We hosted a strategy call with our CEO Håkan Agnevall on February 26. The CEO strategy calls aim to offer an opportunity to discuss Wärtsilä’s strategy and the progress of its implementation with the CEO. No material new information was disclosed during the call.
The recording of the call is available here.
Reflecting on 2024
Håkan started the call by reflecting on the year 2024. In 2024, Wärtsilä made significant strides towards its targets, achieving remarkable milestones. Wärtsilä recorded all-time highs in order intake, absolute operating result, and cash flow from operating activities. Additionally, the profitability of all business segments saw substantial improvement. With an order book at an all-time high of EUR 8,366 million, Wärtsilä is well-positioned for continued success as it moves into 2025.
Positive trends set to continue in 2025 in Marine and Energy
Wärtsilä anticipates sustained momentum and opportunities in the Cruise and Ferry segments, where it traditionally holds a strong presence. The cruise industry is experiencing continued growth in demand, necessitating further investments in capacity. Similarly, the ageing ferry fleet drives demand for fleet replacement. The container segment also remains active, offering promising opportunities for auxiliary engines.
The transition to sustainable future fuels is progressing well, with decarbonisation requirements supporting fleet renewal and the demand for retrofit solutions. The adoption of alternative fuels and hybrid applications is accelerating, further strengthening Wärtsilä’s market position. In the service business, the company sees good opportunities by moving up the service value ladder and helping customers improve operational efficiency.
In Energy, the growing demand for electricity, driven by ongoing electrification in various industries, is expected to continue. Renewable energy sources like wind and solar are the cheapest ways of generating electricity, requiring balancing power to cover intermittency. Coal power generation is expected to decline further.
Wärtsilä has a strong pipeline in both Engine Power Plants and Energy Storage & Optimisation, with stable utilisation of its Energy installed base providing good service opportunities. The growth of data centres, particularly in the US and Europe, presents interesting opportunities. Wärtsilä targets off-grid baseload opportunities through third-party Energy Centres and Independent Power Producers (IPPs), focusing on the 50–400 MW market.
Geopolitical and trade policy uncertainties
While the outlook for both the Marine and Energy sectors remains positive going into 2025, current geopolitical tensions and trade policy uncertainties may impact the Energy business. High external uncertainties make forward-looking statements more challenging.
Commitment to financial targets
Wärtsilä remains committed to achieving its financial target of a 12% operating margin. Key drivers for reaching this profitability target include moving up the service value ladder and improving the new build business, supported by decarbonisation efforts.
Q&A
What is Wärtsilä seeing in Marine for 2025, considering its diverse subsegments?
In the marine industry and different segments, the outlook is following:
Regarding Wärtsilä’s mix in service and new build businesses, it seems there has been a higher-than-normal aftermarket versus history. Is this expected to continue, or are there any considerations for 2025 and 2026?
No major structural shifts are expected. The mix typically oscillates between 50-55%, varying mostly due to the new build business. Both new builds and services are growing, and a strong new build year can swing the share.
How does the International Maritime Organisation (IMO) work, and can the US slow down or reverse its regulations on decarbonisation?
The International Maritime Organization (IMO) is a UN organisation with representation from all nations, typically moving gradually and carefully. The US is not a major shipbuilding nation; most vessels are built in China, South Korea, and Japan, with many owners in Europe. The US’s influence on IMO discussions is uncertain, but it is unlikely to reverse existing regulations. However, it may impact the speed of future developments.
Has there been a change in customer sentiment towards decarbonisation and new fuels due to the new US administration’s stance?
There has been no significant change in the urgency to proceed with decarbonisation among customers. Shifts in fuel preferences are observed, with interest swinging between methanol and gas due to availability issues. Wärtsilä remains a technology leader in various fuel solutions, including LNG, and continues to support decarbonisation efforts. The choice of fuel and solutions will vary over time, but decarbonisation remains a priority.
Has there been any strategic change in the Portfolio Business given the strong order intake and positive margins last year?
There has been no strategic change, and the plan to divest these businesses remains unchanged. Some businesses needed to be turned around before divestment. This process is ongoing, as seen with the ANCS divestment. While the goal is to divest as soon as possible, the focus is on achieving good value realisation. The divestment process will continue over time and will not be completed within this year.
How does Wärtsilä think about capital allocation given its strong balance sheet and net cash position? Why aren’t extra payouts or buybacks being considered now?
Wärtsilä aims to distribute more than 50% of its profit, with the current proposal at 52%. The company is well-funded for R&D, investing 4.6% of sales last year. Wärtsilä has the capacity for major strategic moves but also prefers to maintain a strong balance sheet amid geopolitical uncertainties.
What is the current status of Wärtsilä’s carbon capture systems, including the pipeline of potential orders and customer uptake? Is commercialisation expected this year, or is it more of a midterm story?
Currently, Wärtsilä is running pilot projects and plans to commercially release carbon capture systems this year. However, the ecosystem for carbon capture needs to evolve, as Wärtsilä provides only part of the solution (extracting and storing CO2).
There is significant interest from various customers, but the business will take time to grow due to the need for a complete ecosystem and regulatory developments. While commercialization is intended for this year, significant contributions to the top line from carbon capture are expected more in the midterm.
