Wärtsilä Oyj Abp (WRT1V) Earnings Call Transcript & Summary

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, Hakan Agnevall, will go through group highlights, business performance. And then after that, our CFO, Arjen Berends, will continue with the financials. After the presentation, there is a possibility to ask questions. [Operator Instructions] Hakan, 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 3 dimensions. So all-time high order book at EUR 8.3 billion. 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 Arjen will smile later, the strong cash flow continues. I mean, very strong cash flow from operating activities, EUR 437 million. 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-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% from EUR 1.8 billion to EUR 2.5-almost billion. And we continue to grow services, up 15% from EUR 900 million to EUR 1 billion. And then very strong order intake growth in the equipment side, 51% up, from EUR 1 billion to almost EUR 1.5 billion. The order book, as we talked about, it's all-time high, EUR 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 at 12%; equipment, 13%. Book-to-bill, 1.3. It's the 15th consecutive quarter with a positive -- I mean, positive, but a book-to-bill above 1. The comparable operating results, up 18% to EUR 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. So we -- on the order intake side, for the first time, we are passing the EUR 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 ships. 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 newbuild contracting in 2024 was strong overall, driven by the supportive freight market, especially due to the Red Sea 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% 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% of the gross tonnage, so to say. And we do see the continued positive derivative here, stepping up from 43% to 49%. 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 '24 and '25. And the combined capacity additions from Wind and Solar are expected to be between -- somewhere between 650 gigawatts and 800 gigawatts in 2025 according to IEA and BNEF. You could say it's going to 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 that's in the 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 IEA, additional 45 gigawatts of power capacity is expected to be added for Data Centers between '24 -- 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. All-time high in our order book. And with the rolling book-to-bill continues to be above 1, as I said before, 15th consecutive quarter where it's above 1. 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, we -- in the fourth quarter, we see it continues to improve. Okay. 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, I mean that relates, 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. We recently contracted our first 46TS installation in energy, and this is for a 120-megawatt plant in Kazakhstan. So it includes 6 46TS-SG gas-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 setup there, it's actually a blend of fossil and non-fossil power generation. So basically, the 46TS 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, Wärtsilä will be 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 a 38,000-deadweight-tonne methanol-ready cement carrier vessels for NovaAlgoma, which is a joint venture. And 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 Q-on-Q. And then we see increased R&D. We continue to invest in R&D. We are around 4% overall for the group, and we continue there. Now, on the Marine Services side, we also see continued good development. Book-to-bill, above 1 in all the service revenue stream, so you can see quarter-on-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 1, 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 civil and installation, complete responsibility to more of equipment responsibility. And we do see a very positive trend in project execution in energy storage and optimization, a great work being done. Now if we zoom in on storage, the comparable operating result, 12-month 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. Also on Energy Services, we see continued good development. Also here, we have a book-to-bill above 1 in all the service revenue streams, Q-on-Q, 11% growth, and similar visualizations here of these 4 disciplines, and you also see all of them are above 1. 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 AB -- Solix Group AB, which is a Swedish private equity firm. ANCS is a global leader in innovation -- 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 EUR 230 million. 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 newbuild 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, Arjen, please.

Thank you, Hakan. Looking at the other key financials, basically, all of them improved from Q3 to Q4 as well as they improved from 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 EUR 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, EUR 822 million. The good cash flow was supported by both improved profitability as well as 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 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 and end of the year and going into 2024, this working capital reduction continued. There are many underlying actions that supported this development actually. And just to name a few, for example, order intake in newbuild 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 midterm delivery payments. And that clearly supports working capital. Just to give a few numbers in the last 2 years, newbuild order intake increased EUR 1.2 billion. 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 Trieste and Vaasa. Now everything is concentrated in Vaasa. And it gives, of course, good opportunities to further 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 5 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 this level of 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 go up again 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 EEQ, supply chain finance, which also contributed with EUR 100 million in last year. It depends a bit on which suppliers 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 we will still 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 at the AGM EUR 0.44 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, Hakan, on the prospects.

Thank you, Arjen. So if we look at the prospects and the demand environment, it's -- 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, et cetera. So with that, we move over to Q&A.

Thank you, Hakan. Thank you, Arjen. 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.

[Operator Instructions]

There are very few questions this call.

Maybe I can take one question from the chat as we're waiting 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 I would -- 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 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 said, 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, Hakan. 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 follow it on a daily basis, the world follows it on a daily basis, with the current dynamics, it's very hard to predict whether this will land, so to say. So we're monitoring it closely, but it's very hard to predict the impact.

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

[Operator Instructions] The next question comes from Akash Gupta from JPMorgan.

Yes. 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.

So if we talk about order backlog, and I will not break out the numbers for competitive reasons. But 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 on our existing backlog and the contractual setup that we have with our customers in terms of Incoterms deliveries, in terms of the overall setup. There is very limited impact on the backlog 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.

The next question comes from Antti Kansanen from SEB.

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 on the Marine business in '25, I mean, when you start to deliver the backlog out?

Yes, I think I explained it earlier as well that the -- of course, more volume brings more leverage, and I do believe that there is more room to improve on that as well. Having said that, one element is leverage. The other element that also contributes heavily to the profitability is, of course, the mix, that cannot be denied. It's the mix between service and newbuild, but also, what Hakan was reflecting upon earlier, not every newbuild 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, et cetera. So it's a combination of project mix, but then also cost management. And that, of course, relates to leverage as well. But I do believe that we can do more. 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.

Yes. I would -- I fully agree, and the underlying trend is positive.

Yes. 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 in Q4, this '24.

The next question comes from Sean McLoughlin from HSBC.

Just one. Understanding -- just coming back to your offering in Energy, I mean, how does this fit with the baseload opportunity in the U.S. from data centers? I always understood that your offering was about peaking power. So just anything you can tell us on how the economics stack up versus heavy-duty and medium-duty gas turbines or other baseload power? And again, thinking again around the tariffs, how we can quantify the economics may be impacted?

So -- I mean, in terms of our base load in the U.S., I would say, if I simplify it a bit, it's a lot about remote operations. So when the weak is -- the grid is not strong enough or you have big industries that needs a lot of power like mines, 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 the -- our engines with the aeroderivative gas turbines, our fuel efficiency is better, and I would say our thermal performance, 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 legacy, but also CapEx versus OpEx thinking. So when we look at data centers, it's very similar to those type of remote baseload applications that we have already today, so to say. Then coming back to tariffs, I think this is very, very hard to predict. I mean, it is -- if you look at our industrial setup, we are exporting engines from Europe to the U.S. So there, you see we have a supply base that is fairly European-centered. We do have some supply from the U.S. as well, but it's -- the gravitas 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.

The next question comes from Panu Laitinmäki from Danske Bank.

I just wanted to ask about the EBIT margins at the 12% target. So do you think that could be within reach in '25? 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 what -- which one will be the biggest driver towards 12%?

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

And in terms of major drivers, it's -- and 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 newbuilds 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, that 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 the service value ladder.

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 -- we cannot talk about what we are doing until we are ready and the final decision has been made. So we will have to come back on that.

The question was really like when you do that, do you kind of touch the margin targets? Or would that happen later?

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

The next question comes from Tomi Railo from DNB.

It's Tomi from DNB. Also on -- 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 break down 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 if you take service, as I've been saying before, the highest is spare parts, and then, the other ones are on a lower level. And of course, the mix between those makes the overall service mix margin percentage go up or down a little bit. But overall, I would say we are continuously optimizing our processes, enabling also smoother operations, smoother execution of orders. And that, of course, comes to the good of the margin.

And this, if I may complement, 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 4 disciplines there. And you see how they go up and down quarter-on-quarter. And this is -- still, it's 12-month rolling. This is the kind of the challenge. But you also see the overall trend when you weigh it all together. And I think that reflects the whole service business. Book-to-bill is bigger than -- it's only bigger than 1. And to Arjen's point, continuous improvement, we are step-by-step improving profitability.

The next question comes from Mikael Doepel from Nordea.

Just coming back to the tariffs. I understand that it's very difficult to predict what's going to happen. I'm just wondering, you have previously said that the technologies that you provide are basically not available in the U.S. And I was 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 local producers in the U.S. 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, mid-sized bore engines, this offering is provided by suppliers that today do not have any final assembly in the U.S. So that is correct. Now then, 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...

But I would say -- sorry, if I may complement. I mean, as you know, in the energy space, we consider the major competitor technology is the gas turbines. And both Siemens and GE, of course, they have final assembly in the U.S. But they also, as far as we understand, have an international supply chain. How that plays out for them? You have to ask them. The fundamentals of our solutions in terms of our strengths, on our technology, flexibility, fuel efficiency, no need for water, et cetera, that remains. And these are the fundamentals we compete with.

Right. Okay. No, that makes sense. Then a question on capital allocation. So you've had very strong cash flow now in 2024. You have a net cash position. How do you think about that going forward? Do you -- could you consider some buybacks or extra payouts? I mean, it doesn't look like the balance sheet is becoming overcapitalized to say the least.

No, I would say our capital allocation principles don't change. For sure, we want to meet, and we also 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 what we have if we 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 this year. Clearly, we need capital for that. Then, of course, we are not blind for acquisition either. We need to monitor the market and look at 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, [indiscernible] 2-stroke is an interesting option. If that is there, okay, we will certainly look at it. But, otherwise, I think it's more like smaller bolt-ons. Yes, 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 what's the latest on that front? You have been piloting, you're going to commercialize the product. What is IMO saying? What are the customers saying? How does the infrastructure look 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. The technology is ready. There is a lot of interest from potential customers. Now the -- 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 extension of our 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 that as a raw material for new fuel production or whatever. This whole ecosystem, there are still a lot of development and evolving thoughts around that. But we do see a strong interest 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 a strong interest. Let's see how this evolves. I mean, we have said, for us, we consider this to be a EUR 10 billion opportunity over 10 years. So that's also the timeframe. It's not Q-on-Q, 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 a 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.

The next question comes from Akash Gupta from JPMorgan.

I have one on Marine Services. So last year you saw some benefit from Red Sea disruption. And I'm just wondering if you see any headwind this year if we get some peace in the Middle East and flow of vessels 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?

So I was -- 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, the -- our service business have supported by the longer routes that our customers need to take, and we haven't quantified, and 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, 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, but 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. [Operator Instructions] The next question comes from Antti Kansanen from SEB.

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

It was about 40% down, I think.

Yes. 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.

Yes, 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 are bigger ones rather than longer ones. Of course, it's a gray scale in this, but it's not like when we take a big one, you get another 2 or 3 years of delivery time. So it's really that you're delivering more within approximately the same time frame.

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 a function of pass-through items. So is this margin accretive that the volume of a single project or the order intake has grown? Is this a big driver for your margins going forward?

No, 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 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 our core customers. Also, we are not the cheapest on CapEx. We are more attractive for the customers that want 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.

The next question comes from Panu Laitinmäki from Danske Bank.

My follow-ups, I have 2. First, on the net working 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 a percentage of sales that we should assume it to kind of reach at midterm?

I will not. We are not guiding on working capital. Besides that, to guide on working capital is really, really difficult because there are so many moving parts in the working capital. But like I explained, there are many good actions that I mentioned earlier that are sustainable, but not everything is sustainable. If you take the EPC-EEQ mix, it might be different this year than compared to what we saw last year. If it moves more back again to 10% or 20% more on EPC, yes, that has an impact to our working capital. The same goes with your negotiations with customers. If your solutions are unique, you can differentiate, you can have a better price, you can have a better payment terms. Negotiation with customers is not only one thing about price, it's also about payment terms, warranty terms, all kind of other terms and conditions. So 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 is a -- there are many dynamical parts that are not given as a sustainable item. The one stock location that I referred to, that's, of course, sustainable. But 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 a ratio of working capital to sales, we are probably at a 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 complement just so we don't create confusion, I do agree with you, the shift -- the mix between EPC and EEQ, it might vary a bit. But just to clarify, the strategy of having less EPC and more EEQ, it's still there, but there might be some minor variations around, just to clarify the language.

Yes. We will not go back to 70%.

Exactly. That was my point.

I agree.

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

No, we have made a comment about equipment sales in the second half of last year. That's why -- it was a onetime 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 not so bad from a mix point of view because of 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, the hockey stick that we have been talking about also in 2024, yes, there might be something. But it's not anymore what the vessel I used to have 5 or 10 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 in the second half of the year. I think the future will be more stable. And that is also due to the fact that we are growing our service business very well. So the book-to-bill ratios, we have been talking about a lot. And it 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 fundamental, also profitability stability. And also during the year, the service is much more stable, where the equipment sales is much more 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 too stable than to these big fluctuations. We will always have fluctuations, in particular for big orders in storage, what Hakan was referring to earlier as well. But it gets more stable -- and the direction.

Thank you, Arjen. 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.

Then a 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 do if demand materially picks up?

So I would say we are not concerned about bottlenecks, neither in STH, in our sustainable technology hub in Vaasa, neither in our Chinese factories. We are not concerned about bottlenecks also in our supply chain. I think from a delivery situation, we are at a -- in a very good position, good delivery times. Especially the gas turbine side, I think they are struggling a little bit with our 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 STH, 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 U.S. 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 or 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 U.S. 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 excitements and talk to concrete orders. It will come. But timing, we will see. The underlying sentiment is positive.

Thank you, Hakan. Thank you, Arjen. And thank you for all of the good questions. We will host -- we will publish the Q1 results on April 25, and before, we will host a couple of IR events, including CEO strategic 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.