing one out of the several engines on these two ferries with new short-charged electrical systems, including large energy storage systems. The conversion is a key element in ScandiLine's target to achieve emission-free operation on the route by 2030. On hybrids, we continue to be the market leader. We see hybridization as one major retrofit opportunity overall on the marine side. This particular ScandiLine order was booked in Q2. If we go over to energy, The comparable operating results increased. Equipment ordering intake decreased, driven by lower order in energy storage and operations, while orders in EPP actually increased. So you can see ordering take is down 6%. Net sales is down 2%. And if you look at the waterfall on the EBIT side, the positive drivers was about recovered profitability in new equipment and also positive service revenue mix. We were affected a little bit by lower service volumes. However, This is mostly related to high levels, comparable levels, same quarter previous years. The underlying trend in services is positive. If we look at energy storage and optimization, the comparable operating result model, we look at this on a 12-month rolling, continued to improve. And we do see the business developing in a positive way. Order intake, this is a lumpy business, so there is some periodization effects. Also, of course, material prices have gone down. So if you look in megawatts, we continue to grow, but the order intake is down a little bit in this quarter. However, the underlying trend is certainly positive. Energy service agreement coverage continues to improve also on the energy side. And here we have one of the examples that forms the basis of this continued growth. So this is an example from Nigeria related to our customer cement plant. So we basically signed a 10-year operation and maintenance agreement for a captive power plant producing the energy for a Nigerian cement plant. And the plant is owned by Mangal Industries and is located in the Kogi state in Nigeria. The O&M agreement is designed to ensure reliability of the power and energy production to support the production of the cement factory, producing 3 million tons of concrete a year. Uptime reliability is key. And this order was booked also in Q2. Comparably, if we take the full bridge, Q1-Q, from Q2 last year to Q2 this year, we see the step up in profit margin from 7.4% to 11.3%. We see improvements in all businesses and in our portfolio business. Marine going from 11.5% to 13.5%. energy from 7.1 to 10.5 percent and then you see portfolio business going from a negative 15 percent to positive 4.6 percent but then you should know and remember in portfolio businesses in the second quarter of last year we took some some significant provisions in in the gas solutions business so that makes this big jump uh in portfolio business Comparable operating result increased by 63%. And also a very important comment is that the comparable operating margin percentage typically reaches its high in Q4. However, in 2024, we do not expect to see that given the mixed impact from the increasing equipment deliveries during the second half of 2024. So both new build and services are growing, but during the second half of the year, new build will grow faster and therefore this effect. Other key financials. Arjen, please.

Thank you very much, Håkan. Looking at the other key financials, basically all the parameters improved compared to the comparison period last year, whether you look at it from a quarter perspective or from a year-to-date perspective. Actually, they also improved compared to Q1, except for one, which is the cash flow from operating activities, which ended about 40 million lower than in Q1. Having said that, let's say we are, of course, very happy with our cash flow in Q2. It's a strong cash flow after a very strong cash flow in Q1, but also after a very record high cash flow, actually, in 2023 overall. Good cash flow, of course, contributes also to, let's say, net debt ratio as well as gearing ratio improving further. Earnings per share also clearly up from comparison periods, also up compared to Q1. Good profitability also supported that our solvency ratio could go up from 34.8% in Q1 to 35.3% now in Q2. Very good statistics overall. If we look at this slide, let's say left side cash flow generation, we generated actually over a billion, almost 1.1 billion euro of cash, operating cash, over the last 12 months, which is of course very encouraging and we are very happy with that. Contribution came both from, let's say, improved operating results but also clearly, let's say, from the working capital. And as you can see on the right side graph, working capital continued to develop, let's say, more negative, which is, of course, good for cash flow. Very strongly driven in the working capital is, of course, the good order intake. Let's say the milestone payments that we get from customers also during execution of the contract, clearly supporting the negative working capital. Having said that, we still believe that this is a bit of an extraordinary. As I said, it links very much to payment and execution milestones in your order book, basically. So it's an extraordinary number still, I believe, this negative one. With these words, I give it back to you, Håkon, on the prospects.

Thank you, Arjan. So if we look at our prospects, both for marine and for energy, we expect the demand environment for the next 12 months to be better than of the comparison period. So we continue to see positive market sentiments overall. All right. That was the quick summary. Let's go over to the Q&A.

Thank you, Håkan. Thank you, Arjan. So let's move to the Q&A session. And as a gentle reminder, let's take one question per analyst first and then continue with the follow-up round. Thank you. So handing over to the operator, please.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Vivek Mehta from Citi. Please go ahead.

Thanks very much, everyone, and good morning. My question is on your commentary around the Q4 margin. Should we expect the margin in the second half to be below that of the first half? Is there any more color you can give us on what we should expect as we go towards the end of the year? Thank you.

I would say relative, yes, that's the answer. And it's a consequence of, let's say, the faster growth of equipment business, which is typically, let's say, lower margin versus the growth of the service business, which both are still growing, but let's say one is going faster than the other.

And just to underline, because I think we have also got some questions, we are talking about margin percentage. We are not talking about absolute margin.

Understood. Great. Thank you.

The next question comes from John Kim from Deutsche Bank. Please go ahead.

Hi, good morning. I was wondering if we could spend a little bit of time on service. If we look at the net sales growth in the quarter, 3%, can we unpack that a little bit to understand whether that's a time and place effect? Can you give us some sense of what the underlying growth is on transactional or the activity levels that underpin the service? And do you see the Q2 growth rate being, or the Q2 delivery, being impeded at all by the yard capacities or component availability?

Thanks. So, I mean, on the marine side, I think we continue to grow also in this quarter in a very good way. On the energy side, this quarter, it's a little bit slower. But as I said before, It's related to what we did same quarter last year, where we had certain service projects coming in. So also on the services side, and we talked about that before, there are service projects, retrofits, upgrades, etc. So if you compare Q&Q, it looks like the growth is slowing down. But as I said, overall, the underlying growth is certainly there, so to say. I don't know, Ian, you want to complement?

Exactly today, you talked about the comparison period, but actually service projects activities today are, let's say, quite in an uptick, actually, both on energy and marine, so meaning retrofits, overhauls, et cetera. That's really active today.

And our energy service order backlog is currently at all-time high, so we are on the right path. But I said this quarter it looks a little bit slower on energy. Okay, thank you.

The next question comes from Daniela from GS. Please go ahead. Good morning.

Thank you for taking my question. I'll stick to one as well. Can you talk about the working capital profile and after the various changes you have done with the business, what should we think about as the normalized working capital profile given your comment on the negative not be repeatable and being more one-off? What would you recommend? Thank you.

We are doing very well in working capital, as you have seen from the graphs. We also do see, if you look longer-term perspective, basically, let's say if you take the five-year average line that we had in Q1 in the same graph that I was just showing, I think it was 4.7% on the ratio to sales. Now it's 3.6%. If you go even longer back, let's say we have... Now, for as long as I can remember, I had positive or let's say we are positive working capital. Now we are running a negative working capital. In that sense, I would say it's an extraordinary level. I think we can still maintain this negative level for some time, but at some point of time, I don't think it will be as slow as it is today. I think it will go up again. Will it then turn to positive? Okay, and how quick? Let's see. That depends very much to the order profiles and the business profiles, which businesses are very active in the order book, basically. As an example, let's say we book orders now even for delivery, let's say, three, four years out. And if you get a nice down payment of some millions, the cash out is way later. So order intake is very connected to, let's say, working capital development as we see it today.

Thank you. The next question comes from Max Yates from Morgan Stanley. Please go ahead.

Thank you. This isn't my question, but I just really want to kind of clarify exactly what you said on EBIT margins because it wasn't entirely clear to me. Could you just confirm? I think what you said is that you expect the second half EBIT margins to be below the first half. Could you just confirm that's what you meant by that comment?

Percentage-wise, yes.

Yes. Okay. Understood. I guess my question is just around the marine margin. You've obviously talked about ship pricing going up, shortage of shipyard capacity. I guess I just wanted to understand, when you look at the last 10 years and you think about the competitive landscape in this business, so supply-demand of a lot of the products that you sell, Do you see a much better, or do you see anything that's structurally changed in the environment to make you think that margins kind of in marine can be structurally higher than where they've been historically for your business, whether it's mixed competitive landscape or anything else?

thank you so so if i if i may start so so and and please note that i just add a comment on on the ebit margin this is consistent with what we have said that the the second half of the year we will have a higher mix of of equipment deliveries so to say especially in energy so there's not a new message there it's it's consistent Then coming back to marine, and if we start with the shipyards and then we can talk Wärtsilä. I think, I mean, when you look at the numbers, I think shipyard capacity has been slowly going up since 2020. Of course, in a much slower rate than it used to do way back in the boom days. And our view is that it will probably continue to increase, but in a steadily rate, so to say. We do see, if you look at different segments, relatively high activity level on new build. I think with the decarbonization transformation and the need to upgrade, that will probably also drive demand for shipyard capacity. So currently there is a shortage of capacity. It will grow, but in our view, it will not be the best that we saw many years ago. It will be more staged growth. If we look at Wärtsilä and our journey in the decarbonization transformation of the marine industry, we are positioning ourselves as a technology leader. And of course, that should give us opportunities for price realization. Also, as we talked about when we went through the waterfall, we are recovering from order backlog that was heavily impacted by the significant inflation that took place or accelerated in beginning of 2022. That has affected marine side, has also affected energy side. So we are coming out of that.

Okay, very close. Thank you.

The next question comes from Akash Gupta from JP Morgan. Please go ahead.

Yes, hi, good morning, and thanks for your time. My question is on your outlook statement, and I just wanted to clarify that this demand outlook in marine and energy, does it take into account potential U.S. elections later in the year? And I think if you look at the the current situation, then there are rising odds of a Republican victory, and I think the market is worried about potential tariffs. So I just wanted to know, have you already incorporated that in your demand outlook, or that is additional risk to your demand commentary? Thank you.

No, I think we have accounted for all the geopolitical items, so to say, including US elections, etc. So that has been factored in. I mean, one tidbit of information, if we are talking about US tariffs on batteries, that has been implemented on an immediate basis for electrical vehicles, but it will be implemented in 2026 for batteries, for energy storage. But we have considered with the best knowledge we have and capabilities we have, all the different factors.

Maybe just a clarification. I mean, last time when we had similar situation, was there any impact on marine demand, so to speak, or there was no impact on marine orders?

Sorry, can you clarify your question? I didn't get it.

Yeah, I mean, I meant last time around in 2017-18 when we had Trump tariffs, was there any impact on the marine demand? Sorry, I was not covering this talk back then, but just to check whether there was any impact or there was no impact on marine demand, et cetera, from the tariffs.

I need to really dig in my memory. This is a long time ago, but at least I don't recall, let's say, any serious impact at that point of time. But it's a bit too long ago to really exactly remember. But we can, of course, check that.

I was not serving with a company in those days. That's why I asked Arjan to reflect upon this.

No worries. Thank you.

This one I don't remember. But I don't, let's say, remember any significant negative out of that time. So, yeah, probably not that much. Let's say typically ships sail, no matter what happens politically, as long as there is a need for transport and ships run. And let's say our service business correlates with running hours of ships and running hours of power plants. So I don't think there was a big impact.

Thank you.

The next question comes from Ponu Leighton-Markey from Danske Bank. Please go ahead.

Yes, thank you. I wanted to ask about the data center cooperation. Can you talk a bit about the potential that you see there? I understand it's early stages, but any idea of how big would the potential projects be for your margin profile or anything at this stage that you could share with us?

So I think we are still at an early stage in this. I think what we see now is that with AI, I mean, if we take a general logic, with AI, the need for storage is increasing and the storage centers will get bigger and therefore the power needs will also grow. Now, traditionally, power has been taken from the grid, and there has been a kind of standby facilities with high-speed engines. Now, as power demand is going up, then the situation becomes different. I mean, now we are talking about 10, 30, 50, 60, 100 megawatt. And then the data center is not only about data, it's also about energy. And that is could give us further potential growth going forward. I think this collaboration is a vital part for that. But I think it's a little bit too early to really go specific on the numbers. It looks promising, and we will get back on this further down the line. Okay. Thank you.

The next question comes from Sven Weier from UBS. Please go ahead.

Good morning. My question was also on data centers. And I was just wondering, now that you address the European market, how you intend to address, obviously, the much bigger US market opportunity. Thank you.

It's a very relevant question. I mean, myself meeting with utility customers in the US, they confirm also that there is a lot of interest from different parties that want to build data centers. There's a lot of interest for energy and feeding energy. So utilities in the U.S., they are certainly, and not only the utilities, the whole power spectrum of power providers in the U.S., they are looking into this now. So there should definitely be opportunities. But as I said before, it's a little bit too early for us to get back on hard-nosed numbers and potentials. We are working on this and we will get back. but at a later stage. Thank you, Håkan.

The next question comes from John Kim from Deutsche Bank. Please go ahead.

Hi. Just to follow up on storage, please. It appears when I kind of back out the Q2 profit and margins for storage, it looks quite good sequentially. Is this – let me ask this nicely. Do you feel these margins are sustainable given the dynamics in the industry, i.e., deflationary pricing on battery packs, your focus on certain markets and certain customers?

So in short, I think that they are not only sustainable, I expect us to step by step on a continuous basis improve the margins. So that's one thing. Now to your question about decreasing lithium prices or battery prices, that is a pass through to the customers. It doesn't affect our margins. Now, of course, you're right in the sense that it's a very competitive space. So there is certainly competition. And I would say that the competitive forces are growing. But I think what our storage team has done is really to step by step, improving their operational execution capability in terms of risk reward, in terms of realizing delivering on time, on budget, with the right quality and therefore also to be able to realize profits, so to say. So I think what is driving the profitability improvement is the underlying operational performance.

OK, thank you.

The next question comes from Sean McLaughlin from Analyst. Please unmute your microphone.

Good morning. Can you hear me? a broader question about your your long-term ebit margin target if i think back to the three pillars that you outlined in order to get to this it it feels like those three pillars really are all there particularly now that we look at the the storage profitability piece how should we think about 12 percent it feels from the first half like you're nearly there. Clearly you're guiding down in the second half, but is that now looking, in your view, a now conservative target?

Well, I would say that we are on a solid path to reach our financial targets. I think we have been consistent in communicating that, and we do feel confident about reaching the targets. I think it's premature to have this discussion about revising the financial targets. I think let's first Make the EBIT target and then let's see how we think about that going forward, so to say. But as I said, we continue to be confident in our path, a solid path to reaching our financial targets. Thank you.

The next question comes from Mikael Dopel from Nordea. Please go ahead.

Yes, thank you. Good morning, everybody. Just a very quick question on the energy storage business. You talked about the profitability improvement there already. I guess it's a lot of question about the revenues as well coming up from last quarter. Could you talk a bit about the market environment overall? I mean, how do you see demand going forward? Do you continue to see ample opportunities there? And also related to this business, is there anything you can say about your timeline with regards to the strategic review of the assets? Thank you.

So if I start with a strategic review, it's still ongoing and the narrative is still the same. We still see ample growth opportunities. We want to find out the best way to grow this business, to support our customers, to create shareholder value. Within the frame of the strategic review, we will look at different ownership alternatives and we are looking at the full spectrum. Everything from continue like we do today, owning the whole business ourselves to divesting the business partially or fully, so to say. So it's still the same narrative. We didn't set ourselves a specific timeframe. Of course, we are working on it and we are not setting a timeframe right now. Of course, time runs. We are working on it. And once we have solid information, solid decisions, of course, we will communicate this. But we are not there yet. So strategic review is still ongoing. If we look at the overall market, I still think it's growing and it has ample growth opportunities going forward from a global perspective. We keep on, you could say, our geographical focus areas, focusing on US, Australia, UK, a couple of other countries. We maintain. I think it's working out well for us. So we do see a good future for the business, so to say. Yes, I mean, there is increased competition overall. I would say there is a spillover from the EV side. But that is also an opportunity for us to work and leverage our cost structure, so to say.

Okay. Thank you very much.

The next question comes from Daniela from GS. Please go ahead.

Hi, thank you for taking my follow-up again. I wanted to follow up on the tariffs point in the US and just to understand a bit better sort of on your operating system now. I thought you made most of your engines out of Europe. So how does that work? Do you mean you won't, I guess you implied you don't expect much of an impact. Is that because you will just price up to cover up for it? Can you elaborate basically why no impact or every competitor is making it outside of the U.S.? How will it work? Because I think the 10% tariff impacts everything made outside of the U.S.

So first of all, we need to split between engines and batteries. And batteries and the whole EV, there are certain tariffs being put in place. And those were the tariffs that I was commenting on. I was not commenting on tariffs on the engine side. There is nobody manufacturing engines in this type of size and segment in the US.

Got it. Okay, so you will just put prices up, basically.

Well, if there are tariff increases in these segments, I think we will be forced to do so, yes. Absorbing.

Okay, thank you.

The next question comes from Akash Gupta from JP Morgan. Please go ahead.

Yes, hi, thanks for the follow-up. I wanted to dig a bit more into the second quarter margins. So when I look at your Q2 margins versus Q1 margins, I mean, you had service share of revenues that went down sequentially, but despite that, we had 130 basis points margin improvement. Can you provide a bit more granularity or maybe a high-level bridge between Q1 and Q2 on what is driving that? Because it seems like your profitability in some new equipment may be quite high. And if that is the case, then why a second half margin should be lower than the first half? Thank you.

Of course, it's all related to mix. And I think if you look at the service mix in Q1 versus, let's say, Q2, and you would exclude storage, for example, I think the share of service is about 66% in Q1 and 62%, I think, in Q2. So that difference is not that big. Of course, if you include, let's say, the storage volumes, which are very low in Q1 and much higher, I would say, in Q2, then it's, of course, totally different percentages. And you might get, let's say, distracted by that. I think the main thing is that the difference in mix or, let's say, in margin realization between, let's say, new equipment sales and service sales is still quite significant, even though the new built margins have recovered from, let's say, one year ago, given what Håkan earlier said. Let's say then in those times last year, we were still quite much hit by actually the cost inflation that came from 2022. So it's really the mix that is driving this in particular.

Thank you.

The next question comes from Max Yates from Morgan Stanley. Please go ahead.

Thank you. Could I just ask a quick question around capital allocation? You're obviously now kind of net cash, and I appreciate kind of the comments suggesting that sort of working capital levels may not be sustainable and you may see some outflows going forward. But I guess I just wanted to understand if we do see kind of net cash or the business remaining in a net cash position, is this sort of a level you are supportive of happy of or is that the kind of level where you would look to be kind of more proactive on either shareholder returns or m a just how you're thinking about that would be helpful thank you i would say it's a bit too early to make any comments on this um let's say this net negative working capital as you could see from the graph is not something of let's say

sustainably let's say there for a long time let's say we have been going negative i would say since the past three four quarters let's see what the future brings like i said i don't believe that this level is sustainable long term yes i think we can hold to a negative working capital for quite some time still But let's say looking out, let's say one, two, three years out, it might be different. It depends very much on our execution of our order book. Let's say how are the new orders coming in? What kind of payment arrangements can we agree with those customers? Is it big down payments, small down payments? That, again, depends on the market. So I think it's too early to make any comments on this. But, of course, long-term sustainable, we need to look at it. That's clear.

Could I ask a really quick follow-up, Hakan? I think one of the things that kind of has been a lot better since you've been involved, Sila, has been the execution. I guess we've tried to move away, or you've tried to move away from some of the, I guess, the riskier businesses, some of the businesses where you've taken charges in gas carriers. I guess when I hear you talk about that kind of Nigerian cement plant contract and you talk about ensuring reliable production targets, et cetera, I guess I just wanted to understand, in some of these service contracts, what are you actually guaranteeing for the customer? And how are the contracts structured and structured? how much risk are you taking in relation to that cement facility trying to generate 3 million metric tons of cement per year? I'd love to understand that.

Thank you. So basically, I mean, first of all, we always talk about the power generation. We never go into, you know, whatever the power is used for, if it's producing cement or hoisting material from a mine, etc. So we're always talking energy. Then, to the core of your question, there is not one answer. We have a whole portfolio of different service agreements, and the risk we take on varies depending on which tool in that service portfolio tool books you take on. There is everything from very limited risks, all the way up to the performance-based contracts where we really make commitments on reducing fuel or energy consumptions or emissions and providing uptime and reliability on a bonus-malus kind of basis, so to say. So you have a whole spectrum. Therefore, there is not one single answer to your question that we take on. It depends, you know, what the customer is looking for. It depends on our technical capabilities to monitor the plant in real time. It depends on quite a few different factors, I would say.

Okay, understood. Thank you.

The next question comes from Anders Roslund from Perito Securites. Please go ahead.

Yes, good morning. I just had a question about the second half margin again. Given that marine is, I assume, growing faster than energy, shouldn't there be a positive mix from higher marine margins coming through? And normally you always have the stronger ending of the year in the marine segment. What's different this time?

We are not splitting our guidance in what is bigger and smaller. We are guiding both marine and energy for better. And I think that time will tell how much that delta is.

But the ending for marine deliveries used to be also higher margins at the fourth quarter. It's not that going to be the case anymore.

I will not comment on delivered margins on any of the products nor marine nor energy.

So the observation we are doing that this normal seasonality effect in Q4 on the operating margin of the whole business. We don't see it's repeating this year. And the underlying sentiment you could say is positive because it's because New Build is growing faster than, so both are growing, but New Build is growing faster.

Okay.

The positive thing with that is, of course, if we grow new build now, that generates services in a couple of years.

But we are not commenting on the margins of individual projects or businesses.

Okay. Thank you.

The next question comes from Sven Weyer from UBS. Please go ahead.

Yeah, thank you. The follow-up is on storage. Two questions there, basically. First of all, when we look at it, all the intake megawatt hours, you grew 26% in Q2 against 12 in Q1. A bit of an acceleration. I mean, is that already a consequence of lower battery prices stimulating demand, or is it just a coincidence? And the other question I had, you obviously talked again about your cost flexibility on storage. This is a pass-through item on variable cost, of course. But, I mean, of course, there will be a negative impact in terms of the Euro volume sales. And how do you cover the fixed costs, right? I mean, does that anyhow disturb what you have in mind as a margin for storage going forward.

Thank you. Yeah. So basically the business continues to grow. So the underlying growth is certainly there. Then I will caution everybody to do this sequential Q and Q comparison, because this is a project business, it's lumpy to its nature. So that could be swings. But I can clearly confirm that the growth is there and we foresee it also continuing going forward, so to say. So that's one thing. Then on profitability, As I said, of course, I understand your logic about the scale effect, but I think a much more important driver for continued profitability improvement is this, I would say, improvements in execution. because to realize with good execution, some of the risk reserves that we have, like you always have in project business. So that is a much bigger lever for a continued increase of profitability.

Thank you, Håkan.

The next question comes from Ponu Leighton-Markey from Danske Bank. Please go ahead.

Thank you. I just wanted to ask about the marine equipment orders. Can you talk about how many Like larger cruise ship orders you had in Q2 and what is the outlook for the rest of the year?

So we cannot talk about orders that had not been publicly announced. Our customers will not be happy with us then. We have confidentiality. So therefore I cannot go into the details. But I would say that the underlying sentiment is positive. I mean, we know that the big cruise operators, Carnival, Royal, Norwegian, etc., Disney, etc., they are placing orders for new vessels, and it's coming, so to say. And of course, considering that we have a strong presence in this segment, it should benefit us at a certain stage. But we cannot be more specific than that.

Okay, thanks. But basically, the question was that, did you already include to benefit from this cruise ship investment kind of recovery, or is it yet still to come?

I think we're seeing some of it, but I would say that we will, because there is always a time lag, I think we will see more of it in the future.

Okay, thank you.

Thank you. There are no questions on the queue anymore, but we have still a couple of minutes left. So in the case somebody has a question now, it's a good time to raise it.

The next question comes from Akash Gupta from JP Morgan. Please go ahead.

Yes, hi. Thanks for the follow-up. A question on portfolio business. So if I look at your performance in second quarter, your orders rebounded, revenues rebounded, and also we have seen big jump in profitability. I wanted to ask, like, are you 100% sure you want to, I mean, is there a scenario where you think that some of these businesses could be part of what SILA, especially if the outlook of the business is more sustainable on improvement and potentially margin coming in line with other segments, or you are still on track to divest entire businesses in portfolio segment. Thank you.

I think the short answer is that we are still on the track to divesting. I mean, we clearly acknowledge that the financial performance of many of the portfolio companies are improving. That was actually part of our game plan. You might remember that we said that when we put companies in portfolio, it's a clear signal they're going to be divested. But we have also said for some of this, it will take some time because we want to turn the businesses around. Some of them have been loss making. We want to stabilize them before we actually divest them. So I think some of the positive development is actually the result of the turnaround that is ongoing, but they will still be divested. And then also, just to highlight, when you do the Q and Q comparison, please remember that in Q2 last year, we took some significant provisions in gas solutions. but but i would say even having said that there is an underlying improvement in performance with a good turnaround work thank you the next question comes from sven wire from ubs please go ahead

Yeah, thank you. Sorry to bother you again one more time on margins. I mean, I fully understand what you said on the second half point. I think that's pretty logical, but I mean, obviously you've been also talking about the kind of improvement mix within the mix, or let's say the backlog quality improvement, inflation, things like that. Did I understand it correctly that this journey keeps going on, or would you say this is now completed?

If I start, the continuous improvement journey continues. Then we have mixed effects that I clearly understand sometimes blur the picture. But I mean, the underlying positive trend is still there, clearly.

The H2 comment is purely service against equipment, but has nothing to do with the mix within the mix kind of situation.

No.

That makes sense. Thank you.

The next question comes from Vivek Mehta from Citi. Please go ahead.

Thanks very much for taking my follow-up. My question is on data centers. We've spoken in the past about the relative merits of engines and turbines in different applications. As we look at the data center business, where do you see engines stacking up compared to turbines for those kinds of customers? Thank you.

So basically, the general shift to larger power needs. That's one driver, so larger, above 10 megawatt, if I would say something. Then also, as I said, when, at least for some customers, when they have a big data center requires a lot of power, so the grid is not sufficient, they start to think about how should they provide the power. Normally they want to go green as well, so they also think about solar or wind. But these data centers, they require very reliable power. So you need balancing power. You see the narrative balancing power as compensating wind and solar. We see a little bit of that. And then you also know, if you've been following us, We are stronger on balancing power than some of our gas turbine colleagues by the technology we provide. And I think this is what we see, not for all applications, but we do see this for applications coming. And as I said, this cooperation with AVK is a concrete proof point of that. And then how this could evolve. Let's come back to that when we are better formulated. I would say not only about Europe, but the rest of the world and certainly about the U.S. Thank you very much.

Thank you for the very active dialogue. Now we are running out of time, but I would like to remind you that we are hosting a service-based theme event on September 16, so I'm looking forward to meet all of you there. And before that, I hope that you can enjoy the summer a little bit. Thank you.

Thank you. Have a nice summer.