Wartsila Oyj Abp
OMXH:WRT1V
Earnings Call Analysis
Q3-2023 Analysis
Wartsila Oyj Abp
Wartsila's interim report brings positive news, showing a company on an upward trend with improved profitability, robust cash flow, and strong developments in the services sector. Notably, service order intake has surged by 15% and service net sales have experienced a similar increase. The company's operating performance has taken a significant leap with a 53% increase in the comparable operating results, now at an 8.6% margin, signaling a solid path of improvement. A first-time announcement was made that their energy storage business has achieved profitability. The commitment to growth in the services sector is evident, underpinned by a 15% increase in sales, while the equipment side has expanded by 7%, contributing to an overall order intake rise of 11% in the quarter.
The marine market sentiment maintains its positive stance despite some challenges, such as low shipyard capacity, which has led to price increases. Orders for vessels have increased, reaching 1,356 units from approximately 1,100 the previous year. However, the adoption of alternative fuels has been more tepid, with such orders accounting for about 23% of the contracted vessels. Demand for cruise ships is slowly returning, adding a promising dimension to Wartsila's outlook. The decarbonization of the marine industry is highlighted as an ongoing and crucial journey, one where Wartsila expects to play an essential role in supporting their customers and creating shareholder value.
The long-term opportunities in the energy market remain solid amid a somewhat fragile global economy. Market shares in natural gas and liquefied fuel power plants have stabilized at about 13%, while the global market has seen a 22% reduction to 10 gigawatt. Wartsila notes the volatility of global natural gas prices and the steady trend towards renewable energy sources, driving the development of battery energy storage and thermal balancing technologies. Their strong order book supports this segment, with an organic order intake growth of 18% and a positive trend in profitability, particularly in the services side of the energy business.
Wartsila has initiated a strategic review of its energy storage and optimization business, considering various options to support growth, ranging from retaining the business to partial or full divestments. This review follows the milestone of the storage business becoming profitable. Regarding the portfolio, Wartsila remains on the path of divesting non-core businesses, with good profitability in these segments making the process easier. There is also a focus on the integration of various business units, assessing potential synergies particularly in administration and sales force areas.
During the earnings call, investors inquired about the nature of the marine equipment orders, with management clarifying positive demand trends in core segments like cruise ships and recommending a long-term perspective when evaluating the Marine Systems business. Questions on the energy storage segment revolved around its integration within the wider organization and potential costs associated with a separation if pursued. Wartsila's broad and positive outlook in the energy landscape was reinforced, with expectations of improvement being supported by new projects across power plant construction, energy storage, and service agreements worldwide, notably in South America and Asia.
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Hi all, and welcome to this results briefing for Wartsila Q3 results. My name is Hanna-Maria Heikkinen, and I'm in charge of Investor Relations.Today, our CEO, Hakan Agnevall, will go through the group highlights and business-specific performance. And after that, our CFO, Arjen Berends, will continue with recent financials. After the presentation, there is a possibility to ask questions, and we are also happy to discuss the strategic review we have announced today for our Energy Storage and optimization business. Time to start, Hakan.
Thank you, Hanna-Maria. Thank you, and welcome, everybody, to our interim report. And if we start from the very beginning, I think we see a very positive trend for Wartsila. Improved profitability, strong cash flow and good development on the services side. So order intake is up by 11%, and we have a good support from services. We continue to see good progress in service order intake up with 15%. Service net sales also increased by 15%.On the comparable operating results, we took quite a big step forward. We increased it by 53% to 8.6% now. And I think we are on a good path of improvement. And the improvement is supported by continued good development in services. And now we could also announce for the first time that energy storage, or our energy storage business is profitable. Cash flow has also been good with good cash flow from the operating activities. A summary of the figures. And you see it here also order intake, up 11% in the quarter, close to EUR 1.8 billion. And we still continue to see the growth of the service is 15%. Also, equipment continues to grow 7%.Net sales, you could say, a little bit more flattish, 1.4%. But if you look at the organic growth, it's up 7% actually, the sales. Services is strong, up 15% on sales. And on the equipment side, we are actually down 10%. Book-to-bill for the 10th consecutive quarter, we continue to have a book-to-bill above 1. So now it's 1.23. Operating result, it's up quite a lot, and that is, of course, related to certain items affecting corability that we had last year. Now we don't have them. So the operating result is up quite a lot. And if you look at the comparable operating results, it's up to 8.6%, 53% up, which is, of course, very encouraging.Looking a little bit on the Marine Market sentiment, it remains positive in vessels key segments. What hampers is the key segment, is a little bit -- it's low capacity, and for instance, for LNG carriers on shipyard, the available shipyard capacity is muted because there is so much work in the pipeline, and that has also led to a price increase. But in general, we see a positive development for that's key segment.The numbers of vessels ordered in the period increased to 1356. So it's up from about 1,100 last year. And that is mostly driven by the changed mix of contracted vessels. And if we then look at the uptake of alternative fuel, it remained more limited this time with 316 orders reported, representing about 23% of all contracted vessels.Demand for new cruise ship capacity, it remains limited. However, we do see a bit on the new build coming back now, which is positive also for Wartsila. But the key focus still for our cruise customer is to focus on a very good business, actually, with good passenger rates, delivering the business and step-by-step reduce the debt that they have on the balance sheet. But I would say, when I talk to our cruise customers, they are very optimistic about the future.Then very important, in July, IMO revised its strategy on greenhouse gas emissions. And the new framework that are in discussion puts further pressure great opportunity for shipping companies to increase their investments to decarbonize their operations.So the decarbonization journey of the marine industry is very, very real. It's going to take years, and it's going to be not a stepwise journey, a gradual journey, but it's clearly a journey where Wartsila that play a key role and support our customers and also create shareholder value.If we look on the energy side, we see solid long-term opportunities in the energy market. And the energy transition outlook is actually improving in a bit fragile global economy. Our market shares in the natural gas and liquefied fuel power plants stayed rather stable, around 13%. The overall market came down 22% to 10 gigawatt if you look at the last 12-month period. They're coming down, the market decrease from, I would say, relatively high level in 2022 was driven by Europe and Asia.Also, the volatility of the global natural gas prices shows how the market is sensitive to disruptions in supply and demand. The trend in the transition to renewable energy sources continues globally, and that is certainly a key driver in the development of battery energy storage and thermal balancing technologies. And yes, we have seen a bit of turbulence on offshore wind lately, but I think the onshore wind, which is clearly the dominating share of the wind industry is moving ahead.The energy transition outlook in the midterm remains strong. So order intake up by 11%. Equipment order intake increased by 7% on the services side, order intake increased by 15%. And if we look at the organic order intake, it actually grew by 18%. We have a strong order book and the rolling book-to-bill continues to trend up. One thing that we would like to really point out is that the remaining order book for this year is lower than last year.Net sales increased by 1%, which is fairly flat, so to say, but organic net sales grew by 7%. And we can see that equipment net sales decreased by 10%, whereas services continued to grow with 15%.Profitability continues to improve in a good way. So whereas the net sales increased by 1%, the comparable operating result increased by 53% to 8.6% comparable operating margin. Now some of our technology and partnership highlights. As you know, it's all about innovation and technology and services. So we are very proud that we have been chosen for the world's first methanol-fueled hybrid RoRo vessels. So Wartsila will supply an integrated hybrid propulsion system for 2 new hybrid RoRo vessels being built for the Swedish shipping company, Stena RoRo.So each vessel will be equipped with 2 Wartsila-32 M multifuel engines capable of operating on methanol and also ready for ammonia with a notation. And the combination of new sustainable fuels and electrification, that is really in line with Wartsila wants to go and the company's sustainable operating targets. And we are very proud that we have a strong relation with Stena RoRo and as early as 2015, we converted the Stena Germanica to operate on methanol fuel. That was one of the industry first.We also continued as we talked a lot about to evolve our service business and moving up the service value ladder. I think here, we have a long-standing agreement with our Brazilian customer here, where we have renewed our operations and maintenance agreement. And we talked about that before on our agreement side. We have over 90% renewal rate, both in Energy and Marine, which, in my view, really shows the value that we are providing to our customers.So in this case, we have signed a renewal of operating and maintenance agreement for Gerama Sonos. The agreement covers the Ponta Negra power plant in Manaus. That is a plan that has been in place since 2006 when we commissioned the plant. Now we extend the agreement for another 2 years. So to ensure that Gerama Sonos can meet its power purchase obligations to Electron notch. The history here, I mean, this plant was built originally operated on heavy fuel oil. In 2013, it was converted to gas diesel technology. And now the plant basically operates 24/7 baseload delivering 60 megawatts to the system. Let's look at the different businesses and how they are performing. So if we start with Marine Power, we see a strong development in the order intake and profitability and the good development in services continue. And you can see order intake up with 33% net sales with 26%, profitability improving. And the major drivers, we have good service performance. We also have good progress now in the voyage services turnaround. We talked about that if we combine the 2 businesses that we earlier called Voyage, they are still loss-making, but the losses are clearly significantly reducing. So we are really on a good path and the right path on our turnaround plan.If we look at the negative side in Marine Power, it is that the margin improvement was partially diluted by lower share of services this quarter. We continue the good development on the Marine Power service agreements. And on the net sales, we are clearly increasing. We are exceeding now the pre-COVID level on the sales to our installations. And here is another example with a technical management agreement, providing maintenance flexibility for China LNG shipping vessel.It's a 15-year agreement. So it's a long-term commitment. That will ensure operational reliability and provide maintenance planning flexibility to the Japan Princess. That's the world's largest shallow draft LNG carrier. And this vessel operates 3 Wartsila-34DF fuel engines. And the technical maintenance agreement include constant data monitoring, maintenance support for the LNGs engines and the gas valve units. And we took this in as an order in July 2023.So a 15-year agreement, long-term commitments. This is how we move up the service value ladder. Now another really exciting example more then on the driveline side is our order within Catasmania, which has selected Wartsila for the world's first zero-emission lightweight, RoPax ferry. So we will power these biggest battery electric ship ever built so far. The vessel is a new ferry, the largest ever built of its type, and it's the world's first zero-emission lightweight catamaran. It's built by in Catasmania, and it's been ordered by the long-standing South American customer Burkina Faso that's on the full scope. It includes our own energy management system, the power conversion system, the DC charging system and also 40 megawatt hour battery modules, the DC hub, the 8 electric motors, 8, that's water jets and a pro-touch propulsion control system. So you can see it's a fairly all-encompassing scope. And this order was also booked in July.So moving to Marine Systems. We see that the equipment order intake increased or whether the net sales is down, order increased with 55%. Net sales down. Scrubbers is one part on the Exosite is one part of that equation. If we look at the comparable operating result, it's down. We have good service performance, but the lower equipment sales is affecting the operating income.Energy, the comparable operating results increased, and we see also here a good development on the services side. Order intake down 16%. We still see this a little bit as a prioritization between Q3 and Q4. As you know, this is a project, many parts of it is a project-related business. And I think we also communicated before that for energy power plant that the second half of the year would be stronger than the first half of the year. We still hold to that.But for Q3, the order intake is down with 16%. Net sales is also down 12%. If we look on the profitability side, we do see a positive trend there, supported by the good service performance and also improved profitability of the storage business, but the lower sales volumes are affecting our profitability in Q3.On the energy storage, comparable operating result is now positive. We are there, and the profitability is improving. Now you also saw earlier this morning that we announced that we are initiating a strategic review of our energy storage and optimization business. So basically, the vessel Board of Directors have initiated a strategic review to consider options that would support the continued growth of our storage business in a way that benefits our customer, employees and our shareholders. And throughout this process, all potential alternatives will be considered, including different ownership options. And that involves all alternatives from keeping the business to partial divestments to full divestments and other possible strategic alternatives.Also very important to highlight, we will continue to develop and invest in our battery storage business as we have done also going forward to continue to build the business for the future. We have not set the timetable for the completion of the strategic review as we want to thoroughly assess all the strategic options.Now if we switch to Energy Service business, we do see continued good development in the service agreement side also here. And here, once again, asset performance agreements to support the U.S. utilities efforts towards net zero carbon emission 10-year guaranteed asset performance agreement signed with OPPD in Omaha. The agreement covers the 150-megawatt standing BLX station located in Omaha, and it's set for commences commercial services in 2024. And when we activate the plant, we'll provide dispatchable balancing power as part of the utilities power with purpose project, and that's an initiative designed to add 400 to 600 megawatts of utility-scale solar generation and then 600 megawatts of balancing natural gas generation. And this order was booked in Q3.Now to sum it all together, you see the waterfall here how the different businesses have contributed to our improved profitability. The biggest improvements are coming from Marine Power and Energy. And as we see, the comparable operating result is increasing by 53%. Now, Arjen, please join me.
Thank you, Hakan. Very happy to present here the key financials. In fact, if you look at it, it's all better than previous year at the same time. And it's also better than, let's say, Q2 end state. So really good quarter in many ways.First of all, cash flow, EUR 213 million operating cash flow in this quarter compared to EUR 100 million in the same quarter last year, EUR 432 million year-to-date, which is a really good level considering also that it is about 92% of EBITDA.Working capital, clearly, one of the big contributors to a good cash flow besides also improved profitability compared to Q2 and state, let's say, we improved quite significantly on the working capital as well from EUR 105 million to EUR 43 million. Net interest-bearing debt also going down from SEK 477 million last quarter to now EUR 356 million, of course, supported by a very good cash flow in the quarter. And that, of course, also supported, let's say, the gearing ratio, which went from 0.24 to 0.17 in the quarter.Solvency also clearly improving 33.4% at the end of last quarter now to 35.2%. And basic earnings per share also significantly better than, let's say, previous year. Good to remember or to remind actually that the minus EUR 0.16 that we see year-to-date last year includes the EUR 200 million write-off related to the Russia exit as well as at that point of time, EUR 75 million related to the 3 years manufacturing closure.While at the same time, the $0.28 year-to-date basic earnings per share that we have in this year includes a EUR 45 million write-off that we did on portfolio business or impairment actually that we did on portfolio business in Q2. So all in all, I would say, looking at where we are today compared to, let's say, previous year, all significant improvements on all financial parameters. I'm really happy with this.Cash flow continues to trend upward, and that's, of course, what we want to see. Also looking at working capital to net sales ratio, we are now on a 12-month rolling level just below 1%, while, let's say, long-term average, if you compare 2015 to now, it's just below 9%. So we are at a very good level.Nevertheless, we will, of course, continue to work with our working capital and try to improve it further by collection of receivables, getting better payment terms with customers and suppliers, inventory reductions, et cetera. So, really going well forward. With these words, I'll give it back to you, Hakan, on the prospects.
Thank you. So if we look at our prospects, first, if we start on the Marine side, we expect the demand environment for the next 12 months to be similar to that of the comparison period, similar. And on the energy side, we expect the demand of marine meant for the next 12 months to be better than that of the comparison better comparison period. So better, the marine, similar energy bet.Okay. I think that wraps up the presentation for today.
Thank you, Hakan. Thank you, Arjen. Now we're happy to take questions.
Yes. And please keep your microphone from muted while not talking, thank you. First up is Daniela Costa from Goldman Sacs.
I have 2 questions here. First one I wanted to explore on sort of the strategic rationale for the storage, why doing the strategic review now, I guess it's not obvious from us from the outside that there is a massive disconnect between your valuation and the valuation of some of your main storage pure-play peers. Also, you have articulated that one of your differentiating points in the past was having this integrated balance power and storage. So can you talk through some of the benefits of potential different ownership structures and really the timing, why now? So that's my main question.And the second question, it sounds like your portfolio company is actually doing a bit better than expected. Can you articulate what's the vision for that segment going forward? I think in the past, have interpreted that as maybe being more of a noncore segment. Just any update there would be useful.
So if I take storage, maybe Arjen, you take it in the portfolio. So if you look at storage and why now and what's the logic? I think we found the timing good. I mean we have grown this business now to successfully to EUR 1 billion, give or take and we now brought it to profitability. And I think this is a good time, together with the Board to take a step back and look at how do we want to support the continued growth? Because clearly, this is an industry that is growing, we are growing. And we need to find the best way to fuel that growth. And that's why we want to do the strategic review to look at different ownership alternatives. And the conclusion could be that we keep the storage business, but it could also be that we partially divest fully divest, et cetera. So the timing, we kind of reached the milestone, SEK1 billion now profitable. Okay. How do we continue to support the growth? So that's the rationale. So portfolio?
Your question, Daniel, on portfolio business. Of course, let's say, this is, as we have also communicated earlier, let's say, noncore, let's say it's not strategic, let's say, critical for us to keep. And therefore, we have also earlier decided many business units to put in portfolio business. So the plan remains to divest. The performance is, of course, let's say, we are very happy with the performance, let's say, good profitability always makes it easier also to divest these businesses. So it's a temporary thing. We will not reverse our aerial decision. So divestment road map continues.
Next up is Max Yates from Morgan Stanley.
Just my first question was on the marine orders. And obviously, there were some pretty good equipment orders in there, particularly in the Marine Systems business. So I just wanted to understand if we're thinking about kind of run rates of order intake. Are there any kind of abnormally large sort of one-off orders that maybe we should sort of strip out in the business? How should we think about some of those growth rates and the momentum going forward? Thank you.
If I start with Marine Power, maybe, Arjen, you can comment Marine Systems or anything. So I mean, Marine Power, I would say that strong equipment order intake, as I said, the core or some of the core segments of that sale is delivering in Q3, including cruise. So that is a driver. And I would say that we see positive, continued positive development in our core segments from a demand side.
Looking at Marine Systems, of course, for Marine Systems, I would say it's better to look at a bit more long-term trend and not, let's say, stand-alone, let's say, quarters. Let's say there can be very big orders, in particular in the Gas Solutions business within Marine Systems, while on the other businesses like Shaft Line Solutions and Exhaust Treatment, they are typically, let's say, smaller in size. So if you have these incidental, let's say, bigger ones every now and then it can, of course, make a big difference in one quarter. So I would recommend to look more at the let's say, a rolling 12-month trend and any specific single quarter. I think that makes more sense.
And just secondly, just on the energy storage announcement, and I think I completely understand your comments of kind of taking a look at kind of what's the best path forward. Just in terms of how integrated that business is in your organization, I mean, would it cost kind of substantial money to disentangle list? Do you have a sort of shared service network at this point? How should we think through kind of how integrated that business is? And any kind of cross , I guess, people involved in both organizations. If you could comment there, that would be helpful.
I mean there are certain synergies, clearly, especially on, you could say, on the admin side, on everything there. There is also a bit of synergies on the sales force side. So if whatever, I mean, as we talked about, there are many options. But if we pursue that option, we will need to see how this --
It's not super integrated.
And then, of course, we have the GEMS platform that we use in both parts of the business. So there are synergies. And that's why we need to look at all different options.
Next up is Vivek Midha from Citi.
I have one question on the Energy business is relating to the thermal power parts business. It sounds like you're still looking for an improvement in demand in the fourth quarter, but could you maybe expand on that? What gives you that confidence that, that's going to improve in the fourth quarter?
Well, I think we look on our pipeline of potential projects, and that gives us a --
In amount of expression of interest in the business lately? Is that maybe also behind the motivation? Or would you only expect that to happen once you start a clear process then?
No, I think this is clearly driven inside out, you may say. It's more our strategic perspective together, working together with the Board, the continued growth and looking at different models.
And when you say partial ownership, you mean IPO as an option?
We don't rule out any option at this stage.
Okay. Second point was just regarding the phaseout of the legacy contracts for the last time, Q3. I was just wondering which business unit there has been the residual impact of that phasing out?
Well, I think we talked about that before. It has been in energy, it has been on Marine Systems, so to say.
Mostly, not only.
Same in Q3.
Yes.
Next up is Sean McLoughlin from HSBC.
Just I wanted to come back maybe to Vivek's question a little bit about what is driving the improved outlook in energy? Is it across all segments? Is it specifically driven by storage over thermal? Is it more the services side within thermal, i.e., more customers willing to take on long-term service agreements, just any moving parts within that guidance improvement.
I think we actually see in all those dimensions, positive signs that triggers this outlook. So it's about new build in power plants. This is about new building storage, it's about service. So you could say it's a broad array of drivers. And if I come back, for instance, on the power plant side, we see certain auctions coming in South America, et cetera, et cetera. So they are, yes, we see the market demand evolving in a positive way.
And on the thermal side is you specify LatAm. I mean is that the region specific? Or is that a, let's say, regionally broad better outlook?
It's a broad outlook. I just gave that as an example to make it -- it's not only in South America. We also see in certain countries in Asia, et cetera.
Thank you. Do we have any further questions? We still have some time. So in the case you have a question, we are here for you.
Next up, Erkki Vesola from Inderes.
comments on regarding the legacy projects, how much of a drag were these in Q3? And how big an improvement should we expect in Q4 regarding the emittance of this.
Sorry, it's a good question, but we don't give guidance for the profit margin. I mean it's the story that we have communicated in the past. When we into this year, we had about EUR 1.2 billion in order backlog left of orders that have been heavily affected by the accelerating cost inflation. We have now worked that out through this year until now. So those projects has also had an impact in Q3, but we are not guiding on the margin impact.
Okay. And then secondly, still coming to the storage review, why did you have to come public with this, starting this revenue? I mean you couldn't just carry this out internally. Is it just that you're kind of flagging that we are out here and we are looking for partners, et cetera? What was there?
No. I think being a listed company, we need to follow the regulations, of course, of NASDAQ. And this is a sizable decision even to enter the strategic review. So the Board made the decision and we immediately go out and release the news that we need to do in a line being a listed company.
So is in potential magnitude.
So it was just, you were kind of not more forced to do that, not just that you were wanted to public this?
No, it's part of being listed. And then if you make sizable decisions that could have a significant impact, you need to immediately go out and disclose it, and that's what we have done.
Next up is Tomi Railo from DNB.
Yes, a couple of questions. Firstly, maybe on the energy outlook as well. To what extent is it a true environment improvement, what you see or is it just a reflection of the, let's say, weakness or delays in the market activity, customer signing deals in the previous quarters?
Well, if you look at the development during the second half of the year, it's a bit of prioritization between the quarters. But when we do the outlook, I think we are looking at 2 things that it's a little bit hard to delineate. There are up and demand for power, and then there is the decarbonization journey. And both of those are coming together. So that gives us confidence when we see, as I said before, in our pipeline going forward.
Okay. And secondly, if you could maybe explain a little bit about the service profitability development. Very strong order sales, as we have seen in the previous quarters. Have you been able to improve the service profitability as well?
Well, I think we are gradually doing that. I mean there is, of course, a volume effect. I think the key thing here in fueling our growth, of course, we have high utilization of the equipment that our customers are using. But this strategy of moving up the service value ladder, we clearly see that it's fueling the growth. I mean we showed some examples here with the maintenance agreements, I mean 10, 15 years agreements. And they are profitable. We are creating value for the customers. As I said, 90% renewal rate of this type of agreement. So it shows also customer things that we are creating value. And that is one of the major growth levers. And we are growing profitably.
Next up is Max Yates from Morgan Stanley.
I just had a quick follow-up question on the services order intake. I mean I guess if I look at your sort of 12-month rolling service order intake, it's nearly up 40% versus 2 years ago. I guess we've seen in some other industries, we're now starting to see kind of orders normalize. We've seen some early ordering kind of supply chains have made customers do strange things with their ordering behavior. So to what extent do you see any of that in your own business? And do you think we could then go through a period of more stable order intake as customers sort of focus on the deliveries? Or do you just see a sort of fantastic runway ahead, lots of opportunities on maintenance contracts? And do you think this is kind of customers are behaving in a normal way? Any color on that would be helpful.
No, I think we see a mixed portfolio, so to say. If we look at the different segments. I see clearly that the merchant side is starting to stabilize a bit. Offshore has been growing a lot, very steep. Cruise is also going up. So it's a mixed bag. Certain segments are clearly kind of leveling off might be going down. Other segments are growing.
Yes. Just to add, I think if you make a comparison to 2 years ago, of course, one factor that is clearly not continuing going forward is the effect of, let's say, moving out of COVID. So I think that exceptional, let's say, growth rate there, definitely, let's say, '21 still being deep into COVID and cruise returning, let's say, ferry coming back to life again. I think has clearly had an impact. But I would say we have a strong belief in the growth of the service also on a continuous basis going forward.
Because what we do see, I mean the decarbonization journey, retrofit cost you remember that we talked about in our previous CMD, we see a EUR 2.5 billion retrofit market potential of our own equipment over 5 to 10 years. So the retrofits are still there.
And maybe just a follow-up. I mean, if I go back sort of 2 or 3 years ago, one of the kind of negative cases on your stock was the potential risk in energy services of more flexible power in your baseload less running hours and that would negatively impact energy services. We don't seem to be seeing any of that. Is that a case of kind of some of these retrofits and kind of bigger service contracts are offsetting kind of lower consumables for some of your customers? Or are we just not really seeing that happen at all in any parts of your installed base? Is that happening in pockets, but there's obviously offset help us through that?
So basically, you could say that we are growing our installed fleet of megawatts on the energy side. And we do see that the total -- if you aggregate all the number of service hours, is stable, although our share of balancing which has lower running hours is increasing. So we grow the installed base. The total number of hours is stable. And then I would say on top of that, and we talked about that before. Moving up the service value ladder. We clearly see that, that is supporting the growth, moving customers into agreements.
Thank you. Do we have any further questions.
Next up Vivek Mita from Citi.
A quick follow-up on Max's question. The service order intake has been growing quite a bit over the last few years. I appreciate if you can't disclose it, but could you give us any indication as to where those prices are in service compared to, say, 2 years ago or pre-COVID level so that we can work out ex price, whereas your service activity versus previous levels?
I mean, I won't go into the percent you might be looking for, sorry for that. But I mean, clearly, we have worked with price realization, and we have had to do that in the wake of inflation, so to say. And as you know, there has been a rather steep inflation. And I think on the services side, we have been able to work quite a lot with price realization. I don't know, Arjen, if you would like to --
It's exactly as you say, we should not and we will not open up on this one. It's very competitive sensitive as well, of course. But what we can clearly see is that the whole industry has done the same. So we are not an out layer in this respect.
Thank you for great questions and thank you, Hakan, thank you, Arjen. I would like to remind you about our Capital Market Day, which will take place on November 9, so please register on our website and join us following it. Thank you.