Earnings Call: Q3 2018

Oct 23, 2018

Good morning, everyone, and welcome to Arzila's Interim Report January September 20 18 Presentation. We have a very familiar concept. So I will Q1 short presentation, and then you have the possibility for questions. And with me here this morning, I have the whole Board of 18 and Natalia, I'm Altasari, Head of Investor Relations. And I would like to welcome also Arjen Perez, first time here, our new CFO to the meeting. First of all, we had a good development in net sales in the Q3. That was thanks to very strong sales development in Marine and Energy Solutions. If you look at markets today, we have and we are having a very steady development in the service markets. Nineteen. It's supported by the development in services in cruise and ferries. And that ports, of course, going forward. The anticipated growth in merchant and off or has not been there. So that's a negative development so far. If you look at Marine and Energy, the fundamentals are there. So Marine is supported by the efficient eighteen, and clean and safe marine today. And energy, of course, supported very much by renewable story and at the same time, developing world needing energy. So some highlights. Order intake stable in the Q3. Order book growth 16%, very good. Net sales has developed well, 13% growth from last year. And we also had the Result growth of 8%, which represents a little bit less in a percentage wise than last year and cash flow a bit lower than last year. If you look at the divisions today, of course, very good development in Marine, supported by crucial ferries, LNG carriers, gas carriers overall and of course, the exhaust gas cleaning systems. Service is also developing well based on service agreements and again, retrofitting, exhaust gas cleaning systems. And then a quite disappointing development in Energy this quarter. And I come back to that one. Is it a timing issue or is there something else? Net sales boosted by the newbuild deliveries asset. And then because of the new building development, well development in marine and energy. Services is now 46% of the group. And that has, of course, affected a bit to our profitability. But in the long term, of course, it's great to have marine and energy developing well because that will finally support trade development in services. Book to bill, 1.22. And if you look at the order book distribution, we still have a higher bar on the rest of the year and good development going forward. Operating result, as said, for the 1st 9 months, we are at the same level as last year. One of the highlights in Q3 was the announcement of our smart technology hub here in Vasa in Finland. It's going to be a new 8, of working together with our customers, suppliers, academia and the Society. And it will go forward thinking about the testing and the new technologies, new research in the area of energy and marine. Moving on to services. As said, 18. Steady development in services sales, dissipated. And I said, some of the segments in Marine not developing as expected. Of course, if you take the FX impact into account, the 1st 9 months, we grew 4%. So that's good to remember. Product areas, good to see the development in agreements. There is growth, which we have been anticipating and really focusing. Spare parts, 48% of the total, which again, partly affects that mix to the profitability. And here, you can see the installed base, which is covered by service agreements, now finally growth also in energy. Moving on to energy. Quotation level, a bit lower than previously. And of course, that this is measured in megawatts, so it might be also because of dealing a lot with renewable energy 2, today and storage and so on. But also, as said that in some areas of the world, people are still at the wait and see mode. And when you look at the development of order intake, clearly, the story has to be remembered. Developing world needs energy infrastructure. And in certain countries, the currency effects, Currency changes have affected the timing. So that's why we didn't book some of the expected orders in Q3. We are definitely looking at them to be booked in Q4 of Q1 or Q2 next year. So they are not disappearing anywhere. And in developed world, of course, the story is really behind the renewable increase in the energy sector. So Wartsila is needed for the flexibility. And that's not disappearing anywhere. People and countries and utilities are looking at the possibilities for the new development of the energy industry. Order activity in Q3 was highest in Asia. And today, our market share is 17%. It's a bit down. And here, In market share, it's always good to remember if one of the big turbine players sell 1 turbine to the market. That changes the market share position quite a lot. Marine. The contracting recovery is going on. We have a bit more contracts so far, 2018. But as we all know, even Clarkson now finally downgraded the expectations for 2018 2019. It's still going to be more than last year. But for us, it's good to see that the development of cruise and ferry and gas carriers and special vessels are is going well. So far, it has been supported by exhaust planning, exhaust cleaning systems and the continued activity well in the Prus and Ferries segment. Couple of words about financials. Cash flow was a bit low. We are basically building the inventories for the very large Q4, as we have highlighted many times. And gearing is 0.20-twenty 8 at the moment. For the prospects, it's good to mention that we have lowered the services prospect from good to solid, a bit lower than previously and maintain good in energy and good in marine. Energy order intake, the pipeline looks good, promising. And of course, Marine is doing extremely well what comes to the order intake. And finally, also in Q3, we announced the redesign of the organization where we definitely want to enhance the customer value. We want to be faster to look at the market and accelerate the growth, what we have in our NNG and Marine Strategies. Our business is serving our customers. So the service plays the most important role when we deal with our customers. And that's why the new building has to be linked to service element going forward. This new organization will be operational as 1st January next for questions and answers. And if I would like to remind you, as we had already the standard last time. One question for everybody and a follow-up question. And then please go back to the line or if you are here in this room, just wait for your turn. But let's start here in this audience, if anybody wants to ask questions here. No questions here, but then we go to the lines, please. The first question is from the line of Isvan Weier from UBS. You may ask your question. Yes. Good morning, Jakob. So two questions from my side. The first one Would be when you look at the scrubber order intake, I think it was a little bit lower sequentially. So And the activity on the other hand in the scrubber market was extremely high. So was it that you already received a couple of contracts, but You have not included those in the Q3 order intake yet. So that would be my first question. Thank you, Sven. Exactly. We had 20 and 9, scrubber orders in services and 46 or yes, 46 in 18. But in Services, we have won quite many of scrubber which have not been included in the order intake. You are right that the market is at the moment very hot. More than 50 8, Pierpaolo, Barbone, additional in one deal. Just one deal, it's not in order intake. And is that because you haven't received the advance payment yet? Or what's the technical factor not booking it yet? We don't book it before we see money. Okay. Good. And the follow-up question would be just on your service outlook. Is that mostly a backward looking adjustment on the outlook Because the 1st 9 months didn't really come in as you expected? Or are you also more bearish on the 4th quarter. Are you seeing any green shoots there on service? Or is it just also negative for Q4? It's More to look at the development of the net sales this year and Q4. I mean, it's I mean, basically, if we don't see that growth, what we expected. And we see a little bit lower growth. That's why we downgraded it. It's for this year. So it's still improving somewhat in Q4, but simply not enough to make Yes. That's the expectation, yes. And is that also improving, in your view, on the transactional side or just because you're starting to install scrubbers? We don't start installing scrubbers yet. The most almost all scrubbers, I think, in both Marine and Services will start next year. So it's improving. I mean, we have of business, and that's why we base this solid development statement. 20. The next question is from the line Antti Suttelin from Danske. You may ask your question. Thank you. An EBIT question, very weak EBIT in the quarter. And if I look at your report, you are blaming transactional services. But then when I go and look at your services sales split. I cannot really see that there is a big difference compared to last year. So can you explain what happened in services? And how important Really, is this weak transactional services for the group EBIT margin? Hansi, thank you for the question. First of all, the more sales we have in Marine and Energy, where the margins are, of course, as high as in services, will effect to the group profitability. Then in services, the lower nineteen. It will affect the services profitability. So adding those two elements, you end up with this number. Are developing also the whole group in what comes to the profit. Okay. And then 2nd question on energy. I can understand the logic that your traditional energy business is being Hit by emerging market currency weakness. But what is hitting the new business, The backup power for renewables, why didn't that succeed in Q3? It's a timing issue, Antti. But Marco now is the new Head of Energy Marco Viregen, the new Head of Energy Solutions. So Marco, would you like to open it up a bit? Yes, of course. Thank you for the question, Nancy. And I would say that We will see more renewables coming in, but many of the utilities in many countries actually have to redesign their plans now. 10. If you take many of the Western countries, when they see that renewables actually are an alternative to baseload, And they had been thinking of having perhaps coal or turbines, and now they see that wind and So there are alternatives. And that might delay a little bit the decision making as well. So that it's a timing Yes, we have seen in many, many places. Okay. And can I just ask them basically back to Jochco? And just to clarify, basically what you say is that the drop in group EBIT margin year over year, 1.5 Percentage point was caused by the group sales mix, services accounting for a smaller proportion than a year ago So because as I said, in the services mix, I cannot see any big change year over year. But I can agree with you that there is eighteen. A smaller proportion of services overall in the group sales, Migli. Is this what you mean? This is what caused the 1.5 percentage point weakness In group EBITDA margin year over year? If you simply ask it in that way, yes. Okay. All All right. That's all. Thank you. Thank you. The next question is from Jonathan Hanks from Goldman Sachs. You may ask your questions. I just wanted to ask on the order deferrals in Power. How many projects did you eighteen. And if you could give a little bit more color on the reasons they were deferred, that would be great. Was it all just about currency volatility? Or was there Also some kind of project specific factors at play. Thank you, Yonatan. And Marco Wiren, again, He will be answering a lot of questions this morning. Please, Marco. Thank you. I would say that it is varying a lot. 18. Of course, these countries, we usually see that they will defer their decision making to see what is the new 16. It could be just some other issues. We actually had also due to the nickel prices went down. So that affected one customer. So I would say that you've seen so many different reasons in our business. Okay. And I suppose just following on from that, is I mean, is there a risk that customers See the new currency level and then change their minds and therefore don't proceed with the order? Or do you see that as a limited risk? Marco, continue. Yes. I would say that when there's permit issues or other issues, just they might be 18 in the next quarter or quarter after that. When there's more macroeconomic issues and if these are severe and Longer term, of course, then they have to get the governmental power plant. They have to go back to their 20. The next question is from Matt Yates from Credit Just my first question is on the profitability this quarter. I think you sort of quite helpfully In Q1, the digital investments and then I think at Q2, you talked about some additional investments in people. So could you give in Energy Solutions, we are building the organization for the higher deliveries. The division has growing quite well. So they have been needing more people. How much that finally affected, I I don't have a number. We have a bit higher R and D cost so far. As we said earlier, it should be the similar at the end of the year than last year. But then we have higher digital costs. I mean, it's at the end of the year, it will be 6,000,000, euros 7,000,000 probably higher than last year, which is affecting then finally to the profitability. At the same time, you are building the organization and the competencies by acquisitions and like Transas and Kriestmit and so on. But definitely, digital also increases the numbers. Okay. And Maybe just a sort of follow-up is on thinking about sort of margins for next year. Obviously, If we look at the sales development this year, you've grown 5%, but we've not seen any margin expansion on that. Obviously, the Marine business is going to be growing nicely next year. Potentially, services may have some negative mix because scrubbers may be lower margin than the traditional business. So I just wanted to maybe understand a little bit better about That could get to because I think the consensus looks fairly pegged towards your sort of you moving quite quickly towards your 14% margin targets. And I just wanted to sort of hear in your view whether we should think about sort of slower development into 2019 and maybe drop throughs more around the 10% level that we've been more used to this year than maybe sort of 20% plus that looks to be in consensus numbers. We look at achieving that one, not probably next year, but let's see when we do it. 8. It's also going to be a little bit easier because then we have the final organization setup in place, and we can start commenting more about how energy is doing and how marine is 20. And then, of course, what are the service elements there? Both divisions, both businesses, 6 are actually quite doing quite well if you combine the services also in there. And that would probably tell you more about going forward. So I don't want to start guiding now exactly or trying to help you 20, exact number for next year. But maybe if you could just help, because looking at the business, you've grown your And we're just not really seeing we're not seeing margin expansion coming through. So if you could maybe even from a sort of high level Just explain very simply what has gone wrong and what will be different next year to give us confidence that margins won't be stranded At this 12% level where we've been for a while. What could be different next year to really change that? Let us come back to more details. But I would rather say today that our services, as it is, we'll be growing. I mean, the retrofitting business in the exhaust cleaning systems is growing. Our 3, and start growing. So that will definitely help to the overall profitability. But As I said, I would rather come back in January for detailed more detailed analysis. The next question is from Manu Rimpela from Nordea. I would have a question on the energy business. And you maintain the outlook at good Despite that, you have a big shortfall in the Q3 orders. And then you commented in your remarks that you expect the Energy orders that were postponed to be closed in Q4 or potentially in the first half of twenty nineteen. So since that is in 2018 outlook and you're commenting that It could come over the next 9 months or so. And we know that the currencies EM currencies are down and commodity prices are down, which is not going to ease probably the situation for your customers. So why did you not downgrade that to a good outlook? Thanks, Manu. Sorry, solid outlook. Yes, the pipeline is strong. And I mean, Marco, do you want to still once again highlight 8. Where do you see the next orders coming from? Yes. Thank you, Manav. I would say that the reason why we didn't downgrade the output is that we still believe that in Q4, we have a lot of potential orders we could sign. And the orders are coming mainly from Asia and Americas. There's a lot of customers that are needing eighteen. More energy, and they want to have that quite fast, and we believe that we can sign. And of course, we see also that El Salvador eighteen? Project is proceeding as planned, and we believe that will come if everything goes right in Q4 as well. Thank you. Can you remind us of the euro size of El Salvador? And if that comes in Q4, 18. What would it be? 2,250. Okay. And then just a follow-up question. On the way you kind of eighteen. Think about the guidance wording good. So should we interpret that, that means that the order intake should be growing in 2018 Compared to 2017 or Good means order intake will be growing in the equipment business and the services guidance is guiding the sales. Okay. And then I mean, sorry to get stuck on this one, but you basically in your remarks, you said that you expect to get the postponed orders in Q4 or Q1 or 2. So it doesn't sound like you have a lot of confidence in signing those in Q4. So I'm just feeling a bit perplexed that you kind of Still feel so confident in signing them in Q4, but in your remarks, not necessarily indicating that confidence. Yes, Marco. Yes. Thank you. Yes, eighteen? What happens usually when there's a delay is that they will postpone, but it's very difficult to say exactly when. But what we are now guiding is 4, full year order intake, and we believe that the pipeline is so solid. So we believe that we actually will sign enough orders Q4, unless something very big macroeconomic or geopolitical issues will happen. 18. Okay. Thank you. The next question is from the line of Sean McLoughlin from HSBC. I think just a follow-up On the previous discussion, Marco, you've obviously taken a fresh view of the Energy division, And it looks like you're coming in at a slightly difficult time. I mean, are there is there anything that you think strategically You need to change or areas that you need to drive in order to help this turnaround? Yes. Of course, I believe that we have a very good solid business and know how and skills in our Energy business. But of course, now when we combine from 1st January with services, we will definitely secure that We are offering better solutions to our customers from day 1 when they start planning in a power plant Until or during the lifetime of that asset and securing that we can add value not only when we do service or when To build a power plant, but also during how they run the power plant, and we can definitely, with our knowledge, run And give advises so they can actually earn more money. So we're definitely going to look into those opportunities in much more detailed going forward. Okay. And just a quick general follow-up. I mean, in restructuring the business 2 areas. Would you be looking at giving earnings by division? That's our plan. Thank you. The next one is from Peter Marley from Jefferies. Thank you. You may ask your question. Eighteen. Good morning. Can I please come back on this issue of the transactional service business? I'm just interested in some more color on what's going on. If I understand it correctly, this is Spare parts for the merchant segment, which I would assume would be the sort of thing you predict fairly easily because it must be just a function of how Much of the ships are being used. What do you think is driving the weakness? And is it in any way part of the whole IMO 2020 issue with the potentially some of the older ships being scrapped prematurely and therefore owners being reluctant to spend on service if they're reaching the end of their life. So maybe you can help us understand What's going on there? And what do you think it tells us about the future? Thank you for the question. We have Paulo Bartone, Head of services deal. Thank you. Thank you for the question. First of all, I would like to remind you that twothree of our order book is related to our long term agreement. And the number of installation ever in power plants. So this is the big picture. 2 third of order book related to long term agreement, but 2 1, of the net sales every month are related to transactional business. So orders that are flowing Invoices that we are, let's say, issuing on 18 during the month. So we are capturing this business every month. And to let's say, going to giving more color to The transactional in particular, we have seen that in merchant especially, let's say, the pace of recovery of merchant and oil and gas is lower than what we have expected, not for all sub segments, in particular 4 containership, the volumes and freight rates are have increased. So let's say, there is an improvement, but in drybulk, especially in 2. But in drybulk, especially in tanker market, this is they are still depressed, let's say. So then on the long term agreement, you know that we have certain long term agreement related to spare parts and related to field service activities. And these activities to be invoiced, they have to be called off. So when you have a change in the operational profile of a power plant from base load to peak shaving, for example, and you have a long term agreement for parts, for example, in order to materialize net sales, you have to invoice them. If the peak load is suite the base load approach, our profile is changed to peak load, then you don't need that moment part, so it is postponed. So that is the I don't know if I have Given some more color, sure, or if you would like to know something more. You've given some more color, so that's Appreciate it. But drybulk and tanker, is it that they're being used less and therefore you see less transactional spend? Or are people Deferring doing servicing because they're under financial pressure. I just want to understand whether it's just a sort of blip. Yes, both. But also sometimes So when there is there are orders on the market, the customer, they prefer to avoid to stop the ships And then to continue to work until, let's say, they can. And of course, the risk is that then we will face they will face some breakdowns later 1, but they prefer to harvest when it is possible. Okay. And if I can ask a follow-up on the scrubber business. You're obviously going to be very busy in 2019. What do you think happens in 2020? I know it's some way away, but are you now booking any orders to retrofit in 2020? Nineteen. Was it still all about just 2019? There are some orders that will, let's say, Expanding to 2020 as well. And there will be also a new build. And also a new build. I think it might go 2021. Yes. So it's going to be quite an interesting even might be further. Nineteen. Of course, how IMO succeeds to implement the fines or how they will follow the development. The next question is eighteen. From Robert Davies from Morgan Stanley. May I ask the question? Main question for me is just around the risks you see to eighteen. Robert, somehow we missed your question. Could you repeat it, please? Jacob, can you hear me? Now we can hear you. Okay, great. My question was So around the implementation of the IMO legislation. I mean, I've seen some recent news flow that there could be delays. Is that impacting your customer conversations at all? Nineteen. How is that kind of evolving in terms of the outlook for activity? Is there any risk that once that is kind of cleared, you get a catch up? Or has there been any kind of obvious impact on your business? And then just the other one, the follow-up, I'll put in ahead of time, It was just around the outlook for LNG. I mean, I've seen quite a few new projects on the LNG side starting to kind of filter through. How are you thinking about the balance in terms of the LNG carrier outlook and the LNG infrastructure market in general as we go through 'nineteen and 'twenty? 9? Thank you for a good question. First of all, the scrubber one is that's a very good one to try to analyze and what's going to happen in 2020. First of all, we have been seeing a very, very strange market for the last 5 years. And now finally, this year. Beginning next year, this year or the previous year, we started this order activity. Nobody knows what's going and 1st January. IMO will be at least today, they say that they will be sticking to that one. Next 6 is the IMO meeting in London, so we will hear more. Some countries are already planning for different structures, decline and implement a follow-up like they did in the Czech displacement 2016. But then there will definitely be cases where the governments probably need to allow ship owners to do, I mean, something going forward. But Roger Holm, the Head Marine, I mean, you see it also. You talk daily to the ship owners. And could you comment the scrubbers? And then also the LNG question. Please, Roger. Yes. Thank you, Jako. If I start with the scrubbers, so far, We haven't seen any impact on the dialogue we have with our customers and the ongoing discussions. And as we have said before, we firmly eighteen. The critical point now is that when IMO are making decisions, they stick to the decisions. It's a bad thing both for our customers and us and our competitors, if they cannot trust the schedule. So I think that's the good starting point. But so far, no impacts on the discussions we have seen with our year. So the outlook is positive. And if we look how the forecast is going forward for next 18. Yes. As well, it's also looking fairly positive. I think the only downside for For us is that the FSRU market is extremely slow at the moment. We don't see much activities on that part, which last was a good business for us. So LNG carrier is positive. FSRUs are slow at the moment. The next one is from Alexander Virgo from Bank of America. It's just a quick one, asking Peter's question A slightly different way. I think historically, you've always said that the transactional business is a good barometer of health for your customers. And I was just wondering whether we should read The commentary that you've made so far into a broader comment on the health of those customers, particularly on the merchant side and whether or not we should think about How we should think about that as we progress through Q4 and into next year, particularly given the Transaction of business requirement, to Paolo's point, any comment you can make on the 11. Given I think we've got about, what, 4% or so underlying service growth? Yes. 18. The merchant in merchant business, as Pierre Paolo said, of course, it depends on the I mean, their capability and the money whether they can do the services. But isn't it so, Pierre Paolo, that if you postpone the service for a certain period, then you finally have to do it. So you can't postpone it forever. And we are reaching some of customers. And also because of all the digital ways we can follow the engines that they need to do the service. 0. We are not so much worried about the classification of societies will, in a way, 2, there is a risk of breakdown or possibility that there are breakdowns. So In that sense, let's say, for us, there are good opportunities in both ways. And going forward, we have been twelve engines, you don't want to let go and you definitely need, I mean, service agreements, you need the service and Absolutely. And the fact that we eighteen, that peaked the highest number of installation ever under long term agreement. This grants, let's say, a very It's solid development. Of course, the operational profile, as I have said, especially in terms of ferries or on the other side in terms of power plants, is then making the business, let's say, fly or not. Okay. And then I guess just I was intrigued by your comment, Gerdalo, on the change in usage of the power plants and how much that affects your The call offs under the LTSAs. Is that something that is a quarter or a 6 month change? Or is that something that You would see as a structural shift in if someone changes the way they're using the power plant, can that change back? Depends by regions, of course, by geographical regions. In regions where you have eighteen. Huge base of hydropower, for example, you are subject to the, let's say, integrating the hydropower plants. And so it is episodic, let's say. In other region, it could be a philosophical business model that is changing, let's say. But we don't see huge, let's say, modification in It's not more it's not the quarter by quarter. It's more like how they use It is how they use concretely the power And how much more convenient is to utilize alternative sources with different type of prices of energy? Right. Okay. So we should be thinking about that for the next year is, I guess, was where I was going with this. Well, we believe we are optimistic Because our long term agreements are in place, we have, as I said, the highest amount of Installation covered by agreements. And so let's say, we are optimistic. And we are growing. We have been growing also in terms of installed base number of megawatts, not only number of installation because the business is developing in small Installation, less power intensive. So but we have seen now that we have been growing in number of installation In megawatt installed and also in percentages of installation covered by agreement 10 megawatts. All right. The next one is from Johan Eliason from Kepler. You may ask your question. So just a question on the energy. We saw obviously weak orders as you have explained, but revenues were actually pretty good. Eighteen. Have we now seen these legacy power plants with below margins that you've talked about historically being delivered now in the quarter? Or is those, to some degree, linked to this El Salvador order and we should still expect some impact on the margins from those going forward? Thank you, Johan. Good question. And Marco He's happy to answer with that one how does it look going forward. Yes. As you remember, we took some low margin orders Couple of years back, but those being delivered now. So now it's more normalized orders that we have in our order book as well. Salvator is just another order in our normalized business. With good margins. With 2000. That's good for this. Better, better than few years. Yes. Thank you, Ivan. Okay. Good. Then On your outlook statement, you take down services from good to solid referring to these Transactional business in the short term. And you say this is related to how you see the sales development. Now if you look into next year, obviously, talk about the very Solid scrubber orders that will turn into revenues primarily in 2019. In a normal circumstance, assuming there's not a big drop of the transactional revenues in 2019, that would obviously then imply that you Should have upped your guidance or will up your guidance then for services to good again? Or is there also worried for these Transactional service business is also going into 2019, potentially turning even negative on the top line From that part. Thank you, Johan. Yes, we are very much looking forward how that develops. And And in January, we will give you the next one. This is only in relation to the to this year. So Let's get back to that one. But you are right. We shouldn't be worried at all. Okay. And then just finally on The scrubber thing, it seems like you have taken around 400 scrubbers this year or somewhere above 300. Do you have a feeling for How many ships in total will actually be fitted with the scrubber come January 2020 or at least the early parts of 2020? Are we talking about A total of 2,000 or 3,000 or 4,000. What's your feeling with what you have seen in the order intake out there, Not only for you, but for the orders that have been dropped. I think the latest DNV report said that this boom was 1600 vessels, where our market share was the highest, very, very good. But then you need to remember what has been ordered before. So was could it be 2,000 at the moment? But then you have 39,000 vessels, which or whatever is the number, which needs to be retrofitted, and that's going to be an interesting they will switch fuels. They will still order from us as we heard this will go forward. And but around 2,000 might be today. Nineteen. And I mean that's, as you mentioned, a very slow number. Do you think the installations will increase come 2020, 2021 and nineteen. 2? Or will 2019 be sort of the peak year? We still expect this to continue. I mean, there is no way I mean, looking at the difference on fuel prices, there is no way that the fuel switch is is going to be more economical. So I'm I will be expecting countries to allow some of the ship owners to install rand. And that's what we see already from our order intake today. Yes. And how are you doing with your capacity management? Nineteen. I talked to a small competitor to you and he sort of said that he's been promising the Board to be in a production level of 100 years or 100 scrubbers nineteen by the end of this year and then 200 by the end of 2019. What's your sort of number and how you're planning your delivery 2016. We have been talking about a capacity of 500 scrubbers per year. That's the capacity today. We are, of course, looking at ways to increase it. And we are almost sold out in 2019. But of course, for us, it's more the testing, the engineering and the automation side, which is a bottleneck. We don't manufacture scrubbers. So we get it from sub suppliers and then we install it on board Danak Swats from Ed Maravin, Hika. Actually, my question was around that what Your capacity for scrubbers was, so that was answered. But I guess I could also just add as a question, are you starting to receive Scrubber orders that would only be delivered beyond 2020 or beyond 2019? Yes, we are having already today's scrubber orders, which are beyond 2020, already 'twenty one, probably 'twenty two, and what I have heard. And then the first question I somehow missed. Was it about the competition or? It was about your own capacity. So my question was Own capacity. It's around 500 today. Yes, per And would you take that up by 5%, 10% in anticipation of demand extending beyond The deadline dates or are you more cautious? That's difficult to say. Or Roger, do you want to add anything to that? I think we will not comment on any exact figure. Of course, we are constantly working on how we can optimize this. The main bottleneck for us is around engineering And it's very much because this is not especially on the retrofit side, this is not a standardized product going out. So it depends very much of what kind of scrubbers, how standardized they are. The more standardized they are, the more volumes we can do. So it's not an exact science that we can comment on. Okay. And just to be clear, because you do installation of scrubbers on the retrofit side, so it's possible that a vessel So you could buy a scrubber from a competitor of yours but come to you for the installation? We could buy from competitor and install it. But so far, we haven't started that kind of business. I mean, it wouldn't probably make any sense. Thank you. The next one is from Glenn Levy from JPMorgan. You may ask your question. Good morning. For Q4, are you expecting this to be a record quarter not only in terms of absolute profit but also in margin terms? Glenn, thank you for the question, and the answer is yes. To both? Yes. Okay. And on your service agreement, I mean, it's nice to see that the energy part is eighteen. Growing again. Do the customers behave differently if they're using The power systems for renewable energy compared with primary energy in developing countries? Now if the power plant I can try to answer that one, and you can correct if I'm or 'twenty. But of course, if we sell to a as a backup or as a flexibility power land for a renewable story for developed world. I mean, they use it here and there, and then the service agreement is probably then supporting that I mean, that deal itself. But from Pielbasa? Hi, Glenn. It It is an add on in general for the contracts that we have already in place. So what it is important, let's say, we have a relationship with Customers under cost because they have, for example, a gas power plant or whatever. And then they want to add on maybe eighteen. Module that is renewables or batteries, storage or whatever. And then we integrate With the logic, Greensbeat as a typical integrator that is covering, let's say, the entire power plant, giving flexibility to the installation. This is the Although that we have experienced, Ilan. And in normal power plants, it's running caseload and It's a normal agreement. We can even run it. Yes. Absolutely. Going forward, though, I'd assume that you're expecting to get a greater proportion of your OE sales coming from Customers that are using these as renewable backups. Is that correct? That's a growing area today, everybody you are right. Yes. So if we think about that, do the customers that are taking The equipment for renewable related applications, are they more or less likely to enter into long term service agreements Than your traditional customers in the past? Depends on the customer. Again, if it's a utility, a well known big utility. Sorry, they would probably do it by themselves. But if it's a smaller player who also needs our energy management system, then it would be probably our guess. Okay. So you can still continue to grow the Penetration of your installed base in the longer term. Yes. Yes. And final question. You're clear about Margins and absolute profit for Q4. Will you also see a big release in working capital? So your cash eighteen. From operations will be at least matching last year? I'm not guiding the number. You are No, no, not the number. But relative to large DHT We are really seeing 8, we are releasing quite substantial amount of working capital. Okay. Then that's great. Thank you very much. The next one is from the line of Manu Rimpala. Okay. I would have a follow-up question. If I may question you a bit on the services mixed Impact that you talked about. So if I look at the numbers that you provide, it seems to me at least that the share of merchant and Sure. It's actually up compared to last year, which doesn't necessarily support what you're saying is that if you see these segments being under pressure eighteen. And that is putting pressure on the margins in services. And also, I think year to date, the share of spare parts is 48% compared to 49% last year, and That is roughly like €20,000,000 impact on sales. So is there something that I'm missing? Or nineteen. The pricing in this segment has come down significantly, which is then the big impact on margins. On the first part, we have said that we I've been disappointed by the lack of growth in merchant and oil and gas. That was my statement. So I wanted to grow 5% bloody hell this year, and it was not possible because we couldn't eighteen? Catch the let's say, there is no growth, let's say. The growth that we were forecasting and on the evidentially we had on merchant and And oil and gas, especially on oil and gas, I must underline the offshore and also the supply vessels that have been growing, as you said, but let's say, very limitedly. I believe that we we believe that it would have been better. And the other part was what Manu, what 2016? So it was a question about the impact on margins from the spare parts sales as They were 48% of sales in the 1st 9 months of 'eighteen compared to 49% in the 2017 comparable period. And I mean, that translates Roughly €20,000,000 in absolute sales terms. So it doesn't feel that, that would be a big enough impact to actually kind of explain the Fall in EBIT we see in year to date. So I'm kind of just wondering that whether there is also something related to prices. No, it It's not related to prices, but you have also a few, let's say, to analyze the fact that we got eighteen? From you know that from the Marine Solution division, we had, let's say, 18? That is what it has happened. So a spare part for just to they're in the mix of spare part, there's spare part of a piston. Let's say you have a higher margin than selling, let's say, a spare part for water, Water plant. Water purification plant. So is this something we should think about just kind of cyclical? Or is this a structural fact because you kind of increased the share of long term contract? Thank you. Thank you all, and let's see you back here in January. Thank you. Thank you. That concludes our call for today. You may all disconnect. Thank you all for participating.