Wartsila Corp Unsp/Adr

Good morning, everyone, and welcome to Wärtsilä Corporation Interim Report, January, March 2020. We have a quite unusual setup this morning. I'm almost alone here with some helping people in Wärtsilä Campus Helsinki. But I'm also joined by the whole board of management on lines, and from investor relations, Natalia Valtasaari and Emilia Rantala. As usual, I will go through some slides first, and then you have a possibility to ask questions. If you look at Wärtsilä's first quarter, our net sales were stable, but the profitability was burdened by the COVID-19 impacts and the mix. And a couple of words about the COVID-19 first, and really the escalation of the coronavirus pandemic and concerns regarding its long-term impact on the global economy has resulted in a high degree of uncertainty in our industry and the industries of our customers. We have seen definitely certain disruptions in our operations during the first quarter. Our factories have been running at lower than normal capacity, and the utilization of field service engineers has declined due to travel restrictions. Our focus has been to secure the health and safety of our personnel, for instance, of rearranging shifts and production to avoid contamination and strongly encouraging remote working where possible. We have seen also the impact of COVID-19 to our supply chain from country lockdowns. The financial impact of the ongoing health crisis will be material, with first effects seen already in our Q1 figures. We have taken actions to adapt our own cost structure in order to mitigate the negative effects of our business to the extent possible. In these uncertain times, we must secure also our ability to capture future growth opportunities. So we are going on and proceeding with our marine business reorganization into three different businesses, which is central to our accelerating strategy improvement. We are also still investing in R&D projects that are critical to our long-term success. If you look at the market environment, the effects of the coronavirus pandemic are increasingly becoming visible in our market environment. And we will talk about the different businesses during the call. If I look at the key figures now in Q1, order intake declined 12%. A highlight on the order intake is the marine service order intake growth and also the good development now finally in our energy order intake. Order book is still almost five billion, a small decline. Net sales increased, and the book to bill is over one still today. Our result was affected, as already mentioned, by the COVID-19 and the mix in our sales. Very positively, looking at our cash flow, that's developing in the right direction, and we had a good increase in the first quarter. So the demand as such in the first quarter was reasonable considering the market conditions and not so big changes if you look at the different businesses and here first time you can also start to see the portfolio business effect to our order intake. Net sales increased and that was probably the biggest effect to that one was marine services and then our exhaust cleaning, the scrubber business growth during the first quarter. And then when you look at the order book distribution, we still have a quite good order book for the delivery this year. And of course, we need to be careful looking at it and understanding if there would be any cancellations going forward. So far, we haven't seen any major movements there. And the operating result was affected by the weaker fixed cost absorption. So our factories were still running and the sales was declining. the service sales mix, so less spare parts, and still the delivery of some projects which were affected by the cost overruns, the projects which we were talking about last year and where the delivery is still this year. Gas flow developed very well and working capital better now than at the end of last year. Gearing, 0.42. And moving on to the marine or different businesses, and I start with marine business. And here you can see what's going on in the market, the decline. in vessel contracting reflects the market uncertainty. And the first quarter vessel orders, which is a bit over 100, is definitely one of the lowest in many, many years. And of course, we'll be seeing how it develops going forward, and how that will actually affect the different segments. Order intake in marine developed reasonably, and not so big differences if you look at the different segments. Still, cruise and ferry order intake in the first quarter was bigger than last year, so a small increase in that sense. And then when you look at the net sales in our marine business, quite good development so far. We are putting a lot of efforts on developing our agreement business in both industries, and here you can see also the development on the marine business, where we introduce new kind of solutions, for example, for the offshore sector. We also achieved a quite nice transaction with BC Ferries in Canada, where we will provide dual fuel engines, LNG plant, electrical propulsion systems, which will definitely support the business in the waters of environmental side in British Columbia. Moving on to energy business, market share dropped. And this is now the market share situation last quarter of last year. And there was a huge increase on some of the steam turbine-based power plants, which increased the whole market. and our share in that global market dropped for a while. Order intake development in the first quarter was good, and definitely highlighted by one of the big deals we got in Latin America. And here you can also see in megawatts the meaning of those different regions. We also signed a nice operations and maintenance agreement with one of our Colombian customers. And also here you can see the development of energy service agreements. A small drop in this quarter, and that was one US customer who wanted to stop the long-term agreement and use us for transactional basis. Net sales development a bit low. Of course, COVID-19 has affected this one, and also some of the postponements of transactions to the second quarter. And a major deal in Latin America. It's a flexible solution, which of course is based on our strategy to provide efficient integration to the renewable energy system. In addition to the two projects, the two power plants, we also got a very good 10-year service agreement with our customer. And then finally, looking at the prospects, and this is something we already highlighted some weeks ago, the coronavirus outbreak and the measures taken to contain the pandemic will materially impact Wärtsilä's net sales and earnings for 2020. The full financial impact cannot be quantified at this stage. And consequently, because of that one, Wärtsilä withdrew its market outlook for 2020, pending on improvement in visibility. So these were the slides, and now I would like to open the lines for questions. And as we have done previously, please, two questions per person, and then you can go back to the line so that we can get as many people to be able to ask questions. So we are ready for questions. Please.

Ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask a question, please press star and 1 on your telephone and wait for a name to be announced. And if you wish to cancel your request, please press the hash key. Once again, star 1 if you wish to ask a question. So our first question is from the line at Max Yates from Credit Suisse. Thank you. Please ask your question.

Hi, thank you. Just my first question is on the cost under absorption impact that you've talked about. I just want to understand a little bit of how much this is being driven by restrictions in your own factories in places like Trieste and how much of this is being driven by customers unable to take deliveries or delaying deliveries. And then also sort of to what extent these are perhaps temporary impacts that can be caught up as you go through the year, as production normalizes and some of the impacts from COVID-19. So just first to understand how much of this is due to your own factories versus customers actually slowing deliveries.