Wartsila Corp Unsp/Adr

Good morning, everybody, and welcome to this results briefing for Wärtsilä Financial Statements Bulletin 2022. My name is Hanna-Maria Heikkinen. I'm in charge of investor relations. Today, our CEO, Håkan Agneval, will start with the group highlights, continue with the business area performance, and after that, our CFO, Arjen Behrens, will continue with the key financials. After the presentation, there is a possibility to ask questions. Time to start.

Please, Håkan. Thank you, Hanna-Maria, and welcome, everybody. Let's dive into it straight away. So if we sum up the full year of 2022, it's been a challenging year, but on the positive side, with strong annual growth. Order intake increased by 6%. Net sales has increased by 22%. And we do see continued good progress on the services side. The service order intake increased by 17% and actually exceeded the equipment order intake in absolute terms. And the service net sales also increased by 12%. On the negative side, the comparable operating result declined by 9%. The result was supported by the higher sales volumes, but it was burdened by cost inflation, less favourable sales mix between equipment and services, and the cost provision that we released in Q4 for 40 million euro related to the Olkiloto nuclear project. 2022 has also been a year of quite a few structural changes. I mean, first we did the orderly exit from the Russian market, and we have completed that. Then we announced our plan to centralize our four-stroke manufacturing to Vasa, Finland, and to scale down manufacturing in Trieste, in Italy. And we have also decided to integrate the voyage business into Marine Power to strengthen the end-to-end offering and accelerate the voyage turnaround. Now, if we look at the numbers and I will focus a little bit on the Q4 side, if we see the order intake, it went down quarter on quarter from 2.1 to 1.6 billion euro. It's a 24 percent decrease. But we should remember Q4 2021 was an all time high quarter for Wärtsilä history. And if you look really at the order intake, On the full year, actually 2022 has the second highest order intake in Wärtsilä history. The highest year was still 2018. So from order intake side, I would say a pretty strong year. Services, jumping back to the quarter, is continuing to grow from 747 to 791 million euros, 6% growth. Net sales also growing from 1.6 to 1.8 billion, 11% growth. Book to bill. We have been living now with a number of quarters above one, now it's coming down slightly below one. The rolling, the 12-month rolling is still above one, but it's coming down a little bit in this quarter. Operating result, clearly coming down 75% from 144 to 37 million euro, and by that from 9% to 2.1%. And similar development on the comparable operating result, down 41% from 158 million euro to 93 million euro. So looking at the fourth quarter highlights, so net sales close to 1.8 billion euro and 4% increase in services sales. The comparable operating result landed at 93 million euro, which is a 41% decline. If we look at the marine market, I would say that the market sentiment continued to improve despite the growing macroeconomic concerns. New build investments were moderated due to close to full order books at many yachts and also higher new build prices. If we look at the number of vessels in Q4, they decreased to 1,538, down from 1,855 year on year comparison. Order activity was supported by record high orders for LNG carriers, especially in terms of order value. Fleet utilization on the passenger travel segment has improved, and the offshore assets reactivation also continued. 466 orders were placed globally for alternative fuel capable vessels and that represents about 30% of all contracted ships and 60% of the vessel capacity in the review period. The cruise sector focus shifted towards managing the capacity growth and occupancy levels in a profitable way and mitigating the impact of a rising operating cost. Looking at the energy side, we would say that the energy transition outlook is very strong. The energy crisis has brought out a clear need and an ambition for a structural change in the energy sector. The uncertainty caused by the geopolitical situations continues to affect the investment environment for liquid and gas-fueled power plants and energy storage. I would say the U.S. is moving very strong. Europe is holding back for the moment a bit. Beyond some of the short-term setbacks, the energy transition outlook is very strong. And advancing the renewable energy build-up strengthens the security of supply by reducing dependency on fossil fuels. And growth in the demand for the energy storage solutions continued. And a really interesting figure, 42% of our full year of thermal order intake was related to balancing power. So balancing is really growing as we speak. Service growth continued and customers are showing increasing interest in long-term agreements. Our market share for the gas and liquid fuel power plants increased a notch from 7 to 8%. Looking at order increase overall, the order intake decreased by 24%. The equipment order intake decreased by 40%, but it's from the all-time high quarter last year. Services, on the other side, the order intake increased by 6%. We have a strong order book and the rolling book to bill is still above one. And also if you see where we went out from the last day of 2022, you can see that we are building for deliveries in 2023. Net sales increased by 11% and the equipment net sales increased by 17% and services net sales increased by 4%. technology and partnerships. So what are we doing there? What have we done in the last quarter? The decarbonization journey continues and the decarbonization theme continues. I would say to accelerate, we clearly continue to have a lot of interest from our customers, both on the energy and on the marine side. We really feel the strength in the trend. So a couple of exciting things that we have done the last quarter. We launched our next generation of grid balancing technology. So this is a solution that is based on three fully integrated key components. It's first the Wärtsilä 31 SG balancing engine. Then it's a concept with prefabricated modules to drive really cost efficiency for plant construction. And the third element is the Wärtsilä lifecycle services. So that combined, it's a very interesting customer proposition. the engines can can start and ramp up rapidly do a lot of ramp ups and ramp down ramp ups and ramp downs under adverse weather condition it's a very robust solution to support intermittent renewable regeneration then we have concluded a exciting test successfully it's a it's a hydrogen blended fuel on an unmodified engine so we are taking an existing engine We blend in the hydrogen and we run it in full operation. And this is a testing that we did in Michigan, in the US, in collaboration with WEC Energy Group, with EPRI and Bunsen McDonald. And throughout the testing period, this 18 megawatt Wärtsilä 50 SG engine continued to supply power to the grid. And this is really the largest internal combustion engine ever to operate continuously on a hydrogen fuel plant. So this is a world's first achievement. Then of course it's a step to other steps, but we are moving the needle. Marine power, fantastic picture. The marine power had very good progress in services. And I think the picture, actually this fantastic picture also reflects the fantastic performance of Marine Power. Service order intake increased by 23% and service net sales increased by 17%. You can see the order intake is up 2%, net sale was down a little bit with 5%. And if you look at the comparable operating result, it was up from 75 million to 80 million euro and on the positive side we do see the good service performance and also favorable mix between equipment and services on the challenging side we have the cost deflation affecting materials especially components transport and test fuel calls to test fuel cost Component unavailability has also been a bit of a challenge. And the high energy prices in general is also having an effect. But in net, a positive development. If we look at our service agreement business on the marine power, it's really developing in a positive way. And net sales from installations under agreement is strongly increasing. And as you can see, we are well... above now the pre-COVID levels. So really good development on services. Another example that we want to bring is how we are evolving our hybrid propulsion systems, combining batteries, combustion engines. And now we combine the batteries with a methanol engines. And we just got an order for that, which is really exciting. It's a hybrid propulsion system to be supplied for four new heavy lift vessels. They are going to be built at the Wuhu shipyard in China for sale heavy lift. And our innovative hybrid system will minimize the CO2 emissions thus supporting the marine sector's decarbonization. And the system will feature a variable speed Wärtsilä 32 main engine capable of operating on methane fuel. And on the hybrid side, we are really in a strong position. We are the market leader with about 25% market share based on installed megawatt hours. It's a very strong and interesting business going forward. Marine systems. Marine systems, net sales were stable and so were comparable operating results. Service order intake increased by 11%. You can see the order intake came down, mostly driven by the scrubber business. The net sale up 6%. And if you look at the comparable operating result, it's a little bit down, but I would say it's rather flat. We have a steady development on the services side. But we have also had lower scrubber volumes in the court. Voyage. Voyage had a positive in improving comparable operating results. Service orders were stable. Order intake was down. You can see it down 21%. Net sales up a notch, 1%. And if you see the positive development on comparing operating results from 1 million to 5 million, the key driver was the higher profitability in services. being able to fully balance the closure of the profitable Russian turnkey business, which is not contributing to Voyage anymore, and also the cost inflation. And our cloud solutions in voice continue to grow. So 19% increase in connected vessels. And here we have, I think, a really interesting example of what we can achieve. This is from Carisbrook Shipping that had really proven that they can improve the environmental footprint using our fleet optimization solution. So Carisbrook Shipping has in 2022 using FOSS reported a fuel reduction of five to seven percent. This is significant and saved over 600 tons of CO2 emissions. And Carisbrook, they are responsible for monitoring vessel position, passage plans and routes, advising on maximizing cargo intake and monitoring vessel safety and performance. And they use real-time data that enable continuous optimization of the fuel consumption across the fleet. And I should also say this was the last time that we reported Voyage in this context. Voyage is now being integrated, as you know, into Marine Power and will be part of the end-to-end offering, combining propulsion, the fleet optimization and performance services. And we have also earlier informed that we will present an updated strategy for Voyage in Q1. So that is coming. Now, energy. So energy had a challenging quarter. I mean, the Olkilotto cost provisions really burdened the result. And also, the challenges with cost inflation remained. So the order intake came down from record levels, down 37%, whereas the net sales went up with 28%. And you can really see the significant downturn in comparable operating results from 64 million euro to actually negative 8 million euro in the quarter. On the positive side, we have an improved cost leverage on the storage, on the battery side, due to the high delivery volumes. But the real challenges were the cost provisions of 40 million euro related to Olkilotto, the cost inflation in equipment projects, and also a less favorable sales mix between equipment and services. And energy storage, net sales continue to grow and profitability has been improving. And the full year comparable operating result was approximately 4% in 2022. So this is the figure that I know many have been asking about. And now we are making this public. This is a full year, minus 4% in energy storage. Some really good examples on the balancing side. Here we have three different projects, three different deliveries. We have first our internal combustion engine technology for two new balancing power plants in the upper Midwest. The Wärtsilä engines, they were selected primarily for the grid balancing capabilities as the utility expands its integration of renewable energy in wind and solar basically. And the two plants will operate with Wärtsilä 34DF, the dual fuel engines. First plant will generate 28 megawatts based on three engines. Second, 47 megawatt of power on five engines. And then we have another balancing example, this time from Bassin Electric in the US, 130 megawatt. Also balancing, also integrating renewables, enabling the integration of renewables into the power system. And it is really this fast starting, stopping, in a very short time that can support the intermittent renewables. That is the key trigger. And it's also a rugged solution that can really cope with the weather of all types and conditions. And if we look at the energy service agreement side, we also continue the good development on the coverage, so to say. And you can see that the trend is continuous and it's going in the right direction. Another key part of our business development is all the power system studies that we do, the power system modeling. And we have done quite a few during the recent years. The latest one here is a system modeling that we did for Nigeria, South Africa and Mozambique. And the modeling found that renewable energy and combined with flexible power can generate enough energy to provide power for close to 100 million people who currently do not have energy access. And if it is matched with the required grid infrastructure. The report also demonstrates that replacing coal with renewable energy, combined with flexibility from engines and energy storage, is the most effective way to reduce energy costs, increase energy access, and improve reliability. And I think we are doing these studies in many parts of the world, and this is a common conclusion that we reach, so to say. Now, Arjen, other key financials.

I have a home clicker. Thank you, Håkan. If we look at the other key financial, a few points to highlight on this slide. We had a positive cash flow in Q4, 51 million euro, but unfortunately, let's say not enough to take the full year to a profitable, sorry, not to a profitable, but to a positive number. Cash flow has been a bit of challenge during the year. It started already in the beginning of the year with a negative working capital at the start, which was really driven by big customer payments that came in in December 2021. And in addition, we also had during the year to raise our inventory levels to facilitate increased spare part business. There is an echo on my, Mike, okay, now it's better. To facilitate increased spare part business and also to, let's say, smoothen or have a smooth footprint changes on the four-stroke side. For example, the ramp-up of the sustainable technology hub in Vasa. Net debt increased. We paid back €93 million of long-term debt during the year. But due to a low cash flow, as well as, let's say, increased leases, 69 million euro, also related mainly to the sustainable technology hub in Vasa, the net debt position went from 4 to 481. And that, of course, also has an impact on the gearing ratio. Even though the gearing ratio is still at a good level, as you know, we want to be below 0.5. Solvency improved a bit during the quarter four, but has been throughout the year 2022 around 35%. Of course, let's say the negative profitability having a clear impact on the equity in the equation of solvency calculation. Looking at cash flow, the left side graph, you can clearly see the challenging start. Let's say we had two quarters with negative operating cash flow. And then in the second half of the year, we had two quarters with positive operating cash flow. I said not enough to take the full year to a positive number. And again, let's say the big Q4 gave us somewhat of a backstart in the beginning of the year. If we open up a little bit on the fourth quarter standalone, you could say that the operating cash flow generated in Q4 came about 50-50 from one part being the result and the second part being the change in working capital. And in particular, trade payables is a big bar here, and that is mainly related to purchases for near-term deliveries. Looking at the dividend, as you know, let's say our target is to pay at least 50% of EPS as dividend. And if you look at historical years, that's clearly the case. Now we have a loss making situation, but the board still proposes 26 cents as dividend for 2022. Giving back to you, Håkon, on the prospects.