Wartsila Corp Unsp/Adr

Good morning and welcome to this news conference for Wärtsilä Q3 2025 results. My name is Hanna-Maria Heikkinen and I'm in charge of investor relations. Today our CEO Håkan Agnevald will start with the group highlights, continue with the business performance and after that our CFO Arjen Behrens will continue with financials. After the presentation there is a possibility to ask questions. Håkan, time to start.

Thank you, and welcome everybody. This quarter was a good quarter, actually, and we are moving in the right direction. But it's also a quarter where you need to look a little bit under the hood. I mean, first of all, operating results and cash flow increased. Order intake was stable at around 1.8 billion euro. But if you look at the organic growth, it's actually up 6%. And also, if you look at marine and energy specifically, you see that marine order intake was actually up 8%, and energy order intake was up by 29%. The challenge, and I come back to that, is on our battery business, our energy storage business, where the order intake in Q3 for new equipment was basically zero. But marine and energy growing in a good way. This also leads to a strong order book of 8.6 billion euro. Net sales decreased by 5% to 1.6 billion euro. But also there, this is driven primarily by timing of deliveries and energy. So the deliveries and energy will be tilted to the fourth quarter. I'll talk more about that later. Comparable operating results increased by 10%. So we continue our journey to reach our financial targets. And we are now at 11.9% of sales. Operating results increased by 20% to 230 million euro, which corresponds to 14.1% of net sales. And items affecting comparability amounted to 35 million euro, mostly related to the divestment of ANCS. On services, our group service book to bill ratio continues to be well above one. And cash flow, I will come back to that. We have a strong cash flow from our operating activities of 340 million euro. Now, let's look more into the details of the numbers. So if we start with the quarterly, the Q3 results. So order intake, as we talked about, is actually down a percent. But as I said, if you look on organic growth, up 6%. You're also seeing the growth in marine, 8%, energy, 29%. If we look at the net sales, It goes from 1.7 to 1.6 billion, down 5%. But as I said, it's major related to periodization of sales in energy. And I will come back to that. If we look at book to bill, so we continue with a good book to bill above 1 at 1.1 this time. And I think this is the 18th consecutive quarter in a row where we have a book to bill above 1. Comparable operating result, 195 million euro, up 10%, and we are now at 11.9% of net sales. And the operating results, 230 million euro, up 20%, and now at 14.1% of net sales. If we look at the year to date, I think there are two figures that I would like to highlight. Our order book, which is up to 14%, up to 8.6 billion euro, and also our continued improved comparable operating result, up 18% or going from 10.5 to 11.7%. Solid path to reach our financial targets. Looking at our two industries, if we look at the marine market, we see a moderating demand for new builds, but still in line with the 10-year average. And then if we look at the advanced core segments, strong ordering across crews, containers, and LNG bunkering vessels. So the number of vessels that were ordered in Q3 decreased to 1,200, down from 1,700 the corresponding period last year. The regulatory uncertainty, high new build prices and softer market conditions affecting negatively the new build investment demand in some segments. Ordering has, though, been uneven across vessel segments, with continued strong ordering appetite in vassaless key segments, crews, container ships, and LNG bunkering vessels. And contracting in our key segments is expected to remain clearly above the 10-year average level, with the latest forecast actually indicating a 30% increase in contracting volumes between 2025 and 2027. Shipbuilding continues to expand, primarily in China. And in January to September, 259 orders for new alternative fuel-capable vessels were reported, which accounts for 48% of the capacity of contracted vessels. On the energy side, the increased demand drives investment in the energy transition, and the global energy transitions continues to move forward. And EIA, sorry for that, International Energy Agency, not so easy to pronounce this morning, expects renewables, grids, and storage investments to post another record high in 2025, and investments in fossil fuels to decrease. BNEF reported that both wind and solar investments grew in the first half of the year compared to H1 in 2024. Energy-related macroeconomic development in 2025 has been heavily impacted by elevated risks in the geopolitical environment. In our engine power plants, 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 drivers for engine balancing power plants continue also to develop favorably. In energy storage, though, the demand is closely linked to the increasing share of intermittent renewables, which on one side continues to progress slowly. However, the U.S. market is facing headwinds in the regulatory environment, though several drivers remain solid, and actually also on the storage side now with data centers as a potential new opportunity. Going through the numbers, organic order increase, as I said, organic order intake increased by 6%. Order intake overall remained stable. Marine order intake increased by 8%. Energy order intake increased by 29%. But energy storage order intake decreased by 79%. Equipment order intake remained stable and service order intake remained stable. If we look at the order book, we have a strong order book. Rolling book to bill continues well above one. We see the trend. We also see that the order book is building up further and further into the future. So that is something to recognize. Organic net sales remain stable. So net sales decreased by 5%. Marine net sales increased by 18%. Energy net sales decreased by 30%. And this, once again, it's driven by the periodization of deliveries between quarters. And we do expect that deliveries during the second half year will clearly be tilted in energy to the to the Q4. Also, as you know, we have more and more equipment contracts moving from EPC to equipment, and equipment contracts, to make it simple, they are invoiced when they're delivered. EPC is a little bit more smoothened out. So you can also see this as one of the consequences of that we are actually moving our gravita to equipment business. Energy storage net sales decreased by 10%. Equipment net sales decreased by 11%. Service net sales remained stable. Profitability continues to improve. So net sales, given the context, decreased by five, but comparable operating results increased by 10%, and comparable operating margin, 12-month rolling, is now at 11.6 compared to 10.6%. On technology and partnerships, so we continue to shape the decarbonization of marine and energy. The energy example, 217 megawatt dual fuel power plant to deliver reliable power for Kentucky residents. So we will supply the engineering and equipment for a 217 megawatt power plant in Kentucky in the US. The plant is needed to provide additional grid capacity, thereby helping East Kentucky Power Cooperative to meet increasing demand. And this order was booked by us in Q3. On the marine side, we continue our close collaboration with Vasa Line, and now we will together deliver the world's largest marine battery hybrid system project. So we have been selected as the electrical integrator for a major battery extension project for the Vasa Line rope-axe ferry, the Aurora Botnia. When the project will be finished, it will be the world's largest marine battery hybrid system in operation, close to 13 megawatt hours. And the Aurora Botnia operates with a range of Wärtsilä solutions, including four highly efficient Wärtsilä 31 DF engines. And this order was also booked in Q3. And here we have a fantastic picture of a fantastic Finnish icebreaker. We are very much close to this segment. Half of the world's icebreakers actually have engines from Wärtsilä. So exciting opportunities also in the dialogue between the governments of Finland and governments of the US. Marine, so increased order intake, net sales, and comparable operating results, and continued growth in equipment order intake. So we see overall order intake up 8%, net sales up 18%, and we do see also the continued improved profitability margin. The drivers in the bridge for the profitability, higher service and equipment volumes, better operating leverage, and on the headwind, It's increased R&D costs. We keep on investing in our future and in being a technology leader in our space. If we look at the service business, overall marine service book to bill, well above one. Strong growth in service agreements. However, in this quarter we saw reduced ordering and taking retrofits and upgrades. To the left you can see 8%, I would say, solid cargo growth in the marine service business. On the right side you see the different disciplines of our service business. You see the service agreement curve. Accelerating in a good way. We now have about 34% of our installed fleet under service agreement. The renewal rates continues to be above 90%. Good progress. You also see the retrofits and upgrades coming down. But as we talked about before, retrofit and upgrade, that's a project business. And it can be a bit bumpy. And it's lumpy by nature. And we have a good pipeline in front of us. That I can say. Energy. Increased order intake, lower net sales due to the timing of the deliveries. But continued growth in equipment and service order intake. So on the order intake side, up 29%. And this quarter, we haven't had a data center order. You remember, we had our first US data center order in Q2. However, there is an exciting pipeline of data center opportunities in front of us, various stages of maturity. So there is a good pipeline coming. Net sales down 30%, driven by the periodization. Comparable operating result, the percentage is moving in the right direction, and if we look at the drivers, the higher service volumes clearly contribute to the profitability, but lower equipment sales in this quarter is of course a drag, and also here we continue to increase our R&D investments to be a technology leader for the future. If we look at energy service business, the book to bill also continues to be well above one. Strong growth in service agreements also here. However, also in energy, reduced order intake in retrofits and upgrades. Here you can see also solid service business, CAGR, 7% over two years. Also, it looks a little bit similar as marine. There is no correlation why this coincides, marine and energy. It's a coincidence. But you can see agreement is continuing to go up. Also in energy, around 33-34% coverage. Also, the renewal rate and agreement above 90% are very positive. We see the retrofit business clearly being down in Q3. But also here, we have a good pipeline in front of us. So energy storage. which of course on the order intake was challenging in Q3. So order intake low due to the US tariffs, regulatory changes, and also increased competition. On the positive side, really strong profitability in Q3, 6.9% EBIT, real EBIT in Q3. I think that's a strong delivery by the team. But of course, order intake coming down 79%. However, I want to highlight the press release we made yesterday where we took our first order in Q4. So we are also very clear that we do expect order intake to pick up in Q4. Net sales down 10%. The operating margin continues to develop in a good way, and if we look at the bridge, on the positive side, really solid product execution. We are delivering on a backlog in a very good way with a great risk-reward and with happy customers. We also have higher service volumes, so the service business is, of course, smaller than for the rest of our bachelor business, but it's growing. And then on the negative side, we are investing, you could say, in growing, and that's part of our strategy that we have communicated in the past, that we will expand our geographical coverage, so we are increasing headcount, supporting the new markets, new customers, and the products. And here you have the bridge, Q3 24 to Q3 25, and I think really good development. Marine going from 10.4 to 12.4% EBIT. Energy from 13.6 to 15.9. Energy storage, as I talked about before, from 4 to 6.9. And then portfolio business from 9 to 6.8. But that is primarily driven by ANCS, which has now been divested, so we have taken that out. And that business contributed profitably. in a profitable way to the portfolio. So comparable operating results increased by 10%. Other key financials, Arjan, over to you.

Thank you, Håkan. If we look at the other key financials, also very positive numbers in general. First of all, cash flow, clearly a very strong cash flow in Q3. It was at least the highest cash flow in the last 15 years. We did not go further back, but €340 million, clearly a good number, taking us close to €1 billion year-to-date. Good support in the cash flow from profitability, but also clearly from working capital. Working capital at the moment approaching, let's say, 1.1 billion euro negative, which is also an all-time low. Net interest bearing debt clearly moving also in the right direction, 1.4 billion at the moment, negative. And return on capital employed, ROSE, clearly improving from 44.6% at the end of Q2 now to 51.1%, so over the 50%, which is really remarkable for us as a company. Gearing clearly going also in the right direction. We have been running this at a negative number already for a long time, well below, let's say, our financial targets. And solvency also clearly improving now with improved profitability. Earnings per share, both on the quarter as well as on the year to date, clearly ahead of last year at the same time and the same quarter. If we look at the trends, cash flow as well as working capital to net sales ratio, both are moving in the right direction. If we look at the dotted line on the right side graph, working capital, or let's say five-year average working capital to net sales ratio, Every quarter, we are, let's say, lowering the line, basically. At the end of Q1, it was 2.4. At the end of Q2, it was 1.3 and now 0.1. So we are very close to a negative line here as well going forward. And actually here, I also want to comment that we anticipate that, let's say, this negative working capital will sustain the next years. Looking at our financial targets and the progress there, if I start at the left side top graph, marine and energy combined, organic growth plus 13%, well above, let's say, our targets of, let's say, 5%, so really going in the right direction here. Same for profitability. Percentage at the end of Q2 was 13.1, now 13.2, so it's again a step up, small step this time, but a step up. If we look at energy storage, of course, growth is not there as we want it to be, given all the, let's say, challenges that we had in the past quarters on that one with respect to order intake. But clearly, let's say, the delivery is going very well. And also, let's say, as Håkan also explained, let's say, generating good profitability from executing projects from the order book. Currently, we are at 4.2%. of sales here and really within the frame of the financial targets. Group targets, I don't want to comment too much. I think gearing is very obvious. We are well below 0.5 positive. We are actually 0.5 more than negative. And dividend, we have always met our financial targets of paying at least 50% of EPS out as dividend. With these words, back to you, Håkon.