Wartsila Corp Unsp/Adr

Good morning, everybody, and welcome to this news conference for Wärtsilä's half-year report 2022. My name is Hanna-Maria Heikkinen. I'm in charge of investor relations. Today, our CEO, Håkan Agnemal, will start with the group highlights, followed by the business area development, and then our CFO, Arjen Berends, will continue with the key financials. After the presentation, there is a possibility to ask questions. Time to start. Please, Håkan.

Thank you, Hanna-Maria, and thank you everybody for joining us. Let's jump into the second quarter for Wärtsilä. Some really good news on the service order intake side. Service order increased by 36% throughout the business. Also, on the overall order intake, we had a positive development. Order intake increased by 25%. So strong order intake in still a market with a lot of uncertainty, but we are making good progress. Net sales increased by 24%. And also on the services, we see that service net sales is developing in a positive way with increased service net sales of 18%. A comparable operating result also increased by 20%. But cost inflations, supply chain bottlenecks, COVID-related lockdowns in China, and sanctions in Russia have put and continues to put the global economy under pressure and cause challenges also for us. But still, we managed to grow our order intake. And starting point also two very important announcement from Wärtsilä. And if we start with the most recent one this morning is we This morning, we confirmed that our exit from the Russian market has now been completed. All adjustments and closures were completed in accordance with local regulations. The financial impact is in line with the provisions that we took already in the first quarter, and no material impact on our financials in the second quarter. Then earlier, we have also announced the plan to further optimize our European engine manufacturing footprint. Ramping down our factory interest Italy and centralizing our four stroke engine manufacturer to Vasa in Finland. This means taking the next step in strengthening our competitiveness and creating a structure enabled for future growth. Italy and Trieste will continue to be very important for Wärtsilä in many areas. And now we are highly committed, working very closely together with unions and institutions to identify different support solutions for the impacted employees. This has not been an easy decision for Wärtsilä to take. Coming back to the overview of the figures and we will talk through them. I highlight a couple of the first half year. I mean, we had a good second quarter, but also a good first half year with order intake up overall 18 percent. We have an order book that is up 13 percent. And our comparable operating result also from the first half year, up 35%. If we then look at the highlights of the second quarter, we see that net sales came in at 1.4 billion euro. 18% increase in service sales, a strong contributor. The comparable operating results landed at 85 million euros, growing 20% and strongly supported by higher sales volumes. You also see that our operating margin kind of stabilized. at 6.1%, and one could expect the operating margin to continue to develop in a positive way given our increased sales. But here we are also facing headwinds in terms of cost inflation, which is impacting our existing order backlog. We are also facing challenges with underabsorption in our industrial system. And we also said earlier that 2022 is a new build year. So the mix between new build and services weighs over a little bit more than normal to the new build side. And we know that the profit margins on the service side is higher. So these are a bit of the headwinds, so to say. But we are moving in the right direction. On the marine market, activities are at a good level. Investments in new vessels eased off a bit due to increased prices and also fewer available slots at key shipyards. And there is also some uncertainties related to future demand for tonnage. The number of vessels orders in Q2 decreased to 701 compared to 829 in Q2 last year. Vessels contracting has been driven by container ship and a record level LNG carrier ordering. And LNG carrier market activities has improved significantly during the Q2, as many countries in Europe are looking at replacing Russian pipeline gas with LNG from other sources. And on the cruise side, at the end of June, 90% of the cruise capacity was active, up from 70% end of March. And when I talk to our key customers on the crude side, I think they have a very optimistic view on the demand side here in the month and the year to come. On the energy market, markets are affected by global cost inflation and price volatility. But we also see the continued trend of increasing demand of balancing solutions. Cost inflation and continued COVID-19 pandemic have contributed to higher quotation prices. Increase of cost of supply and higher prices have also caused slower customer decision making. We see that. The market transforms as Europe is moving away from dependency on Russian imports. And more liquified LNG projects are moving forward globally. We see an increasing level of intermittent renewable energy that is expected. And we do see an acceleration in the need for balancing solutions. Storage growth is picking up after a slow first quarter. You've seen that in Q2. It's really taking pace again after, I would say, a digestion of the new cost and price level in the market. Service growth continues at a good level, and customers really show interest in our long-term agreements. Our market share, the Wärtsilä market share in the gas and liquid fuel power plants also increased a notch now to 9%. Oil intake was up by 25%. Equipment order intake increased by 13%, service by 36%. And what is really encouraging on the services side, we do see that the major drive of the growth in the second quarter was around agreements. And you know, we have been talking about moving up the service value ladder, and we see it happening gradually as we go forward. We have a strong order book, and this is despite that we have now, in the second quarter, removed 240 million Euro of Russian-related projects. You also see that if you look of the share of delivery of the current year, this year, this share has increased compared to previous years. Net sales increased by 24%. Equipment net sales increased by 31. And service net sales increased by 18. So positive development in both areas and throughout the business. Now, technology and partnership highlights. moving on our way to shaping the decarbonization of marine and energy. So what is happening? I think on the hydrogen side, we have some really interesting partnerships here. Two very concrete examples where the blending of hydrogen starts to be tried on the energy side. We have a collaboration with Capwat in Portugal, and we test up to 10% green hydrogen blends in our 34 ST engines. In the US, we blend up even up to 25% of hydrogen, and that will be tested in cooperation with WEC Energy, where they have a current plant running on three of our 50 ST engines. We also launched a new large-bore engine, our 46TS dual fuel engine. It has a modular design, it's part of our modular platform, and with a focus on efficiency. And we are really taking fuel efficiency and therefore reducing emissions to the next level. And we keep the fuel flexibility, which will be needed as we talk about the gradual shift to different type of fuels. And in gas fuel mode, this engine has the highest efficiency in the industry so far achieved in the medium speed engine market. And we also really celebrated our opening of our sustainable technology hub in Vasa in Finland. This is a new technology center where we invite customers, partners, and companies, academia, to come together to incubate, test, and validate ideas. Evolving a lot around the new fuels and the new sustainable solutions, we need to increase the pace of innovation. It also features a modern fuel laboratory, flexible technology and engine testing facilities, as well as a highly automated production system. And it's on land, but it's also at sea, because we have a great cooperation around the Aurora Botnia ROPAX ferry in Vasa, which actually is a floating test lab for us, which is an integrated part of the whole ecosystem. Now, if we look at the businesses, let's see how the businesses have evolved. For Marine Power, order intake and net sales increased. Service order intake is up here, also 36%. Overall, the order intake, you can see it's up 21%. Net sales with 8%. Our comparable operating results is going from 44 million to 45. On the positive side, strong services sales. What is holding it back is the factory capacity, the under-absorption, also the cost inflation, both on materials and logistics on the existing order backlog. We do a lot of testing on fuels and the fuel costs are going up, which is affecting the profitability. And then we also carry cost to ramp up the Sustainable Technology Hub, STH, this year. And if we look at the service agreements, they are really growing and the net sales from the installations under agreement is clearly increasing. And here I think is a great example, Marangas has extended their optimized maintenance agreements for an additional five years. These agreements ensure that operations can run safely in a controlled way, but also with predictable cost for the fleet of 21 LNG carriers. And in addition to the maintenance service, this agreement includes remote operational support, dynamic maintenance planning, and also our digital predictive maintenance solution based on our expert insight platform. And already today, Marine Power is supporting globally more than 700 vessels with our lifecycle agreements. And one interesting metric, we sold 90% of the cases remotely. And for me, a very strong proof point of the whole logic and the whole concept is that we have a very high renewal rate with our customers. Customers that have signed up for agreements, they come back and they want to prolong. Marangas is one great example. Looking at marine systems, net sales increased. Order intake and comparable operating result decreased. Order intake went down with 24%. I think on the new build one year ago, we had a spike in our gas solutions order intakes. It's a bit of a periodization. And on the services side, there is also this year a bit of a periodization. But order intake is down. And net sales is up. Then, in spite of the higher sales, you still see that the comparable operating results is going from 13 to 11. So on the positive side, we have higher sales volume. But on the negative side, we do have an unfavorable mix between equipment and services. And we also see the pressure from cost deflation in our existing order backlog. Voyage, Voyage order intake increased, but the Russia exit impacted clearly the sales and profitability negatively. However, I would really like to recognize the significant efforts and commitment from the Voyage team in rebuilding the business in new locations outside of Russia, keeping 100% focus on the customer and really delivering. So that has been a monumental effort. And now we have taken a significant step. So order intake up 8%, net sales down 15%. You can see operating results, minus 11, minus 12. On the positive side, we had a favorable sales mix between services and equipment, but we had a lower sales volumes. I mean, we also had, I mean, the cost related to ramp down of R&D capabilities and building up outside of Russia again, so to say. If we see how our cloud solutions are evolving, we continue to see the increase now, 23% increase in connected vessels. We also closed the acquisition of port link. And I will say this acquisition as one example of the type of acquisitions we want to do going forward. It's bolt-on acquisitions where we acquire maybe small or mid-sized companies with certain critical edge in technology or service capabilities. And Portlink is a leading provider of port efficiency solutions. It was founded in 2007, and it is headquartered in Vancouver, Canada. It has a global partnership with more than 3,500 users and a customer network in more than 20 countries. And the workforce is 20 professionals. It's not a big team, but it's a really good team. And they will be integrated now in the Wärtsilä Voyage business. And this acquisition, it will speed up Voyage journey towards creating an end to end connected maritime ecosystem with intelligent port logistics solutions. Then energy. And you can see the lady was smiling. Energy significant improvement in all key figures. Service order intake up by 56%. If you look at the order intake overall, it's up 51%. If we just zoom in on our battery storage business, it was up 91%. But also the thermal side was up with 34%. Net sales up with 52%. And we can see that the comparable operating result going from 24 up to 41. Major driver is the service volume growth, but also energy is working with cost inflation. It's a headwind in existing order backlog. And there's also a less favorable sales mix between equipment and services. And also within the services, there is a less favorable mix between the different disciplines of services. But an energy that is definitely going in the right direction. And Q1 was tough on our energy storage business. Q2, we see order intake really picking up again. One example from the UK, we are delivering 100 megawatt hour storage for our partners there, the SSE. The project also includes our GEMS software platform, and this is very normal for us when we deliver to our equipment, that we deliver our software solutions. And you know our approach to the storage arena, it's power system optimization. It is how you connect the battery to the power system in combination with different generating assets. This is where you can really create value uptime reliability and also lowest overall energy cost. This battery system is connected directly to the transmission network and supports access to clean and reliable energy by balancing the intermittency of renewables. The energy storage system will support UK's national grid with reliable services, and we will also support the wholesale market trading. That is crucial for establishing the market mechanism for balancing power. And we are actually in, we have received earlier orders in the UK, and we are installing similar sized energy storage system across the UK, helping, supporting UK to meet its ambitious renewable energy targets. On the service agreements, we also see that the installed base is increasing. The service coverage of the installed base is increasing. And this is one example from Brazil, where we have a performance agreement that will enable our Brazilian customer to meet its power purchase agreement obligations. It's the full operation and maintenance agreement for Temu Cabo. It covers a 48 megawatt power plant, and it operates on three of our 46 engines. And this agreement includes performance guarantees on availability and on fuel consumption. Now, other key financials. Arjen, please.

Thank you, Håkan. Other key financials, probably the main thing to highlight on this slide is the operating cash flow minus 90 million euro negative. The other key financial parameters quite much link to that number. We have been, during the first half of this year, we saw it in Q1 and we saw it also now in Q2, we have been building up working capital to facilitate higher volume deliveries going forward. And that was also actually shown by the order book graph that Håkon showed earlier. Let's say if we look at the order book for the remainder of this year, it's much higher than the year-to-date net sales. That on this slide, if you look a little bit deeper into the working capital, and you can see it from the right side slide here, the main increase comes from, let's say, trade receivables. We have been invoicing a lot of milestones recently in quarter two, which we anticipate to get paid for in the coming months. So if you ask me the question, are you more positive about the future cash flow? Yes, I am. With these words, I give back to you on the prospect, Sorkhan.

Yes, thank you, Arjen. And if we look at the prospects, I mean, we expect the demand environment in the third quarter to be better than Q3 last year. Of course, there is still uncertainty in the markets, but we do expect it to be better. So with that, We open up for Q&A, and we suggest we stick to the normal routine. I mean, one question per participant, and then we try to go around the table, and then we can come back with more questions. So, please feel free.

Okay, first question on the line is from Vivek Mitha from Citi. Please open up your microphone and ask your question. Okay. Next question is from Sebastian. Vivek, can you hear us?

Yes, I can hear you. Can you hear me?

Yes, now we can hear you.

Perfect. Sorry about that. Thank you very much. Good morning. So I have one question on marine power, if I may. So you're back at 90% utilization cruise. as over 30% marine power service growth. So my question is, do you expect now that we're going to see some element of stabilization at this high level, maybe a moderation in growth, or how far do you think your service initiatives, such as moving up the service value ladder can push service growth going forward? Thank you.

Now, I think we, it has potential to, to, to, to, uh, further, we have potential to further grow services. When we talked about the service value ladder, and you can find it also in our CMD material, we said that going from spare parts up to performance-based, you see a factor of two to five on the performance related to the first step of the ladder, which is parts. So there is growth potential still. However, it will take time, but I think we are on a growth trajectory here. And clearly, we can see, I would say, a concrete proof point on that, because it's really agreements this quarter that is a major growth driver.

And we also see good renewal rates on the agreements as well, giving a proof point to the customer that they really value what we deliver.

Excellent. Thank you very much. And if I could just quickly follow up, would you say it's a similar picture in the energy business because you've also sort of seen very strong growth there in service?

Yes, and it's a key pillar of our strategy. And you could say we apply the same logic. It's about the service value ladder. And also on the energy side, it is using digital tools to enter different type of agreements. And then, of course, to deliver on those agreements, creating values for our customers. And also there, we are moving up the ladder and we see that we are growing our agreement business.

Next question on the line is from Sebastian Quen from RBC. Please open up your microphone.

Yeah, good morning, gentlemen. Can you hear me?

Yes, good morning.

I have only one question on the comments from Reuters yesterday that Fincantieri in Italy is indicating it wants to stop the cooperation with you on the four-stroke engines. And given that these guys are the biggest cruise ship Wouldn't that be a severe problem for you guys? Can you maybe elaborate a bit on this one? Thank you.

Well, first of all, I have a lot of respect for Fincantieri and they have to make the decisions. I think we have a very in-depth cooperation. We have ongoing deliveries with them and those we will continue. Then when we talk about developing new green technology, we like to work with Fincantieri for sure. But we are also working with a lot of other partners in the world. We have the Seeds Corporation in Norway on ammonia. It's going in a really interesting way. You could see here we are working with hydrogen in the US, in Portugal. We are delivering our methanol. So we are respectful of Fincantieri. I think we have a very good relationship with them, and we will continue to evolve our technology. We'd love to do it with them, but we do it also with many other partners.

I think you need to ask them that.

I think it's best to ask them about that, so to say. They have to answer that.

But you have spoken to them in the past days.

But I don't comment our customer discussion in public, so to say. So we are in dialogue with them. We have quite a lot of ongoing business with them, and this dialogue continues.

Thank you. Next up is Sven Wajer from UBS. Please, you can ask your question.

Yeah, good morning. My question would be on price costs. Obviously, Håkon, you commented a lot about the cost headwind that you still had in Q2. When I look at then your written remarks, it sounded like we've probably seen peak inflation growth. And at the same time, the pricing of the orders is improving. So is it fair to say that Q2 you know, how should I say, was in terms of the worst, in terms of price-cost headwind, and we should see gradual, let's say, slow improvement in the coming quarters. Is that a fair comment?

I clearly see that the acceleration of inflation, that has tapered off. We still see a high inflation. The price realization, I would say, it's certainly there on the services side. It's also there for new tenders. on the new build side, I think what we are working with is our order backlog. And this, in the order backlog, we have a mix of setups where we can renegotiate to adjust for the cost, and in some we cannot. And this is, of course, where we are overall affected by the cost inflation.

And can I just follow up real quick on Sebastian points about Finch and Jerry, because I was also curious about that. How is it in the cruise industry? Because we know in merchant, it's not the yacht who makes the decision on the engine, but it's the customer a lot of times. Is it the same in cruise or is that different in cruise?

No, it is the same in cruise. It is the end customers. It's the Royal Caribbeans of the world. It's the carnivals of the world. They decide which engines goes into their vessels.

Okay, understood. Thank you.

And I should add, we have a great relationship with both of these two and other cruise companies. And we have a very exciting discussion with them on what is their right path to decarbonization. So that is a very, very interesting discussion that we have right now.

Thank you, Håkan.

Next up is a written question from Tomi Railo from D&B. He has a few questions here. First, are you able to guide storage orders in 2022 compared to 2021? H1 is a bit up after weak Q1, but strong Q2.

Yeah, so no full year guidance, but I would say we described there was a kind of reset in the market, in our view, a price reset because of the increased cost. The market stepped back and digested the new price level. We see order intake coming up in Q2, and I would say in many areas, the market has now digested the new price level, so we see a positive market development going forward.

Lots of activity.

And then, was storage loss bigger or smaller in Q2, and will it be smaller or bigger for 2022?

Yeah, I respect the question. The message continues to be that our storage business has a positive gross margin, but it has a negative EBIT. And why the EBIT is negative is related, we are scaling the business, we invest in R&D, we are building up the team.

And then next question on the line is from Antti Kansanen. Please, you can ask your question.

Yeah, good morning, Håkan and Arjan and Hanna. I hope you're hearing me well. Coming back to the price and cost, so did I interpret it right that you are seeing better price realization on tenders, but not so much on, let's say, actual orders during Q2? And let's follow up that assuming that the inflation is flattening out However, you have quite long lead times it would take into, let's say, back half of next year before we will see kind of the pricing improvements, especially on the new equipment side.

So I would describe that for New Build, as inflation has really escalated, I would say it really took off in the beginning of this year. We had inflation last year, but it was a different magnitude. We immediately started to compensate by increasing prices, both on New Build and services. But for the orders that we have taken before, as I said, that's a mixed bag of what we can do on pricing, so to say.

But I think your point, Antti, is quite right. Let's say we have been able to, let's say, get better prices now for the new orders in Q2. And of course, when they are delivered, and that's probably, as you indicate, next year somewhere. It can vary, of course, a bit, but let's say most of it is probably next year. There we should have better margins.

And you know that if you look on our order backlog, if you talk about new build, you're normally talking about 12 to 24 months of build time. Yes, yes.

And a quick follow up on that one. If we are then seeing kind of inflation turning and let's say your customers are then expecting the cost levels to come down, are you fearful that they would be starting to postpone investment decisions waiting for more affordable prices?

We haven't seen any tendencies on that so far.

And I think you guys mentioned earlier that you are introducing this new type of cost indexation. Would that also help in that regard, that the customers would also get the benefit of lower input costs, assuming that that happens?

Absolutely. Here I would say the indexation, there is not one formula, there is not one approach. I think on the storage side, given the you know, the significant cost inflation. I think this is becoming an established market practice. But if you look on the rest of our business, it's a mixed bag of how indices are adapted and also different indices, how they will be used.

All right, I'll get back to the line.

Next up is San McLaughlin from HSBC, please.

Good morning. I hope you can hear me. Yes. Good morning. Thank you. Good morning. Just wondering how we should interpret your comments on the outlook. If I think back to Q2, you were talking about similar year on year demand, but clearly the order intake has come out significantly better than that guide. So you guide now to demand being better on a year on year basis on what appears to be a fairly low bar. So how should we think about this, you know, are we going or how should maybe should we think about it sequentially if that's if that can help?

Well, sequentially is not always the relevant because our business is a bit periodic. So I think the relevant is to compare Q and Q from last year. And you're right in how we guided for Q2. And here We are a project business, and sometimes a couple of big orders can make, you know, a big swing. So so but we I would say we feel fairly confident when we say that Q3 will be better.

And would it be energy storage that drives a lot of that? Or are there any other segments that you would highlight in terms of improving demand?

It is storage, but it's also the other businesses as well. It's service, it's thermal balancing, so it's not only storage.

Hybrid installations for marine.

Thank you. Next up is Erkki Vesola from Inderes, please.

Hi, Håkan Aaren, can you hear me?

Yes, we can. Good morning.

Good morning. Regarding water intake growth, is there any possibility to divide that growth in Q2 between volume and pricing components in both energy and marine in general?

Well, if we see it now, it's very it's very that is really difficult, I would say. If you talk about FX impact, it's fairly limited, I would say. And if you if you talk about, yeah, a couple of tens of million on the FX impact.

But I don't think we can really open up on and say what is price and what is volume.

So kind of apples to apples have price increases, they are. They just can't be disclosed.

No, we are not willing to disclose that. That's, of course, very competition-sensitive as well.

OK, I'll take that. Thank you.

Next up is a written question from Massimiliano Severi. We noticed a sizable ramp up in the receivables YOY and sequentially, could you please explain the drivers behind it? How much relates to ramp up versus something else?

I would say the majority, as I also said earlier, relates to, let's say, a ramping up. Let's say we have a, as you could see from the order book statistics as well, we have an order book for the second half of the year, which is significantly higher than the net sales, let's say, year to date. Also including then, let's say, what is still coming in for out. So that's the main reason.

Okay, next up is Antti Ganseren from SEB, please.

Yeah, thanks for taking the follow up. Just a housekeeping regarding the Trieste ramp down and kind of the cost savings and one-offs that you flagged. How should we kind of time those and then perhaps kind of could you also remind us how the costs are allocated between the marine and energy divisions where the fixed cost actually sits?

So should I start? As you know, we communicated it's 130 million provision. When you think about IAC for the second half of this year, I would say it's around 90 to 100 million euro.

Sorry if I may interrupt. If I can add a comment to that. Let's say the assumption is around 90, but all depends very much on, let's say, what's the process and the progress of the process now in Trieste. And there are lots of, let's say, open ends at the moment, which we need to, let's say, conclude in the coming months. So it's very difficult to give you an exact number, but that's ballpark the assumption that we have taken now.

And when it comes to the saving, I mean, we said full potential in 2025, this will be a gradual journey. And why we cannot be more specific is that, you know, of course, we want to do this in full alignment with the Italian regulations and requirements. And it's a little bit hard to make very concrete, detailed forecast on how this will play out.

Yeah, but just if I remember correctly, kind of majority of your engine manufacturing fixed cost is in the marine power side and then kind of the energy by production slots. Is that true also for kind of the Trieste side? And just thinking about the margin impact between energy and marine power.

No, I think you can more or less assume, let's say, equal share. Let's say slots are planned in the beginning of the year and they carry a certain value. And if you execute or not execute a slot... and let's say if it's an energy slot and energy let's say pays for that missed slot so it grows prorata the volume that both businesses generate okay sure thank you next up is swen wire from ubs please yeah i had a follow-up please on environmental solutions

I think Alfa talked about very good demand on the environmental side in marine. I was just wondering what you see currently in marine on the environmental solutions.

And can you just clarify what you mean with environmental solutions? Because there are so many solutions. There are the fuels, there are the energy savings, etc. You want me to go through the whole palace, so to speak?

Now, I mean, of course, for them, it was probably more on the ballast water side where I guess you are not so strong. And I guess also the order intake has been a bit better than yours. But just wondering, maybe also in terms of your pipeline, what you see coming up there is that maybe also you haven't mentioned it precisely now in your upbeatness about the Q3 pipeline. demand guide but just generally if you see an increase there on the various solutions you have of course so so okay so i go through so if we start with the green fuels and you know methanol ammonia

There is a lot of things happening. There's a lot of interest, a lot of focus, testing. There are a couple of initial orders. You know them that we have announced before. But this will, of course, take time. But I see a very strong interest from all of our customers and end customers. And I say the interest is only growing. It's driven by the regulations kicking in in 2023 and the need to work with your fleet to decarbonize. And that drives certainly a focus on these very strategic decisions on what fuel should I go into, because I know that during the lifetime of the vessel that I will be contracting, I need to have the right mindset. Then on the retrofit side, similar interest. I mean, how am I going to make sure that my fleet stays in a certain CII class? And there it's looking at energy saving solutions like the flattener rotors, like the and lubrication systems. It's also looking at hybrid systems that we talked about. And we think that the hybrid, where you bring the batteries, converters together with the engines, and you have a Toyota Prius at sea, this will be one important way to achieve this CII index reduction that you need to have year over year. And there is strong interest there. we are working on the two-stroke side as as you also know you know upgrading uh uh capabilities to go from heavy fuel to to to to lng i mean today the price for lng is not attractive but i think this will stabilize so there is a lot of interest in that um also uh yeah so we are doing a lot of things on the service side uh and then on on the two stroke Our carbon capture, as you know, we are piloting carbon capture. We are moving in the right direction. We have a lot of interest. We are very grateful for that. And a very strong customer interest that want to engage in pilot projects. And we need to focus a little bit. Then coming to the digital solutions, also strong interest on the Voyage side. We are really excited now about the acquisition of Portlink because now we have all the pieces in-house where we can continue the journey to make the logistics system and therefore reduce emissions in the whole system. strong interest, I would say.

Perhaps in the comparison with Alfa Laval, we are always compared on the Scrubber, so perhaps you should comment on the Scrubber.

On the Scrubber side, I would say that the Scrubber business, if you look at our business now, it's down a bit, and that's because many of our customers They are in a very profitable business right now, which means that they do not want to bring the ships to yachts for retrofits. And also because of COVID, many of the yachts have been shut down. So that is impacting our exhaust business. But there is a lot of interest in the scrubber solutions going forward.

And the underlying fundamentals with the fuel spread are absolutely there. Yeah.

The other reason why I was asking, because as you mentioned, EEXI is coming soon, CII is coming soon. On EEXI, you can read reports that 75% of the fleet is not compliant. And of course, we all know that the marine industry has a history of adopting things at the latest possible moment in time. But now with 2023 coming a bit closer, I was just wondering if you could also start to see a little bit of a rush to the exit, so to speak. And it won't be done with slow steaming alone, I guess.

No, we see a lot of interest. And the thing with the new regulation, they have EXI, which is a kind of pass-fail. But CII, and you know the concept, but just to set the scene for everybody, it's like when we go and buy the washing machine in the store. There is this classification from A to, I think it's E or F. And you can buy a washing machine that is in... Yeah, hopefully as green class as possible. It's a little bit similar, the CII, but we don't need to tinker with our washing machine to make it more energy efficient every year. You have to do that if you're a ship owner. So to stay in a certain CII class, if you want to have a B vessel, you continuously will need to have to reduce your carbon footprint over the years. So it's also not only to rush to solution and then it's a quick fix. you will have to continuously improve. So it drives a different mindset.

Thank you. Next up is a written question from Pano Laitimaki from Danske Bank. Can you please comment how the recent FX changes, including USD, will impact your profitability going forward? All right.

Of course, I will not comment in too much detail because there are lots of things that, let's say, are behind it. There's a lot of detail behind. But basically, let's say we hedge basically all the exposure that we have on projects. So the main, you could say the commercial exposure pipeline commercial orders, I think that's pretty safe and stable. Then it's more about, okay, what's your fixed cost in the U.S. versus, let's say, Europe, and how will it evolve, let's say, then from an ethics point of view. But otherwise, and of course, the transactional part, which is not typically hatched. Like I said, let's say we had about, what is it? I think it was 38 million euro now FX impact in Q2. And OK, that's typically a range you can expect. But it's mainly coming from fixed cost as well as, let's say, the transactional side.

But one tidbit of information, if you look at 2021, 25% of our revenues were US-dominated. So from that perspective, if the US dollar strengthens, it's a benefit, because most of our cost is euro-denominated.

Yeah. Okay, next is another written question from Nanjini from Goldman Sachs. When do you expect the 240 million receivables to be collected? 2008 or 2023?

I don't think we will collect anything of this $240 million, because that's what we took out of the order book. So likely we will not get it. Let's say these projects, partly, let's say they have not been executed at all. Let's say we clean the order book. Let's say if you have an order... In this order book that is for 2023 delivery, you might not have had too many costs generated on it. So there is nothing to correct it. You just take it out of the order book. While for a lot of other projects with a much shorter delivery, mostly within this year, there is cost. And there are also, let's say, receivables outstanding. But the likelihood of getting them paid, I think, this much. If you ask me, let's say, how much of the 240 million relates to this year's order book versus, let's say, next year's order book, it's about 40% for this year, and the rest is for 2023 and beyond.

And also coming back, I mean, for those that we have started, and we likely will not be able to continue, was included in the provisions of Q1. Correct. So we have provided for them already.

Nancy wrote a follow-up. Sorry, I meant the trade receivables you mentioned.

Ah, sorry. I thought you meant the order book cleaning. Sorry, my mistake. And the question was how much of that will be collected this month or next month or what was the... Let's say out of that, let's say 240 million, the majority will be collected this year. Sorry, second half of the year.

Next up is Erkki Vesola from Inderes, please.

Okay, thanks for the follow-up. In June, the EU Council agreed to raise the binding EU-level target of energy from renewables from 32% to 40% by 2030. When should we see this kind of forced acceleration to show in your storage and renewable offering order intake? Will it be kind of back-end loaded, i.e. not so much before 2030? five or will it show already in the near future? What's your take on that?

I think in general these type of reforms take time to develop and concretize and you know the whole kind of logic behind the balancing is that first you need to build a lot of renewables and then your power system will need the balancing because otherwise it will not be stable and then you bring it in and In the US, this is happening now as we speak. So I would say US is definitely ahead in this development compared to Europe. So I think in Europe, it will take a little bit longer time. We also have a different grid situation in Europe. So I think the first wave is that there needs to be even more renewables. Then you could say UK is also part of Europe. UK has made a very conscious decision on balancing. And you can see that in some of our storage orders. So UK is actually head in Europe, so to say. So I would say the balancing in Europe to evolve, it will take as a concrete consequence of the initiatives that you talked about, that will take a little bit longer time. What we are seeing here and now, and you probably saw that we are getting balancing orders, thermal balancing orders in Europe, in Italy, in certain countries. But that is not triggered by these reforms that you were talking about. That is triggered by already ongoing policies.

That's very helpful.

Thank you. Next up is Nancy Nee from Goldman Sachs. Please, you can ask your question.

Hi, thank you. I just had a second question regarding the Trieste closure, actually. So post that closure, will all your engine production be in Finland then? And in which case will you be looking to increase your capabilities elsewhere to sort of mitigate any kind of potential over-reliance on supply chains or productions concentrated in one area?

Okay, so just to clarify, we are centralizing our European footprint, so we will only have one factory in Europe, and that would be in Vasa. But we still have Javis in China, so we are also producing engines in China. When we look at our supply chain, that is, you could say, not a Finnish supply chain, it's a European supply chain. And that we will evolve as the volume and as the business is evolving.

Makes sense. Thank you.

Next up is Antti Kansanen from SEB, please.

Just a quick question on Voyage and kind of the reorganization and what you're doing there compared to the losses that you have made in the past couple of quarters. So how should we think about that for the following quarters? I mean, I assume there's a lot of moving parts in there, but how does kind of the loss picture in your minds develop in the next quarter? Second half I'm going into next year.

As you know, we have talked about that we wanted to turn around Voyage over a couple of years. We were clearly delayed by the COVID situation. Also, this shift in Russia has certainly delayed us as well. But I have a lot of respect, as I said before, for the efforts that has been made to change, you could say, the footprint, especially of our fleet optimization services team. I think the team is on the right track, but it's still a turnaround to be made.

So nothing really quarter-on-quarter dramatic expected in second half, and it's a longer process?

No, as I said, it's a turnaround still in the makings. And I think moving out to a new country, of course, you need to focus on that, and then you need to move ahead with the turnaround.

All right, thanks.

Next up is a written question from Tommy Rilo. Have you been able to sustain or expand services profitability?

Yeah, that's a very wide question. In certain segments, absolutely. I mean, if it's related to inflation, we have compensated for inflation. If you look on the profit margin, it's very much mix-related, as you could see here between the different businesses, because also within services, there are different levels of profitability. But if you look at each discipline within services, I would say we are maintaining or increasing profitability.

And the last question is from Panu Laitimäki. How does the margin in long-term service agreements compare to the overall services business?

Well, it's contributing because the performance-based, of course, it includes service. And then on top of that, I mean, sorry, it includes spare parts. But on top of that, it has services, so to say. So it positively contributes to profitability.

Thank you, Håkan, and thank you, Arjen, and thank you for our active audience for all of the good questions. Wärtsilä Q3 report will be published on October 27, but I hope that all of you can enjoy the warm and relaxing summer before that. Thank you.

Thank you, everybody.

Thank you very much.