To Wärtsilä Corporation's Q1 report session. Welcome everyone here in the Helsinki Wärtsilä campus, and of course, everybody on the lines. I will make a short presentation, then we have time for questions and answers. With me here, actually in the front, I have the heads of the businesses and our CFO. Actually, I will start by talking a little bit about the market and the market environment. I start with marine. The marine recovery is actually quite slow. There you can definitely see the demand outlook on merchant and offshore, which is cautious. That has been there for many quarters if you go back in history. On the other hand, again, you see good development and anticipated growth to continue in the LNG, cruise, and ferry segments.
Energy, on the energy demand, when you look at the emerging markets, and at the same time, the increased need for flexibility to the renewables. However, you all know that geopolitical risks, global uncertainty, and the redefining of investment strategies to meet all these ambitious renewable targets is slowing down the decision-making temporarily. I would also highlight this moment, that this is the first time we now come out with two divisions, and the report is also reflected to that one. This organizational change we initiated last year is definitely see a better understanding about the marketing and delivering the results. Moving on, some of the key figures. Order intake, mainly driven by the new building energy orders. As we know, all these years, energy goes up and down during Highest ever, went up 15%.
It's always interesting to add to that number the orders we don't book in service. You have a fantastic order book. Net sales up, mainly marine new building deliveries and the building at a healthy level. Comparable operating result, the absolute number went up 16%, and also we saw EPS at the same level. Now cash flow also on the Q1 going to the right and healthier numbers. Need to show the rolling numbers of order intakes and sales and profitability. You can see here how stable a little bit they actually are. If you look at marine and energy, marine was 60% and energy 40% what comes side during this quarter. The slow decision-making has affected the energy orders this quarter. The sales in services, which we also wanted to show going forward, is around 50% of the net sales.
Look at the rolling numbers. Book-to-bill, this trend going up. The book-to-bill at the healthy levels. Order book distribution at the year-end. The years to come. At this moment, I would like to highlight that reaching our target energy orders going forward. This has always been the case. No drama there, but those orders have to come. Energy is actually turning around a bit faster. We still have a lot of orders in and getting orders in the marine sector, where the deliveries are a bit longer than compared to energy. Now, finally, also looking at the result numbers, it was a good quarter, but a quarter is a quarter. Always you need to be looking at that.
When you look at the mix, when services is growing and when the focus is on the value deliveries and the value bringing to our customers, the profitability will also grow. Cash flow positive as compared to last year. Working capital, okay, a bit down from last year, but increase in. Of course, a lot of good support also when you look at our advances and inventories going forward. Gearing 0.29. Moving on to the businesses, slow recovery in the marine segments. Here you have on the left side the total order contract more than last year, but I think everybody anticipated the market to pick up a bit faster. As everybody knows, Clarksons has also done longer term forecasts. At the same time, on the right side on this slide, you see the specialized tonnage, which is supporting, of course, Wärtsilä superbly.
Order intake development, here you can see the rolling numbers. Equipment a bit more than services, and the division different segments is pretty much what it has been during the last quarters. Good to see the installed base coverage. We have been talking about that a lot, and the long-term services are important for us. There is a good example of one customer and complicated, sophisticated, I would rather say, equipment and solutions where Wärtsilä can provide value to our customers. Net sales development up compared to last year. Also, the rolling number again here is visible. Services 50% good number. Of course, you can see also the division between spare parts and agreements and field service and projects. So healthy.
What has been going on during the first quarter. Wärtsilä is providing a solution to the new Wasaline ferry, which is going to. I would rather call it as installations, new innovations, hybrid dual-fuel solutions, enabling the reduction of CO2, providing again maintenance and services, improving the reliability. It's, as I call it, a lab because it has in the marine segments today. Moving on. Clearly shows where Wärtsilä plays a role going forward. We all know coal and fossil fuels are targeted today. It's not new that coal will or should be disappearing first. You look at different fossil fuels and the cleaner the fuel, the more possibilities it has. At the same time, renewables playing a stronger role. The importance of this graph is that on the fossil fuel and the gas side, you need. Plays an important role. Out there.
You can also see here how the orders go up and down anywhere. That's why we strongly believe that we have a very strong role to play when you look at the renewable. Examples of our services contract again. Now there was a pickup on the percentages, which is good, supporting our strategy. This is a five-year deal in Myanmar, where Wärtsilä will operate and maintain a power plant for their developing in. If you look at the global numbers, highlights are there that Africa and Middle East have been growing up. You have a very healthy division between Asia, Africa, Middle East, and Americas. Europe is a bit slow during this quarter. Net sales development. You always compare the net sales, of course, how orders have been coming in during the last 12 months.
Here is also good to see services growth and services forming over 50% of the energy. Old data, but in a shrinking market, Wärtsilä is gaining a bit market share. Been talking about different fuel and fuel strategies and our flexibility, what comes to different fuels. The new, very interesting, not a new innovation, but the way how to fuel different equipment are the cases of Power-to-X. There is a small Finnish startup called Soletair Power who is developing the technology to produce from CO2 and hydrogen a synthetic renewable fuel. Soletair Power is a fantastic example of a company which is also looking at the healthy working environment, because their technology is actually taking the CO2 from, for example, office environment, and then we would have a healthier air here to breathe and have our meetings.
Converting that CO2 can be burned in Wärtsilä's engines, and we can basically call our engines to be renewable products. This is not the only company in the world, as you remember, last year, we also announced our cooperation with Lappeenranta University and Nebraska, the biggest utility in Nebraska, where we are testing it in a larger scale story. I think this is the way how you can look at the different possibilities, again, based on our strategy to work on different fuel flexibilities. The final slide, our prospects are unchanged, solid for marine and services. Slowness in the decision making. Long-term story is there, to go forward. I stop here and let everybody to start asking questions. Do we have any questions here in Helsinki campus from the audience?
No questions yet, we could turn to the lines, please. May I remind, one question and wrap quickly, you have possibility to ask many questions. Please.
As a reminder, ladies and gentlemen, it is star and one to ask a question. Your first question from the line of Max Yates from Credit Suisse. Please go ahead.
Hi. Thank you. My first question was just on the energy division. I wanted to understand specifically which regions were giving you confidence, and where you saw the healthy pipeline that was going to result in orders picking up as we go through the year.
Thank you. Very good question. I could answer that one, but I Energy to answer to that one. Please, Marco.
Thank you. Thank you for the question as well. Of course, Middle East and Asia is a big, important area for us. We definitely see a good pipeline there. We have a lot of countries that still are growing, and they need energy to be able to grow. Also, if you look into Southern America, Latin America. Then in the fall, there will be more auctions, and next year we will see more specific peak auctions as well. We see also that there are other places like U.S. still and Australia, where the backup power for renewables is very important. States in U.S. where politicians have been demanding they increase the share of renewables. Of course, when they have to go back to the drawing tables, it takes some time, and then they have to get the decisions made again.
That's why we see a little bit slowness in the decision making.
Central America also?
Yep. Yeah. Definitely Central America as well. The whole Latin America.
Yep.
Is there anything we should read into I noticed recent orders in Nigeria, Iraq, were 28-48 million MW. Is there any actually smaller than what we had seen in Bangladesh?
Yeah, I would say that we've been talking about the Africa will come, I would say that finally we see movement in Africa. We definitely believe that next coming five years, we will receive more orders from Africa than we have received the past five years. The Middle East is also an area where we see a from their whole energy sector, from dependency of other countries into becoming more domestic player.
Okay.
Okay, Marco.
Maybe just one follow-up on SOx scrubbers. Could you help us understand number? Obviously it's quite a sizable amount of your 2018 order intake.
Thank you. Yes, Roger.
For the question. If we first start by looking at the Q1 order intake, it was on a good level, slightly less than comparable quarter last year, but still on a good level. We see still a lot of interest in the market. That has not reduced as we see it now. The key question that we have is, how will now the fact change the market, that if we need to follow, how will the owners then decide based on this one? I think this is the key question point. Good activities ongoing still, and the pipeline also looks positive.
Thank you, Roger.
Okay.
Thank you. You're next.
Could you just give us a sense of how much the orders were down sequentially, just at least in magnitude?
Just level.
Okay. That's great. Thank you very much.
Thank you.
Your next question from the line of Andreas Willi of J.P. Morgan, please go ahead. Andreas, your line is open.
Yes. Sorry for the delay. It's Andreas from J.P. Morgan here.
Andreas.
Could you just elaborate on the uncertainty in the energy market in terms of the customers that you mentioned, because they don't seem to have uncertainty when it comes to pulling the trigger on the actual investments for renewable power. Solar wind volumes continue to grow very strongly and trigger on the peakers the backup for the renewables, given that that market hasn't grown in the last three, four years, despite the extraordinary growth in renewables. What are they waiting for specifically, that should then come in the next 12 months, 18 months?
Please, Marco.
Thank you. Very good question. Usually it depends how much renewables you have, and we usually talk about the tipping point of 20%. When they decrease, for example, coal and other resources that they have or generation, when the tipping point is closing to 20%, now is basically because of the redoing of the plans. It's not because of that they are not reaching the 20%. That's the case in all markets, and it always depends how big the market is. How much they have interaction with other utilities as well in the area.
Thank you.
What should change in the next 12 to 18 months for that to basically catch up and deliver the growth you expect?
Of course, we see that the share of renewables of the generation capacity is increasing, that's where they're closing to this tipping point. The other reason is that when they are redoing their plans, we see a slowness now, and that's why they will continue to increase the renewables share, and that's where peaking power is coming in.
Thank you.
Thank you.
Thank you. Your next question is from the line.
Yeah. Hi, it's Johan. It's a terrible echo, but I hope you can hear me.
Yes.
Sorry for coming back to scrubber. For the deliveries they had for the scrubber was clearly above 15%. Is that something you are seeing as well? If not, why?
Thank you for the question, Johan. I don't want to comment on anything what Alfa has there told, and we don't comment on our scrubber margins. The only part what we have been commenting earlier during last year were that some of the initial scrubbers early on were lower, but then they have been getting on a healthier level. No other comments on the margin side.
Okay. On the other ballast water, any
Yes, more activities in the pipeline. We expect that still to, as a general comment to the market, will probably increase towards end of next year, 2021. If we look at the volumes in relation to the rest of our business, we are still on low levels.
Okay. Thank you.
Thank you, Johan.
Your next question from the line of Sven Weier, please. From UBS. Please go ahead.
Yeah. Good morning from my side. Two questions, please. The first, in the second quarter in a row, I was just wondering how you look at the sustainability of that, especially as far as the spend.
I started by talking about the new organization, that's, I think the Hopefully, of course, one quarter is always one quarter. We should start seeing more healthier development on services. I have always been talking about we, on that side, we have a dedicated actions. Customers want to see some value and then they make decisions, that's of course one reason for the healthy development. I shouldn't expect anything else to happen going forward, with both divisions.
Mm-hmm. Okay, good. The follow-up question I had was just also is regarding to IMO 2020. Obviously, the other option is to use low-sulfur fuel. Is there anything you see in the new sulfur fuel? Is the design any different, less equipment, less service intensive compared to heavy fuel oil?
Roger, please comment on that.
Yeah. Thank you for the question. I think we are on the path, as we have discussed very much before. We see more and more interest into LNG as a fuel, that goes to all segments. Then, you have so much scrubbers that you will be able to install in the fleet, the rest then will have to comply on the fuel side. Direction-wise, I don't see any change compared to what we have said before.
Some of the players will go for low-sulfur fuel.
Absolutely
for years.
There is quite a lot of debate what to do on the scrubber. Low sulfur fuel and future will then tell what is right, and probably you need to look at where you operate, how you operate, and so on, and make a decision based.
Different or the pretreatment, given if you burn low sulfur against high sulfur, is there.
Talk about a dual fuel engine, so that's then the major difference.
Okay. Yeah.
I would rather go to gas. I mean, nothing else.
Okay. Thank you, guys.
Thank you, Sven.
Your next question is from the line of Manu Rimpelä of Nordea. Please go ahead.
Good morning. Could you please comment on the divisional margins? I would like to better understand what was behind the reason for marine margins coming down in the first quarter compared to last year.
Thank you, Manu. The basic reason for different margins is the mix, the smaller things here and there, but the mix is very important. Not only the mix between services and new building, but also what you actually deliver during that quarter. We might have projects going out where original margins have been a bit lower and vice versa. Probably you will start these very during the quarters.
Okay. Are you able to comment in terms of the scrubbers? Obviously, you mentioned that the early scrubber orders have lower margins. What is the impact on the scrubber deliveries? If you're not providing us the sales number, it's really hard for us to kind of assess the ramp-up of the scrubber deliveries.
I think we can provide the sales number. Roger, please comment.
Yeah, on the sales side, I can comment. Q1, we were in the range of EUR 50 million sales, and then for the rest of the year, we have still an order book about EUR 400 million. There, and that's the but, biggest part of that are retrofit deliveries, and there are many factors outside our control that might impact this one. We at least expect to see some movements on that, but that's how we look at it.
The retrofit numbers will be in new building numbers.
Correct.
Not in services.
Still, you are making positive margins to scrubbers even though the lower margin in the initial deliveries?
Comparing to the original deliveries, which were more challenging, we are on a good level as we speak.
Our aim is to be on a good level.
Correct.
That's definitely the strategy.
Thank you. Next question from Robert Davies of Morgan Stanley. Please go ahead.
Around the energy business, whether you could give us some color on the split of how much of those orders in the first quarter went to kind of backup renewables rather than, sorry, to providing power towards renewables rather than just sort of base load backup power in emerging markets. If you could give us any color, please.
Yes, very good question as well. About 30% were backup power for renewables in Q1.
Okay. Just in terms of the sort of customer behavior on the service side, can you just give us a little bit more color in terms of what's going on regionally in terms of service trends? Are you seeing any particular differences between the regions on service, on energy specifically?
Yeah, please.
Yeah, I would say that it depends quite a lot what type of customers we have. If it's utilities, they usually have their own service people, and they don't always sign a contract with us. Where we have IPPs and industrials, they are more keen on signing a contract with us because, I would say, the factor that determines if we have a signed contract or not. Even if utilities don't have a signed contract with us, they usually keep the assets in a good shape, so they still buy spares and additional services when they need more high-tech competencies.
Roger, can you comment on services in Marine? That's a bit different than what's going on in energy.
Yeah, thank you. I would comment then more from a segment point of view. I think we have seen good development on cruise side and on merchant side, and also some, if I call it small signs on increase on the offshore side, on the services side. Not on the new build yet, but some small signs of bigger activities on the offshore side. I would lift up those three segments.
Thank you.
That's great. Thank you.
Your next question is from the line of Edward Malek. Please go ahead.
Hello, good morning. It's Vivek Midha from Citi. Just a question on your savings program. I know your statement was that the fruits of that will come through maybe towards the latter end of the year.
Yes, the program as such, as we initiated it, has started as planned. Of course, it has all kinds of actions. One was to look at the capacity cost turn, and then we were looking at the sales and supply and the spare parts and so on. As we commented earlier, the plan was to save EUR 100 million, the cost being EUR 75 million, and really the savings will start during the latter part of the year and then finally 2020, and that's probably also how actually the costs are going on. As I said, it's working as planned, and we expect to get those savings as promised.
Okay. Understood. Just a follow-up question, [audio distortion], that qualitatively versus last year, are you seeing lots more confidence-
Yes
on spare parts installation?
Spare parts, yes. Spare part in particular, you saw we had a 4% growth on the service side, and this very much also goes to the spare part activity. I would say good development. Market is still cautious, we need to follow up how this will continue then in the coming quarters. I'm happy with the development so far in Q1.
Okay. Thank you very much.
Sean McLoughlin , HSBC. Please go ahead.
Thank you. Can I just come back to this idea of the tipping point driving peaker demand? If I understand it correctly, we have greater share of renewables already in developed markets, particularly in Europe, which is also the region where you actually have the lowest order intake. This business has more about in the longer term, as other markets in emerging markets come up several years away from a peak growth.
As I said earlier, each market are quite different. In Europe, there's an over capacity of the electricity. Even if the share of renewables is quite high, we see that more and more countries will take down the nuclear and coal facilities in Europe. That we've been quite careful about the future sales in Europe. This is the reason. For example, U.K. has decided that they will take down the coal by 2025, and Germany will take down the nuclear by end of 2038. They will take down the coal, totally. These different developments to U.S., which is a different case, where they actually are closing down coal power plants before the end of the life cycle, just due to the monetary reasons and having a peaking power or balancing power for that renewable asset.
That's why we see more development in the U.S. The same in Australia. They're taking down their coal power plants and then putting up a lot of renewables, and that's why they have ordered balancing power or backup power as well.
Understood. Thank you. If I could just follow up as well. I noticed that you no longer include the quotation activity slide. If you could just comment on how the volumes of mix-
The reason we don't have that, because quite often when you have auctions, for example, and then they might pull back the auction earlier, the pipeline is [audio distortion] of peaking power. You can see that 2020, their predictions is that will go down, and it's a quite tiny little part of that bar, but if you enlarge that, you can see that. That we see as well, and that's pretty much all reason to reason that.
Thank you.
Thank you.
Thank you. There are no further questions at this time. Please continue.
Do we have any further questions here in the audience? No. We will close here, thank you all participating. Wonderful questions.