Wartsila Corp Unsp/Adr

Good morning, everybody, and welcome to this news conference for Financial Statements Bulletin 2021. My name is Hanna-Maria Heikkinen. I'm in charge of investor relations at Wärtsilä. Today, our CEO, Håkan Agneval, will start with the group highlights and business development, and then our CFO, Arjen Behrens, will continue with the key financials. After the presentation, there is a possibility to ask questions and get solid answers. Håkan, time to start, please.

Thank you, Hanna-Maria. Welcome, everybody, this morning. It's snowing in Helsinki today, but I think we have a good wrap-up of 2021, and also looking, of course, into the Q4 numbers. So, some key messages for 2021, full year. We start there, and then we will move into the Q4. Overall, Wärtsilä is moving in the right direction in 2021. orders, net sales, operating results, and cash flow have all improved during the year, which is positive. Order intake increased by 32%. There is growth in all businesses. Also, good progress on the service side, which is very important for us. Order intake increased by 17%, and net sales increased by 11%. Profitability improved, as we will see, and we had a strong cash flow. Actually, we had an all-time high in the history of Wärtsilä in our full-year cash flow in 2021. Really encouraging. Then on the challenges, COVID continues to have a significant impact, and it has a negative impact on our business, both on the marine side and on the energy side. I think one of the important milestones during 2021 is the new ambitious financial targets and decarbonisation targets that we have announced. So, some key messages from 2021. If we first start to look into a little bit more detail on the numbers for the full year, and then we move to the fourth quarter. So you could see here that the order intake is up, as I said, 32% to 5,735,000,000. And we also see that services continue in a strong way with 17%. But please note, you will quickly see that the order intake for equipment has gone even stronger. It's around 47%. And this significant increase in equipment will of course have an impact on the revenue mix for this year in 2022. If we look at the order book, it's growing by 14% to 3.7, 63 million. Net sales full year has been growing with 4%, 4.7 million. And services is also growing even faster with 2.5 million euro. book to bill going in in the right direction definitely with 1.2 for the full year and if we look at the comparable operating result we improve from from 6 to 7.5 to 355 million euro we are on a journey and we continue that journey If we then zoom in to the fourth quarter, I think we see another highlight, the order intake for Q4. It's up significantly. I mean, €2.150 billion, 92% up to the same period last year. Of course, the same period last year was very low, but This is another record in the history of Wärtsilä, all time high on a quarterly order intake ever. And here we see strong contribution, of course, from some of the big energy orders that we have taken. But there is also good orders intake in marine systems, in marine power, and certainly on the services side. And on the Q4 net sales, it's up 31% to 1.597 billion euro. And we also see the increase of services with 16% to 761 million euro. Book-to-bill also very strong at 1.35. Operating results improving 9%, or I should say the comparable operating result at 158 million euro, 9.9% of sales. We all know Wärtsilä has normally a strong Q4, and that also happened in 2021. So let's here summarize the fourth quarter highlights. So the net sales at 1.597 billion euro, 16% increase on the service sales. You can see how it is evolving. Comparable operating results at 158 million euro, 53% growth, mostly driven by a more favorable sales mix between equipment and services. If we look at the marine market development in general, the number of vessels has evolved overall in a positive way this year. The increase to 1,855 vessels compared to 815 last year in 2020, I should say. In 2021, record-level vessel contracting in containers was very strong, but also new-build activity in gas carriers and bulkers exceeded the pre-COVID era. Cruise, however, new-build continues to be rather limited. The transitions to cleaner fuels has started and 384 orders were placed globally for alternative fuel capable vessels. And if we look at the crews operating pace, you could say. Around 17% of the cruise fleet capacity was active at the end of 2021. And there has been a gradual uptick throughout the year. During the summer, it was around 20%. Of course, we see now a little bit hic with Omicron. But when I talk to our customers, there is a strong belief in the summer season that is coming. Energy situation is improving. There is good activity on the energy storage market, also on the thermal balancing. The energy markets were recovering throughout 2021, despite of COVID. But in many of our core markets, COVID still has a significant impact on the decision-making process and also on the execution. So there are still postponements of energy projects. Energy storage with the battery business are very active and continuing at a good level. And our market share, if we look on the thermal side, it has decreased to 5%. But we also know there is about a quarter time lag in these numbers. And with a good order intake that we have had in Q4, I think this will affect our market share. If we look at the order intakes, coming back here again, up by 92%. You can really see the shift here, but of course, starting from a low level. It increased over all businesses, and equipment order intake increased by 184%. And as I said before, the strong new build order intake will of course affect the mix of service and new build in 2022, the sales mix. Service order intake also increased in a good way by 20%. If we look at the order book, we are building the order book in a positive way. And we can also see that we are building the order book Both with delivery this year, but also with deliveries beyond this year. Net sales increased by 31%. And equipment sales, net sales increased by 48%. Services by 16%. Going in a good direction. Then looking at technology and the partnership journey here. We are about shaping decarbonization of marine and energy, and it's a lot about technology and services. And here on the technology side, we see some exciting development during the last quarter and the last year, I would say. I mean, the latest thing here, Two Stroke, we are doing some very interesting and promising technology development here. It's about... having retrofit capability to convert going from diesel to LNG, or from heavy fuel oil to LNG, but then also to continue to upgrade the engines to the future fuels. Very promising. We have introduced our new IQ series of exhaust gas treatment systems. That's the next step in the gas treatments with a smaller footprint. and with a good performance, so to say. The ammonia journey is also ongoing, one of the exciting fuel avenues going forward. And we have announced a cooperation with Edisvik Offshore to convert an offshore supply vessel to operate with an ammonia-fueled combustion engine. some of the early steps. Then on voyage, smart port innovation and digitalization, we have signed the landmark memorandum of understanding with the Maritime and Port Authority of Singapore to further strengthen our collaboration and see what digital solutions can contribute to the shipping ecosystem in Singapore. If we then go and look a little bit closer, business by business, So if we start with marine power increase, basically in all key figures, comparable operating result increased by 67%. You can see ordering take up by 50, net sale by 20. If we look at the operating result, We could say the positive contribution here is from the reactivation of the cruise that took place throughout 2021, and that driving the increased volume in services. We have also had efficiency improvement actions, primarily on our field service network but also in other parts of the business the challenges is is the cost inflation we clearly feel it and and we can mitigate it to some extent but of course we feel it and and still we are have a relatively low factory load building up a little bit going into to to to this year with the latest orders received on the energy side and The service business and the service agreements in this case, it's going in the right way. It's increasing after the COVID-19 related decline. An interesting example, we signed a long time optimized maintenance agreement with the NYK Ship Management. It's a 13 year contract. which is designed to ensure maximum uptime and equipment reliability with a short maintenance cost for LNG carriers. And this order, it includes the Expert Insight, a digital platform, which enables dynamic data-driven maintenance planning and optimized maintenance. So it's really to leverage digital tools and artificial intelligence to provide uptime reliability and create value for the customer. If we switch to marine systems, net sales and order intake increased. Service order intake increased by 21%. And you can see the order intake up 131%, net sales up 32%. If we look at the comparable operating results on the positive side, the demand for transactional services contributed in a good way. But there is still a low level of new build scrubber and the margins on the scrubber business have come down. There is also a challenge with the mix between equipment and service that affects the operating result. Voyage Clear improvement in profitability, driven by improved sales volume, about a favorable equipment service mix, but also driven by the efficiency improvement that we are performing in Voyage. Also in Voyage, we have the challenge with the cost inflation and also the continued increased investments in our digital competence. So Voyage is in a positive trajectory. However, Voyage was helped in Q4 also by, I would say, some strong seasonal effects on the services side. So when one looks at the overall improvement journey and the profitability of Voyage, one should consider the full year result. The cloud solutions deliveries and order intake continues to grow in an accelerated way. We are also growing our cloud simulation service business. And here we have a very interesting example from Africa and the University of Mombasa. We are basically providing our cloud-based simulation tools for modern training technology, and that will help African seafarers to be trained remotely of course in COVID times, very valuable. The sessions will always be up to date with the latest content and also tailored content to be able to provide customer specific training that is accessible for all the participants. And the cloud simulations is really a compliment to the on-premise simulations and to be able to ensure top-notch remote training. Okay, if we then move to the energy side, energy order intake, net sales, and comparable operating results all increased. And we had large single deals that came in from Mexico and Brazil, and that really supported the energy business going forward. But we do see a little bit of a trend shift here also on the thermal side. Still fully acknowledging this is a project business with what that means, so to say, in terms of the order intake. Sales volumes is clearly up, contributing to the comparable operating results. Also favorable mix within services, so to say. On the challenging side, or affecting the operating result in a negative way, is the equipment services sales mix. It's an increased share also of energy storage, as we have communicated before. Currently, the energy storage business is loss-making, and we are improving it and turning it around over the next few years. And we also see we are investing in the business, ramping up our execution capabilities and growing the business. And we are also in energy facing a cost inflation pressure. So the example for energy is the significant order that we received from CFE in Mexico for 480 million euro. CFE is a state-owned electrical utility in Mexico. And they have ordered two large multi-fuel power plants with a combined output of 600 megawatts. And these are actually the biggest generating capacity EPC contracts that Wärtsilä has ever received. And it includes both the 50 DF dual fuel engine and the 34 DF dual fuel engines. Very important order and also very encouraging for the energy business. And but energy also has a strong focus on services. And if we look at the installed based covered by long term service agreement, it is really increasing. And when we talk about how to support our customer, remote support for power plant is constantly growing. And we solve a lot of cases remotely. Every day. So a couple of interesting data points here. 96% of the support cases were actually sold remotely in 2021. 96. And 91% of the support cases, they were actually sold within the same day they were raised. And so remote support solutions help to reduce the operating cost and the lead time. And once again, using data and infrastructure, also using the digital tool to have a quick response time and also start to work with proactive maintenance and preventing problems from occurring. Other key financials, so I am, please join me.

Thank you, Håkan. Starting with cash flow, Håkan mentioned already, really a good cash flow both in Q4 as well as for the full year, a record again after the record of 2020, which was the previous one. Of course, a good contribution by the profit, but definitely the main contribution, as you can see also from this slide, came from the working capital. All the actions that we have implemented historically, I would say a couple of years back on, let's say, collection, inventory, optimization, et cetera, are really paying off. Also, let's say we had a good traction on, let's say, the supply side, let's say with SCF programs as well. Good cash flow, of course, contributes Clearly, let's say to lowering the net debt almost zero and gearing also equivalently following. Solvency improving slightly 0.5% and basic earnings going up as a consequence of increased profitability. Cash flow slide on the left side, trend is going up. Really good level, I would say. Going to the right side of this slide, let's say the fourth quarter development. Looking at the main buckets here, let's say the trade receivables, they went up as a consequence of the high deliveries in Q4. Seasonality here also that has an impact to the inventories, which went down, of course, when you ship it out under very difficult circumstances. Logistics, I think we have mentioned that also earlier. calls and then trade payables coming from basically all businesses. But the main business here that is in here is energy business with a good traction and good payment terms towards suppliers. Looking at the dividend per share, the proposal is 24 cents, 73% of EPS, which is in line with our financial targets on the long term, being above 50% of EPS.