The service business is a large and important contributor to growth and profitability for Wärtsilä, and therefore a key element in reaching Wärtsilä’s financial targets. These financial targets include 5% annual organic growth and 12% operating margin. In Q2 2024 Wärtsilä’s operating margin reached 10.8%. Wärtsilä’s strategic approach of moving up the service value ladder strengthens customer relationships and drives sustainable growth and operational excellence. The company’s strategic priorities include capturing growth in services, increasing the share of wallets from existing customers, deeper penetration of the installed base, decarbonisation retrofits, and new business models. The existing installed base provides a strong foundation for service growth. In Q2 2024, service order intake increased 8% compared to Q2 2023, and service net sales increased 3% compared to Q2 2023. Around 30% of the installed base of 4-stroke engine MW is currently under service agreements. The installed base has grown by approximately one percentage point annually.
The service value ladder illustrates the development of service offerings from basic to comprehensive levels. In the first steps, services are often transactional, such as repairs and maintenance. As customers move up the ladder, services become more proactive, integrated, and value-driven, encompassing predictive maintenance, optimization, and comprehensive lifecycle solutions. Moving up the service value ladder, agreements and performance-based agreements have a 2-5X spend ratio (EUR/kW) relative to transactional services.
Wärtsilä’s service value ladder consists of different steps in marine and energy, but the structure is similar.
1. Transactional: Maintenance and repairs
Our offering begins with spare parts and repair services. These essential offerings ensure the reliability and efficiency of marine and energy assets. We build trust and long-term relationships with our customers by providing high-quality spare parts and expert repair services.
2. Enhanced Services: Optimised maintenance
Moving up the ladder, we offer optimised maintenance. This proactive approach uses real-time data and advanced analytics to monitor the equipment. By predicting potential issues before they occur, we minimize downtime and reduce operational costs, delivering significant value to customers.
3. Advanced Services: Retrofits and upgrades
At the advanced level, we offer retrofits and upgrades, supporting customers throughout the lifecycle of a retrofit project by providing excellent engineering capabilities, low-risk appliances, minimised downtime, and reduced capital expenditure - in addition to regulatory-compliant, environmentally sound solutions. Retrofits and upgrades have the potential to double by 2030.
4. Comprehensive Lifecycle Solutions: Agreements and performance-based agreements
At the top of the service value ladder, we provide comprehensive lifecycle solutions. These end-to-end services cover the entire lifespan of assets, from design and installation to operation and decommissioning. By offering tailored solutions that address specific customer needs, we ensure optimal performance, cost-effectiveness, and sustainability throughout the asset’s lifecycle.
Long-term service agreements are an important element within Wärtsilä’s lifecycle services providing value-adding customer support. Performance-based service agreements include quantifiable targets, which are mutually agreed upon based on the customer’s business needs. Measurable indicators can include, for example, power availability, reliability, fuel consumption, and emissions. Furthermore, Wärtsilä shares the risks and rewards with the customer.
When it comes to order bookings of service agreements which may be signed for several years, Wärtsilä only includes the expected net sales for the next 24 months in the order book.
We aim to provide numerous benefits to our customers who move up the service value ladder. Proactive and predictive maintenance helps reduce unexpected failures and extends the lifespan of assets. Our commitment to moving up the service value ladder demonstrates our dedication to innovation, customer satisfaction, and sustainability. By continuously enhancing its service offerings, Wärtsilä not only meets the evolving needs of our customers but also sets new standards in the maritime and energy industries.
Service-themed investor call on 16 September 2024
Wärtsilä Investor Relations will hold a Service-themed investor call on 16 September 2024 at 11.00 EEST, offering more information about Wärtsilä’s service business in both marine and energy. The call serves as a continuation of the call organized on June 6, 2023. The registration link for the theme call can be found here.
