Wartsila Corp Unsp/Adr

Good morning and welcome to this news conference for Wärtsilä Q2 2025 results. 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. He will continue with the business performance and after that our CFO Arjen Behrens will continue with the key financials. After the presentation there is good time for Q&A. Please, Håkan, time to start.

Yes, thank you, Hanna-Maria, and a warm welcome to everybody online. If we sum up the whole quarter, it's been a very strong quarter for Wärtsilä. Order intake, net sales, operating results, and cash flow all increased. So, order intake increased by 18% to 2.2 billion euro, which led us into an all-time high order book of close to 8.8 billion euro. Net sales went up with 11% to 1.7 billion euro. And we continue to improve our operating margin and comparable operating results increased by 18%, 207 million euro and we are now at 12% of net sales. And on the operating results, we increased it by 11% to 186 million euro, reaching a 10.8% level. Services, we still continue to have solid performance in services. Yes, I know the order intake is down a little bit, but I will comment more later on, so to say. Still solid performance in services. In particular, we continue the positive journey on the agreement side. So service agreements was up with 48%, and on the net sales for service agreements is up 9%. And cash flow, I am going to talk more about it, strong cash flow, €460 million. If we look at our summary of all the numbers, And we can look at them from this perspective, so focusing on the second quarter, order intake up 18%, so 2.2 billion euro. And you can see that it's primarily driven by equipment, up 45%, both marine and energy, specifically a lot in energy. So equipment going from €0.9 billion to €1.3 billion. Services down a little bit, but it's related to the project-oriented retrofit business, which is a bit cyclical, so I'll come back to that. No cause for alarm, we have a strong service business. Order book, all-time high, €8.8 billion. Net sales up 11% again to €1.7 billion. And we see also a mix, strong growth on the equipment side, 12% up to €812 million. And also strong continued growth on the services side, 9% up to €907 million. Book-to-bill at 1.27, so strong book-to-bill. Comparable operating results reaching 207 million euro, up 18%, and that corresponds to a 12% margin of net sales. And on the operating results side, up 11% to 186 million euro, corresponding to 10.8% of our net sales. Industry outlook, marine and energy, we start with marine. The activities in our and Wärtsilä's key segments remain very supportive. So strong ordering across crews, container ships and LNG bunkering vessels really support our marine business order intake this quarter. The number of vessels overall in the review period decreased to 647, so down from 926 compared to the same period last year. The continued uncertainty around the economic outlook and global trade policies affected negatively the overall market sentiment and also new-build investment appetite in some segments. The impact on ordering has been uneven, I think that's the key message, across vessel segments, which continued with strong demand in our, in Wärtsilä's key segments, particularly as I said on cruise container ships and LNG bunkering vessels. The regulatory drive, including the global carbon fee proposed by MEPC-83, is incentivizing ship owners to increase their investments in ships that are more fuel-efficient and can use alternative fuel. As we all know, the MEPC proposal is coming up for a formal decision in October. In the first half of 2025, 183 orders for new alternative fuel capable ships were reported, and that corresponds to 55% of the capacity of the contracted vessels. And if we look at the Clarkson numbers to the right here, you can see that if you look at the overall status of the industry in the top graph, Clarkson's outlook forecast for 25, 26, 27 are actually in line or actually slightly above the 10-year average. So 2024 was a record year. It's coming down a bit. But if you take a little bit longer-term perspective, you see that the projections are in line with the 10-year average. Now for VAT select key segments, it's even better. So we can see here 25, 26, 27, clocks and data, it's really, we're really looking at contracting level that is above the 10-year average. So good for VAT select continued evolve. If we turn to the energy industry and the energy market, the global energy transition continues to move forward, and growth in electricity demand continues to drive new power capacity. Most of the upcoming capacity growth will be met by renewables. It is the most affordable source of energy, combining wind and solar, and both of these are expected to post all-time high additions in 2025. And while the global macroeconomic environment has made project financing more difficult, the decreasing inflation and interest rates are expected to encourage investment decisions in the mid to long term. For engineering power plants, the market demand for equipment and services has been strong. Demand for baseload engine power plants is expected to remain stable, with further growth opportunities in data centers. The driver for engine balancing power also continues to develop favorably. Now, on the challenging side, in battery energy storage, the demand is closely linked to the increased share of intermittent renewables in the energy system, and that continues to progress strongly. However, the US market is facing significant headwinds due to uncertainty around tariffs. And the growth do continue in other markets, but the competition is increasing and putting pressure on profitability. So when more and more suppliers focus outside of the US, competition is clearly increasing. Looking at the numbers, looking at the graph, so organic order increase actually increased by 20%, order intake increased by 18%, equipment order intake increased by 45% and service order intake went down by 6%. Come back to that later. All-time high order book, rolling book to build, continues well above one. It's the 17th quarter that we now continue to have a book to build that is bigger than one. We also see in the graph to the right here, we are clearly building our backlog also for the future. So the backlog is extending out over time. We will not have all the sales this year. It's prioritized over the years to come. Organic net sales increased by 13%, net sales increased by 11%, equipment net sales increased by 12% and service net sales increased by 9%. Profitability continues to improve. Net sales rose up with 11%, which then contributed to comparable operating results increasing by 18%. Comparable operating result margin, 12-month rolling, is now at 11.1%, an increase from 10.2%. So technology and partnerships, two very important steps during the second quarter. First of all, a lot of excitement, our first engine power plant to be delivered for U.S. data centers. So we will supply 282 megawatts of a flexible engine power plant to operate a new data center project in Ohio in the U.S. This on-site power facility, providing power directly to the data center, will operate with 50 SGs running on natural gas, and we booked this order in the second quarter. On the marine side, we launched our carbon capture solution to the shipping market after the world's first full-scale installation success. There has been a lot of players working in the area, but this is the world's first full-scale and commercially viable solution. In May, we announced our breakthrough. carbon capture solution becoming commercially available to the global marine industry. And in our test, because we've been running now full-scale tests on vessels together with Solvang, we can reduce CO2 emissions by up to 70%, providing ship owners with an immediate solution to meet increasingly stringent environmental regulations. And the ability to capture CO2 from the ship's exosystem has a major potential for the industry's efforts to reduce greenhouse gas emissions. Of course, considering the international IMO target for 2050. It is an ecosystem that needs to evolve. How you handle the carbon that has been captured. But one very important puzzle piece to this equation has now been added. We have now commercially viable carbon capture solutions. So, if we look at our businesses more in detail, we start with the marine side. We had higher order intake, net sales and comparable operating results. Service net sales increased by 11%, supported by merchant, ferry and crew segments. You can see order intake was up 14%, net sales also up 14%, and we are now at a rolling 12 of 11.9%. Absolute we are increasing, the major contributors is higher service volumes and better operating leverage. And, of course, we have increased our R&D. That is, of course, dragging down the P&L, but it's certainly an investment for the future. And as you know, we are positioning ourselves as a technology leader in the decarbonization transition in marine and also in energy. Now, we continue to have good development on the marine service. Overall, the service book to build is well above one. We have had, if you look at the last two years, 10% annual growth. And then some of you ask, why is the ordering taking services down this quarter? And I think you can see the answer to the right here. This is the graph that we introduced for this year, where we have the book to build on the Y axis and you have the time span. You see the thick line is the overall. And then you see the four different disciplines of our service business. And you noted that dotted line, which is the retrofit and upgrade business. And that is a project-oriented business. And we all know project-oriented business, that could be movements from quarters. And if you look in Q2 2024, you see the peak there, that is now coming out of the of the 12, LTM 12, so that is affecting. You can see the other disciplines, book to bill, and really encouraging to see, you see the blue service agreement line, it really has a strong positive trend. So we have a strong service business in marine and it's going to continue to grow. Energy. Record high order intake, double-digit net sales growth and increased operating results. So order intake up by 93%, it's all-time high order intake on the energy side, of course driven by certain large orders, really helpful here. Net sales up with 31%, we are having a rolling 12-month EBIT of 14.5% and you see the drivers absolutely are up, the drivers better operating leverage, mainly stemming from the higher equipment sales, higher service volumes also contributing, and also in energy. We are investing, which is of course having a negative impact short-term, but should have a positive impact long-term. We are investing in R&D, and also on the energy side, we clearly see opportunities to position ourselves as a technology leader in balancing power, but now also in data centers going forward. Similar kind of picture for energy on the service side. So really good development in energy services. Overall service book to bill well above one. Here you have a little bit lower CAGR over the last two years, 8%, but still I would say encouraging. And it's the same story looking to the right graph here of, you know, why is the order intake on services side down? It's the same phenomena here with the retrofits and upgrades. You see they are below one. And that is, you can see also here, the second quarter of 2024, where we had a peak. So no cause for alarm. And you see the big thick line, it's well above one. So also continued positive development of the energy services cycle. Energy storage. More challenging, order intake decreased due to both direct and indirect impact from U.S. tariffs. So order intake and revenue recognition expected to improve during the second half of the year. Order intake was down 79%. That is quite a lot. Of course, the U.S. tariffs, the U.S. market is muted. Competition increases in other markets. So our order intake has really taken a toll, no doubt. Net sales down 42%. If we look at the rolling 12 EBIT, 3.5% is still I would say fairly okay. Strong execution in existing projects. So credit to the team there. We see the absolute is coming down. On the positive side, we have improved equipment margin in the backlog and we are executing in a good way. We also have higher service volumes. The lower equipment volumes and weaker operating leverage has a negative impact. We continue to invest in R&D, so we also have higher R&D costs, and we are continuing what we said before, we will increase our focus on growing in certain selected markets, and we are investing in terms of headcounts in new markets, customers and products. Here you have the EBIT bridge from Q2 2024 to Q2 2025. And I think it's encouraging to see improvements in marine energy and portfolio business. And the comparable operating results increased by 18%. So with that, Arjan, over to you.

Thank you, Håkan. If we look at the other key financials, first of all, as Håkan mentioned, let's say very strong cash flow in Q2. We almost doubled, let's say, Q2 last year and definitely doubled, let's say, Q1 because that was 190. Good cash flow was supported by good profitability development. We can see that also on the EBITDA line here, as well as, let's say, good positive contributions from working capital. If we look at working capital from Q1 to Q2, basically 154 million Euro improvement, now landing at 924 million Euro negative. If we look at the improvement areas, it mainly came from inventories, receivables, while at the same time, the advances received held up on a very strong level. Good cash flow clearly supported, let's say, the positive trend on net debt as well as on gearing. The good result also contributed to the positive trend on the solvency. And the combination of good result as well as good development in working capital supported clearly, let's say, ROSE. So basically, I'm super happy on this page. Let's say all the numbers are trending in the positive direction. If we look at the longer-term trends, First of all, the left side graph, let's say operating cash flow, clearly the trend is up. Very strong cash flow, as I mentioned, in Q2. I think Q4 24 was the record, so very close to that. Very happy with that, of course, and very much driven also by, let's say, good order momentum and good down payments and milestone payments from customers. Working capital impacted by the same, a very strong, let's say, performance in Q2, making another step, let's say, down to the negative. If you look at the five-year average, let's say, working capital to sales ratio, it now stands at 1.3% from 2.4% in Q1. Clearly, let's say, we are trending in a positive way, but I will still, and I did it many times before, highlight that, let's say, negative working capital is something say extraordinary for Wetzelab because it only started Q4 2023. Since then we have been going let's say down on the working capital trend. Very much driven also by of course our continuous let's say order growth. Let's say book to bill ratio for the 17th quarter in a row has now been let's say positive and that of course also supports let's say with if you have at least agree good payment terms with customers to a positive working capital development. Over time, at some point of time, you need to execute these projects so it will level off this orange line at some point of time. I don't expect that to happen this year to a, let's say, strong positive bending, so to say, and most likely not in the first part of next year either. This is a new graph, or a new slide, actually, and here we want to reflect upon our financial targets and how are we trailing against those. In the top right corner, marine and energy combined, target of 5% annual organic growth, last 12 months is 19%, so doing very well there. If you look at the profitability, the operating margin target, 14% is the target. Last 12 months here is 13.1%. Standalone quarter is 13.6%, so also really on the right track there. Just for reference, in the first half, we clearly improved. End of Q4 last year, it was 12.8% on a last 12-month rolling basis. If we go to the right side of that top A graph slide is the energy storage. Clearly, let's say the operating margin target is within the range, 3% to 5%. But we have a challenge with the volumes at the moment. Let's say the US market is stagnant. All competitors move to the more active markets, and that, of course, increase competition. That's a hurdle to overcome in the future. Looking at the group targets in the bottom, gearing, our target is to be below 0.5. I think we are almost 0.5 negative, so clearly, let's say, in the right track there. And also dividend. We pay every year basically at least 50% of EPS out as dividend, even in the year 2022 when we made a loss. Overall, I would say we are doing quite well, or very well, actually. We are on the right track to reach our financial targets, and we are confident to reach them. With these words, back to you, Håkon.