Wartsila Corp Unsp/Adr

Good morning and welcome to this new session for Wärtsilä half-year result presentation. My name is Hanna-Mari 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. Let's first take one question per analyst and then follow with the follow-up questions. Håkan, please.

Thank you, Hanna-Maria, and welcome, everybody, to the summary of a strong second quarter. I think a solid quarter. Order intake, profitability, cash flow, all improved. Net sales increased by 7%. Order intake increasing by 10%. And we are Jättene in a quarter with an all-time high order backlog at about 7.6 billion euro. Comparable operating results increased by 63% and we are at double digit comparable operating margin. The good progress in service continues. Service order intake increased by 8%. Service net sales increased by 3%. strong cash flow it continues uh we are in a very good streak there 216 million euro for q2 If we quickly look at the overview of the numbers, as we said, order intake growing from 1.7 billion to 1.8 billion, 10% up. And we see that both services and equipment is growing, 8, respectively 13%, so bigger growth in equipment. Order book up to 7.6 billion euro. Net sales growing both in services and equipment overall, 7%, from 1.4 billion to 1.5 billion. And then 3% in services, 12% growth in equipment. So also continued faster growth in equipment than in services. Book-to-bill now, 13th consecutive quarter with a book-to-bill bigger than 1, 1.19. And the operating results are following, up 156% from 66 to 168 million euro, basically 10.8. And then on the comparable operating income, up 63% and reaching 11.3%. So a solid quarter overall. If we look at the marine and the market sentiment, it's positive for us in our key segments. We see a continued good appetite for new ships in the second quarter. The number of vessels ordered in the first half year was increased to 1,069, up from 773. Investments in new ships were higher than in the first half of 2023, driven by increasing demand for ship capacity, solid average earnings across cargo segments, low order book, mainly in bulk carrier and tanker segments, and continued fleet renewal. If we look at the alternative fuels, the uptake remains on healthy levels with 242 orders reported during the first half of 2024, accounting for 23% of all contracted vessels or 39% of capacity. New build ship prices continues to increase. And this is despite we see a growth in shipyard capacity, especially in China and South Korea. So for us, this indicates that there is still an ongoing shortage of yard capacity. If we do a similar outlook on energy, we see solid mid- to long-term market opportunities. There is continued uncertainty in the market environment in the second quarter. The macroeconomic development in Q2 was influenced by protectionist policies, with trade risks elevated by development of the recently imported tariffs by the US and EU. The market for engine power plants was stable, with good activities, especially in the US. The natural gas prices rose in Q2. Commodity pricing overall was stable, despite elevated uncertainty on the geopolitical side. The energy transition continues to advance. If we look at the latest Bloomberg numbers, Bloomberg expects wind and solar to continue to grow. Wind with 6% and solar with 32% in 2024. And AI, there is a lot of talks these days about AI and its impact on the global electricity demand for data centers. Today, data centers account for about 1-2% of global electricity demand, but we see this increasing and potentially doubling its share until 2026. Looking at the numbers again, organic order intake increased by 12%. So order intake increased by 10%. Equipment order intake increased by 13%. Service order intake was up with 8%. We have a record high order book and the book to build continues above one. order book delivery schedule in marine is slightly longer due to constraints in the shipyard capacity this is something we already saw in q1 we see it in q2 as well you could also see that we are building up a healthy order backlog not only for this year but also for next year Organic net sales increased by 9%, so net sales increased by 7%. Equipment net sales was up with 12%, and service net sales was up with 3%. Profitability continues to improve step by step. So net sales, of course, helped with increased net sales of 7%. Comparable operating results increased by 63%. Now. Technology and partnerships, as we all know. It's about innovation in service and technology. Focusing on enabling the decarbonization of marine and energy. I think we have two great examples here during the second quarter. First, we launched the world's first large-scale, 100% hydrogen-ready energy and power plant concept. So this is a 100% hydrogen ready engine power plant concept based on our 31 engine. And it has now been certified by TÜV SID. And TÜV SID, they have a certification process that consists of three stages. And we have now achieved the first stage of certification, which is about the conceptual design of the engine power plant for 100% hydrogen. And we expect to open up for orders in 2025 and also having the capability to deliver in 2026. Now, another very interesting example is also from energy and related to data centers. We have recently signed an agreement, a cooperation agreement with AVK to deliver on-site power generation for data centers. So basically it's us and the energy solution business AVK SEG. We have signed a cooperation agreement aimed at meeting data centers' unique power requirements. And data centers, as we know, are essential in ensuring that businesses and organizations can store, process and manage their data and operations securely and efficiently. We will provide our engine equipment and maintenance support, and AVK does the integration. And Wärtsilä and AVK, we actually already have two energy projects running in execution for data centers on Ireland. And the cooperation agreement was signed in May. Looking at our businesses, we start with Marine. The good performance continued. Order intake, net sales and comparable operating results increased. Order intake was up with 17%. Net sales was up with 8%. And if we look how the comparable operating result is evolving, we could see positive drivers in higher service volumes and also recovery of new build margins. Dragging a bit is the increased R&D cost that we talked about before. We invest overall in Wärtsilä 3-4% of our net sales into R&D focusing on decarbonization. If we look at marine service business, there continues to be good development. Marine's net sales to agreement installations is increasing. You see the curve here. It's going in the right way. It's a positive underlying trend. We also have our retrofit business. So we are bringing a great example from a recent retrofit win. It's basically we're going to work together with Scandi Lines to convert two of their ferries to plug-in hybrid operations. So we will provide the electrical systems needed to convert these two ferries to plug-in hybrid solutions. And the project involves replacing one out of the several engines on these two ferries. with new short-charged electrical systems, including large energy storage systems. The conversion is a key element in ScandiLine's target to achieve emission-free operation on the route by 2030. On hybrids, we continue to be the market leader. We see hybridization as one major retrofit opportunity overall on the marine side. This particular ScandiLine order was booked in Q2. If we go over to energy, the comparable operating results increased. Equipment ordering intake decreased, driven by lower order in energy storage and operations, while orders in EPP actually increased. So you can see ordering take is down 6%. Net sales is down 2%. And if you look at the waterfall on the EBIT side, the positive drivers was about recovered profitability in new equipment and also positive service revenue mix. We were affected a little bit by lower service volumes. However, This is mostly related to high levels, comparable levels, same quarter previous years. The underlying trend in services is positive. If we look at energy storage and optimization, the comparable operating result model, we look at this on a 12-month rolling, continued to improve. And we do see the business developing in a positive way. Order intake, this is a lumpy business, so there is some periodization effects. Also, of course, material prices have gone down. So if you look in megawatts, we continue to grow, but the order intake is down a little bit in this quarter. However, the underlying trend is certainly positive. Energy service agreement coverage continues to improve also on the energy side. And here we have one of the examples that forms the basis of this continued growth. So this is an example from Nigeria related to our customer cement plant. So we basically signed a 10-year operation and maintenance agreement for a captive power plant producing the energy for a Nigerian cement plant. and the plant is owned by Mangal Industries and is located in the Kogi state in Nigeria. The O&M agreement is designed to ensure reliability of the power and energy production to support the production of the cement factory, producing three million tons of concrete a year. Uptime reliability is key. And this order was booked also in Q2. Comparably, if we take the full bridge, Q1-Q, from Q2 last year to Q2 this year, we see the step up in profit margin from 7.4% to 11.3%. We see improvements in all businesses and in our portfolio business. Marine going from 11.5% to 13.5%. energy from 7.1% to 10.5%, and then you see portfolio business going from a negative 15% to positive 4.6%. But then you should remember in portfolio businesses, in the second quarter of last year, we took some significant provisions in the gas solutions business. So that makes this big jump in portfolio business. Comparable operating result increased by 63%. And also a very important comment is that the comparable operating margin percentage typically reaches is high in Q4. However, in 2024, we do not expect to see that given the mixed impact from the increasing equipment deliveries during the second half of 2024. So both new build and services are growing, but during the second half of the year, new build will grow faster and therefore this effect. Other key financials. Arjen, please.

Thank you very much, Joachim. Looking at the other key financials, basically all the parameters improved compared to the comparison period last year, whether you look at it from a quarter perspective or from a year-to-date perspective. Actually, they also improved compared to Q1, except for one, which is the cash flow from operating activities, which ended about $40 million lower than in Q1. Having said that, let's say we are, of course, very happy with our cash flow in Q2. It's a strong cash flow after a very strong cash flow in Q1, but also after a very record high cash flow, actually, in 2023 overall. Good cash flow, of course, contributes also to, let's say, net debt ratio as well as gearing ratio improving further. Earnings per share also clearly up from comparison periods, also up compared to Q1. Good profitability also supported that our solvency ratio could go up from 34.8% in Q1 to 34.5, sorry, 35.3 now in Q2. Very good statistics overall. If we look at this slide, let's say left side cash flow generation, we generated actually over a billion, almost 1.1 billion euro of cash, operating cash, over the last 12 months, which is of course very encouraging, and we are very happy with that. Contribution came both from, let's say, improved operating results but also clearly, let's say, from the working capital. And as you can see on the right side graph, working capital continued to develop, let's say, more negative, which is, of course, good for cash flow. Very strongly driven in the working capital is, of course, the good order intake. Let's say the milestone payments that we get from customers, also during execution of the contract, clearly supporting the negative working capital. Having said that, we still believe that this is a bit of an extraordinary. As I said, it links very much to payment and execution milestones in your order book, basically. So it's an extraordinary number still, I believe, this negative one. With these words, I give it back to you, Håkon, on the prospects.