Wartsila Corp B Shs

Good morning, and welcome to this news conference for Wärtsilä Q1 2026 results. My name is Hanna-Maria Heikkinen, and I'm in charge of investor relations. Today, our CEO, Håkan Agneval, will start with a group highlight. He will also go through business performance. And after that, our CFO, Arjen Berens, will continue with key financials. After the presentation, there is plenty of time for Q&A. Håkan, please, time to start.

Thank you, Hanna-Maria, and welcome to our Q1 report. I'm joining you today from Shanghai, so it's a pleasure to be here in China. As you know, China accounts for more than half of the world's shipbuilding capacity, so it's a highly relevant place for us to be as . But if we start with the first quarter, I would say we have a strong start of the year, both in marine and energy. We start good in 2026. So if we look at the summary, double digit growth in order intake, all-time high order book, and continuously improved operating results. So the total order intake increased by 10% to 2.1 billion euro. In this quarter, we will also talk a lot about organic growth, because you have seen or you will see that our both water intake and sales has been heavily affected by FX, by exchange rate, and also the fact that we have divested assets in portfolio business. So some of these numbers are good, but they look even greater when you look at the organic side, so to say. Order intake increased in energy in marine. Energy order intake increased by 56%. But if you exclude FX, organic growth is at 66%. Marine order intake increased by 9%. But once again, organic was even higher, 13%. All-time high order book of 8.9 billion euro. And service, we know how important it is for Wärtsilä. The order intake on the organic side was up with 9%. Strong number. Then, of course, we had FX impacts, and we also had impacts of our divestment. But organically, up 9%. And that also leads to that our service 12-month rolling book to build continues to be above 1%. Net sales remain stable at about 1.6 billion euro, and we continue to improve our profitability. Comparable operating results increased by 16% to 199 million euro, and that corresponds to 12.8% of net sales. Operating results increased by 18% to 194 million euro, which is 12.5% of net sales. Cash flow from operating activities amounted to 7 million euro. It's a bit lower than we normally see, but that's because we are building up basically engines for deliveries. So we and Narin will talk more about cash flow going forward, but we remain composed and optimistic also on the cash flow side going forward. And we continue to have, I would say, a very attractive return on capital employed at 64%. So that's the highlight, strong performance, both on the marine and energy side. Let's dig a little bit further into the numbers. So order intake up 10%, 2.1 billion euro of services. You see it's minus one, but once again, if you look on the organic growth, it's 9%. Equipment is up 23%, very strong on the energy side. And we have also seen that the first weeks of the second quarter has really started good for energy with two additional big data center orders in the U.S. Order book now is very good. It's only level 8.9 billion euro. We continue to highlight the message that we are building up an order backlog for deliveries further and further into the future, and that is very important when you model the sales recognition. Net sales, flat 1.5, but there is also the whole theme of FX and divestments we have done. Services, 800 is down 9%. Equipment up 11% to €750 million. Book-to-bill continuously well above 1 at 1.35. Comparable operating results increasing 16% to €199 million, 12.8% mentioned before. And operating results up 18% to €194 million at 12.5% of net sales. We also continue to follow marine and energy combined and energy storage. And you can see that if you look at marine and energy combined, the order intake and the sales matrix is even stronger. I mean, order intake up 28%. Organic is 34% up. And you can also see that the order book is up 27% in marine and energy combined to 7.5 billion euro. Net sales, the organic growth, 7%, and services is down, but equipment is up 22% to 504 million euros. Book to Bill in marine energy combined at 1.55. And comparable operating results also continue to improve clearly in marine energy combined, 7% up at 175 million euro and at 13.6%. As you know, we have our financial targets for marine energy combined at 14%. So we are not quite there yet, but we are on a solid path to reach our financial targets, I would say. As I have said many times before. And we have proven ourselves by step-by-step improving the financial resources. On storage, we have a challenge. There is no doubt. And the challenge is order intake. I mean, we basically have no new order intake on the equipment side in the storage. So that's why you see the minus 53 sent down is basically services. The sales is down 14% at 110 million euro. The good thing, though, on the storage side, you've seen the EBIT here, 5%. The team is delivering the existing order backlog with a solid execution at 5%, which is then the higher end of the span of our financial targets. But Here, we have a challenge on the order intake side, and we've also been very clear that we need immediate order intake. Otherwise, we will have a loss-making second half of the year in energy storage. Okay. Then, some industry perspective, starting with marine. We do see in the first quarter a healthier demand and also earnings for our customers supported by the market sentiment in the first quarter. The conflict in the Middle East has only had minor impact on that still in Q1. We have about 500 colleagues in the area. be there, safety, taking care about our people so they can take care about our customers. And I think our team, our safety team working with our colleagues in the area has done a great work, so we continue to support customers. In terms of revenues, et cetera, it has minor impact because, as you know, our strength, our focus is on four-stroke. Many of the vessels, the majority are having two-stroke. that limit the impact on vessel short terms and so forth on the financial side. The number of vessels ordered in the review period increased to 549, so compared to 235 previous years. So, 2026 is clearly stronger than 2025, which was, as we all know, a rather weak year. The market sentiment in Q1 was supported by healthy demand and earnings. But obviously, the start of the conflict in the Middle East caused disruption and uncertainty in the shipping markets. But once again, we have not, I mean, our cost segments, we have not been impacted so far in a major way. Ordering appetite also continued to be on a good level in our key segments. As you know, when we look at the graphs to the right here, our core segments even in Clarksons are trending clearly higher than the 10-year average, and we do see that also going forward. Also good to note is that the shipyards order book are at the highest level since 2009 with shipbuilding capacity expanding primarily in China. And in January to March, 100 new orders for alternative fuel-capable ships were reported. So that's about 26% of the capacity of the vessels. That's down from the same period last year. And the major driver there for the decline is on the mix of vessels. Tankers, more tankers means less alternative fuel. The underlying trend on DCARB is clearly continuing, driven by the strategic approach by many of the ship owners, and also by the fact these are long time assets, 30 years, and you need to make sure that you have a fleet of vessels that you can be profitable with and operate in a relevant way the coming 30 years. And then you need the co-proposition for VASLA, fuel flexibility, and fuel efficiency. So it's The narrative still holds. Then on the energy side, we do see a buoyant market. There is an increased demand driven by energy transition investments. Electricity mangrove is certainly there. Future projections have increased substantially, and clearly there are very strong and good market opportunities for equipment providers. Two key things have stood out in the macroeconomic development, low growth and increased tariffs-related uncertainty. In energy power plants, market demand for equipment and services has been strong, very strong. The baseload segment remains a consistent source of demand for thermal power. and clearly with further growth opportunities in data centers, and we continue our, I would say, successful journey in the U.S. data center market, still with a very active pipeline and with two important and big captures just at the beginning of the second quarter. And also on the balancing side, we continue to see a very strong growth Demand are going forward. Before arriving here in Shanghai, I spent a couple of days in Australia, clearly seeing the narrative playing out there. You know, Australia, over the years, gradually moving from coal to renewables, and then you need a balancing power, battery storage, thermal generation, and engines is a very, is now getting in as one of the major technologies there. It's happening in many places of the world, I would say. In battery storage, the demand is closely linked to the increased share of intermittent renewable energy systems, clearly, which continues to progress in a good way. The U.S. market is clearly facing headwinds on tariffs and regulatory changes, though many of the drivers, especially in the midsection of the U.S., remain solid. I mean, affordable power is always attractive. And then on top of this, we are now also, for our storage team, have data centers as a potential new opportunity that we are looking at, so to say. We haven't stepped in fully yet, but we are looking at it. And if we look at renewables growth, I mean, after significant growth driven by solar in the mid-2020s, I think now the renewable capacity addition globally is expected to decrease a little bit in 2026. But, I mean, we see long-term growth on the renewable side driving the need for balancing power. And there is more and more understanding and demand for balancing power, because in many power systems, clearly this narrative that we've been talking about for several years of needing more balancing power and the share of renewables is growing. It's definitely playing out. And here you could see some of the International Energy Agency numbers and, you know, how they project the average, I mean, the annual electricity mangrove in terawatt hours. And we can see this significant shift here. And there are plenty of drivers, electrification of industries, the need for cooling. I mean, the world is getting warmer, certainly here in Asia. It's a big theme. Data centers, but also aging. energy infrastructure in the States and to certain extent also Europe. So there are several growth drivers, I would say, in the energy market. Now let's get back to the numbers and let's look at the visualization. So organic water intake increased 22%. quite considerable. That's the organic. If we look on the non-organic, so to say, the order intake increased by 10%. And if we look at marine, it's up with 9%. Energy is up with 56%. Energy storage, though, is down significantly with 53%. If we look at equipment versus service, the equipment order intake increased by 23%. Service order intake remains stable. If we look at the order book, strong order book development, rolling book to build, continues to be above one. I think now it's consecutive 24 consecutive that we have remained with a book to build larger than one. And also well worth noting is that the order book is growing despite that we have eliminated close to 900 million euro related to divestment. So it is a strong achievement. But we also note, we really highlight this now, as you can see, we have a very attractive order intake. We are taking orders for deliveries further into the future. And we have also talked about the fact that we do less of EPC, which has percentage of completion, normally as regular recognition, to more equipment of EEQ, which means that, The sales recognition also comes a little bit later when we deliver the engine, basically. And we try to help you also by, and I think we introduced this slide last quarter, to get a little bit more concrete numbers on how the order backlog is developing over time. And it's clearly so that the order back, the order book will generate sales distributed further into the future. And you see particularly here in energy how the order backlog is building up for sales and deliveries further ahead, I mean, beyond 2026. Organic net sales increased by 8%. Net sales, if we take the non-organic, the complete, so to say, the whole, it was stable. Marine net sales remain stable, energy net sales increased by 12%, energy storage net sales decreased by 14%, equipment service or equipment net sales increased by 11%, and service net sales decreased by nine. Possibility continue to improve in a positive way, step by step on our goal to, on our path to reach our financial targets. So, under the backdrop of a stable net sales, the comparable operating results increased by 16%, and comparable operating margin on 12-month rolling is also up from 10.9 to 12.4%.

Then I need help.

Arjen, can you flip to the next page, because I can't see it.

Which page should we flip to? We are now looking at the marine overall service book to Bill, above one. Do you see the same, Håkan?

No, I don't see anything right now. If you see it, maybe you can continue, Arjen, where I left off.

All right, which slide should we start in with?

The one that I left off, yes.

Yes. You don't see the slides now, right?

No, I don't see the slides.

All right, I will take over. So, order intake and comparable operating result in marine. So, order intake in marine, let's say, had a good growth, 9%. Net sales was down, let's say, minus 1%, but as Håkan mentioned, let's say, organically, it was still up. Comparable operating results, better operating leverage, clearly, let's say, contributing positively. One could ask, okay, why with more or less equal sales is operating leverage better? We are running our SPH facility at close to maximum technical capacity, and that, of course, generates, let's say, operating leverage in the absorption of hours, while the deliveries take place later on, turning it into sales. On the negative side, let's say lower service volumes that we clearly could see comparing quarter on quarter and increased R&D cost. Comparable operating result continues to trend upwards. Overall marine service book to bill above one. Good developments. You can see also the lines on the retrofits and upgrades as well as let's say service agreements turning to the Upper direction again, which has been going down for some quarters, so that's good. Altogether, I would say good development ongoing here, and also 7% CAGR year-on-year is a good number. If we look at energy, order intake, first of all, plus 56%, so really a strong step up. Actually in sales also, I would say 12% is also a strong step up in sales. If we look at the results, also here, better operating leverage. Let's say factory also contributes to energy, so it's the same equation here. And also on energy, we had lower service volumes and increased R&D cost as the negative impacts on the profitability. Altogether, let's say it went up. Comparable operating results, slight dip down on a rolling 12-month basis, but We are confident on this going forward.

And if I continue the services side, so a favorite topic of mine, the overall energy service book to build continued above one. So strong growth in service agreements and retrofits and upgrades. We see a 2% on the net sales. And you know that we like to talk about the different components of our service business. And here you see a couple of things that are really interesting. You see the strong continued book-to-bill on agreements, and it's really, really good. You also see, and you want to say field service is down, so it's less than 1.0. But I think that's, you know, development will go a little bit over time. I'm not concerned about that as a trend. We see spare parts is down, but we should know that when agreements go up, there is, of course, spare parts under the agreement header as well. It's classified in the agreements business. So overall, I would say the strong growth of agreements is really, really good, and it's clearly in line with our strategy of moving up the service value ladder, as we've been talking about many times. Then on the retrofit side, I think here you see the – clearly what we've been talking about in the past, because it went down quite deep in the red, but now it's coming back. Still not crossing the one again, but this is a project business, and therefore it is, you know, can be very lumpy. And so we have had some good progress here in the first quarter, and I've said before that, you know, I think the retrofit business will certainly be there and will be interesting. I think on the marine side, you could also see that the retrofit business is still down. And there we have a little bit of a challenge because certain projects gets postponed for the moment, so to say. But also on the marine side, I think we will see a positive outlook on service growth in general going forward. Now on storage, I think that we should start with the first thing today. We also announced that Tamara De Grito, who is leading storage, she will be leaving Wärtsilä after a long and very successful career, 30 years in the company. She has found a great new challenge outside of Wärtsilä, and we congratulate her to that. We are very sad of seeing her leaving. She's done a great job with storage, which is, of course, in a very challenging situation, as we've been talking about, But she will still be with us and lead the business to end of August. And we have started the recruitment for success. So thank you, Tamara, for all your years in . And you will still be with us for months here going forward. So we will have a planned transition. The challenge on storage is, of course, the order intake, which was very weak. So basically zero on the new build side. Order intake down minus 53%. Net sales also down. Positive side, if you see on the EBIT, you know, going into positive. And a solid 5% EBIT margin. It's solid project execution. And also we are taking measures to reduce our costs, to increase our competitiveness. But clearly, the low equipment volumes is a challenge to the whole business. And we need, we do need autos, auto intake in the near future. Otherwise, we will be loss making for the second half of 2026 in storage. So here you have the waterfall on the Q and Q development on the EBIT side. So we go from 11% to 12.8 in our continuous journey. And marine is going up from 12 to 13%. Energy a bit down from 15.2 to 14.7. Energy storage, as I said, significant improvement. And portfolio also a significant improvement from 6.9 to 11.4. So the comparable operating results increased with 16%. Now other key financials. Over to you, Arjan.

Thank you, Håkan. If we look at the other key financials, first of all, cash flow, it was mentioned already by Haukon, let's say 7 million euro in the quarter one, which is fairly low compared to one year ago. But again, let's say we are mainly, the main underlying reason is working capital, and the main underlying reason of that is the increased project execution activity. This is not something that is unexpected. This is something that we have foreseen. As said, SDH runs at close to technical capacity. We need to produce engines now already for delivery in batches later on. So that's the consequence of that. At the same time, let's say we have payables, of course, going down. Let's say we buy components from suppliers. That's also clearly impacting and also receivables went up because we have invoiced customers for something that is not due yet but still to be paid. At the same time, also in Q1, we saw a lower level of advances received than what we had in, for example, the previous quarter. That was a record high. Net interest-bearing debt, let's say, still very strong. Nothing to comment on. EBDA, very good compared to previous year. Return on capital employed, ROSE, a very strong level, still going very strong, and that keeps going also for a while, I would definitely believe. And gearing also, let's say, nothing to comment on. We have a gearing target of positive below minus 0.5, and we are clearly in the negative. Solvency went a little bit, let's say, worse now in Q1, and that's happening every year in Q1. At the end of last year, we had 40.5. Now we have 35. Every year in Q1, you book the dividend against equity, and that has an impact on the solvency ratio. Earnings per share, much better than previous year at the same quarter. If we look at the trend lines, cash flow and operating working capital, as you can see, and I don't want to repeat myself, but let's say the working capital is the main driver for the reversal trend also in the cash flow. Reasons are known. This is not unexpected. So nothing to further comment on that. If we look at the financial targets, first of all, marine and energy combined, left top graph, organic growth 13%. Marine was 12, actually, on this horizon, and energy was 14. We are also approaching closer and closer, let's say, our 14% target. Now we are at a rolling 12-month basis at 13.9, which was a notch up, basically, from end of last year, and then it was 13.8. If we look at energy storage, of course, organic growth is a challenge. Let's say Håkan has commented that also already. The profitability is very strong. We have a good margin in order book. And we have a good execution, very good execution actually. So on a rolling 12-month basis, this is now 4.8% on the upper range of the financial target versus 3.3% at the end of last year. Gearing, I mentioned already, not much to comment on, deeply negative. And also actually the same goes for dividend distribution. It's very well in line with our policy of paying 50% out of EPS a dividend. Last year it was 100%. if you take the regular dividend and the extraordinary dividend together. With these words, I give it back to you, Håkan, on the guidance.

Can you hear us, Håkan? Thank you. So on the marine side, we expect the demand environment for the next 12 months to be similar to that of the comparison period, and I would say we are still trending on a high level, but it's going to be similar. On the energy side, we expect the environment for the coming 12 months to be better than in the comparison period. In storage, we also expect the demand situation to be better than coming 12 months, but we also underline specifically in storage that the current, you know, geopolitical uncertainty particularly impact this business and may certainly affect the growth. We have a geopolitical situation where we underline that the current high external uncertainty makes forward-looking statements challenging. Due to this high geopolitical uncertainty, the changing landscape for global trade and the lack of clarity related to tariffs, you've seen that they have very dynamic these days in the U.S., there are risks of postponements in investment decisions, and also of global economic activities slowing down. So that's our presentation and summary of the first quarter. A strong quarter for marine and energy. We are moving forward towards the financial targets. And we have a challenge in order intake clearly in storage. But the team is executing in a very good way. But we need to address the challenge on the order intake. Overall, a good quarter. Thank you. So, Ana Maria, let's go over to the Q&A.

Thank you, Håkan. Thank you, Arin. Now continuing with the Q&A, so handing over to the operator.

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 Daniela from Costa. Please go ahead. Hi, good morning.

Thank you. I just wanted to ask two related questions regarding the energy. So I think this was debated a bit last quarter, but I think when we look at sort of equipment or other intake per megawatt, We haven't sort of seen the increasing evolution like we've seen some of the turbine players. Can you maybe comment on why that is the case? And now that you sort of passed the reporting period, have got some really large data center orders, will we start to see that accretion coming through on order per megawatt and also sort of on margin from data center orders? And maybe just linking to that, you mentioned that you still have some capacity available from here to 29. How many large orders like the one you took last week do you think you still have capacity to take? Thank you.

So if I start with the latter part, how many orders, et cetera, we will not go into those details because that is highly, you could say, confidential information in the current market situation. So I won't go and disclose that. I would say that, you know, it's not a lot of capacity. It clearly depends on the type of energy and the size of the water, et cetera. But I don't want to make more explicit statements because of the competitiveness in the market. Then coming back to your questions on this famous, you know, I would say oversimplistic metric of just dividing, you know, U.S. dollar per kilowatt. As we talked about before, it's the scope of our deliveries actually varies. And it varies with, you know, the engine is in the core, but it's also, you know, how much of auxiliaries, you know, where do you transport in the world? U.S. is a pretty big country with different transport costs, et cetera, et cetera. So I've said it in the past, and I'm saying it before, we have good price realization on data centers. We will, I mean, from a sales perspective, we will start to see that kicking in at the end of this, I mean, during Q4 this year, and then it will gradually build up over the years to come. I don't know, Arjan, do you want to comment?

No, I think that's exactly what it is. Let's say if you look at the water intake energy for Q1, it's basically all EEQ, and it's very geographically spread as well. and there are different scopes, as you rightfully say. Let's say you have basic EEQ, you have extended EEQ, and if transport is part of your scope or not your scope, because there are also differences, it makes a big difference in the euro per kilowatt. So I think it is a matrix, but I would not use it too much. We have good realization of margins. That's what we are focused on.

Thank you. The next question comes from Vivek Mita from Citi. Please go ahead.

Thank you very much, everyone. Good morning. Hope you can hear me well. My question is on working capital. Thank you for the color on the quarter. But we've had very healthy order intake in the quarter, but nonetheless, working capital was a drag. And given your announcement, the second quarter is likely to be another good quarter on the order intake. But nonetheless, you mentioned that the fourth quarter level on working capital was exceptional. Would you be able to give us some color as to how you expect the working capital to evolve over the coming quarter and over the coming year? Thank you.

We will not guide on cash flow and not on working capital either. I'm expecting, let's say, negative working capital to sustain. And, yes, you will have fluctuations. Imagine if you have to deliver, let's say, 20 engines in one batch, let's say, three, four months from now. You need to buy the components now. You need to do the assembly. You need to put them in front of the testbeds, and they need to go one by one through the testbeds. So it's obvious that you need to, let's say – pre-produce, make cost upfront before you can deliver the patch which will generate the sales later on. Yes, then you have of course the new orders, they have typically advanced payments, always have advanced payments I would say, down payments as well. Timing of that is always difficult to say and okay, like I said in Q1 it was on the lower end of let's say advances. But that can change certainly, let's say, in Q2. That timing is very difficult to predict, but I expect, let's say, negative working capital to sustain.

Okay, so just to be clear, so we shouldn't read your comments about the exceptional working capital mean that you see a return to that level from Q4 as unlikely in the coming quarter?

No, I would say that was a really extraordinary level in Q4, and it was also driven by really high advances received. And so I would not expect it to go back to that level. But it will stay, let's say, good negative, let's put it that way.

Understood. Thank you.

The next question comes from Sebastian Kuhn from RVC Capital Markets. Please go ahead.

Yeah, thank you for taking my questions. My first relates to energy storage. I'm wondering what needs to happen for Basler to decide that you need a strategic decision for the energy storage business. So you mentioned you immediately need order intake now to prevent it from being loss-making, but at the same time, it's a low-margin business as is. Chinese competition is not decreasing going forward. So what needs to happen for you to make a decision there? Thank you.

So, as we all know, we did a strategic review, which was quite expensive, and we concluded that, yeah, a little bit more than a year ago. And we made the conclusion before the Liberation Day tariffs and also before, I would say, you could say the slowdown of the electric car industry. really impacted the battery cell market. So that you could say that there has been some macro shifts after we made our strategic review. I mean, we have also said also when we concluded the strategic review that we will continuously evaluate all business units in Vaseline based on, you know, how they contribute to the group. And from that perspective, I mean, we will evaluate storage like we evaluate other parts of our business. Right now, our focus is really to, you know, get orders in. I think there are some opportunities in some of our core markets and also to work with cost. That is our focus right here, right now.

Understood. I have one question regarding capacity for your engine production as well. In your chart, you show that the end markets, marine end markets that are relevant for Wärtsilä, you expect some 30, 40, 50% growth in contracting going forward, so really strong marine demand. At the same time, you indicate a good pipeline also for the data center baseload power business. So I'm wondering the plans that you have to increase your capacity, I think it was 35%. Do you already now look beyond that and think, okay, actually, you know, if end marks evolve as we think they will, in the next two or three years, we need further expansion of capacity. Are you already now, like, planning or discussing further expansion, or do you think this is still too early and it's more like, Let's see how business evolves and then go from there.

Thank you. So a highly relevant question, just so we get the numbers right. We talked about that, you're fully right, we said that by beginning of 2028, we have expanded our technical capacity with 35%. However, just to put it in contrast, in 2025, we were at 75% of our technical capacity. So if you look at the increase of our, you know, manufacturing capability is going from 75% to 135%. That's an expansion with 80%. Now, we need to be cautious just to translate that to sales immediately because, you know, manufacturing engines does not translate to sales immediately. But so just to calibrate the magnitude of the increase that we are doing. Then coming back to your core question, can we expand further? And we can certainly expand further. We need to grow in tandem with our supply chain. So it's not, it's of course our own manufacturing and testing capability, but it's also our capability to ramp up our supply chain. And there is a structure of work ongoing. We, in Q4 last year, we announced this, just to give an example, we announced a strategic partner with SimpleCamp, who is a key supplier of big castings. So, to your question, can we expand further? Yes, we can expand further, but let's take it step by step. We do see a very strong demand situation going forward.

Thank you, thanks. Okay, thank you.

The next question comes from . Please go ahead.

Hi, guys. Thank you for taking my questions. I have two, and I will start with the, kind of the capacity or situation on the power plant side. And when you talk with your clients, obviously, especially the U.S. data center ones, but generally as well, do you think that your ability to deliver is aligned with the overall kind of project timelines in a sense that are other bottlenecks as well on building the power plants, the permitting stuff and the EPC components and so on? So do you think kind of the ability to, let's say, deliver 28, 29 projects 2030 commissioning is not actually a bottleneck in terms of your engines, but the bottlenecks are elsewhere.

In my view, there are two major bottlenecks. One is data chips, and the other one is power. So, you know, if we had the capability to deliver with shorter delivery times and with more capacity, we could sell more. So we are part of the – there is not only one bottleneck, but we are certainly part of being a bottleneck.

And then the second question is a little bit about the facing of capacity or free capacity and revenue recognition in a sense that now looking at you two very sizable data center deals with kind of the deliveries 28, 29 or commissioning 28, 29 over kind of a how long time period does this spread in your production? I mean, the 40 plus engines, hundreds of megawatts in a sense, but how kind of a long time will that kind of burden your and possibly model that one.

Ian, do you want to comment on that?

Yeah, of course you need to, let's say, do this in, let's say also within such a big order, you deliver typically in batches. So it's not that all the 40 plus engines go in one go. You typically deliver in batches. And of course you need to, let's say, plan that well in advance. If you need to deliver a batch of, let's say, 10 or 15, like I said already with my example on cash flow, you need to pre-produce and that needs to be planned. So you need probably for these orders to be delivered in 28 fully. I would assume that we already end of this year need to at least make sure that the supply chain delivers certain critical components that we are not short of that. And then it goes on into 2027.

And then... Sorry, Antti, if I may add. I really would take a very careful look on, you know, the periodization of our order backlog, because we are clearly signaling that, you know, sales recognition will be further out in the future. We have a great order intake, but sales recognition will clearly go further into the future.

No, I appreciate that, and actually the follow-up was on what, Arjan, you mentioned, that you're delivering batches, but would the revenue recognition still be worth the commissioning of the plant and the earnings contribution?

No, in these bigger orders, it's the batches, basically, that drives it.

All right. Thank you.

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

Thank you. Good morning. Could I just ask firstly about Section 232? We've obviously had, you know, some changes with tariffs. I think there was some, you know, adjustments to anything with sort of percentage of metal over 15%. There were some specifics around obviously gas engines up to certain sizes. So quite a lot of moving parts. Could you just give us your take on on how this will affect your business, potentially in terms of ordering and cost, and whether we should think about any impact going forward.

So I would say we have done careful analysis. It's a complex framework and dynamic framework. When we make the assessment of the overall situation, you know, difference rates, different custom codes, et cetera, et cetera, I think net-net, it has a very limited impact on the type of tariffs that our customers will pay. It will be approximately on the same level as before the change. So from a customer perspective, it's about the same.

Okay. Maybe just a quick follow-up on the – so if I look at your orders this quarter, you had roughly gigawatts of energy orders, round numbers. I think the data center one was like $429 million. So you had a much better quarter in terms of kind of non-data center orders. Could you just talk a little bit around, you know, what regions those were coming from, you know, what was driving it, and maybe kind of how the pipeline for those non-data center orders? I guess what I'm trying to understand is, you know, we know from the second quarter there's going to be a lot of data center orders. How do we think about that non-data center order piece? going forward, and is some of your kind of more cautious commentary around, you know, geopolitical headwinds, uncertainty, is that targeted, you know, maybe at these non-data center customers? So a little bit of color there would be great. Thank you.

So I would say there is some in North America, some in South America, some in Asia, so to say. So it's, to your point, it's not only data center holders.

Okay, given that was quick, can I just ask one very quick sort of, I guess, conceptual question? So we've basically seen this morning your energy margins have gone down year over year because your share of energy new equipment has gone up. So your share of new equipment this morning in Q1 is about 41% of your energy division. If I look at what's going to happen over the next three years, your energy share or your new equipment share of revenues is going to go from about 40% to about 60% of your overall division. I guess what I'm trying to understand is, you know, we've all been used to, for Bartzilla, when equipment goes up, margins tend to go down. And I guess, you know, is there a danger here that we all start looking at, you know, margins, you know, I think, many in the market would say your margins could go to 20% plus in energy. Is there a danger that actually as that mix increases, the revenues grow, the absolute EBIT grows, but actually the margin expansion stays relatively constant because of that mix? Just conceptually, how should we think about that so we don't get overexcited or so we don't get caught out as the energy share or the new equipment share of revenue grows over the next two, three years?

So I think, you know, new build will grow, service will grow, but we are certainly in a time period where new build will grow faster. You know, that's a high likelihood considering the buoyant market. I mean, the possibility on new build is generally lower than services. However, I would say we talked about it. We have good price realization on the new build that we are taking in now So, and then, you know, and I know you're a long-term investor. That would be a fantastic service business generated by all that new build capacity that we are taking in now. Because the new build that we are taking in now, there is a lot. We talked about that. It's a lot of, you know, 24-7 base load operation.

Okay. Thank you.

The next question comes from Vlad from Sergievsky. Please go ahead.

Yes, good morning. Thank you very much for taking my question. Could you talk about service order growth rates, including and excluding agreements? How much materially the difference is between the two? Also, any particular reason for declining service sales this quarter? And when realistically do you think we can expect service business to return to growth?

So I would argue, I mean, as I said, surface is growing quite considerably on the organic side. So it's 9% for the whole group. But then we have had an FX impact. That's primarily US dollar to euro. And we also had an impact of the divestment. And I would say it's about 50-50 split on those two drivers. So we will see growth going forward. I'm not sure how you need to help me here, but I'm not sure we are breaking down the growth percentages of each of the disciplines, so to say.

No, let's say organic growth now out of my head, I think for marine was actually 9% and for service 6%, if my memory serves me well here now, Q on Q. So let's say, yes, we are growing and we are not breaking down, let's say, the growth ratio per revenue stream. Of course, let's say, depends a bit on what type of agreement there is. There is a piece of parts in there, there's a piece of field service in there, so it's not just black and white parts versus agreements. There is also, let's say, mixes in particular on the agreement side.

Okay, thanks very much. And the question is on . Your portfolio business was a clear highlight this quarter. Did you manage to improve the business by that much so that new owners will be getting a double-digit profitability business going forward from here? Or there were something specific coinciding in this quote to support double-digit profitability portfolio?

Sorry, I missed the first part of the question.

I heard it a little bit. Sorry, Vlad, can you repeat? Because I think both me and I, and we're sitting in different parts of the world, we didn't hear you quite.

No problem at all. If I can try to do it again. So your portfolio business has delivered an exceptionally strong margin in Q1. The question is, is that you've been able to improve this portfolio business so much that this double-digit margin will be maintained for the customers who are vital for the new owners of this business? Or there was something specific in this quarter that drove margin to that high level?

No, I can answer that. It is purely, let's say, commercially driven. So, yes, let's say you might remember, let's say, a long time ago when the current two business units that we still have there, gas solutions and water and waste, were put into this portfolio business unit. They were loss-making. And we have been able to convert that to a profit-making in order to be able to, let's say, also divest them in a better way. And this is purely, let's say, commercial work, commercially driven, let's put it that way. There is no special items in Q1.

And to add to that, we continue to have the same message that, like before, that we are planning to close gas solutions in Q2 and water and waste latest in Q3.

So thanks very much.

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

Yes, good morning. Thanks for taking my questions. First one is to follow up on the Texas order, which obviously is quite a bit above your sweet spot range that you mentioned before. I mean, if you consider also the capacity that you have left to be booked, I mean, is this order going to remain like an exception or you see yourself even getting closer to the gigawatt range and, you know, what was the kind of maybe the market feedback from you winning that order? Did it, you know, resonate very well with other projects that haven't made the decision yet?

Yeah. So to give a little bit more color, we talk about that we have a pipeline, a data center pipeline. We talked about that, you know, it's buoyant and it's growing. You know, if I look in that, and we also talked about that it's very dynamic. We have clearly seen, you know, looking at the last, you know, now you can see the five orders that in the U.S. that they are getting bigger and bigger. I wouldn't say that, you know, each new order in data centers related to the U.S. will be of the same size. That will be smaller. But there will be big ones as well. I mean, there are all gigawatt potential orders in that very dynamic pipeline that comes and goes. So, I mean, it's not, you know, completely off the wall of gigawatt even with our engines. But we will have, you know, a mix of big ones and smaller ones. But if you look on the average, I would say the trend is slowly increasing in the U.S.

And what is your expectation on the Brazil pipeline in terms of the power auction we had? I mean, should we see those orders in Q2 already or later?

So the auction has taken place. I cannot comment because we are sitting and having talks with customers as we speak. But there are here opportunities, yes.

And then just finally, if I may, just coming back on the situation on marine retrofits and regulation, I was just wondering what your clients tell you on the methanol engine order books, because we just recently saw Pacific Basin handling a methanol order and converting it to conventional fuel, and they basically cited regulatory uncertainty. but also the like 15% cost saving on the overall vessel order. I mean, that's probably on the two-stroke side. I mean, are you seeing similar thoughts among your clients to make a change?

So far, we sold about 350. I mean, we have orders for about 350 methanol engines. We haven't had any cancellations that I'm aware of so far. I mean, also, of course, we have our, you know, dual fuel approach. So many, I would say a vast majority there of those that we have delivered out of the 350. All the 350 has not been delivered yet, but of the ones that have been delivered, the vast majority is running on traditional fuels. And because the challenges that customers have faced is to find the methanol is not ready, readily available. But because of this multi-fuel capability, we haven't had any cancellations so far.

Is the content you have on the methanol tickets bigger than if you just have kind of traditional dual fuel?

Well, I would say that, you know, methanol-enabled dual fuel engine, It's the technology diffusion curve. We have better price realization on new technology than on standard traditional technology. Okay. But, I mean, the methanol, so just clarify, the methanol engines that we have delivered, they are dual fuel. They are not single fuel.

Understood. Thank you, Håkon.

The next question comes from Uma Samlin from Bank of America. Please go ahead.

Hi. Good morning, everyone. Thank you very much for taking my question. My first one is a follow-up on the energy margins. So you talked about we will start to see the price realization of the new build and also, you know, the service potentials could kick in to help your margin going forward. you know, just looking at your already existing order, will we start to see that coming into the margins?

I think, you know, if you look at data center deliveries, they are starting to ramp up in Q4, and then well into 2027. So that's the timeframe.

Yeah, and for service?

Service, I would say in general, it takes four to five years. So, because you need to, you know, you install, you operate under warranty, and you go in. So, I mean, the good thing, the great thing today, we sign service agreements, you know, almost when we contract, you know, when we have the new build, we normally contract services as well, either at the same time or, you know, just a couple of months later. But then, of course, when you know, the revenues kicks in and therefore starts to generate top line and EBIT. That's normally a four to five year timeframe. So that's why I'm saying also commenting on Max, you know, you will see the major impact on the service side with a four to five year timeline.

Unless we agree an operational maintenance contract because then it starts at commissioning. That is correct.

That's super helpful. Thank you very much. So just on that point, for the data center order you book, for example, the Texas order you book, when will we expect to see the service contract kicking in? Is that like just in like a couple of months already?

So I can't go into that because, you know, we are in negotiation with customers. So I will have to come back.

Thank you very much. Just the last one for me. We have seen the order from Hyundai Heavy recently to supply data centers. Just wondering, is there any changing competitive landscapes on the data center engine side? Also, do you see any pricing potentials perhaps outside the data center space, like spilling into the marine service, marine engine supply chain?

I haven't seen that so far. I think right now it's a very buoyant market. And as I said, we have good price realization both in energy and marine. I mean, we are an established supplier. We have, you know, years and years of references. We have the industry-leading service network both on the energy and marine. In the U.S., we've been for decades. I think we have a very strong brand. And we have proven that we can execute and that our plants are running with very high uptime reliability. So we have a strong market position and, you know, I'd rather talk about that this is an opportunity for Indian technology to actually over time expand its market share because, you know, there are also intrinsic benefits with Indian technology compared to the gas turbines. especially when we talk about the derivatives and the industrial. Better fuel efficiency, no water consumption. Water is a big topic in the U.S., and also for, in the future, for potential balancing, better handling fracturing loads. So I see that much more of an important competitive dynamic than that we have new entrants coming in on the engines.

Super helpful. Thank you very much.

Thank you. Before closing this news conference, I would like to remind you that Capital Markets Day invitation has been published today. So the event will take place on November 3 in Helsinki via live webcast. And on the following day on November 4, there's also a great opportunity to visit our Sustainable Technology Hub in Vaasa. Before Capital Market Day, we will also host many smaller events, including CEO Strategy Call on June 9, CFO Pre-Send Call on June 23, and then Q2 Report will be published on July 21. Thank you.