Wartsila Corp B Shs

Good morning and welcome to this news conference Q3 results. My name is Hanna-Maria Heikkinen and I'm in charge of investor relations. Today our CEO Hakan Agnevall will go through the group highlights and then followed by the business performance. After that our CFO Arjen Berends will continue with the key financials. After the presentation, there is a possibility to ask questions. You may have recognized that we also announced our new financial targets this morning, but we will kindly ask you to leave the questions regarding financial targets to our Capital Market Day, which will take place next week. So all of you, you are warmly welcome to our Capital Market Day. But now, starting with the results. Please, Hakan.

Thank you, Hanna-Maria. Welcome everybody. I think we have had a really strong Q3, both from an order intake perspective, but also on our journey to continued improved profitability. So, continued increasing profitability and continued strong order intake momentum. So order intake increased by 33% to 2.4 billion. Actually, it's up 41% organically. Service order intake increased by 11% to 950 million euro. And we are now at an all-time high order book of close to 9.9 billion euros. Service continued rolling book to bill above 1. So now we are at 1.1. Net sales increased by 7% to 1.5 billion euro. And we continue to improve our profitability. Comparable operating results increased by 19%. to €212 million, and that's 14.2% of net sales. Operating results increased by 4% to €222 million, which corresponds to 14.9% of sales. And cash flow, we continue to have a strong cash flow from operating activities, amounting to €583 million. And on our ROSA journey, return on capital employed, we are now at 94%. So let's look a little bit deeper into the numbers. And if we start with the Q3, we see order intake is up 33% to 2.4 billion. You can see that service order intake is up with 11% to 950 million euro and equipment up 53% to 1.4 billion euro. Thank you very much. Net sales up 7% in the quarter from 1.4 to 1.5 billion euro. Services is a bit flat, 850 to 802, so minus 2%, but I would say flat. Equipment up 19% from 580 million to close to 700 million euro. Book-to-bill continuously improving from 1.27 to 1.59%. And we are translating the sales to increased profitability. Comparable operating result up 19% from 179 million euro to 212. And that corresponds to 14.2% of net sales, improving from 12.8. And on the operating results, up also 4% to 222 million euro, which is 14.9 on net sales. If we just quickly look at some of the key numbers for the full year, so to say, we order intake is up 26% from 5.6 to 7.3 billion euro. Net sales is up 2%. Organically, it's actually up 9%. So from 4.4 to 4.5 million euro. And then if we look at the comparable operating results up 12% from 558 to 623 million euros, 13.9. Also very close to the operating results, which lands at 13.8. So good development, I would say, in all key figures. If we look quickly on marine and energy, the market, on the marine side, the market sentiment remains supportive of our key segments. And shipping has remained resilient despite the macroeconomic headwinds caused by the Middle East conflict. The number of vessels ordered increased to 2,500. The Middle East conflict has certainly lengthened the shipping routes, continues to do so, supporting demand and improving earnings. The market sentiment remains supportive and ordering appetite continues to be on a good level in Wärtsilä's key segments. Contracting in these segments is expected to remain well above the 10-year average levels. The service market remained active and overall vessel utilization stayed at a good level. Increased fuel prices, reduced short-term service spending in some segments, while higher shipping rates led to postponements of some service activities. And you will see that on marine service order intake, it's impacting that. In January to September, 446 orders were for new alternative fuel-capable ships, which is about 30% of the capacity of the contracted vessel. That also reflects the mix of the vessels being ordered. On the energy side, clearly increased demand in drives, Energy Transition Investments. I mean, we see a structural shift here in general electricity demand, and that translates into a very strong market for Wärtsilä. Electricity demand grows and future projections have increased substantially, creating market opportunities for equipment providers. Two key themes have stood out in the recent macroeconomic development. Load growth and increased tariff-related uncertainty. The diverse set of low growth drivers includes electrification of industry, transportation, cooling and heating, as well as data center. And we see it as a structural growth. It's not only data centers that are driving this growth. In engine power plants, market demand for equipment has been strong. The baseload segment remains a consistent source of demand for thermal power, while the drivers for balancing demand are also expected to continue to develop favorably. Renewable energy investments continue to shape energy markets with investments outside of China at record levels in the first half of the year of 2026. And we, as VATS, we continue to see a strong demand from data centers globally. with a dynamic pipeline of opportunities. The resulting growth in the installed base also supports, as we talked about before, a significant lifecycle services business that will extend well beyond 2030. So, looking at the numbers in graphs, the organic order intake increased by 41%, order intake increased by 33%, marine order intake remained stable, whereas energy order intake increased by 121%. Very strong. Equipment order intake increased by 53%, and the organic equipment order intake was up 66%. Service order intake increased by 11% and the organic service order intake growth was 13%. We have a strong order book development. Rolling book to build continues to be well above one. And the order book is at an all-time high, driven a lot by energy. And it's the same theme as we talked about before. The order book is building further and further out in the future. And we have broken it down here on marine and energy. Organic net sales increased by 16%. Net sales increased by 7%. Marine net sales increased by 5%. Energy net sales increased by 52%. Equipment was up with 19%. On the organic equipment, net sales growth was 39%. Service net sales remained stable. Also the organic service net sale remained stable. On the profitability side, we continue our journey of improving our profitability. Net sales increased, as we talked about before, by 7%. Comparable operating results increased by 19%. And comparable operating mode in 12-month rolling are now at 13.8%, up from 12.2%. On technology and partnerships, some interesting orders and corporations in the latest quarter. So first of all, Australia, we will deliver Australia's largest ever energy and power plant to support the country's energy transition. As you might know, Australia is on a journey of reducing coal power and building up renewables. They have invested a lot in battery storage. We have been there with a battery storage business. But they have also realized that you need this mix that Wärtsilä has been talking about for many, many years. You need both batteries. and reciprocating engines to provide the balancing power. And we will see a market breakthrough in Australia here going forward for balancing power. Maybe also for data centers, but certainly for balancing power. So we are talking about flexible and highly efficient 46 tiers engines that will be supplied to Australia's largest ever reciprocating engine power plant. It's 300 megawatt that will provide critical grid balancing and system security in Australia. And the fast starting flexible capacity provided by our engines will enable greater integration of renewables into the power system. So it's really about balancing power. And we booked the order in the third quarter. Now in the different parts of the world, we received an order to integrate and optimize Aruba's generating assets for reliable and sustainable energy. This is, you could say, a microgrid application where we have signed an agreement with Web Aruba, the Caribbean Islands energy provider, to advance decarbonized operations through the integration, optimization, and control of Aruba's power generating assets. And this comprehensive solution includes engineering, procurement and construction work as well as service agreements. And we booked this order in the third quarter. And the final taking over is scheduled in the second quarter of 2028. Now, looking a little bit closer on marine and then energy. and development. So on the marine side, comparable operating results increased. Equipment order intake declined due to periodization of orders. You know there is lumpiness both in energy and marine, and we continue to see good growth opportunities, but order intake was rather flat due to the periodization of orders. While the service order intake remained stable. And you see the order intake, minus two. Net sales above continue to grow at 5%. We see the comparable operating results up to 13%. And on the positive side, we certainly see better operating leverage, higher equipment sales, and joint venture results also. Now what is dragging us down, but I think for very good reasons, is we continue to increase our R&D efforts to continue to be the technology leader in the industry. If we look at marine service book to bill, it continues to be above one. And our marine service order book increased by 10% compared to the third quarter in 2025. And if we see the last three years, we have had 6% CAGR. And we will see continued growth going forward. You also see to the right the graphs of the different disciplines in services. And here we can see the big swings. We see the curve that has been deep in the red, and that's the retrofits and upgrades. It really comes back now. We talked about it's lumpy. Many of these retrofit contracts are rather big, and when they come or not come, they have a big impact. And on the agreements lately, we have been down a bit. On the energy side, looking closer there, order intake, net sales, comparable operating results, all increased. and the equipment order intake increased supported by strong demand both from data centers and balancing applications. So order intake up 121%, net sales up 52% and you can also see the comparable operating result at 16% and here we have same positive driver, better operating leverage, higher equipment sales and I would like to highlight this one, solid project execution. We have Thank you very much. Overall, Energy Service Book to Bill continues to be above one. And Energy Service Order Book increased by 28% compared to the third quarter. That is, as you can see to the right, very much driven by retrofits and upgrades. And here we have had a couple of very big orders coming in in the third quarter. So you could say that those are type of one-timers. But we also say it comes back. Making the point that the retrofit and upgrade business, it can swing quite a lot. If we look to the left on the journey over three years, we have had 4% CAGR in the energy service business. The bridge of the comparable operating result from Q3 last year to Q3 now, we see we are going from 12.8% to 14.2%. We see Marine is down a little bit from 12.4% to 12.1%. Energy, big step up from 15.9% to 17.5%. And then we have still an impact of portfolio business, but that's the last year. We have now closed portfolio business, divested 11 business units. So comparable operating results increased by 19%. And Arjen, over to you on the key financials.

Yes, thank you, Hakan. Very happy to present the other key financials. If we start with operating cash flow, after a very strong, let's say Q2, very close to 500 million euro. Now in the third quarter, we realized 583 million euro. And as far as we could trace it back, this is an all-time high Q3 for Betsila. Good support from the profitability, but also very, let's say, good development in the working capital, as you can see also here on this slide. In the working capital, I would say the main two positive ones are, let's say, the payments from the customers, basically, so the advances as well as the receivables. On the negative side, let's say inventories went up, but that is logical. We are building, let's say, our deliveries for the future, so that takes money and investment and time to build. Looking at the return on capital employed, ROSE, very strong improvement. We had just over 70% at the end of last quarter. Now it's 94.1. Also, solvency clearly improving, let's say from 38.2 to 39.4 now. As you can notice, we have two lines for earnings per share at the bottom here. One is, let's say, the total, you could say. That's the first line. And the other one is the continued operation. The delta is basically the energy storage joint venture named Valo that is now booked as discontinued operation. And that has a seven cents impact, as you can see, on the earnings per share. If we look at the trends, let's say both cash flow as well as working capital trends move and continue to move basically in the right direction. Working capital at the end of, let's say, Q3 ended at around 1.6 billion euro negative. Advances received was about 2 billion euro. So if you exclude that, you end up positive 400 million-ish about. On that level, so working capital excluding advances, a lot of good efforts are continuously being done. Over the past three years, that level has decreased. So working capital excluding advances has decreased 300 million euro, actually while sales went up 1.3 billion euro. So really good developments also in other areas than just the advances. Not wanting to make the comment that advances are bad, they are very good, and we should continue that. Looking at the five-year average working capital to net sales ratio, 5.2% right now. So clearly, let's say, on a negative level. And we also anticipate working capital to stay negative for years to come. Then on the financial targets, and this is probably the last time we will show this, as you have noticed and also commented by Hakan, we have launched our new financial targets this morning as well. But looking at this graph then for the last time, first of all on the left side, let's say organic growth, 14% year on year for marine and energy combined. 6% is actually marine and 28% is actually energy. Profitability, 14.2% now on a rolling 12-month basis, which is up, let's say, from 14.0% actually in Q2. Group gearing continues to be deep low negative, so not much to add to that. And also for the dividend, I would say also nothing new to that as well, because that's already for a long time above, let's say, the financial target of 50% of EPS. With these words, I hand it back to you, Hakan, on the outlook.