Wärtsilä hosted a Capital Markets Day for investors, analysts, and representatives from banks and media on Thursday, 9 November 2023. Wärtsilä provided information on the company's business environment, the strategic themes of Transform and Perform, and the roadmap to reach reconfirmed financial targets, with presentations from the President and CEO Håkan Agnevall, CFO Arjen Berends, Marine Power President Roger Holm, and Energy President Anders Lindberg. The recording of the event and the presentation materials are available at https://www.wartsila.com/investors/reports-presentations/cmd-material.
“Shaping the decarbonisation of marine and energy – improving profitability and continuing growth”, stated Wärtsilä’s President and CEO Håkan Agnevall in his welcoming words of the Wärtsilä Capital Markets Day 2023. Håkan started the day by reconfirming the financial targets and highlighting that the focus is on improving profitability and continuing growth; "we have continuous growth in our core markets and segments, and we are the global market leader in major technologies for a sustainable future. Services are already half of our net sales, and the quality of new build margins in the current order book is improving. We are actively managing the business portfolio to support the strategy and financial targets. By moving up the service value ladder, we create value for both our customers and shareholders. One very strong proof point of the customer value that we are creating, s is that we have a 90% agreement renewal rate from the customers."
The focus remains on two strategic themes, Transform and Perform. Transform refers to attractive growth opportunities at the centre of the decarbonisation transformation by leveraging growth in electricity generation, balancing power, green marine transport and related service businesses. The Perform theme centres around a clear path for operational improvements and increased profitability, leveraging market growth and the company’s commitment to both financial and sustainability targets.
Håkan highlighted the significant milestones that have been reached in strategy execution since the targets were set in 2021. On the transform side, Wärtsilä is now a clear market leader in 4-stroke engines, engine power plants and hybrid applications. Strong market fundamentals and the decarbonisation transformation will support profitable growth in the Marine business. The key markets are expected to grow by 11% annually until 2030. Wärtsilä is also a pioneer in carbon capture for marine applications, and all of this has translated into significant growth since the last CMD in 2021: 25% growth in services net sales, 17% growth in thermal balancing installed base, and 3X growth in energy storage net sales. On the perform side, important steps have been taken by continuing to grow services, moving up the service value ladder, and improving customer satisfaction. In Q3 2023 energy storage business became profitable, and a strategic review of the business was announced. The storage business has been a fantastic growth story, and now when the business is profitable, the company wants to review what is the best way to support the customers and create shareholder value in the continued growth. Wärtsilä is also committed to actively managing the business portfolio. With a recent announcement of simplifying the group structure and divesting Gas Systems, Marine Systems as a business division will be discontinued as of 1st of January 2024.
The CFO Arjen Berends continued with a presentation of further explaining the reconfirmed financial targets, progress since 2021, and focus going forward. The reconfirmed financial targets are 12% operating margin, 5% organic growth annually, a gearing below 0.5, and paying more than 50% earnings dividend. Despite the challenging years with the Covid pandemic, exit from Russia, and extraordinary cost inflation, the path towards the financial targets is clear.
“All targets are important, but the key focus is on profitability because in that we need the biggest improvement”, states Arjen, as he continues explaining the profitability improvement. To reach the growth and profitability targets, Arjen introduced the updated key drivers and bridges. Energy transition and decarbonisation are driving the 5% organic growth target, and services and decarbonisation are the key drivers towards a 12% operating margin.
Roger Holm, President of Marine Power, had a clear message of Wärtsilä leading the decarbonisation journey of Marine. Fuel transition and technology leadership are strengthening the market position. Wärtsilä is evolving from an equipment supplier to a strategic partner for the customers, as every customer needs to find the optimal way for the decarbonisation journey. Wärtsilä has a strong position in the market to be the best one to support the customers on that journey, because of the offering and the portfolio that can be provided. This is shown also in the service business. The service business is driving growth, stability, and profitability with being more than 60% of Marine Power sales. Decarbonisation is adding more structure and more possibilities to this.
“I've been in Wärtsilä for 26 years, and we have never been this well positioned in front of our customers as we are today. This is the perfect position to have on this journey”, states Roger. Going forward, Wärtsilä has a good and credible roadmap for the engines, and the possibility to convert into new fuels and avoid stranded assets for the customers because of the lifetime of the vessels.
Anders Lindberg, President of Energy, continued the event by explaining the role of decarbonisation in Energy business. The value creation opportunity in Energy is in improving performance and capturing growth. A solid foundation for growth is implemented with strong profitability in services, improved risk-reward in new build, achieving positive results in energy storage, and being the global market leader in engine power plants. The thermal balancing addressable market is expected to grow by 19% p.a. and the energy storage addressable market by 17% between 2022-2023. Future performance will be driven by strong sales growth and service volumes, continuous improvement, and a future-proof solution portfolio. A key action taken to improve new build profitability and achieve better risk-reward is the new offering and risk management. Wärtsilä has shifted the offering to EEQ (extended equipment supply) being the preferred offering and EPC (engineering, procurement and construction) being only considered in selected markets. Going into 2024 more than 80% of the order book is equipment orders, compared to 40% going into 2022. A rebalance in risk appetite leads to a stronger order book risk/reward profile.
Overall, the event showed the clear path, where Wärtsilä is, and what future prospects seem to be. Several operational improvements have been made, working with a better order book, and continuing to improve the profitability. Additionally, structural changes have taken place, such as seizing the manufacturing in Trieste and managing the business portfolio. All in order to be closer to the targets, improving the operations of Wärtsilä.
The event included two Q&A sessions, where Håkan, Arjen, Roger, and Anders answered questions received both from the live audience and the online participants. Thank you to all for active participation.