Wartsila Corp Unsp/Adr

Good morning. Welcome to Wärtsilä's fourth quarter earnings call. My name is Natalia Valtasaari. I'm head of investor relations here at Wärtsilä, and I'm joined here today by Jaakko Eskola, our president and CEO. Before I let him take over and run through the results themselves, just a few words on the Q&A session, which we will have later on in this presentation. In order for you to enter the questions queue, please use the raise your hand function. And when the moderator calls your name, please remember to unmute your microphones and then lower your hand once your question has been asked. If you do experience any audio issues, there is a chat function and I'll try to raise those questions during the session as well. And then finally, I'm sure that we'll have a lot of questions coming in, so please do limit yourselves to one question, one follow-up, and then rejoin the queue if you have any further questions that you'd like to go through. With that, I'll let Jaakko take over.

Thank you, Natalia, and good morning, everybody. Welcome to the result presentation 2020. I'll have with me here in Helsinki campus, Atte Palomäki and Natalia, as you saw. And then on the lines, the whole board of management. So we are ready then to answer all your questions and they will help me with detailed analysis of the businesses. Let me start with this slide and really the title, a year by COVID-19 related uncertainty. 2020 was an unprecedented year with virtualized end markets heavily affected by the COVID-19 outbreak. and the measures taken globally to contain the pandemic. Deteriorating macroeconomic conditions have caused our customers in both of our end markets to revaluate their capital and operating expenditure plans. Vessel contracting, as you know, has decreased to record low levels. Investments in new power plant capacity were postponed and maintenance activities were pushed out as the utilization of installations declined and travel restrictions limited the mobility of service engineers. If you look at this backdrop, I'm happy to see that we have had resilience of the demand for storage solutions and the acceleration of the marine markets digital transformation was especially encouraging. Some of the key figures and first of all, order intake. The decline in order intake reflected the uncertainty in our market environment. And demand decline in the cruise segment continued to represent the main challenge in marine power and voyage, affecting both equipment and service orders. In marine systems, order intake was heavily impacted by reduced fuel spreads, lowering demand for our customers' scrubber investments. While energy order intake was affected by the slowdown in economic activity, Some signs, as I mentioned, of market stabilization were seen towards the end of the year and specifically in our storage solutions. If you look at net sales, 20 decreased because of lower service volumes and the disruption to equipment deliveries. Profitability for the full year came in well below that of 2019. The main reasons being volume and less favorable sales mix, under absorption of fixed cost and COVID-19 driven cost inflation. We have mitigated the financial effects of the COVID-19 by implementing actions in the form of reduced discretionary spending, work time reductions and temporary layoffs. During the year, we said that these resulted in temporary cost savings of around 100 million euros, which was being recognized during the year. And I mean, this all was like we initially expected. If you look at this slide, one of the highlights of 2020 was definitely our cash flow. It's a record high number, almost 700 million. I haven't seen that high number during my years in Wärtsilä. And heavy focus has been on our working capital and of course looking at our customer relationships and the supplier situation and this will be and will continue during 2021. A detailed focus on gas flow from our operating activities. Dividend proposal per share this year is 0.20. A couple of more detailed slides about the markets. Here you can see the vessel contracting. December, we saw some increase or November, December in the VESA contracting, but we are still at very low numbers. Specifically in December, we saw merchant vessel contracting picking up a bit, and also LNG carriers. And today you can see we announced one major transaction also, what comes to the new LNG vessels. And with all these LNG vessels and special tonnage, as you see also here, There, of course, the future always brings quite steady service income going forward. Energy market, this is the slide we used to show about our market share, the situation has stabilized during 2020 and our market share development has been quite steady. Order intake as such in Värtsilä Group, you can see from the right side of the slide that Marine power went down, energy went up, and then services, which is a good sign, services order intake increased, so that's of course a good sign for future development. Order book as such has been coming down during these difficult years. It's still a bit over 5 billion. And then when you look at the delivery schedule, this year we are starting the year a bit behind compared to last year. and of course that has to be taken into account when you look at the possibilities to get new orders during the year. Net sales again, services on the fourth quarter was developing a bit better, I mean all net sales on almost every business has been decreasing, but services itself on the fourth quarter picking up a bit better. But as we said during the year several times, the whole year has been extremely challenging, and we expected that the fourth quarter is picking up a bit, but we will not see, and we didn't see, anything like we used to have during earlier years. And as I said earlier, the comparable operating result was also affected heavily by the COVID-19 and related issues. Gas flow very strong, as I said, record high. And here you can see also the earnings per share and now the dividend proposal by the board of directors for the AGM. A bit about the businesses. Marine power. I mean, as I said, every business you see decreasing numbers and mainly mainly affected by, to start with, by the COVID. Here in marine power, order intake decreased, sales decreased. I mean, we have a lot of fleet idling going on in the sector, and customers are really adjusting their needs, when and where to invest, and then you see it also what comes to the to the marine power net sail development, that if one of the segments like cruise is not doing quite well, it will definitely affect Wärtsilä's numbers. Comparable operating result also decreased, and there we had a less favorable sales mix and also the weak fixed cost absorption affected our profitability. Net sales from installations under agreement. I have always said that this is quite important slide to show. And here, of course, when COVID hits our customers, then they are not sailing their ships. That will also impact our service levels. Marine systems, as you know, has four businesses, scrubbers, electrical systems, gas solutions and shaft line solutions. A lot of postponed customer decisions. We have seen some orders moving from 2020 to 2021. And of course, the reduced fuel spread is hitting the the exhaust gas business orders heavily. At the same time, we have been delivering last year, our products and solutions to customers, and that has definitely also helped our result in the marine system business. Overall, then if you start comparing, it's good to remember in 2019, the result was weakened by some of the gas solution projects. Voyage, the business where we see the future, where we still are investing heavily, very much our voyage solution projects are going to ferry and cruise business, And if those businesses have been down, it has affected the order intake. And also sales was affected because of lower service business and transactional service and also project postponements. The profitability of Voyage is still negative, and we are investing in our digital competencies. As we have said earlier, we need to look at the EBITDA level. And during the next couple of years, I hope sooner than later, we need to turn this business positive. And there is a lot of actions going on in that transition. Here you see also one important slide when you look at our voyage business, which is the connected vessels, and that has been doubling and increasing very much during the year with nice deals like this Ultraship fleet, applications. I mean, that will finally pay out. Energy as such, order intake increased, but not so much as in the marine businesses. And here the slowdown in the economic activity has definitely hit us. Storage market, you have seen the resilience, I already mentioned that one. And now going forward, I think storage plays an important role, but also the renewable transition where Wärtsilä has great solutions to our customers. Operating result was also heat, and here we see some delivery delays, heating the fixed costs on the factories, as the same factories we are building our marine and energy energy engines and then if you compare also 2019 and 20 it's good to remember these cost overruns we had and last year when we have been delivering out those projects with zero margin Service install base stayed the same level, but you have been reading some of the news of quite nice transactions with our customers. The example here is from Papua New Guinea, where we get the service for the 10-year agreement with our customer. Final slide, prospects for 2020. We expect that the near term, now the Q1, demand environment to be similar of the previous year, so last year, and at the same time, We have been hoping, of course, the vaccination coming in and helping some of our customer segments, but at the same time, I need to say that the conditions, the experience we hear every day, that the prevailing market conditions make the outlook uncertain. And this is everything we can say at the moment. With this slide, I let you all to start asking questions, and as Natalia said, two questions, and then if you can go back to the line, but please.

Good morning. My name is Mikko Miettinen. I'm your moderator this morning. Welcome. First question on the line, we have Andreas Willi, JB Morgan. Please.