We hosted a strategy call with our CEO Håkan Agnevall on September 10. The CEO strategy calls aim to offer an opportunity to discuss Wärtsilä’s strategy and the progress of its implementation with the CEO. No material new information was disclosed during the call.
The recording of the call is available here and the presentation material here.
Wärtsilä is well positioned to capture future growth opportunities in marine and energy markets
As global markets continue to evolve amid geopolitical tensions and shifting trade dynamics, Wärtsilä remains well-positioned to capture growth opportunities in all businesses: Marine, Energy, and Energy Storage. Despite external uncertainties, our strategic focus and operational resilience provide a strong foundation for long-term success.
While the global economic outlook has tempered demand in Marine for new ship capacity in 2025, activity among Wärtsilä’s key segments, cruise and ferry, remains supportive. Despite of strong 2024, Clarksons estimates that vessel contracting continues to be above 10-year average in our core segments during 2025-2027. The decarbonisation journey continues to gain momentum, bolstered by the IMO’s proposed global carbon fee, expected to be formally adopted in October 2025. This regulatory shift supports demand for fuel-efficient and flexible solutions. In case the global carbon fee would not be adopted, we still see good opportunities for Wärtsilä based on our strong offering. Our service business in Marine is thriving, with strong opportunities to move up the service value ladder and help customers enhance operational efficiency. Despite mixed market conditions across vessel segments, our strategic positioning enables us to navigate the challenges and capture value.
In Energy, the global electricity demand continues to rise, reinforcing the need for new power generation capacity. Renewables remain the most cost-effective solution, supporting Wärtsilä’s balancing power offering. The data centre segment presents a promising long-term opportunity. While the size of the total market is not easy to estimate, our sweet spot is 20-400 megawatt off-grid baseload power plants with high lifecycle value. We have ongoing discussions regarding several data centre projects, which are at various stages of negotiations.
The energy transition is accelerating the need for storage systems, which support our Energy Storage business. However, the US battery energy storage market faces challenges due to high tariffs, intensifying competition in other regions. We expect tariffs to have limited direct impact on Marine and Energy, but due to the dynamic nature of this topic, the circumstances can change rapidly. Shipyards, which are our customers in Marine newbuild contracts, are primarily located outside the US. The repair yards are primarily located outside the US as well.
Building a stronger Wärtsilä
We continue to make progress towards our long-term financial targets. Marine and Energy share similar growth and profitability trajectories, with a combined target of 5% annual organic growth and a 14% operating margin. For Energy Storage, we aim for low double-digit growth and a 3–5% operating margin, acknowledging short-term profitability pressures due to selective market entries.
Services remain a key enabler of growth and profitability, as we continue to elevate customers on the service value ladder, with over 90% renewal rates and book-to-bill ratios above 1 in both Marine and Energy. Strategic actions, such as shifting from EEQ to selective EPC offerings in Energy, are improving revenue quality.
Portfolio optimisation continues, with the divestment of Automation, Navigation and Control Systems (ANCS) completed in July and Marine Electrical Systems (MES) expected to follow in Q4. Our cash flow remains solid, and our negative working capital position is favourable, though we expect it to normalise over time.
Our capital allocation priorities remain unchanged. We invest in strategic areas like decarbonisation R&D (targeting ~4% of net sales), maintain a commitment to shareholder returns (aiming to distribute at least 50% of earnings), and pursue smaller bolt-on acquisitions. Our strong balance sheet provides resilience amid geopolitical uncertainty.
Q&A
What is the impact of the latest aluminium and steel tariffs (section 232) on Wärtsilä? Are you now facing 50% tariffs?
The rules and regulations around tariffs and section 232 are part of a complex and dynamic framework. Based on our preliminary evaluation we estimate the impact to be limited. In practice, we are more likely to face tariffs closer to 15% rather than the full 50%, depending on their classification and origin (e.g., from Europe). As the US trade policy may change suddenly, the visibility is though low. Customers pay the tariffs.
Why are we only now starting to see the growth for engines in data centers, even though turbine companies have had strong order backlogs for the past two years?
Many of the large gas turbine orders have been for gigawatt-scale projects, which are not part of our business focus. Wärtsilä’s sweet spot is in the mid-sized projects in the 20-400 megawatt range. Additionally, turbine companies have received significant utility orders in high-power segments where we do not compete. That explains why the growth in engines is only now becoming visible.
Are turbines more suited for hyperscaler-type data center projects, and are you more exposed to smaller-scale data centers?
Hyperscalers build both giga-scale and mid-sized data centers. Giga-scale projects typically use combined cycle gas turbines, while mid-sized projects in the 20-400 megawatt range are more suitable for engines, where we have competitive advantages.
Our competitive advantages come from several factors. First, flexibility and modularity are key. Unlike turbines, which operate in large, single blocks (e.g., 100 MW on/off), our engine-based solutions are modular. For example, a 100 MW plant can be built with twelve 10 MW engines, allowing for built-in redundancy and partial operation during maintenance. This reduces the need for full backup capacity and lowers overall investment.
Second, shorter lead time compared to turbine suppliers is a major advantage. It is a significant benefit for customers needing faster deployment.
Additionally, our solutions offer advantages in fuel efficiency, lower water consumption, and better performance in humid environments. These factors make our offering not only faster to deploy but also more adaptable and cost-effective over the lifecycle of the plant.
How do you assess the long-term profitability of data centers when the availability of the power grid may improve within 5–10 years?
The total cost of ownership is something the data center developers themselves plan, but since these are 24/7 operations where uptime is critical, we expect a strong service business beyond five years. Even if the grid becomes available, data centers could export power to the grid using our highly efficient and flexible engines, which are well-suited for integrating renewables.
You’ve said you operate in the up to 400–500 MW range in the data center markets. Why can’t you go higher, say to 700–800 MW, to better serve hyperscaler requirements? Are there technical limitations?
There’s no technical limitation, you can build gigawatts of engine power. But practically, it would require a large number of engines and a lot of space. Maintenance and layout become more complex at that scale, so it’s more about practicality than technology.
How do you think about the capacity in Vaasa? Your gas turbine peers seem to increase their capacity by 30-50%, do you have similar plans?
We are currently expanding the R&D and manufacturing capacity in Sustainable Technology Hub in Vaasa, where we manufacture our engines. We have capability to expand further, if needed. Our manufacturing is also much related to ramping up our supply chain. In the release, we have said that the expansion will be ready by 2028, some incremental parts being ready perhaps earlier, such as testing capacity.
What do you see in the forward pipeline for cruise, given that Clarkson data shows no cruise orders for the past three months? Is this just a pause due to market lumpiness?
Yes, it's lumpiness. We see strong underlying demand, but there are limitations due to yard capacity. So the pause is more about timing than a lack of demand, and the contracting forecast is above the 10-year average.
On storage, you mentioned increased competition also outside the US. Is everything still consistent with your strategy and margin expectations?
Yes, everything is still consistent with our strategy, but competition has increased. We didn’t predict events like Liberation Day or that some battery cell providers would move forward in the value chain and start competing more directly. As the US market slows, companies are pushing volume elsewhere, which intensifies competition. Still, we remain committed to our strategy.
