Wartsila Corp Unsp/Adr

Good morning and welcome to this result briefing. My name is Hanna-Maria Heikkinen and I'm in charge of investor relations. Today, our CEO, Håkan Agneval, will go through the group highlights and segment performance, and after that, our CFO, Arjen Berends, will continue with key financials. After the presentation, there is a possibility to ask questions. Håkan, time to start.

Thank you, Hanna-Maria, and warm welcome, everybody, to, I would say, a positive Q1. We are improving our profitability, which is really good. And we have really good development, continue the really good development in services. So order intake overall is up with 26%, Q&Q. Net sales increased by 19%. And we continue to see the good progress on the services side. So the order intake on the service side is up with 21%. And the net sales for services is up by 17%. Also, and that is, of course, very positive, the comparable operating results increased by 34%. We are now at 6% and going in a positive direction, supported by good development in services, still burdened by cost inflation. And cash flow in Q1, it really improved. And we do see a strong continuation for the rest of the year on the cash flow side. So those are some of the highlights, so fairly positive highlights this quarter. The key figures, if you look at our order intake, we are now 1.7 billion euro, as I said, up 26%. Order backlog above 6 billion, 6.1 billion, about stable, so to say. And that is still considering that we have ramped up our net sales with 19% to 1.4 billion. And you see the book to build clearly about 1, 1.19, so positive trajectory there. Comparable operating results 88 million and we are at 6% improvement from 5.3% previous quarter. Of course still a way to go to our 12% target. If we look at the macro environments you could say that economic headwinds, they moderate the growth in marine markets. The positive side is that the utilization rate of Wärtsilä key segments are actually improving. Number of vessels ordered during the quarter, 255, which is a little bit down from 274 in previous year. continued demand for LNG vessels, improved fleet utilization of passenger travel segment, and the growing demand for offshore assets, all those all supported the market sentiment. And it benefits Wärtsilä in our strong segments. Decarbonization remains the main underlying trend, and methanol fuel, we can really see it's gaining traction. Interest in alternatively fueled vessels, relatively stable around 70-73 reported orders, which represents about 29% of all contracted vessels. Cruise, the new building remained limited. And I think the cruise operators, they are really continue to focusing now to manage the current fleet and the utilization. The positive side that many of the operators is seeing a very strong demand at 2019 level or even beyond 2019 levels. And we see that with high utilization of our installed fleet. On the energy side, we see solid long-term opportunities. We do see, however, that fuel price pressure is easing, but it's not over. And there is a volatility. I would say the volatility in the fuel cell price is delaying some decisions in Europe, in Asia. to some extent in the US, but the US is moving forward in a very good way. The last quarter has brought some relief in fuel and raw material prices, whereas we've seen increasing interest rates have caused some uncertainty. Natural gas prices decreased from the extreme level of last year, and the outlook looks good, but they still remain high compared to the historic level, and there is still volatility in the pricing. And the global energy transition, the investments reached a new high in 2022. And the policy supporting battery energy storage, clean hydrogen has continued to develop during the first quarter of this year. Demand for energy storage solutions continue to grow. Our market share when it comes to the gas and liquid fuel power plants, decreased to 6%. You see that the market is growing. On the right side graph, that is to a significant extent fueled by some really big combined gas cycle power plants in China. That is the major growth avenue. We do have a positive outlook on the mid- to long-term transition and how it will affect both the thermal business and the battery storage business. Order intake increased by 26%. Equipment order intake increased by 31%. And service order intake increased by 21%. We have a strong order book and the rolling book to bill continues above one. And I think it's the eighth consecutive quarter where the rolling 12 book to bill is above one. So that is, of course, positive. If we look at the net sales and comparable operating results, net sales increased by 19%, comparable operating results up with 34%. And if we look at the equipment and services on the net sales side, equipment net sales increased by 22%, service net sales increased by 17%. Now, technology and partnership. As you know, Wärtsilä, we are about innovation in technology and services, so technology and partnership is really a driver for us. And it's all about how we can support our customers in enabling the decarbonization journey. So some really interesting and exciting examples. We have a new radical derating retrofit solution for two-stroke engines. So basically by this derating and change of the two-stroke engine, you extend the emission compliant lifetime of merchant vessels by significantly improving the combustion efficiencies. You can reduce fuel consumption and therefore emission with up to 15% on two stroke. And that is, of course, a major support for our customer as they look into the CII index and how their fleets will evolve. Another area is LNG and how we continue to minimize the methane slip on LNG-fueled engines. We are working together with several companies on the GreenRay project. And that is to develop solutions that minimize the methane slip for LNG engines. And we will develop technology for low pressure four stroke dual fuel engines that will enable methane slip reduction and increase efficiency. And we will also develop an engine technology for two stroke engines to further reduce the methane slip from tankers, container ships and so forth. A lot of interesting technology development in Wärtsilä these days. Now let's jump to the different businesses and have a quick look on how the financials have developed for the different businesses. So if we start with marine power, we had had a really good development on the services side. Service order intake increased by 15% and service net sales increased by 18%. And you can also see here how the comparable operating result increased from 30 to 49 million euro. On the positive side, good service performance, also the voyage optimization we have now. moved Voyage services into Marine Power. And this is the last quarter where we have Voyage as a unit before we launched the reorg that we have earlier communicated. And we can clearly see that Voyage is going in the right direction now under new leadership and a new context. So that is positive. On the challenging side, we have an inefficient factory capacity utilization. That is also, of course, a consequence of the transition that we are doing with our manufacturing system involving Trieste, but also having two plants still in Vasa, so to say. And we are streamlining and we are working, but right now we are still facing some headwinds from that. You can also see that we have restated figures. And that is, of course, a consequence of the voyage integration into marine power. And we have restated the 2022 figures. So please be careful when you look at the figures. So you separate what has been restated from what has not been restated. And if we look at the service agreements for marine power, it continues a very positive trend. And we talked about it before, moving up the service value ladder, it's really working for us. And net sales from installations under agreements are strongly increasing, as you can see here. Another exciting example where we move ahead is of course on the decarbonization journey. Here we are working on delivering to celebrity cruises where we basically will supply our two eight-cylinder W46 engines capable of operating with methanol as a fuel. And then we will have two 12-cylinder W46 and one W32 and more conventional fuels. We will convert the 46F engines to run on methanol. marking the first ever such conversion for this particular engine type. So it's a very interesting conversion project. The conversion project not only promotes low carbon cruising, but it's adding methanol as a fuel option, reducing emissions, sulfur oxide, nitrogen oxide, and particulate matter in a significant way. So moving over to marine systems. Here, on the positive side, the order intake increased. However, the net sales and comparable operating result declined. So if you look at the drivers here for the EBIT, the service is clearly supported. However, we did have cost inflation really burdening the equipment business profitability in Q1. So there you see the negative developments. If we switch to energy, basically all key figures improved. Service order intake increased by 38%. Service net sales increased by 17%. and if we look at the comparable operating results going from 24 to 33 million euro on the positive side high service volumes improved profitability on on the energy storage business you've seen it we we are taking it from minus four to minus three percent rolling 12. and so the trajectory is is is the right one and still energies is working with with the cost inflation in the power plant business in the existing order backlog and it is as we talked about before we still have for this year about 1.2 billion euro overall for that select of order backlog that of orders that we took before the real inflation accelerated somewhat end of Q1 last year, so to say. So we are still working through this 1.2 billion euro. And continued growth on energy storage side, profitability improving, rolling 12 months, comparable operating results now at minus 3%, as I said. And you can see the quarterly figures, but you can also see the rolling 12 months development. You see a clear trajectory, both for the top line and for the profitability. A good, very interesting energy storage example. This is a 400 MWh storage system that we delivered to Zenobi. Zenobi is an electrical fleet and battery storage specialist. The first project in the world to deliver stability services using a transmission connected battery, supporting UK's transition to zero carbon energy network. Basically, converters, inverters that can really form the frequency of the net. The project comes with innovator inverter technology and combined with our GEMS energy management system. It's located in northeastern Scotland and the project is ideally suited to integrate the nearby offshore wind energy projects in the North Sea. And the storage system will be one of the largest in the UK and is expected to be operational somewhere in 2024. And if we look at the energy service agreements, you can also see the very positive trend moving up the service value ladder. And this is one of the many good examples. We signed an agreement with the Brazilian utility Rio Amazonas Energia Reza. And these operations and maintenance agreements provide support for the Cristiano Rocha power plant in Manaus in Brazil. And this power plant operates five 50 SG engines, gas engines with a 92 megawatt output. The agreement really strengthens the relationship between Wärtsilä and Reiser. And we already started that journey when we went into a guaranteed asset performance agreement in 2019 to assist the plants to run on 100% natural gas. And now we continue this cooperation with this very important customer. Now, if we sum up the development of the different businesses and how they contribute to the group, you can see that the biggest improvement is coming from marine power. But also energy is moving in the right direction. So 5.3 to 6% for the whole group, Q and Q. Comparable operating result increased by 34%. Arjen, some other key financials.

Yes, thank you, Håkan. All right. Operating cash flow was very strong in Q1. Very happy with that. Actually, it was the strongest operating cash flow Q1 since 2010. So really happy with that. Cash flow was supported by both working capital and profit improvement. Just for reference, working capital at the end of last year was 179. So clearly, let's say down from that. Net interest bearing debt more or less flattish in the quarter. We had 481 at the end of last year and now 477. Of course, worse than, let's say, what we saw last year in Q1. And that is mainly due to the poorer cash flow that we have seen last year for reasons that we also explained in earlier calls. Gearing clearly below our target of being below 50, 0.50 I mean, at 24 right now. Solvency slightly down in the quarter from 35.3 at the end of last year to now 33.4 and that is mainly driven by the accounting of the dividend into the equity. Basic earnings per share, positive after a very negative Q1 last year. And of course, good to remind here that Q1 last year included a provision of 200 million euro for the exit of Russia. Cash flow on the left side, I mentioned it already, 145, very happy with that. Definitely a good quarter for Wetzela. On the right side, let's say the working capital, where are we with working capital and how are we developing it? If you look long-term historical, let's say working capital to sales ratio, it's about nine. Currently, we are at two, so I would say we are at a good level. Having said that, there is always, let's say, more that we can do on working capital, and we are having a very clear action program to further improve on that one. So, happy with both cash flow and working capital performance in the quarter. Back to you, Orkan, on the prospects.