Wartsila Corp Unsp/Adr

Good morning, and welcome to this news conference for Wärtsilä Q1 2026 results. My name is Hanna-Maria Heikkinen, and I'm in charge of investor relations. Today, our CEO, Håkan Agneval, will start with a group highlight. He will also go through business performance. And after that, our CFO, Arjen Berens, will continue with key financials. After the presentation, there is plenty of time for Q&A. Håkan, please, time to start.

Thank you, Hanna-Maria, and welcome to our Q1 report. I'm joining you today from Shanghai, so it's a pleasure to be here in China. As you know, China accounts for more than half of the world's shipbuilding capacity, so it's a highly relevant place for us to be as . But if we start with the first quarter, I would say we have a strong start of the year, both in marine and energy. We start good in 2026. So if we look at the summary, double digit growth in order intake, all-time high order book, and continuously improved operating results. So the total order intake increased by 10% to 2.1 billion euro. In this quarter, we will also talk a lot about organic growth, because you have seen or you will see that our both water intake and sales has been heavily affected by FX, by exchange rate, and also the fact that we have divested assets in portfolio business. So some of these numbers are good, but they look even greater when you look at the organic side, so to say. Order intake increased in energy in marine. Energy order intake increased by 56%. But if you exclude FX, organic growth is at 66%. Marine order intake increased by 9%. But once again, organic was even higher, 13%. All-time high order book of 8.9 billion euro. And service, we know how important it is for Wärtsilä. The order intake on the organic side was up with 9%. Strong number. Then, of course, we had FX impacts, and we also had impacts of our divestment. But organically, up 9%. And that also leads to that our service 12-month rolling book to build continues to be above 1%. Net sales remain stable at about 1.6 billion euro, and we continue to improve our profitability. Comparable operating results increased by 16% to 199 million euro, and that corresponds to 12.8% of net sales. Operating results increased by 18% to 194 million euro, which is 12.5% of net sales. Cash flow from operating activities amounted to 7 million euro. It's a bit lower than we normally see, but that's because we are building up basically engines for deliveries. So we and Narin will talk more about cash flow going forward, but we remain composed and optimistic also on the cash flow side going forward. And we continue to have, I would say, a very attractive return on capital employed at 64%. So that's the highlight, strong performance, both on the marine and energy side. Let's dig a little bit further into the numbers. So order intake up 10%, 2.1 billion euro of services. You see it's minus one, but once again, if you look on the organic growth, it's 9%. Equipment is up 23%, very strong on the energy side. And we have also seen that the first weeks of the second quarter has really started good for energy with two additional big data center orders in the U.S. Order book now is very good. It's only level 8.9 billion euro. We continue to highlight the message that we are building up an order backlog for deliveries further and further into the future, and that is very important when you model the sales recognition. Net sales, flat 1.5, but there is also the whole theme of FX and divestments we have done. Services, 800 is down 9%. Equipment up 11% to €750 million. Book-to-bill continuously well above 1 at 1.35. Comparable operating results increasing 16% to €199 million, 12.8% mentioned before. And operating results up 18% to €194 million at 12.5% of net sales. We also continue to follow marine and energy combined and energy storage. And you can see that if you look at marine and energy combined, the order intake and the sales matrix is even stronger. I mean, order intake up 28%. Organic is 34% up. And you can also see that the order book is up 27% in marine and energy combined to 7.5 billion euro. Net sales, the organic growth, 7%, and services is down, but equipment is up 22% to 504 million euros. Book to Bill in marine energy combined at 1.55. And comparable operating results also continue to improve clearly in marine energy combined, 7% up at 175 million euro and at 13.6%. As you know, we have our financial targets for marine energy combined at 14%. So we are not quite there yet, but we are on a solid path to reach our financial targets, I would say. As I have said many times before. And we have proven ourselves by step-by-step improving the financial resources. On storage, we have a challenge. There is no doubt. And the challenge is order intake. I mean, we basically have no new order intake on the equipment side in the storage. So that's why you see the minus 53 sent down is basically services. The sales is down 14% at 110 million euro. The good thing, though, on the storage side, you've seen the EBIT here, 5%. The team is delivering the existing order backlog with a solid execution at 5%, which is then the higher end of the span of our financial targets. But Here, we have a challenge on the order intake side, and we've also been very clear that we need immediate order intake. Otherwise, we will have a loss-making second half of the year in energy storage. Okay. Then, some industry perspective, starting with marine. We do see in the first quarter a healthier demand and also earnings for our customers supported by the market sentiment in the first quarter. The conflict in the Middle East has only had minor impact on that still in Q1. We have about 500 colleagues in the area. be there, safety, taking care about our people so they can take care about our customers. And I think our team, our safety team working with our colleagues in the area has done a great work, so we continue to support customers. In terms of revenues, et cetera, it has minor impact because, as you know, our strength, our focus is on four-stroke. Many of the vessels, the majority are having two-stroke. that limit the impact on vessel short terms and so forth on the financial side. The number of vessels ordered in the review period increased to 549, so compared to 235 previous years. So, 2026 is clearly stronger than 2025, which was, as we all know, a rather weak year. The market sentiment in Q1 was supported by healthy demand and earnings. But obviously, the start of the conflict in the Middle East caused disruption and uncertainty in the shipping markets. But once again, we have not, I mean, our cost segments, we have not been impacted so far in a major way. Ordering appetite also continued to be on a good level in our key segments. As you know, when we look at the graphs to the right here, our core segments even in Clarksons are trending clearly higher than the 10-year average, and we do see that also going forward. Also good to note is that the shipyards order book are at the highest level since 2009 with shipbuilding capacity expanding primarily in China. And in January to March, 100 new orders for alternative fuel-capable ships were reported. So that's about 26% of the capacity of the vessels. That's down from the same period last year. And the major driver there for the decline is on the mix of vessels. Tankers, more tankers means less alternative fuel. The underlying trend on DCARB is clearly continuing, driven by the strategic approach by many of the ship owners, and also by the fact these are long time assets, 30 years, and you need to make sure that you have a fleet of vessels that you can be profitable with and operate in a relevant way the coming 30 years. And then you need the co-proposition for VASLA, fuel flexibility, and fuel efficiency. So it's The narrative still holds. Then on the energy side, we do see a buoyant market. There is an increased demand driven by energy transition investments. Electricity mangrove is certainly there. Future projections have increased substantially, and clearly there are very strong and good market opportunities for equipment providers. Two key things have stood out in the macroeconomic development, low growth and increased tariffs-related uncertainty. In energy power plants, market demand for equipment and services has been strong, very strong. The baseload segment remains a consistent source of demand for thermal power. and clearly with further growth opportunities in data centers, and we continue our, I would say, successful journey in the U.S. data center market, still with a very active pipeline and with two important and big captures just at the beginning of the second quarter. And also on the balancing side, we continue to see a very strong growth Demand are going forward. Before arriving here in Shanghai, I spent a couple of days in Australia, clearly seeing the narrative playing out there. You know, Australia, over the years, gradually moving from coal to renewables, and then you need a balancing power, battery storage, thermal generation, and engines is a very, is now getting in as one of the major technologies there. It's happening in many places of the world, I would say. In battery storage, the demand is closely linked to the increased share of intermittent renewable energy systems, clearly, which continues to progress in a good way. The U.S. market is clearly facing headwinds on tariffs and regulatory changes, though many of the drivers, especially in the midsection of the U.S., remain solid. I mean, affordable power is always attractive. And then on top of this, we are now also, for our storage team, have data centers as a potential new opportunity that we are looking at, so to say. We haven't stepped in fully yet, but we are looking at it. And if we look at renewables growth, I mean, after significant growth driven by solar in the mid-2020s, I think now the renewable capacity addition globally is expected to decrease a little bit in 2026. But, I mean, we see long-term growth on the renewable side driving the need for balancing power. And there is more and more understanding and demand for balancing power, because in many power systems, clearly this narrative that we've been talking about for several years of needing more balancing power and the share of renewables is growing. It's definitely playing out. And here you could see some of the International Energy Agency numbers and, you know, how they project the average, I mean, the annual electricity mangrove in terawatt hours. And we can see this significant shift here. And there are plenty of drivers, electrification of industries, the need for cooling. I mean, the world is getting warmer, certainly here in Asia. It's a big theme. Data centers, but also aging. energy infrastructure in the States and to certain extent also Europe. So there are several growth drivers, I would say, in the energy market. Now let's get back to the numbers and let's look at the visualization. So organic water intake increased 22%. quite considerable. That's the organic. If we look on the non-organic, so to say, the order intake increased by 10%. And if we look at marine, it's up with 9%. Energy is up with 56%. Energy storage, though, is down significantly with 53%. If we look at equipment versus service, the equipment order intake increased by 23%. Service order intake remains stable. If we look at the order book, strong order book development, rolling book to build, continues to be above one. I think now it's consecutive 24 consecutive that we have remained with a book to build larger than one. And also well worth noting is that the order book is growing despite that we have eliminated close to 900 million euro related to divestment. So it is a strong achievement. But we also note, we really highlight this now, as you can see, we have a very attractive order intake. We are taking orders for deliveries further into the future. And we have also talked about the fact that we do less of EPC, which has percentage of completion, normally as regular recognition, to more equipment of EEQ, which means that, The sales recognition also comes a little bit later when we deliver the engine, basically. And we try to help you also by, and I think we introduced this slide last quarter, to get a little bit more concrete numbers on how the order backlog is developing over time. And it's clearly so that the order back, the order book will generate sales distributed further into the future. And you see particularly here in energy how the order backlog is building up for sales and deliveries further ahead, I mean, beyond 2026. Organic net sales increased by 8%. Net sales, if we take the non-organic, the complete, so to say, the whole, it was stable. Marine net sales remain stable, energy net sales increased by 12%, energy storage net sales decreased by 14%, equipment service or equipment net sales increased by 11%, and service net sales decreased by nine. Possibility continue to improve in a positive way, step by step on our goal to, on our path to reach our financial targets. So, under the backdrop of a stable net sales, the comparable operating results increased by 16%, and comparable operating margin on 12-month rolling is also up from 10.9 to 12.4%.

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