Wartsila Corp Unsp/Adr

Everybody, and welcome to this news conference for Wärtsilä Results 2023. My name is Hanna-Maria Heikkinen, and I'm in charge of investor relations. Today, our CEO, Håkan Agneval, will start with the group highlights, business performance, and after that, our CFO, Arjen Behrens, will continue with the key financials. After the presentation, there is a possibility to ask questions. Please, Håkan, time to start.

Yes, thank you, Hanna-Maria, and a warm welcome to today's session. Focusing on 2023, it was a good step in the right direction for Wärtsilä. We improved in many areas and we managed to have all-time high order intake, net sales and cash flow. We are improving our profitability. We have a clear path to our 12% operating margin target. But more about that. So order intake, all-time high at over €7 billion. Net sales at all-time high at over €6 billion. And we continue to see the good progress on the service business, where the service order intake increased by 15% and the net sales on services by 13%. Comparable operating results increased by 53%. So we are on our journey. And cash flow, you will see Arjen smiling more than usual today. We had a fantastic cash flow with 822 million euros. So let's look at the summary of the numbers, and let's make some comments first, now zooming in a little bit on the quarter, and then also some summaries on the full year. So if we look on the quarter, order intake up 13%, and it's both in services and equipment. You see that equipment is up 16%, and yes, Energy power plants, they had a stronger order intake in the second half of the year compared to the first half of the year. We had a really strong run towards the very end of the year on the energy power plant side. Order book continues to develop positively. We will have a stronger order book going into 2024 compared to going into 2023. And the book-to-bill continues to be above 1, at 1.13. And now it's the 11th consecutive quarter that we have actually had a book-to-bill above 1. Net sales is down 7%, and you see services continue to go up, but it's the equipment side that is down. We will see more about that later on. Operating results up quite significantly, and comparable operating results as 10.8%. Going back then to the full year, we talked €7 billion, order intake up 16% for the full year, net sales at 6%, up 3%, and the comparable operating result landing at €497 million, 8.3%. So it's a step to the 12 still, but we are on our journey. If we look at the marine market, the market sentiments remain positive for our key segments. And in general, the appetite for new ships has increased. So the number of vessels ordered in the period increased to 1,977. That's compared to 1,538 in the comparison period, so to say, so going in the right way. The uptake of alternative fuels remained more limited, so the share was down from 30% to 23%, but that's more driven by the mix of vessels that was awarded. There was more bulkers and tankers and less LNG, so the trend is still very strong. We'll talk more about that later on the decarbonization journey in marine. There is a growing pressure to decarbonize, and we can clearly see that it supports the demand both for new build and services across the Wärtsilä key segments. And decarbonisation investments have been made in additional fleet capacity, in direct fleet replacements, efficiency upgrades, fuel conversions, and also in maintenance activities to keep the existing fleet compliant and competitive. And also interesting trend is that the yield capacity, especially in China and South Korea, continues to increase. And that helps to remove constraints from new-build ordering across vessel segments as those become available. And also we see a deacceleration of the price increases, basically. If we look on the energy side, we see solid long-term opportunities in the energy market. And the energy transition outlook is improving amid a fragile global economy. And our market share remains stable at 30 percent. And as global orders for natural gas and liquid fuel power plants decreased by 22 percent to 10 gigawatt during the 12 month period. And this and you know that this is project business. It can swing quite significantly. It's going to we see a positive demand situation going forward. Price volatility, inflation and interest rates have moderated. Global natural gas prices have decreased from previous year's extreme levels, but they are still above the pre-2021 levels. On the policy side, energy and climate policies around the world continue to evolve towards decarbonisation targets, and the mid-term energy transition looks strong. Climate policies reached new milestones in Q4, when 120 countries pledged to triple the renewable energy capacity by 2030 at COP28, which really supports the need for balancing power. And I think the decisions, the commitments that were made during COP28 They are clearly in line with Wärtsilä's net zero strategy and front-loading net zero. The coal phase-out is progressing, and since 2018, the installed coal capacity outside of China has decreased by almost 40 gigawatts. Organic order intake increased by 21%. So if you look at it from an organic perspective, it really increased even more. We had FXFX, so if you take that into consideration, order intake grew for 13%. Equipment order intake increased by 16%. And service order intake increased by 11%. We have a strong order book and rolling book to build continues to trend up. The order book for the year 2024 is certainly higher than 2023. So it is a positive development. Organic net sales decreased by 3%. Net sales decreased by 7%. Equipment net sales decreased by 19%. Service net sales increased by 8%. Profitability continues to improve. When net sales decreased by 7%, our comparable operating results increased by 90%. If we look at technology and partnership highlights, it's all about enabling the industry decarbonization. One interesting example here is how we continue to evolve our product portfolio. And we enable the acceleration of marines transition to sustainable fuels with the introduction of four methanol engines. So we are broadening our portfolio. So we will introduce four new methanol engines to our portfolio, setting a new industry benchmark with the broadest methanol engine portfolio currently available in the market. So in addition to our Wärtsilä 32 methanol engine launched last year, we will add the Wärtsilä 20, the Wärtsilä 31, the 46F and the 46TS to our portfolio. of engines enabled to operate on methanol fuels. And we are clearly one of the very few players in the marine engine market with extensive experience from methanol engines. And these four new engine types that will be available, they will be available for deliveries at different points from 2025 onwards. Now, on storage, we continue to grow and we continue to invest in new technology to fuel the growth. So we have launched the quantum high-energy storage systems with advanced safety features, and we're also increasing the energy density. As you know, one of the key differentiators for the Wärtsilä storage systems is around thermal stability and fire safety. We have launched our quantum high energy, a next generation of energy storage systems with advanced safety features and enhancing energy density, furthering also our industry leading track record on commitments to safety. And our new Quantum HE is compatible with GEMS, with the Digital Energy Management Platform, which is a cutting-edge tool to monitor and control and optimize energy assets, both on site and on portfolio level. We are the third largest energy storage system integrator, according to S&P Global, with seven and a half gigawatt hours of energy storage capacity awarded, contracted, or in deployment. Now, let's look at how the different businesses have been performing, and we start with Marine Power. So we have seen a good development in order intake and net sales. So both equipment and service net sales increased. And please note that the comparable operating margin declined due to a less favorable mix between equipment and services. We've been growing both services and equipment, but equipment has been growing more, and that has this mixed effect. So we can see order intake up. 13%, net sales up 17%. And if we look at the comparable operating results, services, good performance in services has really supported the improvement in operating results. But we have also increased our R&D costs, I mean, from 3% to 4% of net sales for the group level. And here it is affecting, of course, marine power. And if we look on the services side, we see a continued good development on our marine power service agreements. And the net sales on agreement installation is all-time high. And you can see here we continue the growth. So services is more than 60% of marine power sales. And so far, 29%, about that, about 30% of our engine installed base is covered. So there are ample growth opportunities. And I think the strong proof points that we are adding value is the renewal rates for service agreements, because it's around 90%. For me, that is the ultimate proof that we customers see and feel. that we are adding value, and that's why they keep on renewing. I'm really excited about this milestone, you could say, in Wärtsilä's history of engine development. We clearly continue to set the pace for marine decarbonization with the launch of the world's first four-stroke engine-based ammonia solution. So it's not only the engine, it's the fuel handling, it's the after-treatment system, so it's a whole system. So we are introducing the marine sector's first commercially available four-stroke engine based on ammonia as a fuel. And it's now part and available on the Wärtsilä 25 engine platform. It enables a significant advance in sustainable shipping operation during a time when ship owners are really seeking the viable options among the green fuels. So the solution, it includes the ammonia pack fuel gas supply system. It's also the Wärtsilä ammonia release mitigation system and also the NOx reducer. And of course, combined with the engine. And we have our first entry to customer. We signed a letter of intent with Virdis bulk carriers. And they're going to be the world's first zero emission shipping company. And it is intended to be the first cheap owner that benefits from the new ammonia solution. So going over to marine systems, equipment order intake increased. That's a positive one. But equipment net sales decreased, and we also have one challenging project in gas solutions to deal with. So order intake up with 5%, net sales down 46%. scrubbers gas solutions a bit of cyclicality if we look at comparable operating results it's clearly diminishing lower net sales but the significant negative impact is these 19 million provisions for a single sizable turnkey project in gas solutions that we have to make in in q4 and It's the same project that we also made a sizable provision for in Q2. So we have made two provisions, Q2 and Q4. The good part of the story, this project is now coming to an end. Painful as it is, we move on. Energy. Energy comparable operating results at a record high. So energy really making a strong comeback. Order intake up 34%. Net sales down 16%. And if you look at the profitability, you could see that it's really good performance in services. Now, when we compare to Q4 last year, you remember that we had to take a provision for the Ulko Lotto 1 and 2 project, 40 million euro. That was a project that we captured in 2013. It's an old legacy project. It's now stabilized, but of course, it makes the comparison a bit special. We also, in Q4 last year, I mean, Q4 2022, we still were heavily affected by a portfolio impacted by cost inflation. But we can see energy is on the right path and clearly stepping up in profitability. Also moving into 2024 with a project portfolio with 80% EQ instead of EPC. And that is basically a doubling of the share since when we went into 2023. So energy on a good road. On energy storage, the comparable operating result is positive, and the margin is positive, and profitability is improving. The strategic review that we communicated at the end of last year, we continue it. Nothing new to report. It goes on. But I would say the demand side here is evolving in a positive way, and storage is doing a great job. And if we look at energy services, we also see here about 30% of our installed base we have under agreements, and we are growing it, and there is significant additional growth potential. This is one of many examples, but this is really core of agreement business, what it's about. So we secured a 12-year agreement extension with a power plant operation in Pakistan. It's the operations and maintenance team. They signed the agreement with Sindh Noriabad Power Company in Pakistan, which is an independent power producer. And they have extended this service contract for another 12 years. We started the agreements in 2017, and I think the extension and also the length of extension reflects SNPC satisfaction with the services we are providing, the value that we can create. So the agreement covers two SNPC 1 and 2 power plants located in the Sim province. It's five Wärtsilä 34 SG engines and one steam turbine generator. And basically, the combined output of this plant is 100 megawatt. The order was booked in Wärtsilä in Q4. And we have many of these, so to say, type of orders. And it's really driving our agreements business. Now, to sum it all up, here's the bridge from, you could say, Q4 2022 to Q4 2023, from the 5.3 percent to 10.8 percent, so an increase by 90 percent. I think what is also very interesting, look at marine power, 11.9. Look at energy, 12.4. We are on a solid path to 12 percent for the whole group. Now, Arjen, please, other financials. Can I have the clicker?

All right, other financials. After almost crying in 2022 about the operating cash flow being negative, now I can really smile. Let's say 822 million euro operating cash flow for the year is an all-time high record. I can mention it already. And as you can see from these numbers, in particular than the quarter number, a big portion of it came actually in Q4. And if you go deeper in Q4, actually, it was a lot actually in December, to be very frank. We got a lot of milestone payments as well as advances from actually customers that we actually anticipated in this year, but actually came in 2023. That also had an impact on the working capital, which is also now lending, let's say, on a negative number, which is in a way you could say a bit of extraordinary. Good cash flow supported, let's say, also our net debt situation. We improved it to 35 million euro. We paid back in the year about 90 million on the loans, and our cash increased actually with about 350 million euro. Good cash flow supports then, of course, also the gearing, now standing at 0.02, and also solvency improving to 37%. Basic earnings per share, 44 cents on the full year. Of course, a significant improvement compared to 2022. But it's good to remind that in 2022, it was, of course, heavily burdened by 200 million euro provision for the Russia closure of activities and all the projects related to it, as well as about 90 million euro related to Trieste. we look at the graphs basically it's the same story we saw a very good trend line the orange line on the left on cash flow in 2023 after let's say a very declining trend line in in 2022 if you look at the right side let's say we see two bars with negative working capital actually the the first one minus 100 in 2021 that was actually the Here that we had the previous operating cash flow record at 731 and now we beat it with 822. So really the working capital is a big contributor to the improved cash flow besides of course also significantly improving on the profitability side. Final slide from my side, dividend. The board proposes to the AGM 32 cents of dividend, which is then very well in line with our financial target of paying at least 50% of EPS out as dividend. Over to you again, Håkon.