Wartsila Corp Unsp/Adr

Good morning, everybody, and welcome to this news conference for Wärtsilä Half Year Financial Report. My name is Hanna-Maria Heikkinen, and I'm in charge of investor relations. Today, our CEO, Håkan Agnewal, will go through the group highlights, segment performance, and then after that, our CFO, Arjen Behrens, will continue with key financials. After the presentation, there is a possibility to ask questions, and let's take one question at a time.

Håkan, please. Thank you, Hanna-Maria. And a warm welcome, everybody, to a summary of the second quarter. That was definitely a step in the right direction. So improved profitability, and we continue to grow in the services side. So order intake up by 17%. Net sales increased by 3%. And we continue to see the good progress in services. So service order intake up by 13%. service net sales up by 16 percent. Comparable operating results increased by 26 percent and it's really supported by the good development and services and also a positive journey on energy storage. A challenge, a headwind on the operating result was the 19 million euro provisions that we needed to take in marine systems for a single sizeable turnkey project in gas solutions that has suffered from a combination of supplier quality issues and cost inflation. Cash flow from operating activities also improved. So overall, a step in the right direction. If we look a little bit further into the numbers, so order intake up from 1.4 to close to 1.7 billion, up 17%. Organically, it was actually up 21%. And we continue to see the growth both in services and in equipment. And I think the positive thing here is that all businesses are growing order intake and they are growing order intake in both equipment and services. So really good. If we look at the Net sales up from 1.4 to 1.45, 3%. Organically up 7%. And we continue to see a good growth on the services side, up 16%. A little bit more down on the equipment, periodization, down 9% from 700 to 650%. And book-to-bill continues to develop in the right direction in a very good way, I would say. And this is actually the ninth consecutive quarter where we have a 12-month rolling book-to-bill above one. So going in the right direction. And then if we look at comparable operating results, we do see improvements in our profitability up to 7.4% compared to 6.1% same period last year. If we look at the marine market and we start overall, I think we see higher prices on new ships and also challenges with the availability of shipyard capacity. There is a lot of vessels being built and that limits the growth in new build investments. However, for Wärtsilä, our market sentiment remained positive for our key segments. Overall, the number of vessels ordered in the review period, looking at the 12 months, increased to 773 compared to 701 corresponding period last year. the uptake of alternative fuels remained more limited, now with 187 orders reported, which was 24% down from 34% of overall contracted vessels. But that is mostly driven by a changed mix of contracted vessels. The further investments into LNG liquification capacity continues to drive demand for LNG carriers, despite activities easing off from record levels in 2022. Still, the projections are it's going to be higher than 2021. Demand for new cruise ships capacity remain limited as cruise lines are focusing on managing the current order book and leveraging their debt levels. But in general, the cruise industry has a very strong patronage, so to say, and cruising volumes are back and supersedes 2019 volumes. Service demand was supported by increased activity, increased active capacity in key vessel sectors. If we look at the energy market outlook, I think we see some solid long-term opportunities. More short-term, commodity markets are easing while interest rates rise. Looking at the 2023 first half year, it has brought relief in some commodity prices, especially in the battery raw materials. while the rising interest rates increase uncertainty. Global natural gas prices continue to decline despite the slight price rebound in June, but prices are still above historical levels. The trend in transition to renewable energy sources continues and being a key driver in the development of the battery energy storage and the thermal balancing technologies. And we can see that there is a good market activity and outlook in leading energy storage and thermal balancing markets such the US, UK and Australia. Order intake, as we said, increased by 17% overall, 21% organically. Equipment up with 23%, service up by 13%. And we have a strong order book and rolling book to build continuous above one. One thing that we really would like to point out that the remaining order book for the current year is lower than last year. So that needs to be considered. Profitability continued to improve in a good way, I would say. Net sales increased by 3%, 7% organically. And comparable operating results increased by 26%. Net sales, we talked about it. Equipment net sales decreased by 9%. Service net sales increased by 16%. And if we look at technology and partnerships, really on the road to enable the decarbonization of marine and energy. Some recent examples, we are taking the next step in the energy storage fire safety technology. I would say that is becoming one of the strengths of our storage business. We have a very strong thermal incident track record. So far, we haven't had any thermal incidents. And we have a strong focus on being on the front line of thermal stability. And now we have qualified our grids of quantum for the latest NFPA69 standards. This safety standard is about requirements for explosion prevention and provides security and confidence for this type of authority having jurisdictions, fire service and other stakeholders. On the engine side or related to the engine side, but this is more how we deal with the systems that needs to support the engines. We have the WARMS, Wärtsilä Ammonia Release Mitigation System. We have received now the approval of principles from DNV for this. It's an innovative system that mitigate the risk associated with ammonia release. which is, of course, a hazardous substance, so to say. And with this, you can deal with leaks in a green and safe way. And it's really an alternative to venting by diluting with air or bubbling in dirty water tanks. So this is quite innovative, cracking the ammonia and reducing the risk for leakages. Let's move into the different businesses and how they are performing. If we start with Marine Power, we had a very good development in the comparable operating results. Good service performance continues. You can see ordering take up 21%. Net sales also up 21%. And if we look at the journey to double-digit EBIT here, I think the good service performance is a major driver. And still, we have a headwind. in that we are still absorbing cost for the transformation of our manufacturing footprint. We have Trieste, we have two factories in Vasa, and we are consolidating. So in spite of this, we are making a very positive journey. And service agreements continues to develop in a very good way. So the net sales from installations under agreements is strongly increasing. We have about 29% of our installed fleets is now under agreement. And you can also see here in the graph that the net sales from agreements is clearly trending in the positive direction, and it's also above, clearly above the pre-COVID levels. Agreements are signed across multiple segments. LNG carriers, for instance, the agreements grew by 28% the past four years. Crews slightly declined because some of the capacity has been scrapped out. But I think the key metric here is the renewal rate, i.e. customers that have used these services coming back. And we have a renewal rate of over 90%. That is a very strong testimony that we are adding value to our customers. Also the decarbonization journey when it comes to the fuels, new fuels continues. So here we have the latest cooperation with Stena. We will convert some of the Swedish ferry operators vessels to operate on methanol fuels and the conversion will include the fuel systems supply, engine modifications and integrating the new installations with the ship's existing systems. The contract will equip the vessel with unmatched fuel flexibility and therefore making an important milestone in Stena's journey towards becoming a leader in sustainable shipping. And the conversion is scheduled to take place in 2025. One of many examples to come. Marine systems, we love our equipment. Marine systems order intake increased. But the comparable operating result declined due to provision taking in a single sizeable turnkey project and gas solution. So water intake, you can see up with 21%. Net sales is down with 36%. We see good development on the services side. But of course, 19 million provisions in a single sizeable turnkey project has a significant impact. Now, We are not doing, since several years, we are not doing turnkey projects anymore in gas solutions. So this is a legacy from the past before we took that decision. And we are working this project out and we're going to finalize it. But we will not enter into new turnkey project solutions for gas solutions. Energy. The order intake and comparable operating result increased. Good also here, good development in services that continues. Order intake up with 15%, net sales a bit flat and partially related to periodization. If we look at the EV drivers, good service performance, improved profitability in the energy storage business. On the headwind side, we have an inefficient factory capacity utilization because we are a bit low, as you have seen in our thermal sales. And this leads to an inefficient factory capacity utilization. What I would say is on the order intake for thermal, we do see a more active second half year, I would say, for order intake. If we look at energy storage, the journey continues, the positive journey continues. So when we look at the rolling 12-month comparable operating result, we are now at minus 1. So in Q3, minus 3. We started minus 4, minus 3, minus 1. And we are continuing in a positive direction. And if we look a little bit closer to the on the positive development and energy services here, you can also see on the graph how we have grown the percentage of our fleet under coverage. We also now actually 29% coverage also in energy. And you see the growth trajectory there. And to give one of the many examples here, it's a very important long-standing relation with the Brazilian customer, Gerard Amazonas. We have renewed an existing agreement. It's a two-year renewal. with your Amazonas so they can meet the power purchase obligations. So the agreement covers the Ponta Negra power plant in Manaus. And it's a plant that has been in place since 2006. And the plant is basically running 24-7. And our obligation is to ensure that we have high uptime, high reliability, and that is maintained at all times. We have many of these types of businesses. Here is the bridge for the development of the EBIT from 6.1% to 7.4%. You can see marine power, double digit now, EBIT margin. Of course, marine system, negative impact. But you can also see that energy is improving and portfolio is also improving. As we said, comparable operating result increased by 26%. Arjen, other key financials.

Yes, thank you, Håkan. If we start with operating cash flow, good performance, I would say, in quarter two, as well as in the first half of this year. Definitely, if you compare it to previous year, the same periods, they were all deep negative. The cash flow was very well supported by both improved profitability, as well as, let's say, changes in networking capital. We had to increase our inventory somewhat, but we got a lot of money also from the customers. Net interest bearing debt improved, so it went down actually compared to the end state of last year. Financial debt at least is somewhat increased, but we definitely got more increase in the cash, so making the net interest bearing debt going down. Geering stayed more or less on the same level as at the end of last year, around 0.23, and so obviously went somewhat down in the first half of the year, mainly due to the fact that we accounted dividend into the equity in the first half of this year. Basic earnings per share, a little bit low on the quarter compared to, let's say, previous year, the same quarter, of course, related to the impairment that we had to do in portfolio business. And also good to remember that on the minus 16 cents that we had first half last year, we took a 200 million provision in that for the related to the exit from Russia. If I move to the next slide, cash flow from operating activities, as mentioned, good performance in this quarter, clearly trending up. Definitely after a negative operating cash flow last year, this is a very welcome trend, and we, of course, aim to continue that Good trend. Working capital to sales ratio on a good level, I would say, definitely comparing it to long term historical levels. We are around 2% now and basically it's the same as we had at the end of Q1 and also very close to what we had at the end of last year. And let's say long-term historical average was 9%. So I think we are on a good track here. Of course, it doesn't stop us from further improvements. We are working with operating working capital elements all the time in many different ways. But with these words, I give it back to you, Håkan.