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.

Thank you, Max. Of course, all our facilities have been impacted by the virus. And let me start with China. Of course, at the beginning of the year, we had one week Chinese New Year holiday, and then the government extended that by another week. And after that one, I think the factories have been ramping up quite well. So as far as I know today, our factories in China are at full capacity. So those are now finally, they are totally back into the business. And as you know, some of the shipyards are now working quite well in Asia. Of course, trying to deliver all the ships which were delayed by the government restrictions. Then we have our two big factories here in Europe. And in Trieste, we had a closure for some weeks, and now Trieste is ramping up. It's not full capacity today, but as much as possible, we try to get back to the delivery schedules for our customers. And Italy is still partly closed, but so far, our factories are regarded as a strategic business, and so we can run Trieste quite well. Vaasa is also not full capacity, but it's also now running as much as we can, and we haven't had any delays at the moment in Vaasa. But then there are all the other restrictions what you can see in the market, which are, of course, the traveling. A lot of countries are locked. You cannot go in those places. And customers cannot send their own people to factory acceptance tests. So we today have a virtual testing. People cannot go to the ship where the engine has been delivered. Logistics change is disturbed because of some of these restrictions. In the energy sector, we have sites which have been demolished, where there is nothing going on at the moment. Then we need to ramp up when possible. The percentages from our own reasons or our own factories and what's coming out from the customer is very difficult to say. And then the question, how long this will last, I mean, I don't know. That's why we also say that the prospects are not, the visibility is not yet there. This is where we are today, so trying to find out the ways how to handle the business with our customers locally in different countries has, of course, created some good elements to service them.

Okay, thank you. And just my second question is, I just wanted to understand a little bit better how we should think about the evolution of the cruise ship business in terms of orders. Because if I look at sort of backlogs of shipyards, you've got sort of 25 to 30 cruise ships that are expected to be delivered between 2020 and 2022. So just when you speak and hear from customers and based on the contract structures in these shipyards, so prepayments, et cetera, how far along um we're seeing or how far ahead shipyard cruise ships are ordered at what point would you expect to see an impact on your business so i guess trying to understand first the 17 cruise ships which are expected to be delivered in 2023 are prepayments sufficient that most of these guys will take delivery of them or at what point do we start seeing kind of either cruise ships start being cancelled from that backlog or an impact on your business how Should we think about that playing out?

Thank you. I don't really know whether they would start canceling other than the reason that the business wouldn't be viable anymore. But Roger Holm, the head of marine business, you are on the line and you, of course, talk to the customers daily. So could you elaborate a bit on the cruise industry?

Yes. Good morning also from my side. a few comments on the cruise part. I think for the existing vessel orders, what we will see is probably a big pressure for delays in certain parts. So there will for sure be discussions about when the customers will take deliveries of the vessels and probably targets to level out the deliveries over a longer time period. How much that will happen, we don't know yet. Cancellation-wise, we don't see that at this stage. And our assumption at this stage is it will be more a discussion about when the deliveries will happen. Then talking about new orders, so cruise ships that have not been ordered yet, I think we can expect quite some time now that we will not see new orders coming in unless it's for some really specific segments. And we need to see the cruising coming back clearly before we will start to see new orders coming in on new vessels.

But if I look at deliveries in 2024, there's eight ships that are expected to be delivered. versus the current level in sort of 2021 of 26. So how far ahead of the delivery do you normally see your equipment ordered for a cruise ship? Is it a couple of years, i.e. will we start seeing the impact today in your business or will there be a kind of longer lasting, will there be a delayed effect and it's only really kind of two years ahead of the delivery. So maybe 22 where we really start to see your business coming under pressure. I'm just trying to understand how quickly this will feed through to your specific orders.

We have seen during the past years when the order book has been building to be longer and longer, we have also seen that it has been fluctuating quite a lot depending on the project and the yard when they have ordered our equipment. But in general, the orders have been placed earlier than before to make sure that critical components are clear for the vessels. um so from that part as you know we have a quite long order book already on the cruise side and and that order book will then be a discussion about when will the when will the the vessel then be delivered and and how will that impact our delivery schedules um Assuming that the vessels will continue, but partly with a different schedule, we will still see orders coming in for our equipment and for these vessels for the cruise. But as I said, I don't expect for quite some time to see new cruise vessels being ordered and us getting those orders in.

Thank you, Roger, and thank you, Max. Let's get to the next question.

Next question is from the line of Manu Rimpala from Nordea Markets. Thank you. Please ask your question.

Good morning.

My first question would be on the energy business and more specifically on the margins you delivered in the first quarter. I'm having a slight trouble reconciliating the low margin for the quarter, if I for instance compare it to last year. In the third quarter, you reported lower sales but you still managed to do about 10% EBIT margin. I understand that the spare part sales did fall quite significantly, some 20 million year over year in the quarter, but I still have trouble to kind of getting to such a low EBIT margin. So, could you help us to understand that bridge in a year-on-year basis on the energy margin?

Thank you, Manu, and I would let Marko Virén, the head of energy business, to answer that question. Please, Marko.

Yeah, hello. Good morning from my side as well. If you look, just like you said, we have 25% lower spare parts sales in this year compared to last year. That gives a big, big impact on the EBIT as we have much better margins on the spares than any other market. item that we saw, the volume had a negative impact as well, about 8 million. And that's affecting as well. So pretty much those two are the major items. And then, of course, we had the projects that we announced already last year, the problem projects that now they have taken into a zero margin And those are continuing here as well. And those will continue actually during this year. We will deliver those throughout the year, those projects.

Even if I were to put the 20 million lost spare part sales at the 100% margin, so I'm still not able to get to the low margin you reported in in the first quarter. So was there something beyond those two factors that would help to explain the bridge? Or was there something specific in the last year's Q1 strength?

Last year, Q1 was very strong in terms of very good spares sales. But otherwise, I would say that those are the main items that affected the EBIT.

Okay, and then the second question would be on the marine services. So could you talk a bit about how did you see the service evolve during the quarter, between the months? Because obviously cruise vessels started to get stranded towards the end of the, during March. So was there a big difference in terms of the service levels you saw in March and the last months of March and then compared to, for instance, February levels? And also if you could specify between the cruise segments and the other segments.

Thank you, Manu, and let's get Roger Holm back to the line. Please, Roger.

Thank you. Yeah, on the Q1 in general for the marine service, we had a bit different mix slightly than last year Q1. We had more projects which was impacting the profitability, so the mix impact was coming from that one. Then commenting a bit on the COVID impact from March on, March was a bit up and down. We saw certain things going down, specifically on certain parts of field service, clearly in March already. We had a slight peak of spare parts order coming in towards the end of March. And then it's clear that we will see bigger impacts in Q2 than what we saw in Q1. But in general, we have already seen the impacts from the cruise business coming in partly already in Q1, but we will see more of that in Q2 and very much a focus from our cruise customers on cash, so trying to mitigate everything they can on cash spending. And we expect that to continue in Q2.

Thank you. Thank you, Manu. Next, please.

Next question is from the line of Andreas from JP Morgan. Thank you. Please ask your question.

Good morning. My first question is a follow-up on the earlier discussions around the cruise market. Of the roughly 110 cruise ships that have been ordered with the yacht, how many roughly would already have engines chosen and how many would still potentially result in orders for the engine industry? And maybe some indication for cruise ships that were supposed to be delivered in the next two to three years, what's the coverage there in terms of orders already given to the industry for engines?

Thank you for the specific question. And Roger Holm, do you, Roger, know where the engines are going at the moment.

Yeah, and I will not start to specify the orders for vessels in the order book, but as I said before, before the COVID crisis, we have seen major orders coming in. I can only refer to the major cruise order we had late last year, where the yards have been looking at bundling up quite many cruise ships in one go. So it's not that everything has been ordered for all cruise ships in the pipeline. We still have a lot of equipment that have not been booked for all of those. But as I said before, we have seen before the crisis that orders have been taken earlier than before. And that's the situation we have today.

But you're not in a position to say whether one-half or a third or two-thirds of the cruise ships on order have already ordered engines? That's a rough estimate.

No, I will not comment on that one because it's not only on engine side. We need to remember there is quite a lot of other equipment as well that we sell to cruise vessels. We have cruise vessels where we have contracted engines, for example, but we haven't contracted other equipment for. for the same vessel. So this comes in phases during the development phase.

Thank you. And my second question on the service business in marine, you mentioned in the release good activity in offshore and LNG overhaul benefit. Are these more kind of one-off events that helped in Q1 or do you see some underlying positive trends in those markets for service?

No, not specifically. I think what we are seeing now is that the most impacted segment going forward will be cruise and ferry. Cruise being the bigger impact and ferry coming the second one. Then, of course, on the offshore side, we might also see clearly lower activities. But this will be very much segment related. And we need to remember that a big part of the fleet still needs to still need to operate to deliver the goods. And as long as the vessels are running, that's then the generator for our service business.

Thank you very much. Thank you very much. And next one, please.

Next question is from the line of Sebastian Quene from RBC Capital Markets. Thank you. Please ask your question.

Good morning, gentlemen. The main focus is on the capacity adjustments that you are currently executing. You mentioned the 100 million savings that you see. I assume that's for the year. Can you give us an indication of how much you could cut short-term capacity? So let's say customers don't accept delivery for the rest of the year. and you would have to cut by 30%. Can you do that and how would you approach that? That would be my

That's a bit difficult to quantify. I mean, how much and so on. As I said, the engine factories today are running quite well, delivering, of course, what we have in our order book, and then it depends totally how the order book develops. Luckily, of course, we got a new deal in energy, which is then helping Italy, because those are coming from Italy. and so on. So it's a daily exercise, how you look at the capacity and where to do. And then you have all kinds of restrictions in different countries, what you can do, whether you can have temporary layoffs or whether you need to do something else. So, I mean, we cannot open it up at this moment.

But you know, does Italy offer you paying for temporary layoffs or for short-time work? What's the situation there specifically?

I mean, some of the countries, if... The country is itself offering some COVID-19 related benefits, and if you use the benefits and can have those, then it might restrict you to do something else. So it's a country by country and location by location, but it's overall, I mean, these we cannot open at this moment.

So you cannot answer the question at the moment?

No.

My second question is on cash availability or liquidity. You mentioned here 420 million of cash and the 640 million credit facility. Is this then the liquidity you would currently be able to draw on as of today? The 1 billion 60, I think it is. Or is there other liquidity?

Thank you. That's a good question. And normally we don't get so many questions to our CFO. So Arjen Behrens, our CFO, would you, Arjen, open up a little bit liquidity situation? And that's a quite good moment to do it.

Good morning, everybody. Also on my behalf. To answer the question, yes, our liquidity preparedness is good. Let's say we have no covenants in jeopardy. And so we can draw basically quite a significant amount. And let's say we have some maturing loans still this year, but they are not expensive. So small numbers.

So I can use the $1.6 billion. So cash and cash equivalents, $420,000. And unused committed credit facilities, $640,000. That's basically... currently available liquidity. Yes. And it would increase the working capital reductions, I assume, for the rest of the year. Would you expect that?

Yes, we definitely expect working capital reductions. Let's say we are heavily focused on that already, let's say last year and also now in particular in the current circumstances. Of course, let's say it's a very challenging environment. When you cannot get the deliveries out, it's also difficult to get your inventories down. But we are having made very good progress, I would say, in the past quarter on the receivable side in particular. And we believe we have more opportunities there. So, yes, the working capital focus is definitely something we put a lot of emphasis on. And so far, I would say also good results. Okay. Thank you very much.

Thank you. Next, please.

Next question is from Daniel Acosta from Goldman Sachs. Thank you. Please ask your question.

Hi, good morning. Thanks for taking my question. I want to ask two things. One, just a clarification back on the marine margin comment you've given before. Could you precisely help us quantify the cost overrun and also how shall we think about, I think you said you should expect that throughout 2020, but is 2020 the end of it? Are still things left in 2021? So some help on that would be very useful. And then my second question relates to looking forward for the service on the power business. Now that we're seeing power demand falling in a couple of regions, How shall we think about what percentage of your contracts and agreements on service is dependent on power consumption or the business of your own customers? How shall we think about service on power going forward? Thank you.

Thank you, Daniela. And let's start with Marina and Roger. The question was regarding the cost overruns.

If I comment on the marine margins in Q1, we had a few main items impacting that. One was what I referred to earlier partly was the less favourable service mix, meaning that we had more projects with lower margins than the rest of the service business. Normal margins for projects, so no no difference compared to history there. Then we had the projects affected by the cost overruns which we communicated last year and we have continued to deliver those out of the order book. Gas solution is developing in the right direction but and the number of the bad projects are reducing, but there are still projects with zero low margin to be delivered in 2020. And then, of course, we had the COVID-19 impact on different parts of the business, both from production under absorption, field service, capacity utilization, delivery challenges, and so on. So those are the ones impacting the marine margin in Q1.

And Marko Viren, could you comment on the energy service question?

Yeah, if we look at the impact out of the COVID, we definitely see already in Q1, that's one main reason as well why we saw a lower net sales. Customers are getting a little bit more concerned about how their business will affect them. And just like you said, that we've seen heavy drops on energy consumption. And when they see heavy drop in their end markets, then, of course, they will be much more careful to buy spheres and maintaining their assets. And each country and each company will have a different and have a different... way of coping with that as well. And some of them are closing down some assets and running the other ones. And of course, that depends totally what they need going forward. If you just look, I mentioned already earlier, we said in the report as well, in Q1, in March, we had five sites that were demobilized and five other sites that were actually in quarantine. So they were in lockdown, so they couldn't do anything and people couldn't go out and in. And the same goes for in many countries today where we have service assignment, but because of the guarantee, we cannot send people there. And if we do, in some cases we actually have done, but what happens is that service technicians, they have to wait 14 days to get to the site. And then when they get back, it's 14 days again. So it's quite long lead times. So this is quite a cumbersome exercise, both for us and our customers.

Thank you. Next question, please.

Next question is from the line of Sean McLaughlin from HSBC. Thank you. Please answer your question. Sean, your line is now open. Please go ahead and answer your question.

Sorry, I was on mute. I think, firstly, a broad question on the impact of the fall in oil price on marine sector demand in general. What does this change, and which segments do you expect to benefit or be impacted the most? And also, how does this impact demand for higher margin geofuel engines going forward?

That's a good question. And, Roger, could you please comment? It has all kinds of effects to different segments.

Yes, thank you for the question. First of all, I think the fuel pricing as it is today and the low fuel spread have a short-term impact on the scrubber demand. So we will see challenges on the scrubber market until we see how the fuel spread is developing and, of course, The low fuel spread we have at the moment is a challenge for the scrubber market. Still we have seen some activities continuing on the new build side, even if it has been very low at this stage. So that's one angle of it. I think then going back to other parts, is that of course the fuel cost is a big element for our customers. Lower fuel cost is always a positive thing. And we have the side effect now of the oil price that the day rates for tankers have spiked quite a lot. So this has been, at least for now, has been a good business for the tanker owners. Then on your question on dual fuel, I think that is much more driven by the environmental development sustainability and the pressure on the marine market to go into more sustainable futures. I don't see an impact due to this one on the dual fuel engines and the marine moving much more to LNG as a fuel. I think this will continue to develop and we will see also much more pressure on different kinds of more environmental friendly fuel, but this is driven then by the target to reduce emissions in the whole shipping industry. Thank you.

Second question on marine service. Customers have been pushing back on what you call essential maintenance now for some quarters, and I imagine the situation in Q2 in 2020 will get worse. Is it a risk that some what you consider essential maintenance no longer gets considered essential, so effectively we're looking at a structural dilution of service revenues going forward?

Roger, please.

Yeah, I would say this is more related to the fact that the vessels are running. As long as the vessels are running, we will see the service business continuing. Of course, what we see over time is we want to have more and more flexible service setups and service when the customers have possibilities to do so in the usage of the vessel and that's what we are trying to do with the customers as much as we can. But I don't see a big change on service approach in general as long as the vessels keep running and this will then continue as we go forward. But then, of course, it depends on how the vessels are run and with what speeds and so on. That might have an impact in certain segments. But in general, for us, what we are looking for is more that what are the running hours specifically on the engine. That's the key criteria. Thank you.

Thank you, Roker and Sean. And please, next question. Yes.

Next question is from the line of Robert Davies from Morgan Stanley. Thank you. Please ask your question.

Yes, thanks for taking my question. My first one was just around some of the regional differences you're seeing in the energy business. Maybe if you could give us a little bit more color there. And then my second one was just around You mentioned site access for your service personnel. Is it possible to lead more of these service personnel at certain bigger sites? Do you do that, or do they typically all move around customer to customer on an ongoing basis? I just wondered, as you go through the rest of the year, what, from a structural standpoint, are you thinking of changing in the way you operate your aftermarket businesses?

Thank you. And Marko Viren, you could actually answer the energy and touch also the service side, please.

Yeah, I can start with the service side. In energy side, we have people in quite many countries, but as we cover 180 countries, we cannot have people in all countries. And also, And what comes to different capabilities, we usually try to have some hubs where we have specific technological skills. And those people we are sending around. And some skills we have in local, but usually we always meet some people from other parts, other countries as well. And that's why the mobility that is restricted now is affecting us and also our customers. When it comes to different countries where we see that COVID or areas where COVID-19 has been impacted most, I would say that it is basically, it started in Asia and Asian countries implemented lockdowns quite fast and restrictions and mobility as well. And also our customers started to close down and demobilize the sites. And then Europe is the second and U.S. I would say these three areas are most affected. And then there might be some occasional countries where there's a big impact as well. But I would say in general, Asia, Europe, and the United States are the ones that are most effective.

And when you look at the services, of course, we have remote monitoring, we have virtual engineering, and all that can be nowadays in these kinds of situations utilized more and more. So of course, you create new ways to service your customers.

Yeah, that's a good point. What we actually have done with our customers, the ones that are not remotely connected to our surveillance centers and customer centers, we actually are offering that to our customers now so that we can do much more work remotely.

Sorry, one just sort of follow-up. What sort of percentage of your customer base is, quote-unquote, remotely connected? Is that going to be a big change in the second quarter, or is that something that the majority are already there? It's more marginal from here. Thank you.

Yeah, I would say that if you're an agreement customer, then the share is quite high. But if you're non-agreement, then it's basically zero. So it's the non-agreement customers that we are now approaching and asking them to... that we can have a connection and then we can help them remotely, so that they can do at least some type of surveillance and maintenance work without having people inside. Okay, thank you.

Thank you. Please, next question.

Yes, next question is from the line of Antti Sitalin from Danske Bank. Thank you. Please ask your question. Hello, Antti. Your line is all open. You can now go ahead and ask your question.

We cannot hear you, Antti.

Okay, she's not responding. We'll go to our next question. It's from the line of Alexander Virgo from Bank of America. Thank you. Please ask your question.

Thanks very much. Thanks for taking my question this morning. Yeah, I wondered if you could talk a couple of big picture questions. On your comment there around customers converting or seeking to convert from contract to time and material ad hoc, Can you talk a little bit about the dynamics around that? Is that something that you think will happen in the near term and then they convert back? Is that something that companies just do just from an ad hoc company-specific basis, or is it a trend that you need to watch? And then second question, just on the EPC contracts that you've signed in LATAM, I wondered if you could talk just two parts to it. One, could you talk a little bit about the phasing of when we should build that into numbers? But secondly, are you confident on the framework of that agreement and that you're not going to see a repeat of the issues you've had in terms of cost overruns, deliverability, et cetera, et cetera. Thank you very much.

Thank you, Alexander. And I'll let Marko later on to answer the EPC contract. But I missed somehow, Alexander, the first question. Could you repeat that one, please?

Sure. I just want to understand some of the dynamics around customer relationships and customer conversations you're having with respect to contracted maintenance, contracted spares, uh, in, in the businesses and whether people are changing those or seeking to change those relationships, um, uh, in, in the current environment and whether that's something that, um, we need to think about on the long, you know, from a medium to longer term basis or whether they're, if you think, think back to the, um, the last couple of times we've been through situations, I mean, obviously not comparable to this in any sense, but, But the last couple of times we've been through significant dislocations in the marine industry or in the energy industry in terms of customers' ability to pay. I'm just trying to understand the dynamics of the relationship between you and the customer. I appreciate that equipment needs to be maintained unless it's switched off. But I'm just trying to understand the dynamics around this with long-term service agreements and whether any do change and convert permanently or is it a temporary thing to ad hoc? Just trying to understand the trends there.

Thank you. Really, the situation is quite new. Of course, it's also totally different than we have ever experienced. We are at early stages in the pandemic, and you start seeing the effects now going forward. Of course, it's always good to remember that Wärtsilä in the marine sector, we are mission critical for our customers. So, of course, the discussions are extremely important if they want to use the vessels also now going forward. And there the long-term agreements and the long-term relationship is extremely important. And as Roger earlier said, Wärtsilä is not only delivering one product here or there, but we have several kinds of options to offer to our customers. And more and more, of course, what comes to the navigation side and the voyage optimization, which increases the relationship with our customers and where the long-term service capabilities and costs are playing more and more an important role. So today if you hear something from customer it might still be very short-term effects and then the customer is thinking about the future together with us how the business will evolve. And in energy, we are in niche markets providing the flexible solutions. So again, I mean, we have a good relationship with customers. We help them to run their power plants or produce the electricity in different places and mostly also in remote locations. Again, Wärtsilä's ability to be there with these difficult times is, of course, then creating new opportunities. As Marko also said, the more you have agreements, the more you can also do remotely and help the customers in these kind of situations. But then if you look at the second question, the EPC in Latin America, Marko Viren, could you open up a bit about the deal as much as, of course, you can?

Yeah, thank you. I would say that these deals are very much bread and butter deals for us. The standard delivery would we have been doing in many, many years in most of the countries in the world. The issues that we have had a couple of years ago when we were a little bit too eager to take volumes and went outside of our expertise area, and that's where those cost overruns happened as well. But these are definitely our bread and butter and also in the environment where we have been before and know that environment and customer well.

So it was a quite typical EPC contract.

Yeah.

Thank you. Next question, please.

Next question is from the one of Laura Kukunen from Sonoma. Thank you. Please answer your question.

Thank you. Hi. Can you tell more concretely about the delivery challenges, how the pandemic has impacted the delivery and supply chains worldwide, and where have you seen effects?

Yes, of course, as I started, there are, of course, the delivery challenges, what comes to even looking at the factory, sorry, factory acceptance test at factory. So nowadays we are doing them remotely. Normally a customer comes to the, in marine sector, comes to the factory and looks at it and then And then, of course, you have travel restrictions. You have new challenges when it comes to the logistics. We, of course, are looking at the supply chain. We have a huge amount of suppliers and sub-suppliers. And we have been... quite well with our purchasing teams to monitoring the material flow. So on a daily basis what the factories need and how we can leverage our stock, different kind of multiple sources and of course a very long lasting relationship with suppliers. All kinds of challenges almost everywhere. But so far we have been managing and being able to manage it quite well.

So has there been already delays on deliveries on parts or materials?

Of course, there has been some delays here and there, and it's difficult to quantify what and where, but of course, you have seen. But we are doing a lot of work on that one. Of course, you need to remember that if this lasts longer and longer and longer, then of course, you start seeing a bigger effect to the supply chain.

Thank you.

Thank you. We still have time for one question, please.

Okay, the last question is coming from the line of Sven Wajar from UBS. Thank you. Please answer your question.

Yeah, good morning, Jakko. Just a quick one. On the study that you've published lately with regard to power production in Europe, that the renewable share was going up quite massively, which for now might be just a short-term effect. But anyhow, I was just wondering how you see that shaping your client discussions on the energy side, or is it shaping it already? Or just your evaluation on that end, please.

Thank you, Sven. And that was a good question. And of course, give some opportunity for Marko Viren to open up a bit that study. Please, Marko.

Yeah, definitely. I'm happy to hear, Sven, that you have been investigating that as well. This is actually something that shows extremely well what we have been saying, that in 2030, countries will encounter those challenges that they are encountering now. If you take Germany last week, they actually had over 10 gigawatt of excess energy production because they still were running the coal power plant and inflexible combined cycles. So they were actually selling 10 gigawatts to neighboring countries for free. And this is because the system is not flexible enough. And this is something that is extremely interesting to see because this is like a laboratory right now so we can see, you know, what will come in the future and they can see exactly the impacts and effects already today. So I definitely believe that this will give new thoughts among a lot of energy heads and decision makers, and they might speed up the transition process as well.

Thank you, Marko. Thank you, Marko, and thank you, Sven, for the question. And thank you all for good questions today. Let's meet next time in July. Be safe and stay well. Thank you very much.