Wartsila Corp B Shs

Good morning and welcome to this news conference for Wärtsilä Q4 24. My name is Hanna-Maria Heikkinen and I'm in charge of investor relations. Today, our CEO Håkan Angnevall will go through group highlights, business performance, and then after that, our CFO Arjen Behrens will continue with the financials. After the presentation, there is a possibility to ask questions. I kindly ask every analyst to ask first one question for that to make sure that everybody has a possibility to ask questions. Håkan, please, time to start.

Yes, thank you, Hanna-Maria. And a warm welcome to everybody joining us, which has been a great fourth quarter and a great year. If we start on the fourth quarter, we had a very strong order intake, net sales and profitability, all three dimensions. So all-time high order book at 8.3 billion euro. order intake increased by 34% net sales increased by 13% and that translated into comparable operating results that increased with 18% and our good journey on services continues so order intake up 15% the net sales up with 12% and Iron will smile later. The strong cash flow continues. I mean very strong cash flow from operating activities, 437 million euros. So really great Q4. If we look then at the full year, it has been a year of all-time highs. So order intake, absolute operating results and cash flow, all all-time highs. And we talked earlier about the order intake. You can see here, if we start on Q4, I will talk more on the full year, but if we start on Q4, up 34 percent from 1.8 to 2.5 almost billion and we continue to to grow services up 15 percent from from 900 to a billion and then very strong order intake growth in equipment side 51 percent up from a billion to almost 1.5 billion the order book as we talked about its all-time high 8.3 billion So very positive development. Net sales for the quarter, up 13%. And we see it's up both in services and equipment. Services up 12%. Equipment, 13%. Book-to-bill, 1.3%. It's the 15th consecutive quarter with a positive, I mean, a positive, but a book-to-bill above 1%. The comparable operating results up 18% to 209 million. And we continued our improvement of profitability. So up in the quarter to 11.3%. And also the operating results now going from 7.8% to 12.4%. Looking then at the full year, on the order intake side, for the first time we are passing the $8 billion mark, so order intake up on the full year for 14%. And still good growth, I would say, on services, up 8% on order intake. Equipment, we said it's going to be a stronger equipment year, up 20% on the full year basis. Net sales also we continue our growth 7% above our 5% annual growth target and we grow in services up 9% and we grow in equipment up 6%. And that then translates to continued improvement on the comparable operating results so going up from 8.3 to 10.8 for the full year of 2024. Of course Also looking at the operating results going from 6.7 all the way to 11.1. So we are not at 12 yet, but we are on a solid path to reach also the 12% financial target. Then looking at marine and then energy, the market sentiment is positive for our core segments, and we see increase in demand for new ship. It basically continues. So the number of vessels ordered in Q4 came to 2,765, and that's up considerably from 1,977. And the new-build contracting in 2024 was strong overall, driven by the supportive freight market, especially due to the red-site rerouting, but also to the underlying fleet renewal requirements. The global shipyard capacity, which was at its lowest point in 2020, where it reached 60% to the 2011 peak level, it's currently at 70%. But the trajectory is positive. Shipyard capacity is being added as we speak. And the forecast is that it could reach 80 to 85 percent of the 2011 baseline by 2030. And the growth is primarily driven by expansion in China. Now, if we look at the 2024 contracted vessels, 653 are alternative fuel capable. And that is about 49 percent of the gross tonnage, so to say. And we do see the continued positive derivative here stepping up from 43 to 49 percent. So there is also an underlying trend for alternative fuel capable vessels. If we go to energy, we see solid long-term market opportunities, and the energy transition continued to advance in 2024. Wind and solar are expected to post record installations in 2024 and 2025. And the combined capacity additions from wind and solar are expected to be somewhere between 650 gigawatts and 800 gigawatts in 2025, according to EEA and BNEF. You could say it's going too slow, but there is a very solid trajectory in the continued growth of renewables. Energy-related macroeconomic development in 2024 was impacted by elevated risks in the geopolitical environment, creating uncertainty and also slowing down some decision-making. In 2024, both thermal balancing and battery energy storage experienced highest level of market activity to date, driven by the increasing share of renewables. So the Wetzel narrative of increasing share of renewables driving the need for balancing power, you can clearly see it playing out in 2024. Data centers, a lot of focus on that. It is a promising baseload opportunity due to the challenges for developers to get grid access and get power from the grid. And according to EA, additional 45 gigawatts of power capacity is expected to be added for data centers between 2024 and 2027. So there is a growth potential for Wärtsilä. Looking at the numbers also from a more visual side. So organic order intake increased by 35%. Overall order intake increased by 34%. It's not a typo that 35% is organic. The overall order increase is 34, so they are very similar, but there is a percentage unit in difference. Equipment order intake increased by 51%, and services order intake increased by 15%. So continued strong growth. And all time high in our order book and the rolling book to bill continues to be above one. As I said before, 15th consecutive quarter where it's above one. And we also see a good distribution of deliveries for this year and for next year. So looking good. Organic net sales increased by 13%. So net sales increased by 13%. Equipment net sales increased by 13% also. And services net sales increased by 12%. Profitability. We are on a journey of improving profitability. And also here, in the fourth quarter, we see it continues to improve. Net sales increased by 13%. And we see that comparable operating results increased by 18%. And if we look at the 12-month rolling comparable operating results, we landed at 10.8%, which is a step up compared to last year at 8.3%. Technology and partnership highlights. It's all about enabling sustainable societies through innovation in technology and services. So technology and partnerships right at the core of Wärtsilä about enabling the industry decarbonization, which will take decades, but we are on the move. Our first 46 tiers installation in energy. And this is for a 120 megawatt plant in Kazakhstan. So it includes six 46 TSSG fueled large bore engines and mechanical and electrical auxiliary equipment. And when the project will be completed, it will power oil and gas facilities in the region. Now, the interesting thing is that the power set up there, it's actually a blend of fossil and non-fossil power generation. So basically, the 46 tiers will be providing balancing power to secure reliable energy generation from renewable sources. And this order we booked in Q4. Then if we jump to the marine side, another first, that's delivering a propulsion package to power the world's largest methanol-ready cement carrier vessels. So we will supply the complete propulsion package consisting of engines and propulsion equipment for 38,000 deadweight ton methanol-ready cement carrier vessels for Nova Algoma, which is a joint venture. When it will be built, it will be the world's largest vessel of its type. And it will also be the first with a methanol-ready notation. And this order we also booked in Q4. Now, looking at our businesses and a little bit how they have been performing. On the marine side, we see a good overall performance continuing. Order intake and net sales increased, so order intake up 9%, net sales up 12%. And if we see on the development of the comparable operating results, on the positive side, the positive drivers is higher service volumes. and better operating leverage. On the negative side, you could say it has been a less favorable project mix within equipment. Different type of equipments have different profitability. In this quarter, we had a mix that acted in a negative way, queue on queue. And then we see increased R&D. We continue to invest R&D. We are around 4% overall for the group, and we continue that. Now, on the marine services side, we also see continued good development. Book to bill above one in all the service revenue streams. So you can see a quarter and quarter up 12%. And this is a graph that we intend to use going forward, the right one, when we will talk about the book to bill for the different service disciplines. So we have the field service, we have retrofits and upgrades, we have spare parts, and we have service agreements. And as you can all see here, all of these disciplines, they are above one, which continues to fuel the growth in the services. If we look at energy, the comparable operating results increased, and we do see a strong growth in order intake, both in engine power plants and in energy storage. So order intake up 54%. Net sales up 14%. And we do see a step up in the comparable operating results. Positive drivers also here. Higher service volumes. Also the continued shift from EPC to EEQ. From the civilian installation complete responsibility to more of equipment responsibility. And we do see a very positive trend in project execution in energy storage and optimization. Great work being done. Now, if we zoom in on storage, the comparable operating result, 12 months rolling as we look here in storage, continued to improve. It's now at 4.2%. We also noticed the order intake. It was fantastic in Q4. It was not so fantastic in Q3. And we talked about that. There are big orders and there's a little bit of periodization between the quarters, but Q4 came in very strong. I think also this should be noted going forward, that this is a project business, so order intake can be a bit lumpy. But overall, a positive development and a very positive trend for continued journey of improved profitability. And also on energy services, we see continued good development. Also here, we have a book to build above one in all the service revenue streams. Q and Q, 11% growth and similar visualizations here of these four disciplines. And you also see all of them are above one. So good continued growth. Now, we continue also to work with the business units in our portfolio business, and we are continuing our journey of becoming a more focused company as we will be divesting our ANCS, our automation, navigation, and control system business, to Solix, Solix Group AB, which is a Swedish private equity firm. ANCS is a global leader in innovative hardware and software technologies for marine navigation and automation. We acquired ANCS in 2015 as part of Marine Systems International. It was an overall acquisition we made then. And just to give the magnitude of the business as it is today, in 2024, the annual revenues of ANCS was close to 230 million euros. So subject to approvals, and we expect to close this transaction in the second quarter of 2025. So here we have the bridge, the Q on Q bridge from 23 to 24. We go from 10.8 to 11.3. You can see marine is coming down a little bit. That is a new build mix. We see continuous improvement on energy side. And also on portfolio business, also encouraging to see that the profitability is developing. We talked about portfolio before. We are turning around the business units, and then we are divesting. So you see the concrete proof points here. Other key financials. Arjan, please.

Thank you, Håkan. Looking at the other key financials, basically all of them improved from Q3 to Q4, as well as, let's say, they improved from, let's say, year-end 2023 to year-end 2024. Our strong cash flow performance continued actually in the fourth quarter. Out of the full-year operating cash flow, 36% was generated in Q4, and out of the full-year net cash flow, actually 44% was generated in Q4. The good cash flow in Q4 supported basically to reach an all-time high cash flow of 1.208 billion that you can see on the slide, breaking the previous record, which is actually also on the slide, which is actually 2023, 822 million euro. The good cash flow was supported by both, let's say, improved profitability, as well as, let's say, the good activities that we have done over time to reduce further on our working capital performance. If we look at working capital to sales ratio on the right side graph here, up to the end of, let's say, 2023, you could say we had been running on positive working capital to sales ratios. And if you go longer back, it was even higher percentages in those years. But since 2023, end of the year, and going into 2024, let's say this working capital reduction continued. There are many, let's say, underlying actions that supported this development, actually. And just to name a few, for example, order intake in new-built agreements and service projects, retrofits, you could say, is clearly growing. And in those revenue streams, you typically have good down payments, and you have also often also, let's say, midterm delivery payments. And that clearly supports working capital. Just to give a few numbers, let's say in the last two years, new building order intake increased 1.2 billion euro. And service projects only in the last year increased 28% actually on order intake. Another good example is the one stock location that we have nowadays for manufacturing stock. Instead, earlier we had, let's say, Trieste and Vasa. Now everything is concentrated in Vasa. And it gives, of course, good opportunities to further, let's say, optimize stock levels, supporting working capital development in a positive way. Finally, I also want to mention the shift that we have seen over the past years from EPC, so turnkey projects basically, to equipment contracts, in particular in energy. Because EPC contracts typically tie working capital longer, and of course if you shift more to EEQ, then you have a positive effect in the working capital. Just to give a few numbers here as well. In 2022, engine power plants, for example, 70% of the net sales was EPC. Last year it was only 20. Another point is the receivables, overdue receivables as a percentage of total trade receivables. We went five percentage points down in last year, from 28% to 23%. Clearly, again, contributing to working capital. And there are many more actions like this. While many of these actions are sustainable, I would not believe that, let's say, this level of, let's say, what we have currently is a long-term sustainable level. I do expect that the line, the orange line that you see here on the right side graph, will, let's say, go up again, let's say, at some point of time, because not all the parameters in the actions that I mentioned just a minute ago will always stay like this. For example, there might be a shift in the ratio between EPC and EQ. Supply chain finance, which also contributed with 100 million euro in last year, depends a bit on which suppliers are you use. Are they part of supply chain finance? Yes or no. So not all the parameters will stay the same. Our anticipation is that, let's say, we will still, let's say, for the coming year, perhaps even a bit longer, stay on a negative working capital level. But the line will gradually go up. Final slide from my side. The board will propose to the AGM 44 cents of dividend, which is in line with our financial targets of paying 50% of EPS out as a dividend. In this case, it's 52%. Over to you, Arkan, on the prospects.

Thank you. So if we look at the prospects and the demand environment, we have a similar view on both marine and energy, and that is that the demand environment for the next 12 months will be better compared better than the comparison period. But then we add a separate comment, and that is, I think we all see it, we underline that the current high external uncertainties make forward-looking statements challenging. Geopolitics, tariffs, etc. So, with that, we move over to Q&A.

Thank you, Håkon. Thank you, Arjan. There is a possibility to ask questions via the chat, but we will start with the questions coming from the line. So handing over to the operator, please.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad.

There are very few questions this call. For the lines to be fixed. So could you please give us a bit more color on orders in energy storage and what are the margin trajectory there?

So we don't guide on margin. However, I would say, as I said before, very strong order intake in Q4, but it was also weak in Q3. So you need to consider it with a periodization type of framework, so to say. Underlying, I think the growth trend is still there. I mean, there is a lot of activities in the balancing space and certainly in the battery storage space. And I would say in many markets. So the underlying growth trajectory is is good. And also credit to our team, because I think they have proven that they are continuously improving their profitability. We continue with the strategy that we have set, which is a selective strategy. We focus on certain geographical markets, but also certain customer segments, which kind of likes the attributes that we are offering in terms of assurance of delivery, delivering on time with quality, good execution, thermal stability. We continue to have a spotless thermal track record, no fires in Wärtsilä storage so far. Also our power system knowledge and power system DNA. And we are many times not the cheapest on CAPEX, but if you look at the overall what we can offer in project execution, in terms of stability, predictability, These type of customer segments, it's strong and there are further growth opportunities.

Thank you, Håkan. Then another question from the chat. Could you please give some color on the impact of potential tariffs, especially on the energy division?

So just to make it complete, if we start with marine, we see very limited potential impact because, as we know, most of the shipbuilding capacity is in Asia and very little in the U.S. so far. And similar on the services side, most of the services is outside of the U.S. So it's more in relation to energy where tariffs could have an impact on our business. I would say that with the current dynamics, and I think we We follow it on a daily basis. The world follows it on a daily basis. With the current dynamics, it's very hard to predict where this will land, so to say. So we're monitoring it closely. But it's very hard to predict the impact.

Thank you, Håkan. Then handing over back to the operator, continuing with the online questions, please.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Akash Gupta from JP Morgan. Please go ahead.

Yes, hi, good morning. My one question is a follow-up to your tariff answer. Can you provide some color on how much of your energy backlog is coming from the U.S., and how much of your current service business in energy is coming from there, so at least we have some idea of how much impact we should expect from potential tariffs? Thank you.

So if we talk about all the backlog, and I will not break out the numbers for competitive reasons, but the U.S. is a very important market for our energy business. And the last years we have grown quite a lot on balancing, both on thermal and storage side. But if we look at our existing backlog and the contractual setup that we have with our customers in terms In terms of Incoterms deliveries, in terms of the overall setup, there is very limited impact on the backlogging in energy. So when I say that we follow the situation very closely, it's more with the perspective of future orders. Could there be an impact there? As I said, we still see orders coming in, but with the current dynamics, it requires a lot of attention.

Thank you.

The next question comes from Antti Kansanen from SEB. Please go ahead.

Hi, guys. Antti from SEB. Thanks for taking my question. And that would be on profitability and the backlog mix for 24 deliveries and maybe especially on the marine business. I mean, we saw quite modest earnings leverage and margin improvement now on Q4, and you flagged a little bit of a less favorable project mix. So I just wanted to understand better, how should we think about margin expansion, especially in the marine business in 25, I mean, when you start to deliver the backlog out?

Yeah, I think I explained it earlier as well, that let's say the... Of course, let's say more volume brings more leverage. And I do believe that there is more room to improve on that as well. Having said that, let's say one element is leverage. The other element that also contributes heavily to the profitability is, of course, the mix. That cannot be denied. Let's say it's the mix between service and new build, but also let's say what Håkan was reflecting upon earlier. Let's say not every new build order has the same margin. It depends on which market are you, how unique are you, how good can you negotiate, how much do you differentiate from your competitors, etc. So it's a combination of, let's say, project mix, but then also, let's say, cost management. And that, of course, relates to leverage as well. But I do believe that, let's say, we can do more. Let's say there is, of course, with increased load, which we also can see in the factories, your efficiency goes up. And I think that will pay back for sure.

Yeah, I fully agree. And the underlying trend is positive.

Yeah, I just wanted to understand, like on Q4, was the mix especially weak now on 24 or was the comparison period very strong?

I think it was a little bit weaker, you could say, than normal. Yeah. In Q4, let's say 24.

All right. Thank you. I'll get back to the line.

The next question comes from Sean McLaughlin from HSBC. Please go ahead.

Good morning, and thank you for allowing me to ask a question. Just one, understanding, just coming back to your offering in energy, I mean, how does this fit with the baseload opportunity in the US from data centers? I've always understood that that your offering was about peaking power. So just anything you can tell us on how the economics stack up versus heavy-duty, medium-duty gas turbines or other baseload power. And again, thinking again around the tariffs, how we can quantify the economics may be impacted. Thank you.

So, I mean, in terms of our baseload in the U.S., I would say, if I simplify it a bit, it's a lot about remote operations. So when the grid is not strong enough or you have big industries that needs a lot of power, like mine, cement factories, et cetera, and they need to provide their own power. So these are classical baseload applications for us in the U.S., but also other parts of the world. Now, if you compare our engines with the aeroderivative gas turbines, our fuel efficiency is better. And I would say our thermal performance, you know, how we perform when it's hot, et cetera, we need very little water. There are a number of areas where we are better. But what decides which solution the customer chooses, it depends on, you know, legacy, but also CapEx versus OPEX thinking. When we look at data centers, it's very similar to those type of remote baseload applications that we have already today. Then coming back to tariffs, I think this is very, very hard to predict. If you look at our industrial setup, we are exporting engines from Europe to the US. So there you see we have a supply base that is fairly European centered. We do have some supply from the US as well, but the gravita is in Europe. But how this if there will be tariffs, if which custom classes would be affected by those tariffs and how this will play out, it's I would say it's impossible to predict.

Thank you.

The next question comes from Pony Leighton Markey from Danske Bank. Please go ahead.

Hi, I just wanted to ask about the EBIT margins and the 12% target. So do you think that could be within reach in 2025? And directionally, how do you see this improvement kind of coming divisionally? So Marine is already almost at 12%, energy is a bit below, and portfolio business a lot below. So I mean, directionally, which one will be the biggest driver towards 2012?

It's a good question. Let's say we are not guiding on time, but let's say I would say it's near. And as you can see from our trajectory, let's say we are improving strongly. So, yes, I think it's not far away.

And in terms of major drivers, it's the same waterfall that we've been talking about in the CMD services, both in energy and marine continues to be a major driver, both of top line and profitability. We have the improved profit margins on the marine new builds with the new fuels, et cetera. We have power plants coming back, improving profitability, storage, improving profitability. The whole voyage, you might remember our voyage division. Now we have divested ANCS and the rest that we are keeping, we're also improving profitability. There you have some of the major drivers.

But the key driver is clearly service. Moving up to service value later.

Thanks. Can I just ask a follow-up? If you conclude the review of energy storage, will you kind of revise the targets when you do that?

So thank you for bringing up the strategic review. So I will answer your question, but first I want to just come back to the strategic review. It's still ongoing. It's still the same narrative. We have grown the business. We see the profitability is improving as well, which is really good. But we are still looking at what's the best way to support our customers and create shareholder value. We are looking at different ownership alternatives, everything from keeping to fully divesting. And this takes time because we are exploring different avenues. We clearly understand that you as analysts and many of our external stakeholders would really like to know what is the conclusion. But we are not there yet. We are still working on it. There is actually quite a lot of work ongoing. But we will not be able to do it until we are ready and the final decision has been made. So we will have to come back on that.

Thanks. The question was really like, when you do that, do you kind of touch the margin targets or will that happen later?

And that is depending on which avenue, what is the outcome of the strategic review. So we don't rule out any, I mean, it could be yes, it could be no. So it depends where we land on the review.

All right. Thanks.

The next question comes from Tommy Raylow from DNB. Please go ahead.

Hello, everyone. It's Tommy from DNB. Also a question on the profitability. Did you improve the profitability in both service and equipment last year, and are you profitable in the equipment side?

We will not, let's say, break down, let's say, our profitability, as we have not done that earlier as well. Yes, we are growing profitability on both equipment side as well as on the service side, but it depends very much on the mix as well. And let's say if you take service, as I've been saying before, let's say the highest is spare parts, and then let's say the other ones are on the lower level, and of course the mix between those makes the overall service mix, let's say margin percentage, go up or down a little bit. But overall, I would say we are continuously optimizing our processes, enabling also, let's say, smoother operations, smoother execution of orders. And that, of course, comes to the good of the margins.

And this, if I may compliment, I hope you notice how we have now updated how we visualize the order intake on our services side, both in marine and energy. And you see the four disciplines there. And you see how they go up and down, quarter on quarter. And this is still its 12-month rolling. This is kind of the challenge. But you also see the overall trend. weighted all together. And I think that reflects the whole service business. Book-to-bill is certainly bigger than one. And to Ian's point, continuous improvement. We are step-by-step improving profitability.

Thank you.

The next question comes from Mikael Dopel from Nordea. Please go ahead.

Good morning, everybody. Just coming back to the tariffs, I understand that it's very difficult to predict what's going to happen. Just wondering, you previously said that the technologies that you provide are basically not available in the U.S. And I'm wondering if this could lead to some sort of redemptions if there were any tariffs coming into place. We have seen this or heard about this in some other equipment businesses where you don't have similar technologies offered by, let's say, local producers in the US. Do you have any thoughts around this?

So if I understood, because the sound was a little bit bad here, so I might have misunderstood your question. But I mean, it's definitely true that if you look on our type of large bore, midsize bore engines, this offering is provided by suppliers. that today do not have any final assembly in the US. So that is correct. Now, then, you know, what implications you draw out of that, as I said, is very, very hard to do. It's far too early. And there is so much dynamics these days. okay and then secondly i would say sorry if i may compliment um i mean as you know in the energy space we consider the major competitor technology is is the gas turbines and both siemens and ge of course they have final assembly in in in the us but they also as far as we understand have an international supply chain how that plays out for them you have to ask them And the fundamentals of our solutions in terms of, you know, our strengths on our technology, flexibility, you know, fuel efficiency, no need for water, et cetera, that remains. And these are the fundamentals we compete with.

Right. Okay. Well, that makes sense. Got a question on capital allocation. So you've got very strong cash flow now in 2024. You have a net cash position. How do you think about that going forward? Could you consider some buybacks or extra payouts? I mean, it doesn't look like the budget is becoming forward capitalized, to say the least.

I would say our capital allocation principles don't change. For sure, we want to meet, and we also, let's say, have that in the proposal to meet 50% of EPS payout as dividends, so that's definitely one. I think our R&D spend will remain on a higher level than, let's say, what we have, let's say, if you take long-term historical levels of 3% of sales. Last year, we ended 4.6% of sales. I think it will be in the 4-point-something percent also, let's say, this year. Clearly, let's say, we need capital for that. Then, of course, we are not, let's say, blind for acquisition either. We need to monitor the market and look at, let's say, investments potentially that could make our position even stronger. I mean acquisitions that could make our position even stronger. Today, there are not many big items on the horizon. I think we have said before also that, okay, MEN2 stroke is an interesting option if there Okay, we will certainly look at it. But otherwise, I think it's more like, let's say, smaller bolt-ons. Yeah, I would say those are the key principles that we have been communicating, and I don't think they have really changed.

Okay, fine. And just finally, if you could give a bit of an update on the carbon capture systems and, you know, what's the latest on that front. You have been piloting. You are going to commercialize the product. What is IMO saying? What are the customers saying? how does the infrastructure live, and so on.

So an update on Carbon Capture. I mean, we are doing pilot testing as we speak. We will do a commercial launch this year. So the technology is ready. There is a lot of interest from potential customers. Now, you could say the ecosystem around Carbon Capture is certainly still evolving. What we bring is one piece of the puzzle, so to say. We bring the... you know, the extension of a scrubber business where you capture the carbon and you can store it on the vessel. But then, of course, when you bring it to shore, what do you do with it? I mean, you put it back in some well or you use it as a raw material for, you know, new fuel production or whatever. This whole ecosystem, there are still a lot of development and you know, evolving thoughts around that. But we do see a strong interest from from customers. I would say it's the in the technology, the fusion curve, the classical one. It's, of course, the early adopters, the pioneers. These are the people that we are talking to now. But there is there is a strong interest. Let's see how this evolves. I mean, we have said for us, we consider this to be a €10 billion opportunity over ten years. So that's also the timeframe. It's not queue on queue, so to say. Let's see how it's evolving. Then coming back to your questions on how is the regulatory discussion evolving, I wouldn't say we have deeper insights in that than anybody else. There is certainly discussion both on IMO level and also in Europe. Let's see what's the outcome, because that will certainly be important for the continuation of carbon capture as a technology.

Got it. Thanks.

The next question comes from Akash Gupta from JPMorgan.

Thanks for taking my follow-up. I have one on marine services. So last year, you saw some benefit from red sea disruption, and I'm just wondering if If you see any headwind this year, if we get some peace in the Middle East and flow of vessel again through Red Sea and Suez Canal, that can reduce the requirement to travel far away. And on the same topic, is there any way you can quantify the positive impact that you may have seen last year so we know how much of this can potentially reverse when the situation normalizes? Thank you.

So I would say let's first hope that there is peace in the Middle East and that ships can start sailing through Suez again. I think the world would benefit from that. Now, yes, our service business have supported by the longer routes. that our customers needs to take. And we haven't quantified it. I don't think we will do it. I wouldn't say it has a major impact on our growth narrative for services. There is some positive, but it's not major.

I think to complement on that, it might lead to overcapacity in certain vessel types, like container vessels or car carriers, et cetera. And typically in those ship types, let's say we have auxiliary engines. But if that overcapacity would occur, it's very likely that there is a very old part of that fleet as well, that that will be dismantled first. And in those older vessels, we are typically not in.

The next question comes from Daniela Costa from Goldman Sachs. Please go ahead. Daniela Costa-Goldman Sachs, your line is now unmuted. Please go ahead.

Unfortunately.

The next question comes from Antti Kansanen from SEB. Please go ahead.

Yeah, hi. I had a follow-up question on the energy storage side. And when we look at last year's full-year orders, I mean, on the megawatt-hour terms, there's a big jump up from the previous year and the level that you have been. So does this impact the delivery times and backlog rotation from orders to sales? I mean, how much you expect to book in 25? Or is it just the same number of projects, but they are just in scale larger ones?

So the major dynamic that is at play here is, of course, the decreasing prices on batteries. So for the same amount of dollars or euros, you deliver a lot more kilowatt hours.

About 40% down.

So that's a major mechanism that is at play here. The other thing that is happening, and I think we kind of alluded to that, our projects are getting bigger and bigger. which of course also increases the lumpiness. Now, Q3 to Q4, I think we saw some extreme lumpiness, but I do think we will see some lumpiness going forward as well. But coming back, the underlying market sentiment for storage is very positive if you take a global perspective.

Yeah, I understand the pricing dynamic, but my question was that on volume terms you are taking more deals or bigger deals, will that lengthen the delivery times? I mean, how much of those orders that you took last year will be revenues this year? Are they longer projects or just bigger ones?

I would say, to simplify, they're bigger ones rather than longer ones. Of course, it's a grayscale in this, but it's not like when we take a big one, you get another two or three years of delivery time. So it's really that you're delivering more within approximately the same timeframe.

And then thinking of the profitability, I mean, the business in volume terms is much bigger. And if I understand correctly, lower prices are largely function of pass-through items. So is this margin accretive? that the volume of, let's say, a single project or the order intake has grown. This is a big driver for your margins going forward.

Now, I would say I would look more at what type of customer, which geographical market. I mean, we talked a little bit about this before. You know, you cannot, there's a huge storage market out there, but you need to segment the market. And some customers are very CapEx oriented. I wouldn't say that these are core customers. Also, we are not the cheapest on CapEx. We are more attractive for the customers that want, you know, is peace of mind and execution, thermal stability. And you can see how we are executing and the profitability, how it has evolved. And I would say that with the focus we have, we clearly aim to continue that journey of improving profitability.

Thank you.

The next question comes from Pony Leighton Markey from Danske Bank. Please go ahead.

Hi, thanks for taking my follow-ups. I have two. First on the networking capital. So you have been flagging that it's probably an unsustainable level, but it's been going up. So could you kind of be more concrete? Do you think this will happen in 25 yet and to what magnitude? And is there like a number as percentage of sales that we should assume it to kind of reach at midterm?

I will not. Let's say we are not guiding on working capital. Besides that, let's say to guide on working capital is really, really difficult. because there are so many moving parts in the working capital. But like I explained, let's say there are many good actions that, let's say, I mentioned earlier that they are sustainable, but not everything is sustainable. Let's say if you take, let's say, the EPC-EQ mix, it might be different, let's say, this year than compared to what we saw last year. If it moves more back again to, let's say, 10% or 20% more on EPC, yeah, that has an impact to working capital. The same goes with, let's say, your negotiations with customers. Let's say if your solutions are unique, you can differentiate. You can have a better price. You can have better payment terms. Let's say negotiation with customers is not only one thing about price. It's also about payment terms, warranty terms, all kinds of other terms and conditions. that we have been able to get very good payment terms today, or you could say improved payment terms today, is no guarantee that it will happen in the future also. So I think there are many dynamical parts that are not given as a a sustainable item. Let's say the one stock location that I refer to, that's of course sustainable. But let's say there are also moving parts. So what we see at this point of time, or what we believe that will happen at this point of time, that we are probably at, if you take ratio working capital to sales, we are probably at the lower point. And from here on, it's likely to go up. I don't think, as I mentioned, that 2025, we will end up in a positive ratio, but it will be less negative.

If I may compliment, just so we don't create confusion, I do agree with you, the shift, the mix between EPC and EQ, it might vary a bit. But just to clarify, the strategy of having less EPC and more EQ, it's still there, but there might be some minor variations around that.

Just to clarify the language. We will not go back to 70% EPC.

Exactly.

That was my point. I agree.

Okay, thanks. Then just a question on order book and the deliveries. If there is any more color that you can give what we expected 25. I'm assuming it's more like normal seasonality this year as you haven't commented on it like like last year.

No, let's say we have made a comment about equipment sales in the second half of last year. That's why it was a one-timer that we wanted to flag to you as an audience that, okay, this is what we see on the horizon. Eventually, it turned out to be, let's say, not so bad from a mixed point of view because of, let's say, very good service performance in the later part of the year. So actually, you could also see in our EBIT percentage of Q4. I do believe, and that we have also seen in the past years, that it's more stabilized. Let's say that the hockey stick that we have been talking about also in 2024 Yeah, there might be something, but let's say it's not anymore, let's say, what Wetzel used to have, let's say, five or ten years ago. Then it was always a hockey stick in Q4. We had typically very low EBIT margins in the first part of the year or the first half of the year, in the first quarters. And then it came up again, let's say, in the second half of the year. I think the future will be more stable. And that is also due to the fact that, let's say, we are growing our service business very well. Say, the book-to-bill ratios we have been talking about a lot, and that puts a very stable foundation under our profitability as well. If you look at last year, 53% of our net sales was service. The year before, it was 52%. And I believe that gives a very solid fundament to also profitability stability. And also during... the year, let's say, the service is much more stable, where the equipment sales is much more, let's say, fluctuating through the year. So it depends very much on delivery schedules of equipment sales. But also here, I feel that the trend is more to stable than to, let's say, these big fluctuations. We will always have fluctuations, in particular for big orders in storage, what Håkon was referring to earlier as well. But it gets more stable.

All right. Thank you.

The direction.

Then we will continue with a couple of questions from the chat. Can you give us some color on energy storage market share development in the last year? What is your strategy in terms of market share for storage?

So we haven't set a specific market share target. The market overall is growing. I think we have been growing slower than the overall market because of our focused strategy. Still, we see ample growth opportunities also for our core business. But we haven't set specific percentages on growth.

Thank you. Then question about EPP capacity. What do you think about your EPP capacities in megawatt terms? You have historically been able to deliver 1,500 megawatts in a year, but since closing the Trieste, how does it sit now? What could this ramp up to if demand materially picks up?

So I would say we are not concerned about bottlenecks, neither in SDH, in our sustainable technology hub in Vasa, neither in our Chinese factories. We are not concerned about bottlenecks also in our supply chain. I think from a delivery situation, we are in a very good position, good delivery times, especially the gas turbine side. I think they are struggling a little bit with their lead times. We are maintaining our lead times. And I think we have an industrial system that can scale. With the investments that we have made already in SDH, it's a fantastic facility. Many of you have been there. If you haven't been there, please come. And we can really scale in that facility and also scale with the supply chain.

Then one more question about data centers. We are hearing more of data center customers looking to gas engines for baseload power, given supply constraints of gas turbine manufacturers. Are you in conversations with these larger US customers? Would you be ready to supply into that market without a partnership such as AVK in Europe?

So I won't go into details of who we would partner up with and not partner up with. But I can confirm that, yes, we are in dialogue with quite a lot of different stakeholders that is looking for power for data storage in the US. And we continue also our cooperation with AVK in Europe. So a lot of excitement is ongoing. But of course, it needs to go from excitement and talk to concrete orders. It will come, but timing we will see. The underlying sentiment is positive.

Thank you, Håkan. Thank you, Arjen. And thank you for all of the good questions. We will publish the Q1 results on April 25. And before that, we will host a couple of IR events, including CEO Strategy Call and Pre-Silent Call together with Arjen. Also a great opportunity to visit our site in Kampen in the Netherlands. So please follow our IR calendar. Thank you.

Thank you very much. Thank you.