Hello everyone, and a warm welcome to the Accelleron Full Year Results 2024 Investor and Analyst Conference. We are happy to have you as participants here in the room in Zurich, as well as remotely via webcast. For the in-house participants, please be aware that we do not plan any fire drills today, so in case of an emergency, stay calm, follow those green signs, go down the stairs, and gather in front of the hotel entrance. Please also take note of the Safe Harbor Statement. The presentation today contains forward-looking information that naturally comes with uncertainties. Furthermore, figures in the presentation are in U.S. dollars and were prepared according to the U.S. GAAP accounting standard. After the presentation by Daniel and Adrian, there will be a Q&A session where you have the possibility to ask questions. If you are in the room, it is very simple: just raise your hand. If you're joining remotely, please use the chat tool. I will now hand over to our CEO, Daniel Bischofberger.
Thank you, Michael. You're welcome. Also from my side, welcome. Happy to have you here in the room. Besides Michael, you already know, as usual, I have also my CFO with me because he knows the financials better than I know, and that's also the task of him. Happy to have you here, and let's now go through the agenda. I will start with the key highlights of 2024, and then Adrian will then take over for the financial review of the full year. I will conclude with a deep dive into the marine and energy markets and the outlook for 2025, including our guidance. Besides the financials, the decarbonization of the marine industry will be a focus of today.
Of course, we will have the usual Q&A session, and at the end of our presentation, as already mentioned by Michael, for those here in the room, you are most welcome to join us afterwards for a networking lunch outside this room. I would say it's now time to start. 2024 was a landmark year for Accelleron as we celebrated the 100-year anniversary of the turbocharger. It was also the year in which we concluded all build-up activities related to our operation as an independent and listed company. What a successful year it was. We broke through the $1 billion revenue mark with key figures improving across the board. Revenues reached in 2024 $1,023 million, increasing by almost 12% year- on- year. The operational EBITDA was up by 17% to $262 million. The operational EBITDA margin increased by 1.2 percentage points to 25.6%.
Net income grew by 63% to $179 million, and free cash flow conversion stood at 99%. Looking at the big picture, we have established in 2024 the foundation for sustainable growth and the baseline for future profitability. When you look at revenues, operational EBITDA, and net income from 2022- 2024, you can see that the figures went up year- after- year. The only exception was a dip in net income in 2023, a result of higher non-operational costs in 2023 versus 2022. From $110 million in 2023, net income went up to $179 million in 2024. How can this be explained? As I mentioned, we concluded all our build-up activities in 2024, incurring non-operational costs of under $16 million, down from $77 million in 2023. The higher net income enables a dividend increase of 47%.
The board of directors will propose a dividend payment of CHF 1.25 per share to the general meeting this May 6th. Let us now look at some other highlights in 2024. Last year, we celebrated our legacy and invested in our future. Besides the 100th anniversary of the world's first industrial turbocharger production, we could also be proud of our first bond issuance with proceeds of CHF 180 million. It was several times oversubscribed. The highly successful bond issuance reflected the capital markets' confidence in us. After OMT in 2023, we made another two bold acquisitions by acquiring Italy's OMC2 and Canada's True North Marine, in short TNM, in 2024. We expanded our capacity in fuel injection and capabilities in the marine digital solutions. We took over all 70 employees from OMC2 and all 50 from TNM.
Let's move on to the next slide. We also grew market shares and created new revenues. The ship you see on the far left was the first cruise ship in the world that could be operated on purely liquefied natural gas, in short LNG. The cruise ship was equipped with our turbochargers in 2018. Fast forward six years now, and our market share in all LNG-fueled low-speed engines built in 2020-2024 was roughly two-thirds. Around four out of five LNG-fueled medium-speed engines built in 2024 were equipped with Accelleron turbochargers. Those are impressive market share figures, and in fact, we now have a market share of over 90% with LNG carriers. In a few minutes, I will also explain to you why LNG is becoming the fuel of choice for the transition period in the maritime decarbonization.
Another highlight last year was also the signing of 60 full cover service agreements. This achievement demonstrates our continued evolution in service from classic transactional service business to a model that we call availability as a service. In general, there is a clear trend to keep ships running as reliably and efficiently as possible. Ship owners invest more in the servicing of their fleet. They invest more in retrofits and upgrades to improve efficiency and reduce emissions. By selling engine part load optimization, here on the slide, in short, EPLO, and flexible integrated turbocharging system for two-stroke engine, in short, FiTS2, we already showed that in the half year of last year, we could further grow our service business. These solutions provide tangible fuel savings and emission reductions for marine engines operating at varying loads and speeds.
Finally, what you see on the far right of the slide is a TPX high-speed turbocharger. We sold 2,600 units of this model in 2024, double the amount of 2023. Where did the demand come from? From data centers, of course. I think you will all agree that today, more than ever, having a resilient and global value chain is crucial. We always have acted with foresight when it comes to this topic, meaning that already today, we are set up in key markets to meet growing demand and be close to our customers and suppliers. The four examples on this slide demonstrate this. The strategic contract manufacturing agreement that we signed with Hyundai in South Korea in 2024 gives us greater operational flexibility and reduces trade complexity. Thanks to investments in manufacturing capacity and people in Italy, we achieved a close to 20% increase in OMT output in 2024.
Fuel injection plays a key role in decarbonizing the marine industry, and we are seeing high demand for advanced dual fuel systems. In the U.S., we are continuously expanding our capacity for the remanufacturing of high-speed turbochargers. Last year, we were halfway through a five-year, $5 million investment program. This is to meet the growing demand in gas compression and decentralized gas fuel power generation in the U.S. The number of reworked units was up by 10% in 2024 compared to 2023. In China last year, we also invested $1 million in a new machine to enhance compressor wheel production. The resulting increased capacity and flexibility supports our business expansion in the various strategic countries. Same as in the U.S. or South Korea, being close to customers and anticipating demand is a key consideration for local presence and investment.
With those remarks, I conclude my first part, and I will now hand over to Adrian for financial review. Adrian, the stage is yours.
Thank you, Daniel. Let us now take a closer look at our 2024 financials, starting with the group performance. We saw a positive market momentum throughout the entire year, especially the strong demand for merchant marine products and the extraordinary demand for merchant marine services supported us in breaking through the $1 billion revenue mark. What an accomplishment. In the energy industry, high demand for emergency power solutions for data centers compensated for a temporary slowdown in the gas compression market. Overall, our revenues grew by 11.8% to $1,023 million for the full year 2024. In constant currency, we grew by 12.9%, exceeding the latest guidance. Overall growth was driven organically as well as inorganically. Consequently, on an organic basis, we recorded the growth of 7.3%. Moving to the operational EBITDA, which was up by $38.8 million or 17.4% to $261.9 million.
The operational EBITDA margin increased by 120 basis points to 25.6%, which is slightly higher than our latest guidance. We delivered this attractive margin, again on the back of a healthy operating leverage and effective cost management. Finally, the ongoing moderate cost inflation, namely for labor, was largely offset by price increases and continued productivity initiatives. The next slide depicts the performance of the medium low-speed segment. We saw a strong demand in the merchant marine business across the entire life cycle. Strong shipping demand paired with geopolitical tensions led to high ship utilization. Hence, we further grew our service business, supplemented by the selling of retrofit solutions. We also capitalized on opportunities in new fuel applications. In the medium-speed power plant market, new build activities remained subdued in 2024 while services performed well. The segment's revenues increased by $108.6 million or 16.3% to $773.5 million.
On an organic basis, we grew by 10.1%. The incremental revenue contribution by OMT, OMC2, and TNM amounted to $52.9 million in 2024. The operational EBITDA margin increased by 110 basis points, which was again mainly driven by operating leverage and effective cost management along the value chain. Lastly, our supply chain, respectively throughput, fully normalized in 2024. Let us have now a look at the high-speed segment. While the turbocharger demand in the U.S. gas compression market temporarily slowed as customers reduced their inventories, demand for turbocharged emergency generators continued to grow in 2024. Our high-speed turbochargers were highly sought after, especially among customers looking to protect data centers and other critical infrastructure with emergency power solutions. On the one hand, revenues in the high-speed segment decreased by $1 million or 0.4% to $249 million compared to the previous year.
On the other hand, the operational EBITDA margin increased substantially by 150 basis points. The operational EBITDA increase of $3.5 million resulted from effective cost management and a beneficial product mix, and it more than compensated the lower index-based pricing. Now, on the next slide, let us go through the bridge from operational EBITDA to net income to highlight a few specific effects in 2024. Starting on the left, operational EBITDA amounted to $262 million. Next to it, you can see the one-off and non-operational cost, which amounted to $19 million compared to $80 million in 2023. About $16 million were linked to the residual build-up activities, where we were well within our guidance of $20 million. As Daniel already pointed out, these costs came down from $77 million in 2023. Moving on, we had acquisition-related amortization costs of $5.4 million.
As a consequence, income from operations amounted to $238 million. Going to the next item, the interest and finance expense. This mainly comprises of interest payments, pension income, and fair value changes of FX instruments used to hedge non-operational foreign exchange risks. In total, it amounts up to $12.1 million. One further to the right, we can see the income tax expense, which amounted to $46 million. The effective tax rate for 2024 stood at 20.6%, which was higher than the year before due to a change in profit mix, namely resulting from the newly acquired entities. With all of that, you get to a net income of $179 million, 63.1% higher than in 2023. Next, let's look at the free cash flow a bit more in detail.
A very strong cash conversion in the second half of 2024 of more than 160% again propelled the full year conversion to a very healthy 99%. Firstly, the strong cash collection kept working capital stable despite significant volume growth. Secondly, the aforementioned normalized throughput resulted in lower purchasing volumes, respectively a decrease of payables. Thirdly, inventories were slightly up versus prior year, driven by the shift of transportation mode from air to sea for a portion of our new business, resulting in lower cost and emissions. The slightly increased capital expenditure reflected our continued investment in the Swiss, Italian, and Chinese factories to optimize and expand our production capacities. In spite of Accelleron's strong growth, free cash flow generation increased by $69 million to $178 million in 2024.
Let me conclude the financial review by providing some color on the capital structure and our dividend on the next slide. Due to the high cash generation, we managed to close the year with a leverage of around 0.7x operational EBITDA, despite M&A-related investments for two bolt-on acquisitions of $56 million. In light of the strong financial results and healthy balance sheet, the Board of Directors will propose a dividend payment of CHF 1.25 per share to the annual general meeting on May 6, 2025. As already mentioned by Daniel, this corresponds to a dividend increase of 47%. The resulting payout ratio of 76% of reported net income after minority interests underscores our commitment to return excess cash to our shareholders. With the proposed dividend and the executed M&A, we will return, respectively, have invested roughly what we earned in 2024. This is fully aligned with our capital framework. Thank you. Let me now hand back to Daniel.
Thank you, Adrian, for going a bit more into the details of the, I would say, strong financials. Now let's take a look forward and let's see how we see the market trends, the opportunities, and the outlook for 2025. First, I would like to give you a high-level overview of the decarbonization path in the maritime industry. You all read the news, so you might be asking, where do we stand on that topic? Let me reassure you that the maritime industry is sticking to its path to decarbonization, driven by regulation of the International Maritime Organization, IMO, and the EU. The big question is, will the new fuels arrive on time? Nobody really knows. What we do know is that transition fuels, new fuels, onboard carbon capture, and efficiency measures are a must to reach net zero.
The challenge is that it's unclear when exactly new fuels, especially e-fuels, will be available at scale. If they arrive at scale between 2035 and 2040, net zero by 2050 might still be possible. If they arrive later, reaching net zero will be pushed back. Since e-fuel availability is uncertain, LNG is becoming the temporary fuel of choice. LNG, in combination with efficiency measures, at least allows for a limited reduction of CO2 emissions until new fuels arrive. You might also have picked up the term "stronger for longer" in the news. The reality is that we have a situation where LNG will be here stronger for longer than previously thought. On the next slide, I would like to give you some insights on why LNG is becoming the temporary fuel of choice. Why today are LNG dual fuel engines clearly favored over methanol or ammonia dual fuel engines?
It has to do with fuel costs, fuel availability at scale, and the fuel potentials for decarbonization in the short and long term. As you can see, LNG does not cost much, and it is widely available already today. It also supports further decarbonization and ensures compliance, at least until 2035. In the long term, however, LNG requires technically and commercially viable onboard carbon capture and storage. An alternative for carbon capture and storage on ships would be to retrofit the ships for new fuels such as E-methanol or E-ammonia. Now, when you look at the new fuels and the different types of methanol and ammonia, you see that the costs are high to very high. Only limited biomethanol is currently available, and biomethanol is hardly scalable. To make things even more challenging, at the same time, various industries, including aviation, are fighting for the same feedstock for biomethanol production.
Sufficient availability of either E-methanol or E-ammonia is unlikely in the short term and most likely in the medium term. In the long term, the potential of E-methanol and E-ammonia depends on the speed of the required massive infrastructure ramp-up, including the hydrogen ecosystem. Remember, e-fuels are produced from green hydrogen, and green hydrogen is produced through the electrolysis of water using zero carbon electricity generated from wind, solar, hydro, or nuclear. You can see, for e-fuels to become available at scale, a lot of puzzle pieces must fall in place first. In a nutshell, new fuels are costly, and they require massive infrastructure investments. For these investments to happen, we need international cooperation, regulation, incentives, innovation, and coordination across all hard-to-abate industries.
For shipowners who build assets today that will be around for three decades or more, it means that there is no silver bullet when it comes to fuel selection to transition to net zero. Unfortunately, a silver bullet that works today, tomorrow, and after tomorrow does not exist, which makes the decision to be taken by the shipowners quite challenging and costly. However, dual fuel ship engines can serve as a bridge through the transition, which brings me to the next slide. How can the marine industry decarbonize, and how can Accelleron support? I will start on the right. As just mentioned, dual fuel engines can serve as a bridge through the transition. We offer future-ready turbochargers and fuel injection systems. Improving the technical efficiency of a ship is another way to decarbonize further.
We offer retrofits like turbochargers, EPLO, as well as FiTS2 and service agreements to achieve that. Finally, there is operational efficiency, which includes optimizing for ship speeds and routing. For this, we offer digital solutions. Of course, our recent acquisitions played to operational efficiency and new fuels. The acquisitions are strategically aligned with our goals of enhancing efficiency and supporting the transition to new, more sustainable fuels. Next, let us look at the market trends and opportunities we see in the marine industry. They are unsurprisingly closely linked to decarbonization. Let us start with ship new build activity. We clearly see that decarbonization drives lead renewal. In merchant marine, the order books of shipyards are full for the coming years, and the share of new builds for dual fuel-capable vessels is high.
The backlog will not disappear quickly because shipyard capacity is only expected to increase moderately, and this is mainly in China. We see an opportunity to further increase our market share in dual fuel-capable vessels. Decarbonization also increases market interest in retrofits and upgrades. Overall, service activity is healthy, and we expect a continuation of this positive dynamic for services in the marine market. Having said that, shipping scrapping could increase if Red Sea traffic normalizes. Overall, we see our retrofit solutions for decarbonization and full cover service agreements as the main growth driver for us. Let us now switch the industry and look at the market trends and opportunities in the energy market. There is a clear trend toward more flexibility and resilience. On the one hand, there are opportunities in decentralized power generation. The underlying market trends are increasing electricity demand and electricity grids at the limit.
We see this predominantly in countries with weak grid infrastructure. Opportunities therefore lie in fixed onsite power generation or mobile rental power. Turbocharged gas fuel combustion engines are one possible technical solution. On the other hand, there are opportunities in backup power, specifically for a growing number of data centers as critical infrastructure for AI and streaming. The more data centers you have, the more building security you need in case of power failures. High-speed diesel-fueled combustion engines with turbochargers can offer that security and provide emergency power if and when needed. Demand from data centers will likely stay strong. Of course, the data centers themselves will need more power too, which could again increase the demand for decentralized power generation, including power behind the meter.
An analysis by the U.S. Department of Energy in December 2024 found that the data center energy demand in the U.S. doubled from 2017- 2023, ultimately accounting for more than 4% of the nation's electricity consumption. This number, according to the analysis, could rise to 7%-12% of the energy consumed in the U.S. Let us now focus on the immediate future. What is the outlook for 2025 and our business? As we look ahead to 2025, we are optimistic about the positive market momentum driven by growing demand in the marine and energy industry. We are ideally set up to strengthen our market position in new fuel application, turbocharger services, fuel injection systems, and reliable energy supply. We will also leverage our unique service network and customer relationship to offer additional digital services.
As you can see, all the arrows for different marine and energy market segments are either pointing up or sidewards. Let's look at the top row first, marine, which makes up more than 50% of our revenues. I already mentioned the full order books of shipyards in the merchant marine. They are already fully booked until 2029. Some are even fully booked until 2030, and the order demand is still high. As you can see, all arrows in marine are pointing up. There is only one exception: cruise ship. Here, significant growth may only occur in the next one to two years. The tanker market is trimmed by a rising global energy trade by sea instead of pipeline. Regarding the bottom row, energy, which is more than 40% of our revenues, I already mentioned the expected strong demand for backup power related to data centers.
The gas compression market will remain volatile, but greater energy carrier capacity, which are coming now online almost month- by- month, could drive demand in export business for U.S. gas. We continue to see good momentum for high-speed power generation in gas application too. In the power plant market, we expect new build activity for medium-speed power generation to remain subdued. In summary, our outlook for 2025 is positive. Where then do we set priorities for 2025? To begin with, we will continue to invest substantially in R&D, particularly in solutions for new fuel applications. Our unparalleled investment in research and development ensures that we remain at the forefront of the industry's advancements. The OMC2 production capacity will support OMT in addressing the significant increasing demand for advanced fuel injection systems, while TNM digital solution will complement Accelleron's Tekomar digital solution.
The OMC2 and TNM acquisition have demonstrated our ability to identify, successfully integrate, and develop companies in adjacent markets. Importantly, the acquisition has shifted the market perception of Accelleron as a technology leader beyond turbocharging, providing a long-term growth perspective linked to decarbonization. We are also aware that decarbonization is a demanding, complex, and costly effort that cannot be managed by individual industries or even one player alone. While we are reducing our scope one and two CO2 emissions, scope three emissions from transport and supply goods are harder to abate. They account for 90% of our CO2 footprint. The key question is how companies can achieve sustainability goals while maintaining international competitiveness. Consequently, we are also testing to the extent to which region segments customers are willing to pay for products and services with a lower CO2 footprint.
We'll be setting sustainability goals aligned with the Science-Based Targets Initiative that are ambitious yet achievable, market-appropriate, and commercially viable. The big topic for 2025 is striking a balance between ESG criteria, the geopolitical climate, and trade complexity. These factors will determine how we can further strengthen our supply chains and footprints. This brings me to my final slide. What is our guidance for 2025? Of course, the geopolitical uncertainties and their potential impact on our markets and business make any forecast even more challenging and difficult. With build-up costs a thing of the past, we are confident that we have established a solid baseline for growth and future profitability. We forecast constant currency growth, revenue growth of 4%-6% in 2025, and an operational EBITDA margin of 25%-26%. The capital framework remains unchanged.
We reaffirm our commitment to delivering shareholder value through attractive dividends and selective and disciplined M&A activities that align with our value creation strategy. If no M&A opportunities materialize, the return of excess cash via share buybacks remains an option. With that, I close my presentation. Thank you for your kind attention. We are happy to take your question both in the room via audio and virtually via chat. Michael, I think that's your turn now.
Thank you, Daniel, and welcome to the Q&A session. Please note that if we receive similar questions, especially by the Q&A tool in writing, we may combine them into one. If you're asking a question, especially here in the room, please kindly make sure that you state your name and the organization you're affiliated with also here. I think we would start with the questions from the room.
Janik Rüegg from ZKB . First question about the fuel injection business. Now, with the acquisition of OMC2, you have increased your capacity significantly. Just to give us rough numbers, with the current capacity, what do you think what kind of revenue you can make in that business within the next two, three years? That is the first question. The second question is towards those alternative fuels, because in the end, you still make 75% of your revenue comes from services. My question is then, in the medium and long term, do those alternative fuels need the same service intensity, like, for example, ship diesel and also ammonia, methanol, and LNG?
Okay, first fuel injection, valid point. I mean, we have now an investment plan in execution. We expect to invest around up to CHF 50 million to increase the capacity of OMT and OMC2 to CHF 150 million. Just that you remember, OMT at the time when we acquired was around CHF 50 million. We want to triple that, let's say, timeframe. Not everything now, and we need permits and so on, but we expect to reach that at around 2029. Your second question again, that was about, Janik ?
Service intensity from alternative fuels.
Yeah, I mean, synthetic fuel tend to be cleaner. That's clear. We don't, I mean, the big shift was already when shipping moved from heavy fuel to diesel and now natural gas. We don't expect the intensity to change significantly. Thank you.
Yes. Perhaps I would take a question from the chat while in the room. You can find other questions. One question from Uma Samlin from Bank of America. Can you give us some update on the integration of OMC2 and OMT, and what are the growth and margin assumptions you have for fuel injection?
As I already mentioned, I mean, the integration is really working well. I mean, they are part of Accelleron. We are careful not destroying the business by trying to get all the cost synergies. We have a light integration. The focus on OMT and OMC2 is now just to grow, grow, grow, grow, and CHF 150 million might not be enough. We are looking for other possibilities to grow. Integration runs perfectly, and they get all the support they need from Accelleron. The second question was...
Margin and cost.
We do not give guidance on fuel injection, but we have the ambition that any of our businesses are similar to the group.
Good. Stephan?
Yeah. Stephan Sola, Solar Capital. Maybe just trying to find the smallest negative. You speak about the temporary slowdown in the gas compression business, temporary. Your outlook obviously reflects that this reduction in inventories is already behind us. Do I understand that correctly?
Thank you, Stefan. Probably again, let's turn back to 2023. At that time, one of our customers was so positive that they ordered too many turbochargers at that time. And they had finally realized at the end of 2023, they had a bit too many turbochargers. The end market did not go down. The end market was slightly growing up. He was adjusting, I would say it was last year between Q2 and Q3. That's over now. The demand now from the customer is in sync with the end customer demand.
You're welcome.
Thank you, Doron Lande Kepler Cheuvreux. I remember last year especially was we learned that your visibility of the order book is rather short, and that's why we saw those trading updates from time to time regarding the revised guidance. Were you able to improve this visibility, or are we going to see in June another trading update?
What we have given as a guidance is what we truly believe as of today, with all the information, with all these geopolitical changes. I mean, we're always trying to improve whatever we can do. I think so far, to be honest, the second half was pretty well. I mean, we guided more or less, and we were within the upper end of the guidance, but fully in line with what we...
I mean, it still remains that we have definitely good visibility when it comes to ship new buildings, but here we have to accept it's about 15% of our business. The service business, we have more or less an order book of three months- six months. Also, service is not much fluctuating, but since it's 75%, it will have an impact when service is fluctuating by 3% or 4%. That's why we do our best. We don't want a surprise. We want a guide. As I said, sometimes it happens that the markets are more positive than what we expected.
Good. [Thomas Burri, FAV]. I would like to have a question on the M&A strategy. You acquired a year ago one company, last year two companies. Does this mean you are going now this year to consolidate these three companies and look that you bring up the capacity and that you are not looking for M&A transactions, or do you look at it opportunistically?
I mean, first of all, it's clear we have a very strong business already, and the focus is on organic growth. And as I said, we have for our fuel injection a clear organic growth strategy to get to CHF 150 million. Also, CHF 50 million needs some time to invest and a lot of effort. That's definitely a focus. As I said already, we believe we should have more capacity because customers are asking even for more. This is not only our challenge, it's also the whole industry is just ramping up. Also here we are looking for further expansion, and this could be organic or inorganic, but mainly it will be in Asia. Again, we are looking around, but the focus is on organic growth. The integration is already working well.
I would take a couple of questions from the chat. One question from Adrian Pehl from Oddo BHF . What is your CapEx budget for 2025? Would you be able to grow free cash flow in line with profits in 2025?
That is a good question indeed. I think in the past we have roughly spent between 3%-4% of global revenues on capital expenditures. Now, with the additional capacity needs, especially on the fuel injection side, as well as optimization initiatives on the turbocharger side, we see that potentially a little bit higher, more between 4%-5%.
Again, fundamentally, this will not impact the conversion to a material extent in that sense. It is maybe CHF 5 million-CHF 10 million more of investments needed annually. Therefore, we remain confident to turn continuously profit into cash, as we have demonstrated as well in the past.
Okay, another question from Meihan Yang from Goldman Sachs, which is combining also a similar question. What is your positioning in terms of potential US tariffs impact?
I wish I had a crystal ball or I would have a direct contact to this person, but probably that might not help either. No. Number one, we have about 10% of our revenues really related to what we call onshore U.S. business, so around $100 million. We have a very strong position, and the main delivery to the U.S. is coming from Switzerland.
For the time being, a good position because there are no tariffs on it. What has to be said is that our products cannot be easily replaced by the engine builders. That normally takes one to two years to replace ours with someone else. That is why we expect that we have a strong position, but we have quite a strong relationship to our customer. If further tariffs would increase, we would sit together with our customer and find solutions that are acceptable for both. I mean, if the customer is willing to pass on all the tariffs because he is also in a strong position, we definitely would do the same. Again, we did that already during the high inflation. We were not the one telling that we took advantage of inflation. We increased our margin. We wanted to be fair, and we do the same here. We are confident that with this partnership, we'll go through whatever comes to us.
Good, perhaps. One more question from the chat, and then we move back. One question from Sebastian Vogel from UBS. How would an open-up of the Red Sea impact your business in marine?
I mean, as I already said, there will be more scrapping. You have heard that the shipyards are so full. There are so many new ships coming online that even if the scrapping increases, the fleet will still grow. It might not grow just what comes in now as new. There will be some ships taken out, but the fleet will grow for the next three to four years, no question. There is not even enough capacity to scrap the same amount of ships that are coming now newly online. Fleet will grow.
Adrian Knoblauch, ZKB, but the fixed income side. I have a question on your capital framework, and you're stating that you have a stable to growing dividend policy, but now it has increased by, I think, over 40% your payout. I think it's rather fast growing than stable or growing. My question is, where is your threshold that starts you to shift from paying dividends and starting the share buyback?
I think first and foremost, we need to see that in the past years, and that's why we consciously as well guided on these build-up activities. This is of the past has impacted basically our profitability, right? We see now a normalized new reference point in terms of profit as outlined by Daniel, and consequently then as well for the dividend. On this basis, now that framework will really work in the sense of stable to growing. It is a new reference point with having the one-offs of the past basically, or the build-up activities to say.
Okay, the new reference, that is 80% payout of net income.
I think the new reference is the absolute dividend, we would say. We have never said anymore that there is a specific payout as such, but yes, we have said we want to continue to provide an attractive and pay an attractive dividend.
Janik Rüegg again from Zeckerbe. Just to add on the capital allocation policy. I mean, last year now you paid roughly CHF 60 million for both acquisitions, OMC2 and TNM. Is that roughly a good figure going forward for your flexible capital allocation, let's say between CHF 50-60 million, either M&A or if you do not find M&A and do not have any large CapEx, then that goes maybe to share buybacks. Is it roughly fair to say?
I can start and you can complement ultimately, right? With M&A, you do not exactly know then what's to come. Is that a budget? No, it is not. We look what fits to us selectively and disciplined. Consequently, we have a new reference point for the dividend, and from there we will continue to work.
I can confirm more or less your assumption that this is a level where we feel comfortable that we can always, as we said, we want to keep the dividend at least stable or growing. Even if there's some strong headwinds, we can keep that one. It gives us enough leeway for acquisition, and it gives us enough leeway if no acquisition that we can have a good share buyback package.
Perhaps one follow-up question from the chat here from Sebastian Vogel. UBS, what size do you need to have in mind to make a share buyback worthwhile?
I think we have already stated that in previous conferences, if I'm not mistaken, we said roughly around CHF 100 million potentially. Far below would be potentially too small. Above would be potentially too big in light of a potential share buyback within two years.
Good. Another question with regards to the growth guidance from [Georgi Tevzade from MAN]. What M&A contribution are you assuming in your 4%-6% constant currency guidance? As things stand today, what's the estimated FX impact?
I think on the latter, we do not have that crystal ball. We do not guide on this specifically. We said constant. On the constant side, 4%-6% includes roughly 1 percentage point of inorganic, maybe roughly 1 percentage point of price. The rest volume, if we take the 6% to reconcile to. Again, roughly.
Okay. Another question from John Kim from Deutsche Bank. Should we expect more balanced revenue growth between the divisions in 2025? What's the current visibility on your marine new product order book now, given the yard constraints? Is it three months? Is it longer?
First of all, I mean, the division has the task to get whatever is out there in the market to capture. We have no guidance that one is not allowed to grow more than the other one. If one is growing more, then they shall grow more. I mean, on what we have in the order book on the shipping, normally we get them one year before they deliver the ship, we get the order and then we deliver. That is in line.
The three to six months will not change, especially since the capacity of the shipyards are really not moderately growing. I just had talk with shipyard owners in Japan and Korea. They are struggling to keep the capacity. For example, in Korea, they are saying our people want to go to Samsung, which is sexier for mobile and semiconductors. We are struggling to keep the people and to keep the capacity. The only country that is growing in capacity is China, but also they are only moderately growing. We do not expect there are big changes. We have seen over the last three years a kind of 3% growth from the capacity, from the shipyards capacity.
Good. If no questions from here, we will continue with the chat. Another question from Uma Samlin from Bank of America. On capital allocation, how do you think should we think about CapEx planning versus M&A?
I mean, in the end, I probably did not complement Adrian if you have more information. I mean, as I said, you know, organic and inorganic both have their pros and cons. I mean, inorganic, that goes faster. As I am always saying, it needs two to tango. You cannot buy something when someone does not want to sell. You also want to buy at the reasonable price and not at the crazy price. The good thing, it happens fast. You get an existing business, you get existing infrastructure assets, and you get people. Organic, everything is in your hand. You do not need to tango. You just need to decide. It takes longer because, again, you need to build a factory, you need to buy assets.
The biggest challenge is then to get the people in. As I said, when you go to Asia, it's not that they're unemployed. They're also running at full steam. We follow both together. If you see, as we have seen in the past, good opportunities in M&A at good price, we will capture them. If there's nothing available or not at good price, then we go the organic way.
Another question from the chat from Adrian Pehl from Oddo BHF. Would you please be so kind to speak about the service share in your segments and how developments were moving versus 2023? In more detail, what is the share of retrofits in low and medium speed?
Good. First of all, we all know that in average, we have about three quarters of our service business. I mean, we don't go into detail on the segments, but it's clear that the share of service is bigger the longer the assets are running. It doesn't need a PhD on shipping. The lifetime of a ship is 30 years- 40 years, while sometimes the power plants are 20 years. We definitely have a slightly lower share in the high speed for service. Especially now with the TPX, which is for emergency power, and emergency power by definition rarely runs. That means we sell them and there's never service behind. Definitely on the high speed, we have a bit more less service business, while on the lower medium speed, we have more. That doesn't make a difference for the targets. We have for all our business the target to get a good margin for those businesses.
That means where we have more product business, we have to make sure that we make the margin already in new business because we can't rely on the service business. Retrofit is a growing business. I mean, order intake, it's in the mid double-digit million dollar business, but it's growing.
Good. Another question from Meihan Yang from Goldman Sachs . What's the revenue contribution from data center now, and what's the outlook for 2025 growth?
These are again the TPX. We already said in 2023, we had $6 million. Now we are going to $12 million, and we expect this business also to double in this year to get above $20 million.
Good. If no questions come from the room, I continue with questions from the chat. One question from Sebastian Vogel from UBS. Can you clarify your sales growth guidance in the press release? You write local currency. In the PowerPoint, you mentioned total revenue growth.
I think we guided 4%-6% in terms of total revenue growth.
Yeah. Another question from Sebastian Vogel on data centers. Do you see demand coming with regards to data centers' baseload energy demand?
Yeah, there are two opportunities when it comes to data centers. One is about emergency transits, and they are normally coming with diesel engines because diesel is something you can store onsite, while if you would have a gas engine, you are always relying on the gas pipelines that they bring more. Data centers always come with a diesel engine. In addition, now in the U.S., they have realized that it is probably easier to get a pipeline, a gas pipeline to the data center than to get the grid connected to the data center.
What we see is now more decentralized power. They are building, besides the data center power plant, power generation units. Because again, it's speed, and that's the only way to run now. Also, they have renewables energy. It's clear, but you know, if you have a data center 500 MW, you need good grid connection. They are building now the power plants where there's not a strong grid connection in the Midwest. They are struggling, and that's why we see more and more decentralized power, or what we even call behind the meter. That means these are power plants built by the data center, mainly producing the power for their own needs, and they might export power to the grid. We see in both directions good opportunities with data centers.
Good. Question from Adrian Pehl from Oddo BHF again. On regional developments, the U.S. was down in H2 2024, and also revenues in Switzerland were heavily down. As regards to letters, should we just assume a change of how revenues were recognized versus other regions? In the U.S., why the decline versus the growth in high speed?
I think to the Swiss part, we are a truly global player. Sometimes our customers demand us to deliver through the Swiss channel, sometimes through another channel. There have been no fundamental changes in terms of the underlying customer mix. To the first one, it really depends then on the sequence of deliveries. Usually, we look year- on- year and year- on- year. Fundamentally, the Americas have, I think, decreased by roughly 100 basis points. It is not the fundamental shift as such.
For us, the focus is really on a year on year basis as opposed to taking each half a year because that then again depends on deliveries. How much have we put on the vessel, the throughput, and so forth? When we talk about growth, then it's usually a year- on- year view, which is the most comprehensive one.
Okay. Another follow-up question from John Kim on the margin guidance for 2025. It looks conservative given 2024 results. Is this a function of investment and additional OpEx or more a function of revenue mix?
I think it's first and foremost a function of the investment side. We said we continue to invest in R&D, continue to invest in artificial intelligence, 3D printing. As well as we ramp up new capacity, initially, you are not as effective.
Consequently, you feel that especially in the ramp-up phase in the first 6 months-12 months. Under this assumption, the guidance has been formulated.
Yeah. I mean, just imagine we have last year hired 50 people in OMT. There were 250, now there are 300. Until you get them up to speed and productive, first you have costs. We call it investments. That hits slightly your bottom line. We will go ahead. I mean, we already had with several investors the discussion and said we have high margin, but we want to have a long-term high margin. We could easily increase short-term the margin, but we believe it is better to invest today that we are ready also to deliver the high margin in two, three, four, five years. That is the long-term strategy we have.
Correct. Good. Yes, Stephan?
Just coming back to that remark from before, conservative guidance on the margin. I mean, you probably also have to be a bit careful what you show because you've got clients that say, "Look, the guys are running on 25%-26% margin." It is probably a bit better than to invest into growth. Or do you get that sort of pushback sometimes?
Not directly. We definitely have sometimes a bit of tougher discussion when we talk about pricing. Yeah, that's life. I mean, so be it. In the end, they already knew when we were on the APP that they pay us quite a nice premium. They paid us a nice premium not because they were not aware of probably the good business we do, but because they appreciate our service support, our competence on new products.
That is, and again, we will not keep the margin low, not just to show to the customers. We will have to talk again. There is alternative to us in the market. It is not they are relying on us. We do not have at all any monopoly. Nevertheless, there is still order from us because again, I have shown you the figures on the energy-fueled engine. I mean, 65% on the low speed, 80% on the medium speed, and above 90% for LNG carrier. There is a reason behind. It is our close relationship to all the customers. I mean, QatarGas, the famous one, we have close relationship with QatarGas. They defined the specification of the ships and their chartering. We know all the ship owners, some are in favor from us and some are not, but QatarGas is making sure that they prefer us than all the shipyards like Hyundai.
They also favor us. We have a quite good network with everybody. If someone does not like us too much, at least he has someone left and right who tells him that he should prefer us. That is, again, it is our technology and it is our service support we have. That makes the big difference. I mean, we have excellent competitors, but they cannot offer the same in that respect. They have good technology, but they have to compensate with lower prices. That is a model that was built up over 100 years, continuous investment. It is a lot of money and the relationship you do not build overnight.
Good. Perhaps still a follow-up question from the chat or from Adrian Pehl, Oddo BHF. Please quantify the amount you expect of one-offs and acquisition-related amortization in 2025.
I think to the first one, we have only guided on build-up activities. This was something we knew, right? Usually, you do not guide on that element. We can assume that this becomes immaterial in light of the non-existing or the closed-out topic on the build-up side. In terms of amortization, I think we stood somewhere around CHF 5 million, and I would assume that this stays roughly in that part. Obviously, assuming that we have the three companies we have acquired, amortized. ± around the CHF 5 million for 2025, I think this is a fair assumption.
Good. A follow-up question from Sebastian Vogel on the answer on the sales guidance. In the slide deck, the written total revenues growth guidance is then the same as the local currency sales growth from the press release because total growth sounds like reported sales growth.
I think the guidance is not reported as such. It's the constant currency growth, which is 4%-6%. Organic thereof would be then 5, as I stated, 1 percentage point is inorganic. I hope this clarifies.
Good. I have one more question actually here from the chat, also from Adrian Pehl on onboard carbon capture solutions. Do you consider to invest in onboard carbon capture solutions? Do you consider it a transition technology as well or rather long-term solution?
Yeah, I mean, I think everybody originally thought everything is going to synthetic fuel, and that's why nobody invested in carbon capture. I mean, carbon capture was in power generation 20 years ago, and that was already a topic, but never materialized.
I mean, we'll see, but the longer it takes, the longer it takes until we really decarbonize all the industry, not only shipping, also car and whatever. The longer it takes, the better it would be that we have carbon capture because it's still better to fight the symptoms than not fight anything. Are we looking at technologies? Yes, we are looking at technologies. Is carbon capture the right one? The one which I established are not the right one. There are other interesting technologies, but very often this company has a high margin, but unfortunately it's the wrong sign in front. So, they are minus. We are watching them, and then the question is, is it the right technology that fits into our portfolio, and when is the right time? Again, we are looking at the good thing on decarbonization.
There's a lot of new technology now popping up, not only on new fuel. Again, we are scouting them, and we don't know whether there's something and when is the right time.
Okay. I think in the chat there are some more questions, but I believe they have been answered in a way or asked by someone else and answered. If someone from the chat feels differently, I think I'm happy to answer them bilaterally. You can always call me. Is there still a question from the room?
Apologies, but I still have one small question. Obviously, one USP that you have is your service network. As I understand, the biggest competitor is not set up like that. Is there the optionality that you could service their product through your service network? Because I'm still impressed about that video that we saw at the IPO where you deliver it within 48 hours. Obviously, the competitor can't do that. Can you help him out for something?
Also, here it needs to tango because we have a clear strategy. We do service competitor products, but we want to have OEM parts. Also, because you know the variety is so big, we would never be able to deliver within 48 hours because we can't have the whole portfolio of our competitors. Just that you know our warehouse in Baden has a value of CHF 100 million already. This is just to cover our installed base. I'm not saying that for each and every competitor we'll have another CHF 100 million. We only serve competitors' product when we get OEM parts. That means it's a collaboration. It's not a direct competition.
I mean, he still tries to service his own turbocharger, but a lot of our customers, they have the biggest fleet. What they have is external turbocharger. They said it would just be great if you could also do those. If the competitor is providing us the parts, we'll deliver the services on site. We do it.
Good. There are no additional questions in the chat. Any last, anyone wants to take the last chance to ask a question in the room?
No. I would like to thank you for your attention and also for your time. Now we close it. The question probably you have, where do you get the food? It's outside through the row. I am happy to have further discussion with you. Thank you for your time.
Thank you.
Thank you.