Wartsila Corp Unsp/Adr

Hi all and welcome to this result briefing for Wärtsilä Q3 results. 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 business specific performance and after that our CFO Ari and Perens will continue with recent financials. After the presentation there is a possibility to ask questions and we are also happy to discuss the strategic review we have announced today for our energy storage and optimization business. Time to start, Håkan.

Thank you, Anna-Maria. Thank you and welcome everybody to our interim report. And if we start from the very beginning, I think we see a very positive trend for Wärtsilä. Improved profitability, strong cash flow and good development on the services side. So order intake is up by 11% and we have a good support from services. We continue to see good progress in services. Service order intake up with 15%. Service net sales also increased by 15%. On the comparable operating results, we took quite a big step forward. We increased it by 53% to 8.6% now. And I think we are on a good path of improvement. And the improvement is supported by continued good development in services. And now we could also announce for the first time that energy storage or energy storage business is profitable. Cash flow has also been good, with good cash flow from the operating activities. Summary of the figures, and you see it here also, order intake up 11% in the quarter, close to 1.8 billion euro, and we still continue to see the growth of the services 15%, Also, equipment continues to grow 7%. Net sales, you could say a little bit more flattish, 1.4%. But if you look at the organic growth, it's up 7% actually, the sales. Services is strong, up 15% on sales. And on the equipment side, we are actually down 10%. Book-to-bill. For the 10th consecutive quarter, we continue to have a book to bill above one. So now it's 1.23. Operating result, it's up quite a lot. And that is, of course, related to certain items affecting car ability that we had last year. Now we don't have them. So the operating result is up quite a lot. And if you look at the comparable operating results, it's up to 8.6%, 53% up, which is, of course, very encouraging. Looking a little bit on the marine market sentiment, it remains positive in vassaless key segments. What hampers the key segments is a little bit its low capacity, for instance, for LNG carriers. on shipyard. Available shipyard capacities is muted because there is so much work in the pipeline. And that has also led to a price increase. But in general, we see a positive development for the Wärtsilä Key segment. The numbers of vessels ordered in the period increased to 1,356, so it's up from about 1,100 last year. And that is mostly driven by the changed mix of contracted vessels. If we then look at the uptake of alternative fuel, it remained more limited this time with 360 orders reported, representing about 23% of all contracted vessels. Demand for new cruise ship capacity remains limited. However, we do see a bit on the new belt coming back now, which is positive also for Wärtsilä. But the key focus still for our cruise customer is to focus on a very good business, actually, with good passenger rates, delivering the business and step by step reduce the debt that they have on their balance sheet. But I would say when I talk to our cruise customers, they are very optimistic about the future. Then, very important, in July, IMO revised its strategy on greenhouse gas emissions and the new framework that are in discussion puts further pressure, creates opportunity for shipping companies to increase their investments to decarbonize their operations. So the decarbonization journey of the marine industry is very, very real. It's going to take years. And it's going to be not a stepwise journey, a gradual journey, but it's clearly a journey where Wärtsilä can play a key role and support our customers and also create shareholder value. If we look on the energy side, we see solid long-term opportunities in the energy market. The energy transition outlook is actually improving in a bit fragile global economy. Our market shares in the natural gas and liquefied fuel power plants stayed rather stable, around 13%. The overall market came down 22% to 10 gigawatts if you look at the last 12-month period. They're coming down. The market decrease from, I would say, a relatively high level in 2022 was driven by Europe and Asia. Also, the volatility of the global natural gas prices shows how the market is sensitive to disruptions in supply and demand. The trend in the transition to renewable energy sources continues globally, and that is certainly a key driver in the development of battery energy storage and thermal balancing technologies. And yes, we have seen a bit of turbulence on offshore wind lately, but I think the onshore wind, which is clearly the dominating share of the wind industry, is moving ahead. The energy transition outlook in the midterms remains strong. So order intake up by 11%. Equipment order intake increased by 7%. On the services side, order intake increased by 15%. And if we look at the organic order intake, it actually grew by 18%. We have a strong order book and the rolling book to build continues to trend up. One thing that we would like to really point out is that the remaining order book for this year is lower than last year. Net sales increased by 1%, which is fairly flat, so to say, but organic net sales grew by 7%. And we can see that equipment net sales decreased by 10%, whereas services continued to grow with 15%. Profitability continues to improve in a good way. So whereas the net sales increased by 1%, the comparable operating result increased by 53% to 8.6 comparable operating margins. Now, some of our technology and partnership highlights, as you know, it's all about innovation and technology and services. And so we are very proud that we have been chosen for the world's first methanol-fueled hybrid Roro vessels. So Vatsalé will supply and integrated hybrid propulsion system for two new hybrid Roro vessels being built for the Swedish shipping company Stena Roro. So each vessel will be equipped with two Wärtsilä 32M multi-fuel engines capable of operating on methanol and also ready for ammonia with a notation. And the combination of new sustainable fuels and electrification, that is really in line where Stena wants to go and the company's sustainable operating targets. And we are very proud that we have a strong relation with Stena Roro. And as early as 2015, we converted the Stena Germanica to operate on methanol fuel. That was one of the industry firsts. We also continue, as we talked a lot about, to evolve our service business and moving up the service value ladder. I think here we have a long-standing agreement with our Brazilian customer here, where we have renewed our operations and maintenance agreement. And we talked about that before on our agreement side. over 90% renewal rate, both in energy and marine, which in my view really shows the value that we are providing to our customers. So in this case, we have signed a renewal of operating and maintenance agreement for Gera Amazonas. The agreement covers the Ponta Negra power plant in Manaus. That is a plant that has been in place since 2006 when we commissioned the plant. Now we extend the agreement for another two years to ensure that GER Amazonas can meet its power purchase obligations to Electronauts. History here, I mean that this plant was built and originally operated on heavy fuel oil. In 2013 it was converted to gas diesel technology and now the plant basically operates 24 7 base load delivering 60 megawatts to the system. Let's look at the different businesses and how they are performing. So if we start with marine power, we see a strong development in the order intake and profitability, and the good development in services continue. And you can see order intake up with 33%, net sales with 26%, profitability improving. And the major drivers, we have good service performance. We also have good progress now in the voyage services turnaround. We talked about that if we combine the two businesses that we earlier called Voyage, they are still loss making, but the losses are clearly significantly reducing. So we are really on a good path and the right path on our turnaround plan. If we look at the negative side in Marine Power, it is that the margin improvement was partially diluted by lower share of services this quarter. We continue the good development on the marine power service agreements and on the net sales we are clearly increasing. We are exceeding now the pre-covid level on the sales to our installations. And here is another example with a technical management agreement providing maintenance flexibility for China LNG shipping vessel. It's a 15-year agreement, so it's a long-term commitment that will ensure the operational reliability and provide maintenance, planning flexibility to the Dapeng Princess. That's the world's largest shallow draft LNG carrier. And this vessel operates three Wärtsilä 34 DF dual fuel engines. And the technical maintenance agreement includes constant data monitoring, maintenance support for the engines and the gas valve units. And we took this in as an order in July 2023. So 15-year agreement, long-term commitments. This is how we move up the service value ladder. Now, another really exciting example, more than on the driveline side, is our order within Catasmonia, which has selected Wärtsilä for the world's first zero-emission lightweight rope-packed ferry. So we will power this biggest battery electric ship ever built so far. The vessel is a new ferry, the largest ever built of its type. And it's the world's first zero emission lightweight catamaran. It's built by Inca Tasmania and it's been ordered by their longstanding South American customer, Bukibus. The Wärtsilä Fullscope includes our own energy management system, the power conversion system, the DC charging system and also 40 MWh battery modules, the DC hub, the eight electric motors, eight Wärtsilä water jets and a Protouch propulsion control system. So you can see it's a fairly all encompassing scope. And this order was also booked in end July. Moving to marine systems, we see that the equipment order intake increased, or whether the net sales is down. Order increased with 55%, net sales down. Scrubbers is one part of that equation. If we look at the comparable operating result, it's down. have good service performance, but the lower equipment sales is affecting the operating income. Energy. comparable operating results increased and and we see also here a good development on the services side ordering take down 16 percent we still see this a little bit as a periodization between q3 and q4 as you know this is a project many parts of it's a project related business and i think we we also communicated before that for energy power plant that the second half of the year would be stronger than the first half of the year. We still hold to that. But for Q3, the order intake is down with 16%. Net sales is also down 12%. If we look on the profitability side, we do see a positive trend there, supported by the good service performance and also improved profitability of the storage business. But the lower sales volumes are affecting our profitability in Q3. On the energy storage, comparable operating result is now positive. We are there. And the profitability is improving. Now, you also saw earlier this morning that we announced that we are initiating a strategic review of our energy storage and optimization business. So basically, the Wärtsilä Board of Directors have initiated a strategic review to consider options that would support the continued growth of our storage business in a way that benefits our customer, employees and our shareholders. And throughout this process, all potential alternatives will be considered, including different ownership options. And that involves all alternatives from keeping the business to partial divestments to full divestments and other possible strategic alternatives. Also very important to highlight, we will continue to develop and invest in our battery storage business as we have done also going forward to continue to build the business for the future. We have not set the timetable for the completion of the strategic review as we want to thoroughly assess all the strategic options. Now, if we switch to energy service business, we do see continued good development in the service agreement side also here. And here, once again, asset performance agreements to support the US utilities efforts towards net zero carbon emission, 10 year guaranteed asset performance agreement signed with OPPPD in Omaha. The agreements covers the 150 megawatt standing Beer Lake station located in Omaha, and it's set for commencing its commercial services in 2024. And when we activate, the plant will provide dispatchable balancing power as part of the utilities power with purpose project. And that's an initiative designed to add four to 600 megawatts of utility scale solar generation and then 600 megawatts of balancing natural gas generation. And this order was booked in Q3. Now, to sum it all together, you see the waterfall here, how the different businesses have contributed to our improved profitability. The biggest improvements are coming from marine power and energy. And as we see, the comparable operating results is increasing by 53%. Now, Arjen, please join me.

Thank you, Håkan. I'm very happy to present here the other key financials. In fact, if you look at it, it's all better than previous year at the same time. And it's also better than, let's say, Q2 end state. So really good quarter in many ways. First of all, cash flow, €213 million. operating cash flow in this quarter compared to 100 million euro the same quarter last year. 432 million euro year to date, which is a really good level, considering also that it is about 92% of EBDA. Working capital, clearly one of the big contributors to a good cash flow, besides also improved profitability compared to Q2 and state. Let's say we improved quite significantly on the working capital as well from 105 to 43. Net interest bearing debt also going down from 477 last quarter to now 356, of course, supported by a very good cash flow in the quarter. And that, of course, also supported, let's say, the gearing ratio, which went from 0.24 to 0.17 in the quarter. Solvency also clearly improving, 33.4% at the end of last quarter, now to 35.2%. And basic earnings per share also significantly better than, let's say, previous year. Good to remember, or to remind actually, that the minus 0.16% that we see year-to-date last year includes the $200 million a write-off related to the Russia exit as well as at that point of time 75 million euro related to the Trieste manufacturing closure. While at the same time the 0.28 year-to-date basic earnings per share that we have in this year includes a 45 million euro write-off that we did on portfolio business or impairment actually that we did on portfolio business in Q2. So all in all, I would say looking at where we are today compared to, let's say, previous year, all significant improvements on all financial parameters. Really happy with this. Cash flow continues to trend upward. And that's, of course, what we want to see. Also looking at working capital to net sales ratio, we are now on a 12-month rolling level, just below 1%. While it's a long-term average, if you compare 2015 to now, it's just below 9%. So we are at a very good level. Nevertheless, we will, of course, continue to work with our working capital and try to improve it further by a collection of receivables, getting better payment terms with customers and suppliers, inventory reductions, etc. So really going well forward. With these words, I give it back to you, Håkan, on the prospects.