Wärtsilä points to demand drop in cruise and scrubber investments as COVID-19 hits all businesses

The adverse impact of the COVID-19 pandemic on the Finnish technology group Wärtsilä and markets in which it operates further increased in the second quarter of the year, shrinking demand across the board.

The company reported a 19% lower order intake for the first six months of this year, equaling €2.25 billion ($2.57 billion). The orderbook at the end of the period decreased by 12% to €5.4 billion, while net sales increased by 1% to €2.39 billion.

“The decline in demand was especially strong in the cruise industry, as travel bans and other mitigation measures have kept most passenger vessels idle for the past few months. Customer interest in scrubber investments was another area of weakness, due to the turmoil in global oil markets,” Jaakko Eskola, President and CEO of Wärtsilä said.

“In the Energy business, customers remained hesitant to commit to new investments. With this is mind, the order to supply a 200 MW flexible baseload power plant to South America showed that progress can be made, even in exceptional circumstances. Service activity was negatively affected in our businesses by the lower utilisation of installations, as well as by virus containment measures.

Eskola said that despite the difficult back-drop, second-quarter net sales held up reasonably well amid increased equipment deliveries, which offset the volume decline in services.

Overall, for the full year, the effects of the pandemic on the company’s financial performance are expected to be material. However, Wärtsilä said that it could not yet quantify the full impact on its business as it was still too early.

Wärtsilä withdrew its market outlook for 2020 on March 31, 2020 pending an improvement in visibility.

In order to mitigate the impact of the outbreak on its business, the company already announced short-term cost-saving measures in the first quarter of the year, which started to be realized in the second quarter. These predominantly included reduced discretionary spending and worktime reductions.

Eskola added that the highlight of the second quarter was the strong development in cash flow.

“I’m pleased to see that our efforts to decrease credit risk by intensifying receivables collection has paid off. Strengthening our liquidity reserves has also been a priority. During the second quarter, we extended and expanded our revolving credit facilities, and initiated arrangements for additional two-year term loans,” he added.

Moving forwards, Eskola believes positioning the company for the eventual market recovery is of equal importance.

“Marine Power, Marine Systems, and Energy will continue to focus on driving performance by strengthening their lifecycle offerings. Voyage, on the other hand, still needs investments in R&D, sales, and marketing to scale the digital business and to create a basis for sustainable, profitable growth,” he said.

“Thanks to its unique offering, and with the maritime industry’s increasing interest in utilising data to optimise performance, I am confident that Voyage will eventually play a key role in Wärtsilä reaching its long-term financial targets.”