Wartsila Corp Unsp/Adr

A warm welcome to Wärtsilä's Q3 results presentation. My name is Natalia Valdesari, and I'm head of investor relations here at Wärtsilä. Before I let Jaakko take over the show and go through the presentation itself, I thought I'd say a few words around the practicalities surrounding the Q&A session, given that this is a bit of a new setup for us. So first of all, good to note that only the people who have registered via the GoToWebinar link can actually participate in the Q&A session. So please do so now if you haven't yet. When you do want to enter the questions and answers queue, please raise your hand. Use the raise your hand function. And when the moderator announces your name, please remember to unmute your microphone. And then lower your hand once the question has been answered. In order to give as many as possible time to answer questions or to ask questions, please try to stick to one question and one follow-up and then re-enter the questions queue later on. And that was about it. If you do experience audio issues, which I hope you don't, there is a chat function, so questions can be sent in via there, and I will try to ask them here online. If we don't have time for that, then I will get back to you later on. With that, I'll let Jaakko take over.

Thank you, Natalia, and good afternoon, everybody, and welcome to the interim report presentation. I'll start with a short story about the market and the situation where we are today. First of all, the conditions in the marine and energy markets remain difficult. with escalating COVID-19 infection rates, and concerns over the pandemic's long-term economic implications delaying decision-making. You have definitely seen that also in our order intake development. Customers are adjusting their CAPEX and OPEX plans to the prevailing market conditions. This is visible in low vessel contracting, postponements of new power plant capacity investments, as well as reduced spare parts consumption and maintenance activities. The low level of orders received in the third quarter reflected the uncertainty in our market environment. You have seen definitely the demand decline in cruise segment. That has been continued to represent the main challenge, what we have in power, marine power and voyage. affecting both equipment and service orders. Marine services, marine systems, water intake developed quite well, thanks to good progress in our gas solutions business line, which was offset by the continued lack of scrubber orders. And in energy, we experience delays in finalizing negotiations for certain orders, while services order intake declined due to the postponement, maintenances, overhauls and agreement renewals. On a more positive note, orders for storage projects developed well thanks to an increased need for short-term flexibility. I state at this moment, probably it will be said many times during the call, that we did not experience any major cancellations beyond normal patterns. One of the highlights was cash flow development on the third quarter, and this is mainly thanks to inventory management and our efforts to decrease credit risk by intensifying receivables collection. A couple of key figures. Here you see order intake, no change actually from last year. But what is definitely seen here is also the services order intake, which is lower than last year. Order book at this moment fell percent down from last year. Net sales 11% less than the comparable number. And again, services minus 14%. Book-to-build getting closer to one, which is always a good situation. And then comparable operating results. 61, it's 55% compared to last year. And last year, we all remember we had some difficulties with the project. So this is probably also one reason why the percentage is so high. and again highlights the cash flow from operating activities, plus 174 million. If you look at the markets a bit through a couple of slides, first of all, vessel contracting. September vessel contracts a bit less than 30 vessels. So this year we are a bit over 500, which is a very low number. If you look at it in tonnages, it's extremely low compared to the previous year. And then for us in Wärtsilä, specialized tonnage, I mean, very, very low numbers. After September 2029 or 28 or so, vessels, quite many of those were also tankers. And so not so much supporting the special tonnage, which always has been very important for Wärtsilä. Energy markets saw some decline. Now, it's good to remember that this figure here is one quarter behind. Wärtsilä's market share a bit higher, but also the energy markets have seen some decline. And order intake, as already discussed, flat development, but then again, more equipment and less services. Going forward, of course, we always try to aim to get more services than equipment. Order book, first of all on the left side, book to build. Now the trend is a bit to the right direction. Delivery schedule on the right hand side. You can here see delivery at this moment for current year around 1.2 billion. Next year is the same level as we were last year, and then delivery after next year, it has been dropping now down. Net sales, small decrease. Again, if you look at, very importantly, one of the pie charts here, services, again, less than the development than in the equipment side. and comparable operating result. Now when you start comparing one quarter to another, you need to remember also the distress projects we have been having in our operations. Overall, if you take the rolling number, now the trend is a bit more positive. Gas flow is very good compared to the comparable number, and has been developing extremely well this year. Moving on to the businesses. First, marine power. Order intake decreased, ailing cruise vessels and customers adjusting capital and operating expenditures. Net sales decreased by 11%, and the comparable operating result amounted to 30%. 8.3%, so a bit less than last year. COVID-19 heavily affecting to the numbers. At the same time, weaker absorption of fixed costs. This slide, first of all, talks about the net sales from installations under agreement, when quite major customers not having ships which are not moving, definitely affects to the net sales level. At the same time, a good example of Wärtsilä providing a five-year maintenance agreement to the world's largest NGO hospital ship. These kind of ships are important. also for our services operations. Marine systems, oil intake increased by 16%, good development in gas solutions. The reduced fuel spread, which hasn't been developing so much, is lessening the demand for scrubber investments. And this is one area where the visibility is also quite bad. I mean, it totally depends on the fuel spread. Net sales decreased. Last year we had much more scrubber deliveries than this year. And the result, very good development. But then again, last year we had some of the cost overruns in certain gas solution projects. Voyage is also very much hit by COVID and the situation with the cruise and ferry segments and really quite a drop on the order intake. Net sales didn't decrease so much. There has been COVID-19 related postponements and at the same time lower transactional service business. Comparable result amounted a bit better than the comparable number and there the reason is mainly coming from cost savings. We have been talking about the voids and the future, and one important element here is how we can get vessels connected, and here is a good example of the number of vessels connected, and a good example of a profit-sharing contract with Brittany Ferries, where we basically help the customer to reduce the exhaust emissions. And this is an important number to look and follow, so that we get these connected vessels into Wärtsilä's portfolio. Energy order intake increased, still affected by postponed decision making and traveling, site access is not so easy. Net sales also increased 6% and operating profit amounted to 14 million. Again, you have to compare last year where we had certain cost overrun in our equipment projects. And then one chart about energy installed base, which is now flat. Of course, there are good examples of great deals. We have signed a five year maintenance agreement in Cambodia for a 200 megawatt power plant, which supports, of course, the whole energy going forward. Today, we also reinstated our prospects for 2020. When I started my presentation, it's now following the same story. Near-term demand is expected to improve from current levels. However, visibility remains limited, and the prevailing market conditions make the outlook uncertain. If you look at the order book I showed you earlier, based on that one, net sales for 2020 is expected to decline around by approximately 10%. Last year it was 5.17 billion euros. profitability is expected to continue to be burdened by the effects of COVID-19. And while service demand is anticipated to improve, the seasonal pickup is unlikely to be as strong as in previous years. So we normally have quite a hockey stick in Q4. Now this says that it's not going to be as strong as earlier. I will stop here and let everybody to start asking questions. And as Natalia said, two questions in a row, and then you get the next one. And once again, I have the whole board of management here, so we can get also the important elements of the markets from the business leaders. Please.

The first question on the line, Andreas Willi, please open your microphone and ask your question.

We can't hear anything, unfortunately.

Please, Andreas Willi, open your microphone and ask your question.

Can you hear me?

Yes, Andreas, now we can.

Yeah, finally. Sorry for the delay. Two questions, please. First one on your order book. You have removed a few more this quarter. What's the quality the order book on the stricter criteria you now use is this process coming to an end where we kind of slowly chip away on some of the orders because of your stricter criteria in terms of what could materialize and what could not and the second question on on your your balance sheet you said you focus on a sound financial position maybe you could clarify what kind of metrics you look at to judge what is a sound financial a balance sheet and also what should we read from that for your dividend for this financial year?

Thank you, Andres. First of all, the order book. If I understood it right, you asked about the quality of the order book. We have taken out around 310 million during the nine months out of it, mainly because we felt customers didn't perform as they should have. and mostly, I mean, those kinds of cases, not cancellations. I would say the order book is a quality order book. Whether they will finally be delivered, all the products at exactly when they should have been. There might be postponements, but we are quite strict at the moment also. If customer performance is not as the agreements say, we will take it out from the order book. But at the moment it has been scrutinized quite thoroughly and I'm not worried about it. Regarding balance sheet, I would actually like to give the possibility for Arjen Behrens. Arjen, are you our CFO? I mean, if you would open up a bit about the balance sheet question.

Yes, hello. Thanks Andreas for the question. Of course, now in this period of COVID-19 with so much uncertainty in the world, let's say the main focus has been on keeping a strong balance sheet and also let's say an extremely good cash flow and as you can see from the numbers i think that has been quite successful um if we then let's say talk about what will we eventually do with this good cash flow if it also holds going forward which of course really try to make happen i think that's for a later decision that we will first of all i think need to close this year in good financial matters the outlook is good but We only know it when the year is over. Then we will make the decision about the dividends.

Thank you. Thank you.

Next question on the line, Johan Eliasson. Please open your microphone and ask your question.

Johan, we cannot hear you. Okay, can you hear me now? Now we can, yes.

New technology. Okay, so on the guidance, you talked about where the revenues will end up and also that the normal bounce or hockey stick in the fourth quarter will be lower than normal. I suppose you still expect the margin in the Q4 to be the best of the year. But would you say that it's a dramatic difference from last year in terms of how the margin will progress?

Johan, thank you for the question. I don't want to go more deeply into trying to translate the wording here. The reason really, Johan, is that we have an order book and you can add the order book to the net sales we have had so far. And then we always have services. transactional business now depends totally about the mix of the transactional business. And that visibility is not good. So, I mean, you can hear it and read it from here, but I cannot open or I mean, I really don't know what to say anything more.

Okay, fine. Then just on the cruise, we obviously see that as the most impacted segment. And I was just wondering how it works with your long-term contracts. We see some operators selling their ships and maybe not running some of them, etc. How does it impact, for example, I think you have a 12-year service agreement with one big client in the cruise segment?

Thank you, Johan, and very good question. And Roger Holm, head of our marine power, Roger is constantly having these discussions with our cruise customers. Roger, if you are on the line, please, could you elaborate the situation?

Yes, absolutely, and hello from my side as well. It's a bit of a mixed impact, of course. If we look at the agreements and old vessels are scrapped, it will have an impact on our business, because in the normal situation, we would have less vessels operating. But that's minor. The key for us on cruise is really to get the vessels back in operation. And depending a bit on the contractual structure, as you can see, the major impact for our agreement business is really coming from less cruise vessels operating. So there you clearly see the impact. And for us, the key is that we need to get the cruise vessels back in operation. Okay. Thank you very much.

Thank you.

Next question on the line. Antti Suttelin, Danske Bank. Please open your microphone and ask your question.

Thank you. I assume you can hear me, or I hope so.

Yes, Antti.

Good, good. Yes, hi. It's still on the cancellation, and I'm puzzled because you say that You have not seen cancellations, but then you take orders away from your order book. To me, it's the same as a cancellation, or am I misunderstanding this?

Antti, actually, there is a cancellation, which is normally coming from the customer saying that they canceled, for example, the ship. That's what we normally have seen. And then the shipyard cancels the engine order. But some of these projects we have taken out from the order book is a customer who might have been there and is finally not able to get a financing or an arrangement together which clarifies our requirements and where we see that the risks are too high so we take it out of our order book. We might still continue the discussions with the customers, but it's our decision to take it out. Okay, is it mainly energy or is it mainly marine? I don't want to start opening it where it is, and some of them might be even quite old transactions.

Okay, finally, what do you think is the problem in the low ship contracting? If we will lead aside cruise, because we all understand the problem in cruise, but leaving that aside, do you think it's over capacity or is it because there are so many technological changes happening and that makes simply customers from ordering?

Good question, and I can start by first of all saying that seeing what's going on always in the marine market, it's not easy to say what might be the real reason. Definitely there are a lot of new technologies. People are wondering about the IMO requirements going forward, but Roger Could you, Roger Holm, open it about, I mean, what is now IMO planning and why customers are waiting?

Yes, thanks Antti for the question. And as you said, the cruise is a bit unknown story, as well as ferries goes a bit in the same direction as well, depending on the needs for the vessel. But I would say the key issue overall is the overall economical uncertainty. That's number one. Number two, which starts to definitely come more and more in the discussion as well, is what is the future fuel of the shipping community? And now I talk about 10, 20 years ahead, but we need to remember that the investments that our customers are making are for really long-term investments. Here I see that Wärtsilä has a strong role to play, both to provide the needed fuel flexibility, whatever the fuel will be, but also to make sure that the conversion opportunity is there when that is coming. yes for sure to some extent i think the technology and the fuel plays a certain role but i would still claim that the global uncertainty economical development plays a clearly bigger role at this stage and it's our role then to make sure we support our customers on on the long long term conversion opportunity for whatever fuel comes okay thank you very much thank you auntie

next question on the line sven weyer from ubs please open your microphone and ask your question yes hi good afternoon it's sven here um two questions from my side please the first one

is on the outlook statement that you've given on the short term. First of all, I was wondering, I mean, the marine order intake in the quarter was not so bad. I was just wondering, is there a common denominator in these orders? Why they have been okay-ish despite the weak shipyard orders? And also relating to that, given your a slightly more positive short-term outlook? Is that just because of Q4 seasonality, because Q4 is always better, or does that also slightly go beyond that? That's the first one.

Thank you. First of all, Q4, in one way, it's easy to talk about Q4 because we see the order book. At the same time, at this moment, it's not so easy because you don't really know about the services. Roger, I'm disturbing you all the time about the marine order book. What would you say?

I would say if I start from the order intake, I think since these are fairly big fluctuation in projects, I think that can fluctuate from quarter to quarter on the new build side, I mean now, and especially when we talk about so low vessel contracting as we have now, some deals might make a big difference actually. But as you said, I think we had a fairly decent order intake despite COVID. Then on the service side we see fairly big fluctuations and that's our main challenge and this goes between months actually today. It comes from two main items. One is that we see that customers of course are much more careful in spending money for obvious reasons and to some extent also we have still challenges in moving field service resources. um it was it has lately become a bit better to move field service resources but of course while the covid infection rates are going up this is something we need to very very carefully monitor and that's also why we see the fluctuations in in service service sales okay and if i then may follow up when i just look at your marine um

power equipment order intake in the first nine months and look at the breakdown by end market it seems to me that your absolute order intake on the cruise and ferry side has gone up compared to the first nine months last year is that because of the ferry side then um no no it's not ferries ferries have been also fairly okay but we need to remember here that these orders comes with a delay

There might be still cruise orders. For sure we know that there will not be any major cruise ship orders for some time. But there are still vessels ordered by the yard that have not ordered equipment. So this is what you also see in our order intake. And we haven't seen cancellations coming from the yards, but we have seen movements in the order book, so they're moving vessels forward. But that means still that we have received orders for cruise vessels that will then be delivered based on existing orders at the yard. Okay, thank you.

Thank you, Sven.

Next question on the line, Alexander Virgo from Bank of America. Please open your microphone and ask your question.

Thanks very much. Good afternoon, everyone. Hi, Jakob. Can you just do one thing for me just on this order cancellation thing? I just want to understand why it was considered an order in the first place. where presumably money had changed hands or money hasn't changed hands. I'm just trying to understand why you would consider it an order in the first place and now no longer consider it an order. Although I appreciate the latter point a little bit more easily, given what you already said. I'm just trying to understand quite how much of this backlog we need to be thinking about in the context of potentially in the future, if things continue, how much are we likely to see further reviews and further revisions whether you call them cancellations or not and then the second question is your the your commenting guidance in the mix um if we continue to see limited uh development of the service business uh clearly that has a margin headwind i'm just thinking about the context of uh margin progression over the next 12 to 18 months, particularly in the context of your cost actions that you take into date. You had originally expected, I suppose, to be getting up towards double digit. That's obviously not going to happen. But I'm just wondering what sort of headwinds you would anticipate we need to think about. Can you give any kind of quantification for that? That would be really helpful. Thank you.

Thank you, Alexander. And first of all, it depends on the customer. And when we take an order, I mean, there has to be a down payment or there has to be a security and also security for the further payments. If the customer's situation changes during the time when the order has been taken finally in and whatever we then do, what comes to the contract, there might be situations where we feel the customer's credibility is not anymore there. I mean, basically, you shouldn't be worried about our order book, whether they are. Of course, some customers might get into a very difficult position and they would probably like to have the order, but we feel that it's not anymore there. I'm more worried about customers who they by themselves start canceling. But again, we have securities for that one. And I only remember the years when there was a huge amount of cancellations after the financial crisis. And those, I mean, based on our contracts and what we do based to the contracts ourselves, those years actually were quite, I mean, developed quite well. Regarding, again, the guidance, the prospects, I mean, what are the headwinds and so on? I mean, I think you have heard already many times here where the market is and what might be there. Roger was referring to the marine sector. And now, Cruise ships have been taking up many times. We all expect the American cruise liners, some of the major ones, to start operations in November, if everything goes like planned. CDC has agreed with them they will start in November. Are they really going to start them, and with how many ships? Nobody knows. And how quickly can they actually get those ships in the condition so that they can be sailing with all the elements that you have to take into account with this pandemic situation. So again, outlook is uncertain because of the COVID-19 making everything so difficult.

Next question on the line, Max Yates from Credit Suisse. Please open your microphone and ask your question.

Hi, can you hear me? Yes, Max. Yes. Hi, so just my first question. I wanted to get an update on the projects that you had problems on last year. And obviously we know there was a kind of 65 million provision that was in last year's numbers. So I just wanted to understand how much or an update on those projects and actually whether kind of to what extent the zero margin revenues from those projects were still weighing on your EBIT this quarter. That's my first question.

First of all, all the actions we have done are actually being implemented, and I'm happy to see how the organization first of all runs those projects and then how we take new projects in. In Q3 of these projects which were delivered, it was 20 million around with zero margin. So probably your next question is, I can already answer that one. In Q4, it's 30 to 40 million with zero margin.

Okay. Okay. Just my second question is maybe a sort of bigger picture question. If you think about the time, um that you've been in charge of art so do you think that um looking back there's been a structural change in the market where in marine the environment has become more competitive and it's an issue where essentially people are now prepared to give away the equipment and you're having to follow the pricing on the oe down just to get the same service revenues so structurally we're going to see lower margins than the sort of 12% historically going forward. Or do you see kind of some structural changes in the service business? So more service taken in-house that's actually putting pressure on the service profitability because some of the high margin areas like selling sort of simple products like seals, weapons, perhaps in the past you were able to charge kind of very high margins. there's cheaper alternatives out there from from smaller competitors i i'd just love to know kind of in in the sort of in your time kind of in charge of that so are there any structural observations you'd make for for the marine business and are either of those right in in your view

Max, extremely good question and I remember five years back we were, I mean after the financial crisis we have been saying many times that the marine market has been getting extremely competitive and you really need to fight for the or for your margins, basically quite a lot because of overcapacity in certain segments Offshore used to be extremely strong for us. An important element has disappeared totally off the market. So everybody, even if you look at the easiest product to think about, engine players, we all are fighting for the same ships now. And the amount of vessel contracting has been going down for several years. And so of course, yes, the margins are extremely depressed. I don't want to use a word that we give something away. It has always been extremely important for us also to look at the the total solution. So Wärtsilä wants to work with our customers. And now we talk about the end customers, want to work with our customers so that we can provide something else than only the engine. So there is a bit more possibility to negotiate for the margin, because Wärtsilä is going to be there and can provide something more than one engine to the customer. But the market has been developing to be extremely competitive. It can definitely be easy if vessel contracting comes back. But for us, I think the more important element is to look at the future, like Roger was telling earlier. What are the customers actually, what do they need going forward? Decarbonization, efficiency and safety. And with that one, when you can develop something which fulfills then the requirements from the markets and the customers, I'm not so worried about where we are today. I'm sure that with all these developments, even the equipment margins can be defended. And then the services is important for us. Services has developed quite well and it's not only sending somebody there, but also looking at the digital development where we can remotely monitor, we can remotely control, we can provide something more to our customers and then link all that huge portfolio of engines we have on board of the thousands of vessels and through the sensors, the information back to our voyage business and combine really the thinking of the most efficient and safe journey. So yes, today we are in a quite challenging position, more challenging than ever. But I look at the future more, I mean, it has a bright future when all these requirements are getting actually tougher and tougher.

Okay, thank you, I guess, I mean I guess just an observation is that it's particularly in the merchant segments we've had kind of service continually pushed out and I think we've seen kind of that happening for the two or three years now, and I guess. Is there a point at which maybe this isn't kind of service being pushed out, and it's actually an issue where they're finding alternatives to service the engines in different ways, taking it in-house and finding cheaper alternatives? Do you have a view on whether you have seen any of that change in behavior?

Yeah, Max, that's a good point. And I mean, I rather have an opinion that the customers would let us actually do more. But, Roger, why don't you jump in and, I mean, help me also. I mean, how do you see the future now going on?

Yeah, I think this is a very good question, but I also see positively on this one, and for a few reasons. One is that technology gets more complex, so there we can help both with our capabilities as well as the data. it's also getting more complex due to what i referred to before due to decarbonization where we see our technology being really something that can help our customers to decarbonize so being there to make sure that we we can also do retrofitting over time. So from that angle, I'd rather see this from something that supports our development also in the service side, that we definitely have opportunity to look at more things together with the customer. And then I'm not looking at it only from a performance agreement point of view, but even further from a retrofitting and decarbonization point of view.

Okay. Thank you very much. Thank you, Max.

Next question on the line, Sebastian Cohen from RBC. Please open your microphone and ask your question.

Hi, gentlemen. A few questions here. First of all, on the feed-through of the lower ship contracting into your order book. So as you mentioned today, you have a 26% drop in the global ship contracting. That's what you observed. And then we hear companies like Carnival Cruise is pushing out 30% of their ship deliveries beyond 2024. So there are virtually no cruise ships being delivered in 2023 and 2024. When will this be through to your equipment orders in marine power? It was mentioned earlier that marine power is still quite strong in the orders, but the numbers from the shipment tracking look very dire. When will this go through your books? That would be my first question.

Thank you, Sebastian. And Roger, again, a lot of marine orders and situations. Please, Roger.

Yeah, thank you for the question. And we need to remember here, when the order book at the cruise yards are moving, they are doing it because no one assumes that there will be new vessels ordered for the next two to three years. What they're doing is flattening out the existing order book, so they have even amount of work until they expect to get new orders. That will then be for deliveries after 2025, most probably. This means also that for us, we will still have deliveries to the cruise yards during the coming years, but it will be more flattened out than we thought pre-COVID. There are still some orders of existing vessel contracts that have not been placed to equipment manufacturer yet. So there might still be cruise orders still coming, but those are not for any new vessels. So it will gradually change and that means that for the coming year we need to focus on new orders for something else than from cruise. It will be only existing vessel contracts that will be in the pipeline for next year.

Okay, and in that context then, Regarding cost control, I was a little bit surprised that you still rely fully on temporary cost savings, whereas Alfa Laval, for example, for their marine, they announced something late January, early February next year. Then MAN had a 30% stop cut recently. You now seem to be the only one who is currently still relying on temporary savings. Is that kind of linked to still a strong order book for next year? Or what is there behind? Or do you come up with proper capacity cuts then later next year? I mean, what's your view there?

Thank you. And first of all, our setup is already today extremely flexible. It's basically we are assembling the engine, so we rely heavily on our sub-suppliers. And please remember, if you go back a couple of years, compared to any of these names you mentioned, we have done huge amounts of restructurings. Now if we really talk about the bigger facilities we have, we only have one in Finland and one in Italy, and then basically one and a half in China. And the Chinese market is really supported only by those, and that's a totally different story. flexible model. We have done a huge amount of restructuring. And you need to remember that we make the same engines for energy market in these two facilities in Europe. So you have to be extremely careful if and when or when you start any restructuring. We have, as you see, we are getting energy orders in. Basically the same line produces the energy engine than the marine engine. And that's why we haven't yet been in that situation where the calculations show that we need to do something more drastically. But we are, I mean, be sure that we have a plan B and C and D when the right moment comes. But now these markets are moving a little bit in different cycles. So now we are getting good energy orders. There is a good pipeline also in the energy. And we need to see, are we getting them through in Q4? And if not, of course, we need to get back to the drawing table.

next question on the line andreas willy from jb morgan please open your microphone and ask your question yeah i just had a follow-up question if you have time for um the if you look at your outlook where you said you're more positive or you expect the market to improve on the marine side i was in service um given that cruise is so low, that makes sense that it will improve going forward. But on the equipment side, you normally lag ship contracting. So would you also expect your orders on the marine side to improve in the next few quarters on just the equipment side?

We say near-term demand is expected to improve from the current levels. That's what we say. And so, But at the same time, there is a concern about the market conditions, if they move in one or another direction.

But maybe another question on the power side. The share of storage projects is increasing as the market continues to grow. How does that impact your margins compared to the kind of engine business longer term? So the storage projects you're getting relative to the engine projects you get on the power side.

That's a valid question and of course in storage you don't have the same elements of services as you have with engine so there is no parts which you need to change and of course that's a totally different different one we we will have and we normally have our our uh software included in in those and and and the concept has to be a little bit different different i mean with with the storage site uh i don't know i i would like to give the possibility for susil purohit now who is first time in our call head of our energy he is now based in houston and i I hope, are you Susil on the line and could comment a bit about the energy?

Thanks a lot Jaakko, I'm here. I think it's a good question. We are seeing increased activities of course in the energy storage market so you can see that in our order pipeline already. Currently I think our margin levels are, I mean we don't see any difference between the new-build engine and energy storage, but it's a competitive market and it is going to be slightly lower than what we have seen on the engine side. Again, the services part will not be there as much, but what we are right now looking at, of course, is trying to see what other values we can bring towards our customer, because every customer is also right now trying to understand how they can use and what kind of revenue streams that they can actually derive from use of energy storage. And we are going to play a part in that one going forward as well. Thank you very much.

Thank you.

Next question on the line, Johan Eliasson, Kepter Chevro. Please open the microphone and ask your question.

Hi, it's Johan here again. Just while on the subject of energy, we see low energy prices out there and there are people thinking they will stay now lower for a longer time as well. Do you think that could overall imply better demand for your power business as the fuels they're using are cheaper? or maybe even delay some of these renewable backup powers? Or how do you think these lower energy prices will play out for your energy business?

Susil, can I get you back?

Yeah, I think that's a very good question. We of course see in every places the solar and wind are becoming cheaper and cheaper, and I think A lot of countries and power systems are investing in these. We see that this is really going to increase the demand for flexibility going forward. If you see how Bloomberg estimates the flexibility with gas technology is going to grow from 5 gigawatt a year to 20 gigawatt a year. uh in next five years time so we would definitely see see increased demand going forward with our technology but do you think the energy prices are such as a positive or a negative impact for you um well i i you know the negative or the reduction in energy prices are just going to help us because people are going to invest in renewable and solar, and that should increase the demand for flexible generation going forward. So on the contrary, we would see an increase in demand going forward. We have seen during the COVID period, if you look at where the share of renewables were much higher, Especially in Europe, for example, we have seen negative prices on energy, and that is because of inflexible capacity. So if this cost increases, then people will invest more in flexible generation with gas-based technology as well as on storage. And then we already see the orders on the storage side from that point of view.

Okay, and switching to marine, we discussed your service opportunity, if it's at risk, if there's an acceleration of scrapping in cruise, for example. I think the picture is very different in most of the other shipping segments, or is there any other segment you see a little bit at risk for an accelerated scrapping that could impact your service opportunity later on?

Thank you, Johan. Roger, any other segments where scrapping is going on?

Yeah, of course, normal levels, but I think cruise is maybe the one that was not expected pre-COVID, so I would say that's the main worry for us from a scrapping perspective.

Okay, thank you very much. Thank you.

Next question on the line, Erkki Vesola from Inderes. Please open your microphone and ask your question.

Thank you so much. Can you hear me? Yes. You guys seem to be pretty cautious regarding LNG vessel contracting going forward. Aren't Qatar and Russia placing LNG vessel orders mostly in South Korea? I'd like to ask, where do you stand currently in terms of, say, ancillary engine, gas solutions, navigating system orders, etc.? Are you seeing any of that?

Yes, we are. And Roger, do you want to open up the LNG carrier ordering?

and of course all of those are on the table and preliminary bookings have been made for yard slots as well both in China and in Korea for example for the Qatar um i don't think we will see movements on order intake on those before sometimes into into next year let's see where it ends and and yes of course we are in discussions for auxiliary engines and and gas systems etc so it's it's uh it's definitely something that we follow closely the the engines for those ships will be two-stroke engines and and the main engine sorry yeah i'm aware of that yeah good but thank you so much

Next question on the line, Antti Kansanen from SEB. Please open your microphone and ask your question.

Antti, we cannot hear you yet.

Antti Kansanen, please open your microphone and ask your question.

Can you hear me now?

Yes, now we can.

So my question would be on the cruise service side. And if we think about kind of the revenue and earnings prospects when the Covid situation someday fades away and ships return to sea, Do you expect any kind of structural changes? Are customers talking about pricing or scope, or are we looking at business as usual and eventual return to same profitability and volumes as pre-COVID? I mean, scrapping was mentioned as, say, a minor headwind, but anything else?

Thank you, Antti. And Roker, could you start, and then Sean Fernback, we have head of our Voids, could actually add to... I mean, if Roker starts, and then Sean follows.

Yeah, I can start from a marine power angle. I think the key point to look at is to get the engines back into operation. That's for us the key point. And when they do that, the business will start coming back.

And Sean, could you open up what we do in Voids to provide services to our customers?

Thank you. Yeah, thanks for the question. So yes, a couple of things really is on our services side, we saw most of the drop in Q2 and a pickup towards the end of Q3. And certainly this quarter, we're seeing more activity. A lot of that is, of course, related to COVID and the ability to access the vessels. And on the pricing side, it looks like it's returning to normal pricing, which is, of course, very encouraging. And I think the second thing to add is that, which I think is a result of a number of cruise ships being not sailing, docked, is we're starting to see a positive pickup in retrofits. So certainly in this quarter.

Thank you. All right. So thank you for excellent questions. And thank you also for my colleagues for the answers. See you then next time in January. Thank you. Bye bye.