Wartsila Corp Unsp/Adr

Good morning and welcome to this result briefing. My name is Hanna-Maria Heikkinen and I'm in charge of investor relations. Today, our CEO, Håkan Agneval, will go through the group highlights and segment performance, and after that, our CFO, Arjen Berends, will continue with key financials. After the presentation, there is a possibility to ask questions. Håkan, time to start.

Thank you, Hanna-Maria, and warm welcome, everybody, to, I would say, a positive Q1. We are improving our profitability, which is really good. And we have really good development, continue the really good development in services. So order intake overall is up with 26%, Q&Q. Net sales increased by 19%. And we continue to see the good progress on the services side. So the order intake on the service side is up with 21%. And the net sales for services is up by 17%. Also, and that is, of course, very positive, the comparable operating results increased by 34%. We are now at 6% and going in a positive direction, supported by good development in services, still burdened by cost inflation. And cash flow in Q1, it really improved. And we do see a strong continuation for the rest of the year on the cash flow side. So those are some of the highlights, so fairly positive highlights this quarter. The key figures, if you look at our order intake, we are now 1.7 billion euro, as I said, up 26%. Order backlog above 6 billion, 6.1 billion, about stable, so to say. And that is still considering that we have ramped up our net sales with 19% to 1.4 billion. And you see the book to build clearly about 1, 1.19, so positive trajectory there. Comparable operating results 88 million and we are at 6% improvement from 5.3% previous quarter. Of course still a way to go to our 12% target. If we look at the macro environments you could say that economic headwinds, they moderate the growth in marine markets. The positive side is that the utilization rate of Wärtsilä key segments are actually improving. Number of vessels ordered during the quarter, 255, which is a little bit down from 274 in previous year. continued demand for LNG vessels, improved fleet utilization of passenger travel segment, and the growing demand for offshore assets, all those all supported the market sentiment. And it benefits Wärtsilä in our strong segments. Decarbonization remains the main underlying trend, and methanol fuel, we can really see it's gaining traction. Interest in alternatively fueled vessels, relatively stable around 70-73 reported orders, which represents about 29% of all contracted vessels. Cruise, the new building remained limited. And I think the cruise operators, they are really continue to focusing now to manage the current fleet and the utilization. The positive side that many of the operators is seeing a very strong demand at 2019 level or even beyond 2019 levels. And we see that with high utilization of our installed fleet. On the energy side, we see solid long-term opportunities. We do see, however, that fuel price pressure is easing, but it's not over. And there is a volatility. I would say the volatility in the fuel cell price is delaying some decisions in Europe, in Asia. to some extent in the US, but the US is moving forward in a very good way. The last quarter has brought some relief in fuel and raw material prices, whereas we've seen increasing interest rates have caused some uncertainty. Natural gas prices decreased from the extreme level of last year, and the outlook looks good, but they still remain high compared to the historic level, and there is still volatility in the pricing. And the global energy transition, the investments reached a new high in 2022. And the policy supporting battery energy storage, clean hydrogen has continued to develop during the first quarter of this year. Demand for energy storage solutions continue to grow. Our market share when it comes to the gas and liquid fuel power plants, decreased to 6%. You see that the market is growing. On the right side graph, that is to a significant extent fueled by some really big combined gas cycle power plants in China. That is the major growth avenue. We do have a positive outlook on the mid- to long-term transition and how it will affect both the thermal business and the battery storage business. Order intake increased by 26%. Equipment order intake increased by 31%. And service order intake increased by 21%. We have a strong order book and the rolling book to bill continues above one. And I think it's the eighth consecutive quarter where the rolling 12 book to bill is above one. So that is, of course, positive. If we look at the net sales and comparable operating results, net sales increased by 19%, comparable operating results up with 34%. And if we look at the equipment and services on the net sales side, equipment net sales increased by 22%, service net sales increased by 17%. Now, technology and partnership. As you know, Wärtsilä, we are about innovation in technology and services, so technology and partnership is really a driver for us. And it's all about how we can support our customers in enabling the decarbonization journey. So some really interesting and exciting examples. We have a new radical derating retrofit solution for two-stroke engines. So basically by this derating and change of the two-stroke engine, you extend the emission compliant lifetime of merchant vessels by significantly improving the combustion efficiencies. You can reduce fuel consumption and therefore emission with up to 15% on two stroke. And that is, of course, a major support for our customer as they look into the CII index and how their fleets will evolve. Another area is LNG and how we continue to minimize the methane slip on LNG-fueled engines. We are working together with several companies on the GreenRay project. And that is to develop solutions that minimize the methane slip for LNG engines. And we will develop technology for low pressure four stroke dual fuel engines that will enable methane slip reduction and increase efficiency. And we will also develop an engine technology for two stroke engines to further reduce the methane slip from tankers, container ships and so forth. A lot of interesting technology development in Wärtsilä these days. Now let's jump to the different businesses and have a quick look on how the financials have developed for the different businesses. So if we start with marine power, we had had a really good development on the services side. Service order intake increased by 15% and service net sales increased by 18%. And you can also see here how the comparable operating result increased from 30 to 49 million euro. On the positive side, good service performance, also the voyage optimization we have now. moved Voyage services into Marine Power. And this is the last quarter where we have Voyage as a unit before we launched the reorg that we have earlier communicated. And we can clearly see that Voyage is going in the right direction now under new leadership and a new context. So that is positive. On the challenging side, we have an inefficient factory capacity utilization. That is also, of course, a consequence of the transition that we are doing with our manufacturing system involving Trieste, but also having two plants still in Vasa, so to say. And we are streamlining and we are working, but right now we are still facing some headwinds from that. You can also see that we have restated figures. And that is, of course, a consequence of the voyage integration into marine power. And we have restated the 2022 figures. So please be careful when you look at the figures. So you separate what has been restated from what has not been restated. And if we look at the service agreements for marine power, it continues a very positive trend. And we talked about it before, moving up the service value ladder, it's really working for us. And net sales from installations under agreements are strongly increasing, as you can see here. Another exciting example where we move ahead is of course on the decarbonization journey. Here we are working on delivering to celebrity cruises where we basically will supply our two eight-cylinder W46 engines capable of operating with methanol as a fuel. And then we will have two 12-cylinder W46 and one W32 and more conventional fuels. We will convert the 46F engines to run on methanol. marking the first ever such conversion for this particular engine type. So it's a very interesting conversion project. The conversion project not only promotes low carbon cruising, but it's adding methanol as a fuel option, reducing emissions, sulfur oxide, nitrogen oxide, and particulate matter in a significant way. So moving over to marine systems. Here, on the positive side, the order intake increased. However, the net sales and comparable operating result declined. So if you look at the drivers here for the EBIT, the service is clearly supported. However, we did have cost inflation really burdening the equipment business profitability in Q1. So there you see the negative developments. If we switch to energy, basically all key figures improved. Service order intake increased by 38%. Service net sales increased by 17%. and if we look at the comparable operating results going from 24 to 33 million euro on the positive side high service volumes improved profitability on on the energy storage business you've seen it we we are taking it from minus four to minus three percent rolling 12. and so the trajectory is is is the right one and still energies is working with with the cost inflation in the power plant business in the existing order backlog and it is as we talked about before we still have for this year about 1.2 billion euro overall for that select of order backlog that of orders that we took before the real inflation accelerated somewhat end of Q1 last year, so to say. So we are still working through this 1.2 billion euro. And continued growth on energy storage side, profitability improving, rolling 12 months, comparable operating results now at minus 3%, as I said. And you can see the quarterly figures, but you can also see the rolling 12 months development. You see a clear trajectory, both for the top line and for the profitability. A good, very interesting energy storage example. This is a 400 MWh storage system that we delivered to Zenobi. Zenobi is an electrical fleet and battery storage specialist. The first project in the world to deliver stability services using a transmission connected battery, supporting UK's transition to zero carbon energy network. Basically, converters, inverters that can really form the frequency of the net. The project comes with innovator inverter technology and combined with our GEMS energy management system. It's located in northeastern Scotland and the project is ideally suited to integrate the nearby offshore wind energy projects in the North Sea. And the storage system will be one of the largest in the UK and is expected to be operational somewhere in 2024. And if we look at the energy service agreements, you can also see the very positive trend moving up the service value ladder. And this is one of the many good examples. We signed an agreement with the Brazilian utility Rio Amazonas Energia Reza. And these operations and maintenance agreements provide support for the Cristiano Rocha power plant in Manaus in Brazil. And this power plant operates five 50 SG engines, gas engines with a 92 megawatt output. The agreement really strengthens the relationship between Wärtsilä and Reiser. And we already started that journey when we went into a guaranteed asset performance agreement in 2019 to assist the plants to run on 100% natural gas. And now we continue this cooperation with this very important customer. Now, if we sum up the development of the different businesses and how they contribute to the group, you can see that the biggest improvement is coming from marine power. But also energy is moving in the right direction. So 5.3 to 6% for the whole group, Q and Q. Comparable operating result increased by 34%. Arjen, some other key financials.

Yes, thank you, Håkan. All right. Operating cash flow was very strong in Q1. Very happy with that. Actually, it was the strongest operating cash flow Q1 since 2010. So really happy with that. Cash flow was supported by both working capital and profit improvement. Just for reference, working capital at the end of last year was 179. So clearly, let's say down from that. Net interest bearing debt more or less flattish in the quarter. We had 481 at the end of last year and now 477. Of course, worse than, let's say, what we saw last year in Q1. And that is mainly due to the poorer cash flow that we have seen last year for reasons that we also explained in earlier calls. Gearing clearly below our target of being below 50, 0.50 I mean, at 24 right now. Solvency slightly down in the quarter from 35.3 at the end of last year to now 33.4 and that is mainly driven by the accounting of the dividend into the equity. Basic earnings per share, positive after a very negative Q1 last year. And of course, good to remind here that Q1 last year included a provision of 200 million euro for the exit of Russia. Cash flow on the left side, I mentioned it already, 145, very happy with that. Definitely a good quarter for Wetzela. On the right side, let's say the working capital, where are we with working capital and how are we developing it? If you look long-term historical, let's say working capital to sales ratio, it's about nine. Currently, we are at two, so I would say we are at a good level. Having said that, there is always, let's say, more that we can do on working capital, and we are having a very clear action program to further improve on that one. So, happy with both cash flow and working capital performance in the quarter. Back to you, Orkan, on the prospects.

Thank you. So if we look at the prospects, marine and energy, so for marine, we expect the demand environment for the next 12 months to be similar to that of the comparison period. And energy is basically the same. I mean, we expect the demand environment for the next 12 months to be similar to the comparison period. And I know you've seen that we kind of moderated our outlook for energy a bit. I mean, we moved our view a quarter ahead. And I would say that, you know, depending on some big orders, this might change a bit. I would say the major message, the underlying sentiment in our midterm outlook for energy is still very positive. So having said that, let's move over to the Q&A.

Thank you, Okkana, and thank you, Arjan. Now it's time for Q&A. So in the case you have a question, please use raise your hand functionality. And to make sure that everybody has a possibility to ask a question, we take one question per analyst first, and then after that we can continue with follow-up questions.

First question on the line. And also, please remember to keep your microphone muted while not speaking. Thank you. First question is from Max Yates from Morgan Stanley. Please.

Thank you. Good morning. Good morning, everyone. I just said, I guess, keep it to one. I wanted to ask about the energy margin, because obviously we can We can see you're delivering more on energy storage, which we know is dilutive. So I would have guessed that would have been a drag on margins. I guess my key question is really just to understand what has driven that margin higher. and whether you could give us kind of any update on how you think about the sort of trajectory of that storage business from 4%. And is there actually the scope when we look at that margin performance for storage to be break even this year? Perhaps already. So I'll start that.

For being in one question, it was a very broad question, but it's a very good. So Max, thanks for your question. So I would say what is underlying the profitability improvement in energy and I can zoom in on storage. I mean, services is continuing to grow. It's very profitable and it's helping us in our profitability journey. Headwinds, as we talked about, we are still, especially on the thermal side, working with an order backlog, which has been severely impacted by inflation. So that is a headwind. But I would say major driver services. Then if you look at storage, our message is still the same. Over a few years, we intend to turn this business around and develop it further. And I think the team, we are executing according to plan and we are on a positive trajectory. Do you want to compliment, Arjen?

No, I think you said it basically as I would have said it as well, actually.

Thank you. I'll come back for more questions later. Thank you.

Next question is from Daniela Costa from Goldman Sachs, please.

Hi, can you hear me?

Yes, we hear you, Daniela. Welcome.

Perfect, thank you. Good morning, and thanks for taking my question. I'll stick to one as well, and it's a follow-up on storage. I think you've said last year you were minus four, this year you're minus three. I don't know if there's any strong seasonality towards last year, but if we were to assume that not that it was all more or less minus four, then it's Sounds like your storage business might already be profitable now. First of all, is that a wrong assumption? Is there any strong seasonality that we should think as we try to model storage? Why this performance lately doesn't get you more upbeat about when you can call for the breakeven in storage given the strong demand?

there so so i would i wouldn't say that this is a super seasonal business um it it can be a bit bumpy because it's a project oriented business so so you can have a shift between a quarter or two but i don't see it's being a strong seasonal business so so that's one um i i would say i mean we we all were in in in a positive uh development of storage um and and and We said it in the past, now let's focus on the rolling 12 and we are developing in the right side also with the rolling 12. But I won't go into the quarterly numbers for this quarter. I know you're keen to get that number from us and I respect that, but let's end it like that. We are developing in a positive way.

And of course, if I can add to that, we have a few, let's say, key levers, you could say, that we work with to get storage to a better result. Okay, cost leverage is one. Let's say the volume growth definitely supports. It's also to explore synergies between, let's say, the energy thermal business and the storage business. and also, let's say, working on the product cost. And of course, in the trajectory of profit improvement, it's also a matter of timing, which action kicks in at what point of time. And yes, we saw on the rolling 12-month basis now a very good result in Q1, also due to the actions that we have taken.

And if I may extend on that, I mean, Where do we want to build that storage? Where do we want to be strong? How do we want to position ourselves relative to competition? I think there are critical elements. I mean, we need to be cost competitive. I think Arjan very much alluded to that. And that, of course, clearly is there is a volume component to be cost competitive. But we also have a GEMS platform and the power system optimization. And this is an area where we are I think we have a lot of respect from our customer. That's at least what they're telling us. We are a power system company. We continue to invest and evolve gems. I would also say that the customer feedback that we get, you know, Our track record of executing on time and delivering in a stable way, it is something that some of our critical customers are looking for. And you also saw the latest announcement, it's not part of the Q1, but the order from original Australia, it's a gigawatt hour project. It says a little bit about the credibility that we are building with our customer base. I would say another element where I would say that we are a little bit profiling ourselves is on the safety, the thermal safety side. With the designs, we passed some of the critical tests in the US very, very early. So there are these kind of critical elements in our mix, in our propositions to the customer segments that we want to target.

Thanks, appreciate those comments.

Next up is Antti Kansanen from SEB, please.

Yeah, good morning. My question would be on the power plant side. And I mean, you have flagged a quite similar, let's say, mid to long-term growth outlook for the balancing power as you have with the storage, but obviously kind of the near-term growth is very different across the two businesses. Could you talk a little bit about the power plant balancing side? What is kind of curtailing the growth at the moment and perhaps what is needed for the strong double digit growth to come through on that market, please?

So if we look at the thermal side and I would say, talk about Europe and Asia, where really the prices of gas are coming down, but it's still volatile. And that has postponed the decision making process in Europe, in Asia. In the US, as we've seen, it's very much moving forward. Renewables is growing. The balancing power is needed, both the thermal and the storage. Here we see, and this is some specific projects that are sliding a bit in time, like sometimes happen in project business. But the underlying sentiment for balancing is still very strong. And we see a very interesting development going forward there.

And I mean, you mentioned Asia and Europe specifically, but not the US in kind of postponing decision making. Am I reading this that you are perhaps expecting something larger from that market going into back half of this year?

Well, it's your expectation, but clearly we see the US is the hottest market. If you talk thermal and energy storage, there is a lot of activities there. This is a very important market, but you have to overlay this. This is a project business. Things might slide from one quarter to the other.

All right. Thank you, Håkan.

Next up is Vivek Midha from Citi, please.

Thanks very much, everyone. Good morning. Can I follow up on the group outlook focusing on services? So you saw a very strong development in services in Q1 and orders. Do you think you can sustain this level of demand in the coming quarters in service? And do you have any updated view on what percentage of the fleet you might be able to cover with agreements, say, by around 2025? Thank you.

So basically, I mean, we see and we have now seen for quite some time a very strong and positive trajectory of our service business. I would say in Q1, there was a little bit of extra because, as you know, in services, there are also different disciplines and some of them are a little bit more project oriented than other disciplines. And in Q1, we did have some of the project disciplines within services that that captured some big orders. But having said that, still, we do see a positive trajectory also going forward with high utilization. And I talked about us moving up the service value ladder strategy. It's really playing out for us. You could see the agreement curves. We are really supporting our customers are moving up the service ladder, more into agreements. And we talked about that before. The renewal rate in our agreements business, both on marine power and energy, is above 90%. So it shows that customer thinks that we are creating value for them. So this positive sentiment continues. I mean, I won't give any 2025 statements. I just want to take you back to the CMD material. And you know, we're going to have a new CMD in 9th of November this year. But if we go back to the previous CMD, we said that we had 2.5 billion euro opportunity in, you know, only our conversion of of of of, you know, the fossil technology from from heavy fuel to gas and then from gas to to to to to to green fuels. And that is part of it gives a little bit of a sense of the magnitude of the business. We also communicated that that was over a five year time. It gives a bit flavor, but I won't make any any percentage forecast on on on on 2025 or something. I mean, you can also see if you look at the percentage coverage, I mean, if you go back a year or two or three, we were at 22% on the energy side. I think we are now around 27%. And we do see a positive trajectory.

And no signs of decline. No. Thanks very much.

Next up is Sven Weyer from UBS, please.

Good morning from my side. My question is around the 1.2 billion legacy backlog revenues that you have for this year. I mean, is it too easy to deduct the 700 million equipment revenues for Q1 to have what is left over? Or would you be willing to share what's left over of the 1.2 billion for the remainder of the year?

I think that would be a little bit too easy. I would put it like, and I think we said that, by the end of Q3, we should really have worked this out. But we won't go into the periodization between those three quarters.

But there was a significant part in Q1, probably.

Yes, Q1 was significant, correct.

Okay, thank you. I'll come back later with another one. Thanks.

Next up is Panu Laitinmäki from Danske Bank, please.

Thank you. I just wanted to ask about the marine power margin improvement. Can you split the 90 million year-on-year improvement into what was the legacy voyage and then the marine power, what it was earlier?

So, well, I would say the major driver for the profitability improvement is services. I would say the voyage that we moved in is clearly still loss making, but the team is making an improvement, but it's still loss making. So the major contributor on the marine power side is clearly the service business.

Yeah, just a quick follow up. When you mentioned that services the improvement, do you mean like just the volume of services group, or did you actually improve the margin within services?

I would say it's a mix.

Yeah, it's a mix, and it's always difficult to give an exact answer to this. Volume is, of course, clearly, let's say, helping us. But in the mix, it's, of course, depends on what grows strongly. Let's say if you have a, let's say, rating in margin levels within spare, let's say spare parts is clearly the highest, and then you have, let's say, the other streams below that. So let's say in the mix, things can change, even if the volume, let's say in total goes up, it can in margin percentage still go down if the mix of the volumes in the revenue streams change.

All right. Thanks.

Next up is Tomi Raelo from DNB, please.

Yes, hi, it's Tomek. Can you hear me? Yes, we can hear you, Tomek. Welcome. Fantastic, thank you. One of my questions was asked, but I would ask on price increases. Have you continued to do price increases in the beginning of the year and continue to do in the later quarters?

I would say, as we see inflation, you know... moderating, I think our price increases are moderating as well.

But we are still doing them.

Yeah. But I mean, it's I mean, we have done our price increases to cope with cost inflation and it's starting to moderate. So so I think we are moderating as well. But there is still, as you know, about the cost inflation, yes, some raw material prices have been coming down. Energy prices are still comparatively high, although it's coming down. And one component still that is on the inflation side is, of course, the whole salary inflation that we have with different magnitude in different parts of the world, so to say. Thank you.

Next up is Erkki Vesola from Inderes, please.

Sorry, Håkon, can you hear me?

Yes, we can hear you. Welcome.

Okay, very good. Good morning. You previously talked about the uncertainty in your power plant engine delivery capability in the second half of this year, depending on order timing, etc. Can you give us any update on that front? Have the risks been raised or are they still the same?

So just to clarify, I mean, it's not about the capabilities. I just want to clarify that. It's more market demand driven. I mean, it is about, you know, discrete orders and the timing of those and in which quarter and how that evolves. That's one thing. I mean, if you look at what has been happening, I would say the last year, if we look into this year, it is, as I said before, gas price volatility has prolonged decision making and created uncertainty. And we do see that as an impact. Having said that, I mean, if we take a more mid-term outlook, we still have a positive view of how the thermal power plant market will evolve.

And this comment relates also more to the production volumes. Let's say the sales and delivery volumes are something you could say different, because there can be a large time difference between producing an engine and delivering it out and recognizing the sales. Also in projects with percentage of completion. let's say, the sales that we generate versus, let's say, the issue on the production volumes in the second half of the year are in a way two different things.

Yeah, sorry, I misunderstood. If we're talking production volumes, it's fully right, clearly.

Okay, that's very helpful. Thank you.

Next up is Antti Kansanen from SEB, please.

Yeah, thanks for the follow-up. Maybe coming back to the services growth, and as you mentioned, I mean, this quarter it was mainly driven by agreements and then on projects, especially on the marine side. So talk a little bit about the projects. What are you actually kind of, what is the demand both on energy and marine that you're getting right now? Is this sustained? Is there a cyclical element? Is this somehow to do with long lead times on the equipment side? So maybe expand on all of that, please.

So project, business and services, there are different disciplines also in that. There are the retrofit projects where you upgrade from heavy fuel to gas, which is that upgrade is now fairly slow because of the gas price, but it will come back. It could also be an upgrade to a new control system. Equipment gets old and you need to renew them. So there is a whole broad spectrum. If you look on the energy side, I think that, as I said, There has been a couple of service projects that really accelerated the growth in Q1, and that is more of a, you could say, one-term effect. But I would still say that the overall sentiments for service business, both in energy and marine, is still very strong.

something to add perhaps on these, call it retrofit projects. Let's say we had, as you all remember also from our comments, shortages in electronic components, let's say earlier years. And that situation has somehow got a little bit better. I would say it's still, let's say, away from a good situation, but it's an improving situation. And that also gave us the possibility to, let's say, execute more, let's say, retrofit solutions on control systems, for example. that Håkan mentioned and that we clearly let's say see happening so that's clearly contributing to the right direction and also to the increased activity in field service projects.

And sorry just a clarification was this a comment on your sales so you can deliver more or comment on orders that you are getting some of the pent-up demand now?

It's both actually. Because we stopped accepting, let's say, certain retrofit orders for control systems a while ago, or I would say more than a year ago, for the reason that we simply didn't have the components to do this and to execute it. And then it would not be wise to accept a contract that you cannot deliver upon, because then you only end up in trouble. So now we are reactivating that in a controlled way. So both order intake and then of course, consequently, it comes through sales in a few months later.

All right, very clear. If I can ask a second question, it's kind of coming back to the storage profitability and you won't probably give a numerical answer on this, but if we just think about your pricing on new orders, it's really starting to improve last year from second quarter onwards. So is it a fair assumption that your gross margin and earnings leverage would also start to improve now going into Q2 this year and onwards, just assuming lead times are up to one year or so on that business? Is that a good assumption for the margin development?

I would say, as I said, we are on a positive trajectory for storage when it comes to its profitability, its volume. I mean, there are different driving factors behind. Volume is one. You see the continued growth. It's also that the team is getting more and more seasoned in working with the project business. As we're talking about, we've been investing to build that capability. There is still a way to go, but we are getting better and better, which really builds our execution skills. And I would also say that, at least when we talk to some of our core customers, I think there is also a learning curve among our customers, how they regard different suppliers and the supplier's capability to deliver on their core promises, being on time and delivering with the right delivery precision, so to say. There are a number of factors that kind of supports energy storage moving in the right positive direction when it comes to profitability.

Coming to your reference, Antti, on Q2 last year, I think it's good to remember that there was a price reset in the market in storage at that point of time.

Yeah for sure but I mean we've been dealing or you've been dealing with this kind of a legacy bad project for since then I'm assuming storage is probably not the worst of those but I guess it's included in that as well.

Yes that's great.

Okay thank you.

Next up is Max Yates from Morgan Stanley please.

Thank you just my first question is just about free cash flow for the year and obviously it's been kind of quite volatile in the past few years, some very good, some less good. Would you help us with kind of how you're thinking about free cash flow for this year? You've done 115 million so far in the first quarter. I mean, could this be a year where we're back up towards those kind of 400, 500 million numbers that we've seen? How should we think about that this year evolving?

We are not guiding on operating cash flow, but I would say we should clearly do a positive cash flow in this year that I'm pretty confident about. I will not comment on, let's say, what kind of levels. Of course, let's say the situation this year compared to, let's say, previous year, also with all the restructurings and the Russia exits and et cetera, is a quite different one also from a cash flow point of view. So I'm positive about the remaining part of this year.

Okay. And just maybe a very quick follow-up. I mean, I remember you talked about carbon capture and the pilot project that you were doing. I forget whether it was one or two quarters ago. Could you now that you've seen that go in, now that you've seen the kind of value of the order, would you be able to help us with understanding the addressable market opportunity there and how you think about this? Because I guess on the one hand, we've seen things like scrubbers. We've seen things like ballast water. Those are really big opportunities. Are we talking about something in a similar magnitude to those? How should we think about it?

I think that's a very good question that we really would like to come back at the capital markets day. So I don't have, you know, I want to have a much more specific number. But I mean, there is clearly a significant market potential here. Then, sorry, we need to recognize that this is an ecosystem that needs to evolve. So as you know, we are developing the technology and we will start to launch our technology end of this year, beginning of next year. And and But that's only one piece of the puzzle. You need to aggregate and store on the vessel. You need to bring it on shore. You need to do further aggregation. And then you need to decide, what do I do? Do I pump it back in the well? Do I use it for manufacturing of synthetic fuels? And that whole ecosystem will take time to evolve. But if you look on this principle, this has potential to be significant, so to say. But let's come back to that in a more in-depth manner during the capital markets day.

Okay, look forward to it. Thank you.

Next up is Panu Laitinmäki from Danske Bank, please.

Thank you. Just on the storage, I know you don't have growth targets for that, but can you comment on it from a capacity point of view? How much can you deliver in terms of your own organization? Any comments on that?

So I think when it comes to growing battery storage or energy storage, we have had, I would say, a careful approach. We could probably have grown even faster, but we wanted to make sure that we build a team and you build our capability and that we deliver on our commitments. And we're going to continue that strategy. I think it's serving us well. So scaling up is really important. And we are scaling up. But you need to take it step by step.

In a controlled way.

In a controlled manner, so to say. And we really want to have the business now developing with this positive profitability trajectory, so to say. So we are growing. It's really exciting. You've seen the growth that we are having, but we want to be careful that we do it in a controlled way and that we build a team that can execute and have happy customers. Because at the end of the day, that's the best sales tools we can have.

Okay, thank you.

Next up is John Kim from Deutsche Bank, please.

Hi, thanks for the opportunity. Two questions, if I might. One, congrats on the service revenue growth. Can you give us a sense on how material pricing or repricing of that is in light of the wage inflation we're seeing in cap goods? I'm wondering if you're getting price increases on service agreements in line or ahead of the underlying wage inflation. And then an update on the Trieste structure, if you might. Thank you.

Yeah, if you look on the field service hours, I mean, we have different type of agreements, but the more mid to long term, they have price indexation. Because currently with the development of salaries, salaries will go up. So we index the more long term service agreements.

Correct. Great. And could you comment on Trieste? Trieste was the other question.

Sorry, I missed it. Can you... Trieste update. Trieste update. So, as you know, we made 132 million euro provision last year. This is a major decision for Wärtsilä. It's a long and proud history with Grande Motori. We had a very dynamic process with the Italian different stakeholders, government regions, unions. I think we reached a very important agreement on the way forward, the process way forward towards the end of last year. And you can basically say we are moving along those lines. So we are ramping down the manufacturing. In parallel, we are working with the so-called reindustrialization plan, and that is part of the Italian framework. This is where we are looking for other interested parties to come in and take over our staff, the manufacturing staff, take over our facilities. And this process is ongoing. We have a number of different interested parties and We hope to be able to reach an agreement with these parties as we go forward, so to say. So that is the status. And you can also see on the financials, I think we took about 90 million euro in IEC impact last year.

Six million in this quarter, yes, quarter one.

Related to this activities interest. And also, I should also underline that we're going to be in Trieste, we're going to be in Italy for the long run. We will still, you know, have R&D services, training in Trieste. So it's not, we're still going to be on the site, but the manufacturing will be ramped down as we centralize our European manufacturing footprint to Vasa in Finland.

Okay, great. Thank you. Next up is Tom Skogman from Carnegie, please.

Can you hear me now? Yeah. Welcome, Tom.

Yeah, thanks. Yeah, so I would like to understand this bigger picture in power plants. You know, when the energy price historically has been high, you typically have good orders. Oil and gas exporting countries have, you know, improved their infrastructure by building, you know, power plants. At the same time, we know that, you know, some Western financing agencies want to impact emerging markets to invest rather into green energy renewables than kind of something emitting energy. carbon dioxide. So what's really, you know, happening on this, you know, financing side and why do we not see, you know, water take up in these countries that are now kind of flooding in strong cash flow at the moment?

Well, if you if you're talking about the oil producing countries, because I guess those are the ones that you refer to being flooded by cash flow. I mean, if I look at me the least, I think that there is a lot of very interesting discussion going on on different colors of ammonia and how how how solar primarily can be be utilized to produce different type of green fuels. But this is, of course, at an early stage yet. And as you know, we are getting ready with our ammonia engine. I mean, we have the technical concept this year, as we already communicated earlier, and we will start to deliver our first ammonia engines. So I think that definitely could be an avenue going forward. But it's not right here, right now. I mean, for green ammonia or blue ammonia production to to evolve in the Middle East, it will take years to get there, so to say. But there is a strong interest to do so. Then, coming back, of course, there is a very strong sentiment for renewables, and there should be. We are far too late in decarbonizing the energy system. And as I said earlier, U.S., is really moving ahead now. I mean, we see significant growth in renewables, both solar and wind in the US. And then we see the need for balancing power is being recognized and it starts to come. I would say that the development in Europe is, when it comes to renewables, is still a bit muted. And I think the key challenge is permitting. To get a permit to build an offshore, onshore wind power plant in Europe is not easy. It's a political process. But as I think everybody wants green, but not in my backyard. As we move forward in this political discussion, there will be more renewables. We need to get there. And then the need for balancing power will come.

But I think it's still fair for us just to understand, you know, if you are sitting in an emerging market and you used to get financing from the World Bank and you needed financing from, you know, Western banks, is it so that we should not expect, you know, emerging markets to, in a greater amount, book power plant orders running on gas and, you know, perhaps even oil anymore, you know, just because financing has... These agencies demand now that investments will focus on renewables. Is that right? We need to wait for this ammonia engine some years before you get a ramp up in emerging market orders again.

I don't really see that. I think many of the, you know, like take Indonesia, if I take that as an example, was heavily affected by COVID. They are coming out of COVID now. And now we see the, you know, there are thermal tenders coming out as we speak. For Indians. So I would say many of the countries, Asia is a huge region, but many of these countries, they have been heavily affected by COVID. But some of them are starting to come out and we do see tender activities there. And they managed to mobilize the financing, to your question.

But what is, of course, in many cases, demanded is that there is a possibility to convert later on the engines, right?

And I think this will be a key enabler. And we talked about that on the energy side. It could be ammonia readiness. It could be hydrogen readiness. But I would say that for the hydrogen readiness, as you know, we have communicated we will have a concept ready for 2025 and then we need to develop products. I think that going forward, that will be key because if you want to build a power plant, You want to make it hydrogen enabled. Now, how soon it's going to run on that hydrogen, that is a big question mark, so to say. And it will probably take a lot of time, because as we all know, if we're going to run on hydrogen, it needs to be green hydrogen. We need even more wind and solar to produce that green hydrogen. So this will take time.

You said at the Capital Market Day some years back that gas turbines will not be competitive because flexibility will be much more important. But could you give an update here on how are the gas turbines compared to engines developing? When we talk about fuel flexibility and also these ramp-up times and fuel efficiency, etc. How is the competitiveness of your product developing compared to the

substitutes in a good way i i would say that some of the fundamentals of the reciprocating engine is is there and and and and you know the physical properties of reciprocating a gas turbine they they are are what they are also to say then of course gas turbines they are also getting hydrogen ready clearly but when it comes to the flexibility i i think we we still definitely have have uh have a strong proposition. We see that in the US, where we compete with GE and the likes, and we see that based on some of the customer feedback that we get, so to say.

And against fuel cells with hydrogen? Can you comment on that, on the efficiency?

Well, you know, fuel cells is definitely going to be there for certain applications. Now, if they are the way forward for the really big application, that really remains to be seen to scale the technology. Theoretically, the energy efficiency should be higher, but practically, is it really higher? And at the end of the day, this notion about you're going to run it with hydrogen, it would take a lot of time to that hydrogen will be available and until it will be affordable. If we could accelerate it, it would be good for Wärtsilä. I mean, we communicated, we just finalized our test in the US with a 25% volumetric hydrogen blend. And that was with our standard engines. And as we talked about, we are coming with our, you know, revised engines that way you can take hydrogen all the way up to 100%. So I think we are there. If you ask me, I think fuel cells, it will be there. Will it be there for the big application? There is still a big question mark around it.

Okay, then my final question is on Greensmith. You said that, you know, it's a great product, but just open up for, you know, analysts and economists like me that what new kind of features are you developing? What will we see the next years in terms of Greensmith applications for customers?

So it's very much about this power system optimization that we talked about. It's how you integrate the control of different generating assets Because you can have the storage, you can have thermal, you can have both our machines, but you can have gas turbines, you can have wind, solar. How do you put that mix together and make sure you get the lowest overall operating cost and the highest uptime reliability? This is an area where we are evolving. We are also evolving our trading capabilities, but there are many people that have trading capabilities. but you can have different shades of trading capabilities. These are some of the functionalities that we are evolving and we are tying it to our also tying it to our decarbonisation services that we talked about before. You know, can we work with gold with mines or cement factories on, you know, really reducing their energy cost and sharing some of the upside taking, also taking a risk in the game like we do on the marine side. for instance, with Carnival. So to share both the ups and downs.

Thank you for all of the good questions, and thank you for the presentation, Håkan and Arjen. Like discussed today, we have seen good progress in services, and we are organizing on June 5 a specific theme call to discuss our further opportunities there. I hope that all of you can join that. Then on July 21, we are publishing our Q2 report. I hope that we all can enjoy some sunny summer days before that. Thank you.

Thank you.