Wartsila Corp Unsp/Adr

Good morning, everybody, and welcome to Wärtsilä Corporation half-year report 2020. And I'm really sorry for this delay. We had some minor technical problems. I'm also joined, I'm personally myself here in Helsinki campus, in virtual offices, with Atte Palomäki, but I'm also joined by the whole board through the lines, and with the head of IR, Natalia Valtasaari. As before, I have a short presentation and then we have the possibility to talk about the numbers and issues with the Q&A. I'll start with the short key messages from the half-year report. First of all, the second quarter was unsurprisingly difficult for Wärtsilä, as the negative impact of COVID-19 on both our demand environment and our financial performance increased. This was especially visible in services, where the lower utilization of installations and customer focus on conserving gas affected spare part consumption, field service activities and agreement renewals. Equipment deliveries have also seen some delays as mobility restrictions have prevented access to customer sites and production volumes in our factories have declined. While component availability has not been a major issue for us, virus containment measures have increased logistics and site costs. We talked about it earlier. We have taken actions across several fronts to mitigate the COVID-19 impact, to moderate the effect on our financial performance. Short-term cost saving actions were announced earlier this year. And we realized the first savings of approximately 30 million euro during second quarter, thanks to both reduced discretionary spending and work time reductions. With regard to our cash flow and financial position, we have successfully focused on receivables collection and strengthened our liquidity reserves. If you look at the key figures, order intake came down in all businesses, and also affected our services order intake, and this is the effect of COVID-19 mainly. Order book is a bit lower than previously. Net sales maintained at the same level, but our services net sales declined. And that had an effect on our profitability, as you will hear later. And the comparable operating result came down, but that was also affected by the COVID and the mix in our sales. I want to highlight the cash flow from operating activities, which is one of the key targets we have been focusing during the second quarter. And this number is probably the highest in second quarters during the last 10 years. If you look at the markets, Vessel orders in the marine market remain at a very low level. Over 300 vessels contracted during the first six months. I remember times when you saw 300 vessels contracted during one month. So it has definitely affected our customers' situation. Energy markets, we have been at the stable level. We came down earlier because of large steam turbine orders. And if you look at the order intake on different businesses, you can see that in every business, except on portfolio business, the order intake has been coming down. This is a busy slide, but I think the key takeaway here is actually to see the effect from the cruise and ferry industries. Order intake in every segment and every business is actually coming down, and cruise and ferry is an important business in our marine area. Order book, as I said, a bit lower than previously. If you look at where the order book stays today, when delivering it next year and after that one, it has kept at least a bit next year level. But of course, we need to look at new orders also coming in for the coming years. Looking at net sales, again, pretty different messages here. I think that the first takeaway from this slide is, of course, that net sales in services has increased, and that has an effect, of course, to Wärtsilä's profitability. And if you look at the net sales by business type, you also see that spare parts percentages, the net sales in spare parts is coming down and that has an effect again to the profitability. So the mix, as I said earlier, in our sales is affecting the result. The breach of the net sales, I mean, you now see first time we can show the equipment organic sales and also how the services is coming back, coming down and the Forex FX impact of minus 29 million. With the mix and the COVID-19, those have definitely affected the profitability. COVID-19 is the most important element here today. When you look at the situation with our customers, some of the ships are not sailing, most important segments affecting us, and the restrictions of the traveling and in some of our plants on the energy sector, where they have been closed or it has been extremely difficult to work according to the schedules. Of course, now the countries are opening, and you see some areas coming back slowly. And of course, we all hope that this will gradually improve also Wärtsilä's situation. Highlight of the quarter, cash flow pretty good. And I also have a slide of the working capital here. You can see we have really been concentrating on trade receivables. We have been looking at the working capital situation totally. And of course, looking at the risks, what we have with our suppliers and customers. carrying 0.31 at the moment. A couple of slides of all the business areas. I start with marine power. Here, marine power has been definitely affected by the cruise and ferry segment situation. And also, if you look at the profitability, it has weakened primarily due to the unfavorable mix, less services, more new building, and the weaker fixed cost absorption. Here you have a now slide of our marine installations under agreement by Netsales. And during this second quarter, Wärtsilä has created new solutions to our customers. One is a new remote service to overcome the travel restrictions. So we have introduced the Assured Operations Remote Support, which is definitely a new way for our customers remotely to improve their efficiencies and the operations of their ships. In marine systems, the order intake also decreased, net sales increased a bit. And of course, if you look at the order intake, the effect is coming from the scrubbers. Today, the fuel spread between low sulfur and high sulfur fuel is so low that all the retrofitting order intake in scrubbers is pretty much almost zero, and we need to wait before that actually starts coming back. New building orders, of course, you see here and there, but at the same time, when new building vessel order is down, it's affecting our scrubber. order intake. The profitability in marine systems increased, and it's because of the increased scrubber delivery volumes. Voyage now, also the first time you see the figures, and I also want to welcome here, for the first time in our call, Sean Firmback, the head of our Voyage, and you definitely will have questions to him regarding the Voyage and the business and the future. Here you see also the effect of the COVID-19 project postponements and less transactional service business. On the voyage side, it's still good to see a highlight here, which is the digital services, which has been increased tremendously during the last year. And this is the connection again to the smart marine ecosystem, where you get the connected vessels enabling significant cost savings, faster and safer voyage planning, on-time arrival, less anchorage and transparent ship-to-shore data, which is the future of the maritime industry, and that's why we also keep investing in Voyage to be able to utilize all the benefits going forward. Moving on from marine industry to energy, order intake increased, but at the same time, again, a major new deal in South America, 200 megawatt flexible baseload power plant order. And this is again showing in challenging times what our people can do and the organization's capabilities to negotiate excellent deals going forward. Energy installed based on long-term service agreements, no major change. Of course, this is an area where we should also start seeing increased long-term service agreements, but COVID is again affecting the utilization of these agreements. And when you look at the energy by different areas here, Americas during the second quarter has of course been, and this is by the way the first six months, so also the previously announced two deals in Latin America is clearly can be seen here in these numbers. But as such, as I started my presentation, the COVID-19 outbreak and the measures taken to contain the pandemic will materially impact the demand for Wärtsilä's solutions and services and as well as the company's financial performance 2020. Today, the full impact cannot be quantified. And this is the reason why Wärtsilä withdraw the market outlook at the end of March. And we cannot see, the visibility is not so good at the moment. So unfortunately, it's not possible to say anything more about the markets this year. I end up with this one, and now we have the possibility to go for questions and answers, and if I could once again remind, we have always been having a great way to do the questions and answers, that you ask one question and one follow-up, and then please go back to the line, so that we can have as many questions from as many persons also today. Please, operator.

Ladies and gentlemen, if you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, please press the hash key. We're now taking our first question from the line of Sven Weyer. Please ask your question.

Yeah, good morning, Jaco. Thanks for taking the questions. The first one would be just on the service business and the decline you had on the sales side. I was just wondering if it would be possible for you to kind of give us a feeling how much of the decline was really triggered by travel restrictions and could therefore reverse now in the coming months. and how much was really kind of a weak end market demand, if that would be possible. That's the first one. Thank you.