Wartsila Corp B Shs

Good morning and welcome to this news conference for Wärtsilä Q3 24 results. My name is Hanna-Maria Heikkinen and I'm in charge of investor relations. Today, our CEO, Håkan Agneval, will start with the group performance, followed by the business performance, and then our CFO, Arjen Berends, will continue with the financial highlights. After the presentation, there is a possibility to ask questions. Please, Håkan.

Time to start.

Thank you. And welcome everybody and welcome to the summary of the Q3 which has been a good quarter and we are moving in the right direction. So let's look at some of the numbers. I mean we do see improved net sales, improved profitability and improved cash flow. Net sales increased by 18%. And we continue to have a strong book to build and therefore a strong order book of about 7.6 billion euro. Our journey for improved profitability continues with comparable operating results increased by 41%. And our strategy of moving up the service value ladder also continues, and we do see good progress in services as we go along. So service order intake is up with 4%, and service net sales increased by 6%. Strong cash flow, and we'll talk more about that, but we do continue to see a very strong cash flow, and in this quarter, from operating activities, close to 300 million euros. Let's look at the summary of the figures for the quarter. If we look at the order intake, It's pretty flat, but on an organic level, we are up 4%, around 1.8 billion euro. We continue to grow in services, 4% growth, up to 874 million euro. On the equipment side, we are down 2%. That is primarily driven by storage, so 929 million euro. I will talk about storage later. Net sales up 18%, so from 1.4, 1.5 billion euro up to 1.7 billion euro. And we continue to grow in services, 762 to 800 million euro. But as we talked about before, second half year, we would see strong growth on the new build side and on the equipment side. And we see here up 32% from 690 to 911 million euros. Strong book to build. It continues a positive trend above 1. Result-wise, the comparable operating result is up 41%, from 125 million euro to 177 million euro, and we are now at 10.3% of net sales. And if we look at the operating results, we increased it by 65%, and we are now at 11.2%. So if we look a little bit about the markets and our industries, in the marine, the market sentiment continues to be positive for Wärtsilä in our key segments. And we do see an increase in demand for new ships in the third quarter. Looking at clock zones, the number of vessels ordered in Q3 increased from 1,400 to about 1,900, 2,000. And despite the growth of shipyard capacity, especially in China, new-build shipyard capacity utilizations remains high, and it indicates actually still a bit of a shortage on yard capacity. And also a very interesting number. I mean, global shipyard capacity is currently... around 70% of the 2011 peak level. And the forecast is that this could increase to 85% by 2030. And the major growth is expected to be in China, which is expected to account for about three quarters of this increase since 2021. On the alternative fuels, the positive trend continues, so 486 orders for alternative fuel-capable ships year-to-date, and that accounts to 25% of old contracted vessels, but maybe even more importantly, around 50% of all the vessel capacities. Strong growth in demand and positive outlook in cruise has really driven the new-build ordering. So a lot of activities in cruise, which going forward we expect will have a positive impact on Wärtsilä. And also container new-build investments have increased in the recent month as ship owners continue to renew their aging fleets. Looking at energy, we see solid long-term market opportunities. On the challenging side, rising protectionism is of course an obstacle going forward, whereas the decreasing inflation acts favourable for our market situation in general. The macroeconomic development continued to be impacted by the protectionism and elevated risks in the geopolitical environment, creating uncertainty and also affects the speed of decision making, slowing it down. If we look at the US, the IRA, the Inflation Reduction Act, has boosted outlook for clean energy deployment in the US. while policies such as domestic content requirements and import tariffs hurt the outlook for the energy transition. So it's a mixed picture. If we look at natural gas, the global natural gas prices continue to increase, but moderately. The demand for balancing power has been strong in 2024, while demand for baseload has been stable. So we do see a strong growth in balancing in 2024 compared to 2023. In October, DNV's energy transition outlook predicted a peak in energy-related emissions to have been reached actually this year. And coming back to AI and data centers, we do see interesting opportunities in this space going forward. Today, data centers account for about 1% to 2% of the global electricity demand, but it's forecasted to basically double until 2026. And we do see strong interest here. Organic order intake increased by 4%. Order intake increased by one. Equipment order intake decreased by 2%, primarily driven by timing of energy storage orders. Service order intake increased by 4%. Looking at the order books, we have a strong order book, and the rolling book-to-bill continues above one. I think it's now the 14th a consecutive quarter that we continue to have a book to build above one. Organic net sales increased by 21%, net sales increased by 18%, equipment net sales increased by 32%, and service net sales increased by 6%. And as I said, this is a little bit what we indicated before, During the second half year, we would have strong sales in particular in equipment. We are growing in both, but equipment is growing fast. Profitability continues to improve in line with what we have said. Net sales increased by 18%, so of course we have support there, and the comparable operating results increased by 41%. And we are on a path to reach our financial targets, our 12% EBIT target. Looking at technology and partnerships, it's all about enabling the decarbonization of marine and energy. So a landmark deal between Wärtsilä and 80s Week Offshore, pioneering the growth of ammonia in shipping. So we have signed a contract with the Norwegian shipowner Edersvik to supply the equipment for the conversion of an offshore platform supply vessel to operate with ammonia fuel. And we will supply the engine, but also the complete fuel gas supply system and the exhaust after treatment needed for the conversion. And the vessel, Viking Energy, is scheduled for conversion in early 2026, and it's expected to start operating on ammonia in the first quarter of 2026, becoming the world's first ammonia-fueled in-service ship. And the order was booked by Vaseline in the third quarter. Another interesting example from the energy space, we have signed an agreement with Aqua Electrica to continue to support Curacao's decarbonization with a new thermal power plant for balancing renewables. So we were again contracted by Aqua Electra, which is Curacao's government's own utility company, to provide an EPC contract for a 38 MW power plant capable of providing efficient grid balancing as the level of renewable energy in the system continues to increase. Earlier this year, Aqua Electric placed an order with us for a battery storage system and also for GEMS, a digital platform. So now we are bringing it all together, the thermal, the energy storage and GEMS. to optimize the whole system. And the thermal order now was booked in the third quarter. So let's look at the two businesses and how we are evolving. So in marine, the good performance continues. Net sales and comparable operating results increased. Order intake, flat, yes, but you should remember Q3 last year, we had some pretty big orders, especially on the ferry side, so the comparison is a challenging one. Underlying order intake, we see a lot of activities and have a positive outlook. On the net sales, net sales is up with 10%. And if you look at a continued journey of improved profitability, the major drivers in Q3 were the higher service volumes and the better operating leverage stemming from our higher volumes. If we look at our service business and we see good development in marine services, marine net sales to agreement installations have been stable around 500 million euro in Q3. And you see net sales to agreements installations. You can see it seems to be tapering off, but we have a positive outlook. You can see here the latest order intake we have on the agreement side in Q3 was a lifecycle agreement that we signed with Royal Caribbean to help Royal to accelerate their sustainability goals. So we basically signed a five-year lifecycle agreement with Royal, covering 37 of their cruise ships. The agreement is designed to optimize the performance, reliability, and availability of the ship's engines, so ensuring the highest level of operational efficiency. The contract covers both scheduled and unscheduled maintenance, and includes also Wärtsilä expert inside services. This is built on a performance-based model, so it means that the gains resulting from best operation and maintenance practices will be shared by Royal and us, by Wärtsilä, further highlighting the collaborative efforts. And the order was not booked in Q3, it will be booked in Q4. So, moving to energy. Comparable operating results increased. Equipment orders and deliveries grew clearly in energy power plants. Yes, order intake is down 19%, but that is primarily driven by storage. If we look at the power plant side, queue on queue, order intake is up 20%, even more. Net sales continues to increase, up 31%. And if we look at... Very positive continued journey for energy. The main drivers is, first of all, you will see in the next picture, the continued improved profitability of our energy storage and optimization business. Then, in general, for whole of energy, higher service volumes, and also here, better operating leverage, stemming from the higher volumes, and I would also say from robust project execution. Now, zooming in on storage, we see that the comparable operating result margin continues to improve. But of course, order intake in Q3 was not what we expected it to be. However, we do see it will improve in Q4. It's about periodization of certain big orders. The orders are getting bigger and bigger for us in energy storage. And when you have something sliding over a quarter, it will have a significant impact. So underlying, we are still very optimistic about the order intake for energy storage. And the overall market sentiments are also very strong. If we look at services in energy, the agreement coverage in energy continues to be strong. And here is one of the examples where we continue to strengthen our commitments to Zambia with an O&M agreement renewal for the Ndola power plant. So basically we signed a renewal of an operations and maintenance agreement covering the 105 MW power plant owned by the independent power producer Ndola Energy Company in Zambia. The previous agreement has been enforced since 2013, so now it's time to renew. And the plant operates 12 W32 engines. Six includes two-stage turbocharging technologies. And this is, we continue also to have this high renewal rate, both in marine and energy, on our service contracts. I mean, over 90% renewal rate. And you can also see that the megawatts, our share, continues to improve. We are around 30%, and we talked about that we have opportunities to grow the percentage going forward. Now, to sum it all up, the comparable operating results improved in basically all businesses, marine, energy, and portfolio businesses. And you see the... Waterfall here from 8.6% to 10.3%. Marine improving from 10% to 10.4%. Energy from 8.4% to 10.5%. And also portfolio business is going from 3.9% to 9%. And if we zoom in on portfolio for a while, we said these are business we're going to divest, but we want to turn them around and want to prepare them for divestments. And this is what we are doing. You can clearly see it here. Comparable operating results once again increased by 41%. Now, other financials. Arjan, please. Thank you, Okan.