Wartsila Corp Unsp/Adr

Ladies and gentlemen, welcome to the first quarter earnings call of Wärtsilä Corporation. My name is Emilia Rantala, I'm from Wärtsilä's Investor Relations, and here at the stage we have also Håkan Agneval, our new president and CEO. Håkan will first give a brief presentation, and after that we will have a Q&A session. If you wish to ask a question, please use the raise your hand function in the GoToWebinar tool. When your name is announced, please unmute your line and ask the question. You may also have one follow-up question, if you so wish. This session will last one hour. With these words, I hand over to Håkan.

Welcome everybody, welcome to the first quarter of the year and also the first quarterly interim for myself as CEO of Wärtsilä. Couple of reflections joining. It's very exciting times to join Wärtsilä. On a personal note, starting to meet with customers, starting to meet with our teams, and also very much looking forward to meet with you as analysts, as investors. Very grateful for the trust that you put in Wärtsilä. And let's look at our major messages for today. Order intake is stable. But COVID-19 continues to have a significant impact on our net sales and our profitability. If we look at the market outlook in marine, it is on the new build side picking up from last year. I mean, last year, new build was down 30%. it started to shift in Q4, and we see new build picking up, still picking up in Q1, especially on the container side, but also on the bulkier side. However, on cruise and ferries, the market is still very slow. Energy, also heavily affected by COVID. Many of our core markets are emerging markets, and COVID has a significant impact. The vaccination programs also take time, and that affects the decision process. It affects the whole market dynamic. Another highlight, EBIT. You will see we have made a significant provision in this quarter. We have done, me coming in as a new CEO also with some senior experience from project business together with the management team, we have done a risk review of some of the most complex, some of the biggest projects that we have, and we have changed the risk profile a bit in our project portfolio to make it more in line with the risk profile that you would expect in a project business like Wärtsilä. On the technology side, I think there is a lot of exciting thinking going on, a lot of exciting dialogue with our customers going on. And as you know, Wärtsilä is very well positioned in the decarbonization journey, and we continue to invest in R&D. And it's really exciting dialogues that we have with our customers. Then on guidance, this is still a time of high uncertainty. so on the demand side we only give a short term guidance and short term it looks to be somewhat better than same quarter last year so those were the highlights before we go into the numbers in more detail let's really talk about what is in our focus right now, and that is of course our people in the COVID situation and our customers. It's really important that we can provide a safe working environment for our people. They are out there on the sites, they are working in the fields, supporting our customers, also in the offices and in the factories. So very much, and I'm really grateful to all those employees that are out there and really trying to provide the very best support for the customers that we can do. Our customers, they're going through some challenging times and we really want to be there to provide the best services that we can to support uptime, reliability and operations. And then at the same time, we need to perform Focus on cash, cost and continuous improvement. We need to be in this era or time of uncertainty. We need to be very careful on all these three elements. Now, let's look at the numbers. So if we start on order intake, it's stable relative to Q1 last year. And there are some positive highlights there. Services is growing. It's up 11%. And it's both on the marine side and on the energy side. On the new build, battery storage is going very strong. This quarter we received orders for 800 MWh. Very interesting prospects there. Also on the marine systems side, order intake has been strong. Net sales is down, as you can see, minus 19%. The major drivers are COVID impacting our deliveries and energy. It's affecting site works, affecting our deliveries. The other major driver is the scrubber business. We have significant scrubber deliveries ongoing. But now the container vessels, they are really operating heavily. The rates are high. Our customer makes money. And then the scrubber programs, they are postponed. Then on the EBIT. It's down 28%, significantly down, but then you should be aware that we have taken 20 million euro in provisions, readjusting the risk profile of our product portfolio. So 20 million euros. On the positive side, cash flow. It continues to be very strong. Keep collecting outstanding. We are also working with payables and also some down payments. But it's a very strong continued focus on cash flow and we can really see that that is giving results. So talking a little bit more about the market, first on the marine side and then on energy. As we saw, markets are picking up, but it is a lot about container and lately also on the balkar side. Whereas as crews and ferries are still slow. I mean, Q1 volumes, 376 vessels being contracted compared to 127. So there is a trend there. And that's very interesting. But our core segments on the new build side are still slow. When I talk to our cruising customers and I think there is a consensus that they will see more operations starting from July, August going forward and that there will be a ramp up. I think this is how they think about their business and of course that should have a spillover effect on us. So I would say cautiously optimistic. On the energy side, I would say we keep our market share stable when it comes to the overall. But in emerging markets, heavy COVID impact and decisions are not being made. It is affecting our deliveries. So therefore, a flat market share in a market that is a bit slow, with one big exception, and that is new build on battery storage. And here we are really active and we see that also going forward. On the order intake, as you can see, it is flat. And as we pointed out, it's on the positive side, its services, its marine systems and its battery storage. The order book, it's down compared to Q1 previous year. But you can see here, there is a bit of a trend shift in Q1 here. And part of it is, of course, that we have a lower sales. But I would say there is cautiously optimistic, a bit of a trend shift. However, net sales is down, and we talked about that, driven mostly by energy deliveries being slowed down by COVID, but also by scrubber retrofits being postponed. The operating result, and here you can see both the long-term trend and the period results, so to say. And of course, It is not going in the right direction here, but we have taken a provision and we have done a very careful review of our project portfolio and also engaged senior management, including myself. We found that we need to rebalance the risk profile. I mean, we are in project business. There will be risks, there will be opportunities, and we need to have appropriate risk profile in our portfolio. And this is where we found out that we needed to adjust the risk level. And that meant a provision of 20 million euro in the first quarter. Cash flow, as we talked about, developing in a positive way, very much focusing on collecting and also working on the payable side. A really strong program there and strong execution. Now, technology and partnership. I think going forward, Our strategy is very much focused on the decarbonisation journey, both on the marine side and on the energy side. And there are a lot of initiatives where Wärtsilä is working together with other partners to develop new technology and the future technology. And when we talk about green and we see the journey, the green journey, both from the marine and the energy side. But when we talk to our customers, green is not black or white. There are different alternatives, the different technologies have pros and cons. And I feel that our customers are really looking for a speaking partner. And we want to be there to be able to provide different balanced viewpoints and also different solutions for our customers. And those solutions, we develop some ourselves, but some in partnerships. And here we have some of the exciting ideas that we are working on now. I mean, carbon capture. We announced we will make a pilot installation, one megawatt pilot installation in Norway to test and in connection with our scrubber business, how we can evolve that. We have the Power2X corporation in the Vasa energy cluster. very important cluster for Wärtsilä and also for Vasa and there's some really interesting stuff there going on on the hydrogen side and we are testing different hydrogen blends in our machines. Then on the storage, we recently signed a frame agreement with AGL. It's one of the major utilities in Australia. It's a five-year cooperation, and I think this could really mean a lot for Wärtsilä in the region. And it also proves that the battery storage industry is evolving. And finally, also not forgetting our balancing, our ICE balancers, where we recently launched our next step on our balancer journey. And I see coming in the discussions on balancing need has been for many, many years. But it's clearly so as the power systems of the world evolves in adopting more renewable energy, wind and solar, there will be more balancing power needed. I mean, the sun doesn't always shine and the wind doesn't always blow. And then, of course, there will be different balancing solutions. There will be different technologies providing the balancing functionality, if you want. And here, I think, both on the storage side, but also our ICEs, driven by different fuels, sustainable fuels, will provide some really interesting opportunity, given the flexibility, given the total life cycle cost. So let's quickly go through the different businesses and how they have performed in Q1. So on the marine power side, the order intake decreased with 10% to 446 million. And of course, this is driven by cruise and ferry segment being slow. Net sales decreased by 7% to 426 million euros. But the operating results amounted to 40 million euros and a 9.3% operating income margin or EBIT margin. And that is an increase and it's driven by two factors. It's a good service sales and a good service sales mix, but also driven by some of the efficiency measures that have been taken in the business. And if we look at our services side, and as you know, we are working very actively, moving up the service value ladder with different type of agreements and performance-based arrangements. And net sales from installations under agreements have in Q1 declined, but that is more driven by COVID and the slow operation. I think we have some really interesting opportunities going forward. Another example is where we recently signed an agreement, an asset performance agreement for an LNG carrier fleet. The customer name is still confidential, but I think this is a very interesting example of how we are evolving our agreement business. On marine systems, order intake increased by 35% to 153 million euro, driven then by the equipment business in exhaust, in gas solutions and also in marine electrical systems. Net sales however decreased by 39% to 142 million euro and that was mainly driven by the scrubber retrofit programs that are being postponed because of the high container rates. People are making money and then they want to wait with the retrofits. And then the operating results came to €8 million and a 5.5%. And that is of course affected by the lower net sales. On Voyage, Voyage has also been severely affected by COVID. I mean, Cruise is a very important customer of Voyage. So order intake decreased by 20% to 86 million euros. And net sales also decreased by 15% to 59 million euros. And also the transactional piece of Voyage has been a bit slower. Once again, connected to cruise and to COVID. Comparable operating results amounted to minus 12 million. So it's minus 21.3% of net sales. The interesting story with Voyage, and you know we are going through a transformation program, we have put together all the different parts of the group that was in the digital space, so to say. The transformation is going according to plan. There is a lot of exciting things going on. And here, one very positive, very important element of the Voyage journey going forward is to closely follow how our order intake and the contracted fleet on cloud-based solutions. And you can see here, we have a significant and rapid growth, and that continues. So this focus on the cloud-based, very important going forward. On the other hand, we also have the radio and navigation technology, and here we keep on taking orders. The latest here is LNG-fueled tankers that will work in an arctic environment, harsh environment, very stringent safety requirement, and here our solutions fit in very well. On the energy side, order intake increased by 4% to 493 million euro. And then supported by the good storage activities, also with a healthy service order intake. However, net sales decreased with 18% to 288 million euros and comparable operating results amounted to 4 million and only 1.5% of EBITDA net asset sales. And that is of course related to this 20 million net provision after the project risk review that we have made. And it's also affected by delay of deliveries in projects affected by COVID. If we look at the service business, because also for energy, service is critically important going forward. And also here we are moving up the value ladder, looking at performance-based agreements. And I think we are making progress here. Another important business going forward is, of course, conversion. Conversion from heavy fuels to gas. And here we have one example from Senegal. And I think this is the type of business we will also see going forward. So, wrapping it all up and looking at the prospects, we expect the near-term demand environment to be somewhat better than of the corresponding previous period and previous year. But due to COVID, the visibility is limited so to say and there are high uncertainties. So that was a short walkthrough of the Q1 results and now we open for Q&A and I'm very happy to take any questions you may have.

Okay good morning, the first question on the line is coming from Sven Weyer from UBS, please Sven.