We hosted an investor call with our CEO Håkan Agnevall on September 12. In the call, Håkan discussed Wärtsilä’s strong focus on decarbonisation in marine and energy. These CEO calls aim to offer an opportunity to discuss Wärtsilä’s strategy with the CEO. No new unpublished information was disclosed during the call.
The recording of the call is available here.
The call started by discussing Wärtsilä’s strong focus towards decarbonisation. In the marine business, natural gas, green fuel blends, and carbon-neutral fuels are expected to significantly increase their share within the fuel types used. Carbon-neutral fuels are experiencing strong growth as methanol usage is accelerating in container vessels. Currently, around 60% of the contracted container vessels have or will have methanol capability. Furthermore, also usage of zero-carbon fuels, such as ammonia, is estimated to grow. The technical concept for an engine running with ammonia will be launched later this year.
In the marine business, carbon capture is another topical issue. Wärtsilä is evolving the technology and aiming at having the first technological pilot tests next year. We are confident in our own concept and development, even if there are many players in the markets interested in developing carbon capture technology.
In the energy business, the strategic development is focused on the decarbonisation of the systems, driven by the movement towards renewable sources such as wind and solar. On renewable projects, the growth is driven by balancing power, and we estimate to see long-term growth in both storage and thermal balancing.
The call then continued by discussing Wärtsilä’s service business which accounts for more than half of Wärtsilä’s revenues. The strong growth in services is driven by the strategy of moving up the service value ladder, which means the transformation from single-service contracts towards longer-term agreements. This strategy supports Wärtsilä to gain customer value and customer stickiness, and to proceed on the profitability journey.
Q&A
There have been new regulations in the US from the Environmental Protection Agency (EPA) regarding coal power plants and gas. Are these regulations impacting Wärtsilä?
These new regulations do not directly affect our technology because the regulations are tied to certain operations and certain sizes of plants. However, we notice that in the US the customers are investing in renewables more now. The clear view is that the customers need to stop using coal faster because of these regulations, and normally they are looking to replace the coal with renewables and balancing power.
It seems that the market share of reciprocating engines versus gas turbines in power plants has declined from pre-pandemic levels. How do you expect that to develop in the future?
The market share of reciprocating engines overall is well over 50%. The market share is especially growing in the US. The market shares vary depending on the amount and size of ongoing power plant projects.
Regarding the storage business, lithium prices have been decreasing, is this affecting customer behaviour?
In Q2 it was stated that the decreasing raw material prices, especially lithium, led to many customers being hesitant to sign new contracts. However, currently, the situation has been normalising and the customers are more active again.
Regarding the production consolidation with Trieste and Vaasa, what is the update on that?
The decision to cease operations in Trieste was not an easy decision, because of the long and proud history related to engine manufacturing there. When the decision was made, we stated that we expect this decision to lead to annual cost savings of approximately 35 MEUR by 2025. The schedule still holds, even though there have been challenges on the path with changes in laws and structures.
Currently, manufacturing in Trieste has been seized. The so-called reindustrialization process is ongoing, where a new owner is searched to give the continuation of employment for the remaining staff in there.
The markets on carbon capture and storage technology seem quite busy with different players working on their solutions. What is Wärtsilä’s competitive edge in this?
Our competitive edge is largely within our experience with the scrubber business. We see the carbon capture and storage business as an extension of our normal scrubber business. With regards to this technology, the question is how much CO2 is captured and how much energy is needed to capture that. We want to have the leading product by being the most energy efficient in capturing. We also estimate Wärtsilä to be one of the first players in the markets with a solution that is energy efficient, robust, and supported by an industry-leading network.
The order intake during the first half of this year in power plants has been low. What are your comments on that?
The first half of the year has been a bit slow on the order intake of thermal orders. We have communicated that the second half of the year is expected to be more active, based on the pipeline. As said, interest rates and gas price volatility have caused some customers to slow down decision-making and reconsider the timing of their orders. Also, in some markets, such as Brazil, governmental changes affect the orders.
Former Voyage business made -38 MEUR comparable EBIT in 2022, before integration into Marine Power. What is the situation with that now?
To recap, we separated the Voyage business into two parts. One part is now called Voyage Services, which we integrated into Marine Power as it is related to creating fleet optimization solutions and route optimization solutions. Another part is called Automation Control Navigation Systems (ANCS), and it was integrated into Portfolio Business for divestments. Therefore, the process is ongoing. When aggregating the two sides, the businesses are still loss-making, even though the turnaround is going in the right direction.
Now that energy-saving systems such as lubrication applications are taking off commercially, are you still happy with only having partnerships in the area?
We believe to have the proper strategy currently and we will be remaining with that. It is too early to say which solutions will have commercial breakthroughs, and therefore, developing own solution does not seem probable for Wärtsilä.
You have stated services to grow nicely short-term and mid-term, but Acceleron has given more cautious comments on that. What do you think of this?
Estimates vary. Services in the container segment will decrease a little bit even though still remain at a relatively high level. Other segments like offshore are estimated to grow which will make the overall balance steady.
Previously you have stated that you are in the top three in the storage business but now you are saying to be in the top five. What has happened there and is this a permanent change?
There are some newcomers in the markets that have been growing very aggressively. Pricing is the main reason for the aggressive growth of some of the competitors. We continue to focus on our own growth, but the growth also needs to be profitable in the core selected markets, both geographically and for the core customer segments.
Regarding the storage business, what is your core offering? Also, what defines the profitability or risk profile that makes one an attractive client or project for you?
Fundamentally, we will not be the lowest price supplier. We serve customers who value consistency in project execution, product quality, and safety and risk performance. By combining these with our power system knowledge, we can contribute to ensuring asset efficiency and long-term performance quality. In the short term, we want to focus on certain geographical areas, such as the US, Australia and the UK, to grow consistently and in a controlled way.
