Wartsila Corp B Shs

Good morning, and welcome to this news conference for Wärtsilä Q3 2025 results. My name is Hanna-Maria Heikkinen, and I'm in charge of investor relations. Today, our CEO, Håkan Agneval, will start with the group highlights, continue with the business performance, and after that, our CFO, Arjen Berens, will continue with financials. After the presentation, there is a possibility to ask questions. Håkan, time to start.

Thank you, Hanna-Maria. Thank you, and welcome, everybody. and this quarter was a good quarter actually and and we are moving in the right direction but it's also quarter where you need to look a little bit under the hood and i mean first of all operating results and cash flow increased Order intake was stable at around 1.8 billion euro. But if you look at the organic growth, it's actually up 6%. And also, if you look at marine and energy specifically, you see that marine order intake was actually up 8% and energy order intake was up by 29%. The challenge, and I come back to that, is on our battery business, our energy storage business, where the order intake in Q3 for new equipment was basically zero. But marine and energy growing in a good way. This also leads to a strong order book of 8.6 billion euro. Net sales decreased by 5% to 1.6 billion euro. But also there, this is driven primarily by timing of deliveries and energy. So the deliveries and energy will be tilted to the fourth quarter. I'll talk more about that later. Comparable operating results increased by 10%. So we continue our journey to reach our financial targets. And we are now at 11.9% of sales. Operating results increased by 20% to 230 million euro, which corresponds to 14.1% of net sales. And items affecting comparability amounted to 35 million euro, mostly related to the divestment of ANCS. On services, our group service book to bill ratio continues to be well above one. And cash flow, I will come back to that. We have a strong cash flow from our operating activities of 340 million euros. Now, let's look more into the details of the numbers. So if we start with the quarterly, the Q3 results. So order intake, as we talked about, is actually down a percent. But as I said, if you look on organic growth, up 6%. You're also seeing the growth in marine, 8%, energy, 29%. If we look at the net sales, it goes from 1.7 to 1.6 billion, down 5%. But as I said, it's majorly related to periodization of sales in energy. And I will come back to that. If we look at book to bill, so we continue with a good book to bill above one at 1.1 this time. And I think this is the 18th consecutive quarter in a row where we have a book to bill above one. Comparable operating result, 195 million euro, up 10%, and we are now at 11.9% of net sales. And the operating results, 230 million euro, up 20%, and now at 14.1% of net sales. If we look at the year to date, I think there are two figures that I would like to highlight. Our order book, which is up to 14%, up to 8.6 billion euro. And also our continued improved comparable operating result up 18% or going from 10.5 to 11.7%. Solid path to reach our financial targets. Looking at our two industries, if we look at the marine market, we see a moderating demand for new builds, but still in line with the 10-year average. And then if we look at advanced core segments, strong ordering across crews, containers and LNG bunkering vessels. So, the number of vessels that were ordered in Q3 decreased to 1,200, down from 1,700 in the corresponding period last year. The regulatory uncertainty, high new build prices and softer market conditions affected negatively the new build investment demand in some segments. Ordering has, though, been uneven across vessel segments, with continued strong ordering appetite in vassaless key segments, crews, container ships and LNG bunkering vessels. And contracting in our key segments is expected to remain clearly above the 10-year average level, with the latest forecast actually indicating a 30% increase in contracting volumes between 2025 and 2027. Shipbuilding continues to expand, primarily in China. And in January to September, 259 orders for new alternative fuel-capable vessels were reported, which accounts for 48% of the capacity of contracted vessels. On the energy side, the increased demand drives investment in the energy transition. And the global energy transitions continues to move forward. And EAA, E-A-A, E-A-A? IEA, sorry for that, International Energy Agency, not so easy to pronounce this morning, expects renewables, grids and storage investments to post another record high in 2025 and investments in fossil fuels to decrease. BNEF reported that both wind and solar investments grew in the first half of the year compared to H1 in 2024. Energy-related macroeconomic development in 2025 has been heavily impacted by elevated risks in the geopolitical environment. In our engine power plants, market demand for equipment and services has been strong. Demand for baseload engine power plants is expected to remain stable with further growth opportunities in data centers. The drivers for engine balancing power plants continue also to develop favorably. In energy storage, though, the demand is closely linked to the increasing share of intermittent renewables, which on one side continues to progress slowly. However, the U.S. market is facing headwinds in the regulatory environment, though several drivers remain solid and actually also on the storage side now with data centers as a potential new opportunity. Going through the numbers, organic order increase, as I said, organic order intake increased by 6%. Order intake overall remained stable. Marine order intake increased by 8%. Energy order intake increased by 29%. But energy storage order intake decreased by 79%. Equipment order intake remained stable and service order intake remained stable. If we look at the order book, we have a strong order book. Rolling book to bill continues well above one. We see the trend. We also see that the order book is building up further and further into the future. So that is something to recognize. Organic net sales remain stable. So net sales decreased by 5%. Marine net sales increased by 18%, energy net sales decreased by 30%. And this, once again, it's driven by the periodization of deliveries between quarters. And we do expect that deliveries during the second half year will clearly be tilted in energy to the to the Q4. Also, as you know, we have more and more equipment contracts moving from EPC to equipment, and equipment contracts, to make it simple, they are invoiced when they're delivered. EPC is a little bit more smoothened out. So you can also see this as one of the consequences of that we are actually moving our gravita to equipment business. Energy storage net sales decreased by 10%. Equipment net sales decreased by 11%. Service net sales remained stable. Profitability continues to improve. So net sales, given the context, decreased by five, but comparable operating results increased by 10%, and comparable operating margin, 12-month rolling, is now at 11.6 compared to 10.6%. On technology and partnerships, so we continue to shape the decarbonization of marine and energy. The energy example, 217 megawatt dual fuel power plant to deliver reliable power for Kentucky residents. So we will supply the engineering and equipment for a 217 megawatt power plant in Kentucky in the US. The plant is needed to provide additional grid capacity, thereby helping East Kentucky Power Cooperative to meet increasing demand. And this order was booked by us in Q3. On the marine side, we continue our close collaboration with Vasa Line. And now we will together deliver the world's largest marine battery hybrid system project. So we have been selected as the electrical integrator for a major battery extension project for the Vasa Line rope-axe ferry, the Aurora Botnia. When the project will be finished, it will be the world's largest marine battery hybrid system in operation, close to 13 MWh. And the Aurora Botnia operates with a range of Wärtsilä solutions, including four highly efficient Wärtsilä 31DF engines. And this order was also booked in Q3. Marin, and here we have a fantastic picture of a fantastic Finnish icebreaker. We are very much close to this segment. Half of the world's icebreakers actually have engines from Wärtsilä. So exciting opportunities also in the dialogue between the governments of Finland and governments of the US. Marine, so increased order intake, net sales and comparable operating results and continued growth in equipment order intake. So we see overall order intake up 8%, net sales up 18%. And we do see also the continued improved profitability margin. The drivers in the bridge for the profitability, higher service and equipment volumes, better operating leverage and on the headwind. It's increased R&D costs. We keep on investing in our future and being a technology leader in our space. If we look at the service business, overall marine service book to bill, well above one. Strong growth in service agreements. However, in this quarter, we saw reduced ordering and taking retrofits and upgrades. So... To the left, you can see 8%, I would say, solid cargo growth in the marine service business. On the right side, you see the different disciplines of our service business. You see the service agreement curve accelerating in a good way. We now have about 30%, 34% of our installed fleet under service agreement. The renewal rates continues to be above 90%. Good progress. You also see the retrofits and upgrades coming down. But as we talked about before, retrofit and upgrade, that's a project business and it can be a bit bumpy and it's lumpy by nature. And we have a good pipeline in front of us, that I can say. Energy, increased order intake, lower net sales due to the timing of the deliveries. But continued growth in equipment and service order intake. So on the order intake side, up 29%. And this quarter, we haven't had a data center order. You remember, we had our first US data center order in Q2. However, there is an exciting pipeline of data center opportunities in front of us, various stages of maturity. So there is a good pipeline coming. Net sales down 30%, driven by the periodization. Comparable operating results. The percentage is moving in the right direction. And if we look at the drivers, the higher service volumes clearly contribute to the profitability, but lower equipment sales in this quarter is of course a drag. And also here we continue to increase our R&D investments to be a technology leader for the future. If we look at energy service business, the book-to-bill also continues to be well above one. Strong growth in service agreements also here. However, also in energy, reduced order intake in retrofits and upgrades. Here you can see also a solid service business, CAGR, 7% over two years. Also, it looks a little bit similar as marine. There is no correlation why this coincides, marine and energy. It's a coincidence. But you can see agreement is continuing to go up. Also in energy, around 33-34% coverage. Also the renewal rate on agreement above 90%, so very positive. We see the retrofit business clearly being down in Q3, but also here we have a good pipeline in front of us. So energy storage, which of course on the order intake was challenging in Q3. So order intake low due to the US tariffs, regulatory changes, and also increased competition. On the positive side, really strong profitability in Q3, 6.9% EBIT, real EBIT in Q3. I think that's a strong delivery by the team. But of course, order intake coming down 79%. However, I want to highlight The press release we made yesterday where we took our first order in Q4. So we are also very clear that we do expect order intake to pick up in Q4. Net sales down 10%. The operating margin continues to develop in a good way. And if we look at the bridge, on the positive side, really solid product execution. We are delivering on a backlog in a very good way with a great risk reward and with happy customers. We also have higher service volumes. So the service business is, of course, smaller than for the rest of our bachelor business, but it's growing. And then on the negative side, we are investing, you could say, in growing. And that's part of our strategy that we have communicated in the past, that we will expand on geographical coverage. So we are increasing headcount, supporting the new markets, new customers and the products. And here you have the bridge, Q3 24 to Q3 25. And I think really good development. Marine going from 10.4 to 12.4% EBIT. Energy from 13.6 to 15.9. Energy stories, as I talked about before, from 4 to 6.9. And then portfolio business from 9 to 6.8. But that is primarily driven by ANCS, which has now been divested. So we have taken that out. And that business contributed profitably in a profitable way to portfolio. So comparable operating results increased by 10%. Other key financials, Arjan, over to you.

Thank you, Orkan. If we look at the other key financials, also very positive numbers in general. First of all, cash flow, clearly a very strong cash flow in Q3. It was at least the highest cash flow in the last 15 years. We did not go further back, but 340 million euro clearly A good number taking us close to 1 billion euro year to date. Good support in the cash flow from profitability, but also clearly from working capital. Working capital at the moment approaching, let's say, 1.1 billion euro negative, which is also an all-time low. Net interest bearing debt clearly moving also in the right direction, 1.4 billion at the moment, negative. And return on capital employed, ROSE, clearly improving from 44.6% at the end of Q2 now to 51.1%, so over the 50%, which is really remarkable for us as a company. Gearing, clearly going also in the right direction. We have been running this at a negative number already for a long time, well below, let's say, our financial targets. And solvency also clearly improving now with improved profitability. Earnings per share, both on the quarter as well as on the year-to-date, clearly ahead of last year at the same time and the same quarter. If we look at the trends, cash flow as well as working capital to net sales ratio, both are moving in the right direction. If we look at the dotted line on the right side graph, working capital, or let's say five year average working capital to net sales ratio, Every quarter, we are, let's say, lowering the line, basically. At the end of Q1, it was 2.4. At the end of Q2, it was 1.3 and now 0.1. So we are very close to a negative line here as well going forward. And actually here, I also want to comment that we anticipate that, let's say, this negative working capital will sustain the next years. Looking at our financial targets and the progress there, if I start at the left side top graph, marine and energy combined, organic growth plus 13%, well above, let's say, our targets of, let's say, 5%. So, really going in the right direction here. Same for profitability. Percentage at the end of Q2 was 13.1, now 13.2. So, it's again... A small step this time, but a step up. If we look at energy storage, of course, growth is not there as we want it to be, given all the challenges that we had in the past quarters on that one with respect to order intake. But clearly, let's say the delivery is going very well. And also, let's say, as Håkan also explained, let's say generating good profitability from executing projects from the order book. Currently, we are at 4.2% of sales here and really within the frame of the financial targets. Group targets, I don't want to comment too much. I think gearing is very obvious. We are well below 0.5 positive. We are actually 0.5 more than negative. And dividend, we have always met our financial targets of paying at least 50% of EPS out as dividend. With these words, back to you, Håkon.

Thank you. And Rose said 50%. This is interesting.

Yes, fully agree.

Now we continue our journey to become a more focused, stable and profitable company. So we are making progress in our portfolio business divestments. So as we announced in Q2, the divestment of ANCS to SOLIX was completed the 1st of July. And in Q3, this divestment had a positive impact of 34 million euro on the result. And it's reported in the items affecting comparability in Q3. Annual revenue of the business was close to 230 million euro in 2024. So that's also a data point. ANCS did... not any more contribute to the figures in Q3 2025. And the group order book has been adjusted accordingly. So impact about 260 million euros. And on MES, as we announced in July 2025, we will divest MES, Marine Electrical System, to Vinci Energies. And subject to approvals, we expect the transaction to be completed in Q4 2025. So... Let's look at our outlook then. So for marine, we expect the demand environment for the coming 12 months to be better than in the comparison period. In energy, we expect the demand environment for the next 12 months to be similar to that of the comparison period. But here we also note that Q2 was all-time high in order intake. So we are coming from a very strong order intake in energy overall. On storage, we expect the demand environment for the next 12 months to be better than in the comparison period. However, here we really highlight the geopolitical uncertainty that particularly impacts this business. Then we also make a general comment that we underline that the current high external uncertainties make forward-looking statements challenging. Due to high geopolitical uncertainty, the changing landscape of global trade and the lack of clarity related to tariff, there are risks for postponement in investments, decisions and also of the global economic activity slowing down. All right, so that was a summary of Q3, and now we open up for Q&A, Hanna-Maria.

Thank you, Håkan, and thank you, Arjan. So now we are ready for Q&A. So I kindly ask all of the analysts to start with one question and leave the follow-up questions to the second round, 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 Max Yates from Morgan Stanley. Please go ahead.

Thank you. Good morning. I guess my first question, just starting on the data center-related business, I guess the first thing to understand, when you talk about anticipating better order intake in the fourth quarter, to what extent is the comment uh around you know data center and the energy thermal business or are you really just relating to the to the energy storage business and i guess more broadly when we look at sort of quotations and conversations with your customers i mean maybe help us understand how those are evolving versus six months ago i think there's you know there's a lot of expectation in the market that there's more emphasis on you know engine technology there's a greater acceptance of engine technology would you would you say you kind of see that reflect in your customer conversations and the number of these kind of hyperscalers and co-location companies that are kind of knocking on your door or flying into VASA? So any comment there would be appreciated.

Thank you. Absolutely. Quite a few questions, but I'll try to answer them. And if I forgot some of them, please remind me again. So just to clarify, this about, you know, energy, Q3, Q4, that is on the sales side. I mean, our deliveries, where we clearly say that deliveries and therefore sales recognition are clearly skewed to the fourth quarter. So that is not related to the whole data center. I will get to that later, but just so we are clear. So we have been clear in our communication. It's related to deliveries and we are basically saying deliveries and therefore sales recognition is skewed to Q4. I mean, it was fairly low in Q3 for energy.

Sorry to interrupt, but you do say in the release we anticipate ordering to pick up in the fourth quarter. I guess I was just trying to understand on that comment. Is that storage or is that the thermal business?

Okay, good. So first I talk about energy and I made the comment on sales deliveries and energy. That is our power plant business. Then coming to, okay, sorry if I misunderstood your question, if I talk about the storage business, energy storage business, yes, it's clearly that we expect order intake to pick up in Q4. And, I mean, it was basically zero for new build for equipment. in Q3, so it will certainly pick up at a much higher level. And a proof point is that, as I mentioned yesterday, we announced our first order for Q4, and there is more coming. And even though clearly the U.S. market is still slow, there are other markets like Australia. This order from yesterday was from Australia. And there are also other markets to support the energy storage order intake for Q4. Then moving to data center. And then I have to ask you, are you referring to data center and energy storage or data center in a thermal business?

Uh, data center in your thermal business and, and specifically, you know, the, the growing interest in engines and how that led to, you know, a rise in quotations and the number of projects you're discussing versus say six months ago.

Yeah. So we do see increasing interest in the Indian technology. You might recall this, what we've been talking about, you know, and this is a journey of, you know, I would say two years. It used to be data center sizes needing power, you know, 5, 10, 20, 30, 50 megawatts. Now the data centers are growing in size and it's The data center owners, they cannot get access to the utilities, so they need to build their own power generation off-grid. And now we are talking about hundreds of megawatts, 100, 200, 300, 400 megawatts. And this is coming right in our sweet spot. And so this market is really heating up for us. And to your question, yes, we see a lot of engagement from customer, a lot of interest. I think many customers are more and more also recognizing the benefit of the engines compared to the competing technologies on the gas turbine side, but also on the high-speed engine side. So yes, there is more activities clearly. And then if I may, just for clarification also, because we also mentioned data centers in relation to our battery business, a battery store. So then you might, what the hell is this? Now, I think what operate, I mean, the data center operators, they are also finding out there are rather big swings. And there are the big swings in the minutes region, but there are also the big swings in the millisecond regions. And here, so it's balancing power. It's the good old balancing power. And you have two tools in the toolbox for the balancing power. And in this millisecond-second region, we see an increased interest actually for battery storage to kind of balance the load.

Understood. Thank you.

The next question comes from Daniela Costa from Goldman Sachs. Please go ahead.

Hi, good morning. I wanted to follow up on energy but sort of thinking more about the margin and what you've said on sort of like less EPC now concentrates the deliveries into Q4, more skewed than in the past. Does that apply also to how we should think about margin seasonality? Should we think about sort of like a more intense concentration of margin also in Q4 than in the past in general? How does that work?

Thank you.

Yeah, I would say yes. Margin correlates with sales volume. So margin that you make on the project is recognized in the quarter that you recognize the sales. And that depends on is it percentage of completion, which is typically used in EPC contracts, or let's say on time, let's say completed contract method, which is then basically based on deliveries. So yes, when sales shift, also margin shift at the same time in the recognition. Correct?

Mm-hmm. Great. It was just for energy. I would say then that your comment skewed us on EPC.

Yes, yes. And also, let's say the EPC comment is related to energy. Marine is basically all is completed contract method.

All right. Thank you very much. The next question comes from Akash Gupta from J.P. Morgan. Please go ahead.

Yes, hi. Good morning. I have a follow-up on energy. So I think you are kind of indicating that revenue in equipment side will be strong in Q4, and this simply has to do with seasonality in delivery of equipment, which will be more in Q4 than Q3. And I just want to understand, like, what is causing this seasonality in delivery? Because I think I would assume that you would be producing these engines every quarter and therefore when it comes to delivery patterns they would be more homogeneous. But maybe if you can help us explain what is causing this seasonality and is this something we should expect every year that some periods may be more busy, some periods may be less busy on revenue or there is something unusual in 2025 that may not be repeating next year. Thank you.

I can answer that. Let's say that it's really about the delivery schedules that you've agreed with customers. And, okay, some years you have it more evenly spread. Other years it's, let's say, more in certain quarters. What you mentioned earlier that, okay, production of engines does not... um relate to let's say income recognition or sales recognition in a certain quarter it's the delivery to the customer that counts and here we follow basically what we have agreed with customers so there are clearly in every project there are delivery schedules and in this year in the second half of the year it's mostly into let's say q4 I cannot comment whether this will happen every year because that depends on the orders that you have in that particular year. But let's say if I try to put a little bit myself in the shoes of, let's say, customers, that if you build a power plant or if you build a ship and you work with percentage of completion most likely, yeah, if you want to, let's say, have an impact on your results, yeah, you want to have the delivery done before the year end if you close your financial year at the calendar year. So that might be one driver, but let's say we follow the schedules that we agreed with customers.

And maybe just to follow up to that question, does the size of project change this seasonality? Because I assume that if you have a large 200, 300 megawatt order, then you may want to ship everything in one go, which could create a bit of this pattern. So any comment on size of orders may be impacting revenue recognition profile?

Yeah, there are many delivery schedules in a certain project. It might be, let's say, shipping. Let's say if you have a power plant with 10 engines, let's say it might be one batch in this quarter and the next batch in the other quarter. It varies a lot by project. And it depends also quite much, let's say, where do you need to ship it to. So there is no, let's say, one pattern and one size fits all here.

I agree. And it's not that for certain... It's not a model where you bundle all the engines and you ship them at once. There are many different ways to deliver the engines. So normally you deliver them in stages. It's easier to handle them at site, if you talk energy, than receiving everything at once, et cetera. So I'm afraid it's much more complicated than that. And it's really related to how the customers want us to deliver, and that can vary quite a lot. Yes. Thank you.

The next question comes from Sven Weier from UBS. Please go ahead.

Yes, good morning and thanks for taking my questions. Just wanted to follow up on what you said on data centers and battery storage. Because obviously we had the announcement from NVIDIA mid-October around the next generation data centers, the 800 VDC ecosystem, which builds in battery storage kind of as a standard. So I was just curious if you were also kind of referring to that announcement and what do you need to do to be able to do business there in terms of the battery sourcing? I mean, how much have you already, you know, changed the sourcing maybe to Korea, which I guess will be in a much better starting point and China probably continues to be penalized. So that's the first one. Thank you.

So two things, I mean, I think actually that, and this is my inside out, outside in, sorry, outside in observation that I think there is a lot of learning going on on how the data centers are behaving as electric loads. I mean, you have certain data centers that are focusing on learning. Then you have other data centers that are focusing on interference, and they have completely different load profiles in terms of what energy they need and how it swings back and forth. So I cannot comment on the latest from NVIDIA, but clearly there seems, and there is an evolving understanding that, you know, for certain type of data centers, the swings can be... pretty big and pretty quick. And that leads to an interest to the energy storage side, so to say. Then coming to where we source our batteries. Yes, we certainly source from China, but we also source from other countries in Southeast Asia. We are also looking at possibilities for sourcing in the US. However, in our view, that is taking longer to move.

And would you say the largest share still clearly comes from China or how should we think about that?

The share of supply of battery cells for Wärtsilä, the biggest share is still from China, yes.

Okay, but you started to already make the shift to other regions in the last couple of quarters. Yeah, correct. And then maybe one quick follow-up on the thermal side and the discussions you have with the U.S. customer base called data centers. I mean, what is the biggest pushback? I mean, I reckon there are still predefined views that People think you don't get fired for buying a turbine, but no experiments with new tech because engines have probably not been used so much for baseload in the US. What's the biggest hurdle you find in your discussions?

No, I think the technology acceptance is certainly evolving. I mean, we have one group of customers. They are fully into engines. They see the benefits, etc. Then there are other customer types, which is a little bit more what you're alluding to. It's a new technology. But I think this is... This is how we've been selling the Wärtsilä propositions for many, many years. And we run our simulations, we show them the proof points, etc. And step by step, we convince customers. Because also in this application, there are some intrinsic benefits for the engine. Energy efficiency is higher than than our competition you know no derating on high altitude which is sometimes important very little water consumption which is sometimes important really good balance i mean ramping we all know that from the balancing compared to the ccgts etc etc so it it for me it's it's it's it's it's very similar you could say the business development and and sales process that we have with many of our, you could say, regular customers. I think the difference is that the speed of execution and the desire from the customer to deliver, that is clearly one or two notches higher than, so to say. Thank you, Håkon. Correct, correct. Thank you. Sorry, Sven, you were saying something. Thank you, Bruce. Okay. No, I was saying...

The next question comes from Panu Leighton-Mackie from Danske Bank. Please go ahead.

Hi. I wanted to ask about cash flow and capital allocation. So you had 1.4 billion of net cash. And maybe just to confirm that, did you change your comment on the net working capital that you expected to remain negative for longer, as you previously, in my view, indicated it to kind of reverse and then if that's so does it kind of change your re-earned capital allocation if it's like better for longer in terms of balance sheet are you more open to doing share buybacks or what will you do with the cash flow?

Let's say the allocation principles as such don't change. Let's say we have been saying and I have been saying in many quarters that okay the negative working capital level is extraordinary and okay it's not so long ago that we went through the negative line basically from positive working capital to negative working capital. You could in a way say it felt in the beginning a little bit uncomfortable, but we now see that this is a sustainable trend that we see. Will it be all the time that negative as we see it today? Let's say there are clearly, let's say factors in the market that are currently there, which in the future might not be there. And I give one example, I think I gave it also last time. Yard order books are very long. Yards want to lock their costs. If they want to lock the cost at Wetzela, they need to put the order at Wetzela with a down payment. So you get cash earlier. Well, the exit cash or the cost, let's say generation, is later in the time. that's a positive impact which is happening today will yard order books in the future get shorter again it might reverse that trend difficult to say if that will happen when it will happen but at least for the coming years horizon we anticipate that working capital will stay negative Another trend, which I also, I think, mentioned last time is, for example, in energy, we have seen a few projects. I'm not wanting to call it a trend, but we have seen more projects than before, let's put it that way, where customers don't want to make, let's say, payment security arrangements like LCs, bank guarantees, et cetera. That's fine for me. cash upfront. Then we have a lot more cash early on before we actually make the cost. So is this something that will stay there? Difficult to say. For now, I think it will not change rapidly, but yeah, this can change. So that's where we were in the beginning very careful with, let's say, making bold statements about working capital staying negative. I think we feel much more comfortable about at least the coming few years to say, yes, it will stay negative. But sorry, I did not answer your capital allocation question. Let's say the capital allocation principles don't change. And share buybacks, yeah, that's for future consideration, not at the table today. Okay, thank you.

The next question comes from Vas Panavari from Barclays. Please go ahead.

Yeah, good morning. It's Vlad from Barclays. Two questions for me, if I may. very strong margin in thermal energy this quarter. Congratulations on that. This lack of the equipment delivery in the quarter, did it have positive or negative impact on the margin? Because, of course, on one hand, mix is favorable, but on the other hand, cost absorption is less. That's the first question. Second question, could you comment on competitive environment in energy storage globally and maybe by key regions? Has there been any changes there recently? Thank you very much.

I did not catch the first one, to be honest. The line was a bit bad at least.

I can easily repeat the first question. The question is, there are lower deliveries in the energy business in Q3. Did it have positive or negative impact on profitability in Q3? given that on one hand, the mix is favorable, but on the other hand, cost absorption is less.

I get you. Shall I answer that? So let's say the answer is fairly simple. Let's say, of course, in absolute terms, it's negative because you have less sales that generates margin because we make positive margin on a new business. But of course, from a percentage point of view, in the mix, it's a positive because service typically has higher margin percentages. So in the percentage mix, it's a positive. So it's both, actually. But it depends if you look absolute or if you look percentage of sales.

And then if I continue, as I understood your question, Vlad, is, you know, how is the competitive situation develop in energy storage? more from a global perspective. And I would say that the competition is increasing. And I think there are two major drivers for it. One driver is, of course, the slowdown of the US market, you know, with the regulation and tariff regimes, which then, of course, drives, you know, suppliers to focus on other markets. And the other trend is also that, you know, we see more vertical integration where, cell producers are also moving into the integrator space, so to say. So the competition is increasing in general, I would say.

Super. Thank you very much.

The next question comes from Michael from Nordia. Please go ahead.

Thank you. Good morning, everybody. Thanks for taking the questions. Still one on data centers, if I may, and In your view, I mean, how big part of the future debt center market is relevant for the 50 to 400 megawatt sweet spot that you are referring to? So I assume that you have done some research on the topics, just trying to understand the opportunity for Vatsula here. That would be my first question. I can come back to the second one then.

Yeah. Now, so just to give you, I mean, the short answer, there is a significant opportunity. It's very hard to quantify. Why is it so hard to quantify? I can give you some other public data that has been compiled by a number of reputable players like the McKinstry's, the Goldman's, the JP's, the... International Energy Agency. If you look at the forecasts of, if you just zoom in on the US, if we look at the forecast, how much growth there will be in data center power from now to 2030, you know, there is a span from those reputable players in their forecast from 20 to 100 gigawatts. So it's very hard with that as a starting point to derive what is the concrete addressable market, I would say the underlying, there is definitely a market for engines. There is definitely a market for, I mean, if we start, there is definitely a market for off-grid. In the off-grid space, there is definitely a market for engines. And if you talk engines, there is definitely a market for that. We do see growth opportunities, but it's very hard to, you know, pin down what are the, you know, even the spans of the additional capacity that would go trickle down when the spread in the starting estimate is as broad as it is. Now, we think that data center is a very interesting opportunity. we have a a pipeline that is looking very interesting no orders in q2 but you know we have interesting pipeline and and and we are also looking on how to to further develop our delivery capabilities okay thank you very much and the second question would be on on the carbon capture system i think we haven't talked about that on on that topic for a while so i wanted to revisit that and maybe you could get a bit of an update you know

Where are we now in terms of the infrastructure developments there? What is the customer interest right now given the regulatory environment and do you have anything in the pipeline and so on and so forth?

So basically, just to make a quick recap, we actually did the commercial launch of a carbon capture solution for marine. So it's an extension of our scrubber business. So we can now deliver 70% capture rate to 7.0 on a 10 to 15% energy penalty, because it's really this allows you how much, routes you between how much you can capture and how much energy you put in. That is, it needs to be a viable route, so to say. And we have had our first pilots and in full scale and it's working very well. We had the commercial launch. So we are engaged with with with customers. Now, clearly, this is a whole ecosystem that needs to evolve. I mean, we add our piece to the puzzle. We can capture the carbon. We can store it on the vessel. But then you need to take a show. And what do you do with it? And we all know there are basically two routes. You can use it for sequestration, pumping it back, or you can use it as a raw material in some kind of chemical process, including synthetic fuels. Now, the customers that we are talking to now, they are more the early adopters. The regulatory framework already before IMO, the recent IMO postponement, I think in April in MEPC 83, it was already decided to come back and work further on the regulatory context. and coming back later. So for my MO, it will still take some time for the regulatory landscape to evolve. I think EU is further ahead in this area, so to say. So this is a market that will evolve. It will take time. We have made it clear. And I would say we are engaged with our customers that are the kind of early adopters of the pioneers.

Okay. Thank you very much.

The next question comes from Vivek Mita from Citi. Please go ahead.

Thank you very much, everyone, and good morning. I have a couple of questions. The first is on energy power plants. I was interested in hearing your latest view on pricing trends. We've seen big price uplifts, for example, in the turbines. We, of course, can't see the underlying pricing trends, you know, stripping out mix and scope and so on, we can only see the crude average selling price. And that appears to actually be down around 25% on my calculations versus the second quarter. So could you give us any indication on the underlying pricing trends and new order margins? Thank you.

So I would say in general, it is a hot market in the energy space and it's a hot market for all the technologies that I know of, so to say. And of course, in that type of market, you know, it gives the suppliers opportunities for price realization. Then, of course, there is a customer that, you know, where the offering needs to make sense for the customer to build a business case, etc. So there is always a balancing. But I would say in general, I think the price realization is rather good.

Understood. Thank you. And just one follow-up as well, differently on the marine service growth. If I'm just looking at the spare parts developments, It looks like there's been a drop year on year and the books of bills below one. How should we think about that developing? And would it be fair to assume that the spare parts are the highest margin part of the service business?

Thank you. So overall, I wouldn't be concerned. And you clearly looked at what we call the four disciplines. It will vary a little bit. I think the big trend agreement is clearly growing. There is a bit of spare parts in agreements as well. And then we have the retrofits. And the retrofits, it looks pretty dramatic, you know, as a downturn. But it's the cyclicality of the retrofit business. And as we have indicated, we see we have a good pipeline in front of us. So our message on service is both in energy and marine, with a book to build about one. It's a consistent, continued message.

Thank you very much.

The next question comes from Max Yates from Morgan Stanley. Please go ahead.

Thank you. Maybe just two quick follow-ups. uh just the first one is around you know your energy storage business and obviously a softer quarter this quarter i it feels like some of the us kind of competitors have talked about a much more positive market backdrop so you know i guess i was trying to understand you know is this an active decision by you not to participate so much in the us market because it's viewed as more competitive and therefore focus outside um you know is there any reason if sort of storage gets better in the US, you know, your either setup of sales network, your procurement because of tariffs makes you less able to participate. And do you think it is fair that you're kind of focusing on other markets just to really understand what looks like a bit of a kind of difference with your performance versus what some of the other peers in the US are kind of talking about for this market?

So I would say U.S. is an important market for us, but I would say in relative terms, I mean, Australia and U.K. and a couple of other markets, they carry a lot of weight. There are other players where U.S. is more important for them, but relatively speaking. But U.S., we are in the U.S. We have continued our kind of selective strategy in the sense that we don't try to be the solution for each customer type. We continue to focus on the customer types, you know, that value, our delivery track record, which is really solid, our thermal track record, which is really solid, and also our capability to leverage, you know, our... power systems skills to integrate the equipment. So, and you could see, I mean, looking at our profitability, it has, with the help of a good project execution, it's translating to real bottom line. Now, I cannot comment others, but we will continue this selective strategy. Then what we said when we came out of the strategic review is that we will try to add a couple of geographical markets. We will try to expand. And so we are definitely going to remain in the US. We will probably try to add, but we will have a selective approach overall. Now, in this situation, We also talk about that we are certainly looking at, you know, how do we further continue to improve our competitiveness. And this is, of course, you know, continue to work on our costs and also exploring avenues for, I mean, synergetic opportunities with the supply chain, so to say. So these are the areas that we are working on.

Okay. And maybe just a very quick follow-up. On your energy deliveries, and this is your sort of thermal power plant business, are you seeing any customers, particularly in the US, you know, pushing back related to tariffs and any kind of, obviously you've said, you know, tariffs are built into the contract structure, the customer pays them, you know, are any customers slowing deliveries and is that having any impact on the rate of delivery or is it purely just a timing issue?

No, this is clearly a pure timing issue. I mean, I think it's fairly well. Of course, customers are not happy about it. But I think customers understand the dynamic about that we are adding the import tariffs to our prices. Nobody likes it. We don't like it either. But that's a clear principle. We haven't had any cancellations or anything like that. So, I mean, this Q3, it's purely, you know, we talked about the customer delivery schedules that happens to be in this way this year.

Understood. Very clear. Thank you very much.

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

Hi, guys. It's Antti from SEB. I have two questions regarding the trends in marine service, please. And I fully understand the volatility related to the retrofits and upgrade business, so we can kind of exclude that from the discussion. But looking at the agreement book-to-bill growth, could you please remind what do you actually book in terms of agreement orders If I understand correctly, the backlog is the 24-month expected value. So is that also kind of what you include in the agreement orders there? And then the second question is maybe on the slowing trend on the book-to-bill on the parts and field services. Do you think you are cannibalizing that with the agreement business? And kind of should we be a bit concerned that the sales growth in the marine services will start to approach zero as kind of the agreement is longer converting and maybe the more transactional is slowing down?

I think there is, let's say that the first part of your question we can confirm, that's correctly assumed. Let's say it's good to, we take 24 months in and then let's say on the moment that we take an order in on an agreement, then let's say we roll it every quarter, basically, let's say with one quarter forward until, let's say, the whole agreement lifetime is consumed, you could say. When it comes to the spare parts, are agreements, let's say, cannibalizing parts? No, I would not say so. agreements are contributing to parts but of course it depends a little bit let's say what kind of agreement you have let's say if you have an agreement where you get paid by running hours certain fixed fee and within that fee you need to do the maintenance of course your aim is to do as little as possible spare parts spare parts typically what we book as part of an agreement ends up in the graph basically as parts so that's good to keep in mind

And I would say to the, what I assume is your more fundamental question, you know, how do we see book to bill and in services going forward? And I would say the underlying, we have a very positive view on that. Yes. I would say both in marine and energy.

Mix between the lines can change, but in general, we look positive.

If I think about If I think about earnings contribution within the aftermarket, I guess the parts business is very, very important in that regard. So do you have any kind of views on why the book-to-bill on 12-month rolling basis has been slowing throughout 2025? Is there something in the customer behavior that you can clearly kind of pick out what's causing this, or is it just normal fluctuations?

I would say it's normal fluctuations.

I agree on that. Okay. Thank you.

The next question comes from Akash Gupta from JP Morgan. Please go ahead.

Yes, hi. I have a follow-up on your capacity in energy and what sort of flexibility do you have, given the demand that we see in the data center is more for gas engines, while I think in your business you have both gas, oil, and renewable fuel engine, so a question like is there any way to quantify how much theoretical megawatt or gigawatt you can produce and then how much of that is gas versus non-gas and do you have flexibility to retool capacity for oil engines to gas engines, so any color on that would be helpful.

Thank you. Some general. So our engines are fuel flexible, so it's not about oil or gas. I think the more critical thing for us when it comes to our supply chain and our manufacturing is the size of the engines. I mean, you have the large bore engines and you have the medium bore engines. So this is more where we need to be careful in our forecasting and how we manage our delivery capabilities. Just to clarify, so it's not fuel related, it's size related. Secondly, I understand you want to know the gigawatts, but so does competition, and I won't tell them. So sorry about that. Then what we clearly said that for certain engine types, and I will not go for the same reason, I will not go into the details, which of a certain engine types, I mean, we are now looking at delivery times in the second half of 2027. but we still have other engine types where we can deliver next year. So it's a mixed situation.

Thank you, Håkan.

Thank you, Arina.

And thank you for all of the good questions. I'm afraid that we have already run out of time for this call. So as a reminder, we are hosting several events every quarter, which are equally open for everybody who is interested in virtual as an investment. And next event will be hosted by Håkan. It's a CEO strategy call on November 27. So I hope to see you there. Thank you.

Thank you for today. Thank you.