Wärtsilä Oyj Abp (WRT1V) Earnings Call Transcript & Summary

Good morning. Welcome to Wärtsilä's fourth quarter earnings call. My name is Natalia Valtasaari. I'm Head of Investor Relations here at Wärtsilä. And I'm joined here today by Jaakko Eskola, our President and CEO. Before I let him take over and run through the results themselves, just a few words on the Q&A session, which we will have later on in this presentation. In order for you to enter the questions queue, please use the raise your hand function. And when the moderator calls your name, please remember to unmute your microphones, and then lower your hand once your question has been asked. If you do experience any audio issues, there is a chat function, and I'll try to raise those questions during the session as well. [Operator Instructions] With that, I'll let Jaakko take over.

Thank you, Natalia, and good morning, everybody. Welcome to the results presentation 2020. I'll have with me here in Helsinki Campus, Atte Palomäki and Natalia, as you saw; and then on the lines, the whole Board of management. So we are ready then to answer all your questions, and they will help me with detailed analysis of the businesses. Let me start with this slide and really the title, a year by COVID-19-related uncertainty. 2020 was an unprecedented year, with Wärtsilä's end markets heavily affected by the COVID-19 outbreak and the measures taken globally to contain the pandemic. Deteriorating economic -- macroeconomic conditions have caused our customers in both of our end markets to reevaluate their capital and operating expenditure plans. Vessel contracting, as you know, has decreased to record low levels, investments in new power plant capacity were postponed, and maintenance activities were pushed out as the utilization of installations declined, and travel restrictions limited the mobility of service engineers. If you look at this backdrop, I'm happy to see that we have had resilience of the demand for storage solutions, and the acceleration of the marine markets' digital transformation was especially encouraging. Some of the key figures and, first of all, order intake. The decline in order intake reflect the uncertainty in our market environment. And demand decline in the cruise segment continued to represent the main challenge in Marine Power and Voyage, affecting both equipment and service orders. Marine Systems, order intake was heavily impacted by reduced fuel spreads, lowering demand for our scrubber -- or our customers' scrubber investments, while Energy order intake was affected by the slowdown in economic activity. Some signs, as I mentioned, of market stabilization, we are seeing towards the end of the year and specifically in our storage solutions. If you look at net sales, 2020 decreased because of lower service volumes and the disruption to equipment deliveries. Profitability for the full year came in well below that of 2019, the main reasons being volume and less favorable sales mix, under-absorption of fixed cost and COVID-19-driven cost inflation. We have mitigated the financial effects of the COVID-19 by implementing actions in the form of reduced discretionary spending, work time reductions and temporary layoffs. We -- during the year, we said that this resulted in temporary cost savings of around EUR 100 million, which was being recognized during the year. And -- I mean this all was like we initially expected. If you look at this slide, one of the highlights of 2020 was definitely our cash flow. It's a record high number, almost EUR 700 million. I haven't seen that high number during my years in Wärtsilä. And heavy focus has been on our working capital and, of course, looking at our customer relationships and supplier situation. And this will be -- and will continue during 2021, a detailed focus on cash flow from our operating activities. Dividend proposal per share this year is EUR 0.20. A couple of slides -- more detailed slides about the markets. Here, you can see the vessel contracting. December, we saw some increase -- or November, December, in the vessel contracting, but we are still at very low numbers. And specifically, in December, we saw merchant vessel contracting picking up a bit and also LNG carriers. And today, you can see, we announced one major transaction also when it comes to the new LNG vessels. And with all these LNG vessels and special tonnage, as you see also here, there, of course, the future always brings quite steady service income going forward. Energy market, this is the slide we use to show about our market share. The situation has stabilized during 2020, and our market share development has been quite steady. Order intake, as such, in Wärtsilä Group, you can see from the right side of the slide that Marine Power went down, Energy went up. And then services, which is a good sign, services order intake increased. So that's, of course, a good sign for future development. Order book, as such, has been coming down during these difficult years. It's still a bit over EUR 5 billion. And then when you look at the delivery schedule, this year, we are starting the year a bit behind compared to last year. And, of course, that has to be taken into account when you look at the possibilities to get new orders during the year. Net sales, again, services on the fourth quarter was developing a bit better. I mean all net sales on almost every business has been decreasing, but services itself on the fourth quarter picking up a bit better. But as we said during the year several times that -- I mean the whole year has been extremely challenging, and we expected that the fourth quarter is picking up a bit, but we will not see and we didn't see anything like we used to have during earlier years. And as I said earlier, the comparable operating result was also affected heavily by the COVID-19 and related issues. Cash flow, very strong, as I said, record high. And here, you can see also the earnings per share and now the dividend proposal by the Board of Directors for the AGM. A bit about the businesses. Marine Power, I mean, as I said, every businesses, you see decreasing numbers and mainly affected by -- to start with by the COVID. Here, in Marine Power, order intake decreased, sales decreased. I mean we have a lot of fleet idling going on in the sector. And our customers are really adjusting their needs, when and where to invest. And then you see it also what comes to the Marine Power net sales development that if one of the segment like cruise is not doing quite well, it will definitely affect the Wärtsilä's numbers. Comparable operating result also decreased. And there, we had a less favorable sales mix, and also the weak fixed cost absorption affected our profitability. Net sales from installations under agreement, I have always said that this is quite an important slide to show. And here, of course, when COVID hits our customers, then they are not sailing their ships. That will also impact our service levels. Marine Systems, as you know, has 4 businesses: Scrubbers, Electrical Systems, Gas Solutions and Shaft Line Solutions. A lot of postponed customer decisions, we have seen some orders moving from 2020 to '21. And, of course, the reduced fuel spread is hitting the exhaust gas business orders heavily. At the same time, we have been delivering last year our products and solutions to customers, and that has definitely also helped our result in the Marine Systems business. Overall, then if you start comparing, it's good to remember in 2019 that the result was weakened by some of the Gas Solutions projects. Voyage, the business where we see the future, where we still are investing heavily. Very much our Voyage solution projects are going to ferry and cruise business. And if those businesses have been down, it has affected the order intake. And also, sales was affected because of lower service business and transactional service and also project postponements. The profitability of Voyage is still negative, and we are investing in our digital competencies. As we have said earlier, we need to look at the EBITA level. And during the next couple of years, I hope sooner than later, I mean we need to turn this business positive. And there's a lot of actions going on in that transition. Here, you see also one important slide when you look at our Voyage business, which is the connected vessels. And that has been doubling and increasing very much during the year, with nice deals like these UltraShip fleet applications. I mean that will finally pay out. Energy, as such, order intake increased, but not so much as in the marine businesses. And here, the slowdown in the economic activity has definitely hit us. Storage market, you have seen the resilience. I already mentioned that one. And now, going forward, I think storage plays an important role but also the renewable transition where Wärtsilä has great solutions to our customers. Operating result was also hit. And here, we see some delivery delays, okay, hitting the fixed cost on the factories as the same factories we are building on marine and energy engines. And then if you compare also 2019 and '20, it's good to remember these cost overruns we had and last year when we have been delivering out those projects with 0 margin. Service installed base stayed the same level, but you have been reading some of the news of quite nice transactions with our customers. The example here is from Papua New Guinea where we service -- we get the service for the 10-year agreement with our customer. Final slide, prospects for 2020. We expect that the near term, now the Q1, demand environment to be similar of that of the previous year, so last year. And at the same time, we have been hoping, of course, the vaccination coming in and helping some of our customer segments. But at the same time, I need to say that the conditions, the experience we hear every day, that the prevailing market conditions make the outlook uncertain. And this is everything we can say at the moment. With this slide, I let you all to start asking questions. And as Natalia said, 1 question -- or 2 questions, and then if you can go back to the line, please.

Good morning. My name is [ Mikko Mertin ], and I'm your moderator this morning. Welcome. First question on the line, we have Andreas Willi, JPMorgan.

Jaakko, I wish you all the best in your next chapter after retiring as CEO.

Thank you.

I only have one question, a bit more longer maybe, but I would like to better understand the profit development in 2020 so we can also better understand the potential recovery going forward. If you look at the 2019 base and reverse the charges out, comparable operating profit was slightly above EUR 600 million compared to EUR 274 million for 2020. You had EUR 100 million temporary savings in 2020 as well. So if we leave them to a side, profits fell by more than EUR 400 million year-on-year. There's a negative mix on service in Marine, but Energy service was fairly resilient. Maybe you could give us some information on the level of COVID-related extra costs you have, maybe the impact on price pressure year-on-year and other factors that we would have to consider to better understand the decline in profit. And maybe then also what share of the EUR 100 million you see -- you think you can keep in 2021 or turn into more permanent savings?

Thank you, Andreas. And yes, I mean the profitability was heavily affected by certain elements, as you mentioned. And if you look at -- first of all, if I start with pricing pressure, and the pricing pressure, it is there. It's both in our markets -- end markets, Marine and Energy. Marine, it's, of course, when you look at the vessel contracting that you don't get -- you don't see so many ships coming out, and there is a huge price pressure, what comes to the ships. And then, of course, it goes down to the suppliers. And we have been talking about it for years, and I don't know if it's getting even deeper. I mean there are certain same players in the market trying to get the same deals. But definitely, there is a pressure on the pricing. And then when you look at certain segments and products, of course, one profitable part of our business has been our scrubbers. There is a price pressure on scrubbers. And, of course, as you see, Voyage is still suffering with their profitability. Energy, of course, there is a little bit less, I would say, deals. And the deals are getting postponed, or the decision-making is not so fast. I don't know if that's creating any price pressure. But of course, every transaction you have in the market, you have the engine players, you have the turbine players and so on. So you need to create something more. And there, of course, Wärtsilä services might bring something where the customer values our solutions. But price pressure definitely is there. Then you have the mix, as you mentioned. You have the service mix and the new equipment mix. And finally, I mean, if you look at the whole year, if the volumes stop, of course, that hits definitely to the profitability. If service volumes drop, that hits to the profitability. I cannot give you an exact number of COVID-19-related hit, but it's definitely at every business at every sector. And it's hitting us because it's difficult -- I mean you need to deal with suppliers, you need to deal with the deliveries, you need to deal with service people and having extra time when they are on quarantine and so on. And it really hits the, I mean, the cost, of course, everywhere. Logistics is more expensive. And then finally, I mean we -- and as I said, we have been delivering EUR 100 million -- around EUR 100 million net sales out with 0 margin, which is hitting us heavily also -- or was hitting us last year. About the temporary savings, we are, at the moment, when -- as you saw the outlook being the same, we are definitely looking at very carefully. What -- how to continue, we cannot start spending money and expanding the operations before we start seeing that the markets are getting back. So very carefully now looking at continuing some of the temporary cost savings, but at the same time, looking at is there something which we can actually restructure and continue with better efficiency. And as I said, there's a big program going on already or has been in our Voyage business, which definitely will turn the Voyage business faster to profitability than probably expected. But lot of these items putting together, it's a huge number when you compare to the EUR 600 million spend, what we did earlier.

Next question on the line, we have Johan Eliason, Kepler Cheuvreux.

So I was just wondering a little bit, first, on Energy side. I mean you say market share has been stable, '19, '20, but there was obviously somewhat of a drop from previous. Is that related to engines losing out versus the turbines? Or is there an engine competitor that you see have taken market share? And then secondly, we are talking about some positives as well, this LNG order. It seems like it's the main engine. I thought you sort of were closing down your main engine business, or is this a special niche where your four-stroke engines are still applicable? Or what's the development there?

Thank you, Johan. And I can answer the Marine-related first. Roger could probably be better, but I take the answer from Roger. Roger can come back later. I mean -- but it's an Arctic LNG. And in Arctic waters, you still need four-stroke engine technology, and it's a main engine. So 6 engines per vessel and 6 vessels first, and was it 4 options. So it's a huge deal. And really, this technology still continues. When you look at the Arctic waters, you can't survive with two-stroke technology. So that's a major, and that's a positive one. But when it comes to the Energy and the competition, price pressure, Sushil Purohit, the Head of our Energy, he's in Houston and it's early morning, but I hope Sushil is around, and he could a little bit open up where we are with price pressure and competition.

Thanks a lot, Jaakko. Yes. Thanks for the question. I mean what we are seeing, of course, is we still continue to hold our market share on the wider gas market. And on the -- when it compares to the engine in place, we are the leader right now, and we continue to be the leader. We, of course -- the price pressure is there. It's a tough market. There are only a number of projects. Those happen in the bigger capacity. But at the same time, we do not really see a decline from the previous level. So the margin levels are stable right now. What we are seeing, of course, when you talk about the energy transition moving forward, what we are seeing is the customer [ doing ] the dynamic feature, especially on the flexibility side more and more. And we start to gain a bit more interest on the market compared to our gas turbine frames. So all in all, I would say, yes, the competition is tough. We are gaining some interest from the market for our products because of the dynamic features and, at the same time, the -- we -- on the engine side, we continue to hold the ground with our leadership.

Okay. Just to follow up on the LNG side, are there more of these Arctic order potential in the near-term future as well?

Good question. And Roger now, I let you to explain a little bit more about the LNG market because it is one of the active segment, and that's a good question, Johan. So Roger, why don't you tell us more about LNG?

Yes. Thank you. And thank you, Johan, for the question. Yes, there are some still in the pipeline. Of course, the majority are not. So the majority of the LNG carrier orders are related to normal operations, but there are still some in the pipeline as opportunities for Arctic operations as well.

Probably the Arctic growth will be more important going forward.

Okay. Next question on the line, we have Max Yates.

So my first question was just around working capital, and obviously, that's where you've done a very good job this year. I just wondered what you think is a sustainable level of working capital to sales going forward, and whether we should see a lot of this coming back into the business, if we're in -- if sales are flat next year, do you think you can keep this level of working capital?

Max, that's a very good question. And Arjen normally wouldn't have a possibility to answer too many questions. So I would let Arjen Berends, our CFO, who is now even here in Finland. So Arjen, could you talk about working capital?

Yes, he's in Finland but in quarantine. Thanks, Max, for the question. Let's say, the working capital, of course, depends on many factors. And let's say, I don't think it's easy to give, let's say, a ratio going forward. It depends, of course, very much on, let's say, which business is majorly in development, as we have seen in the past going to 2019 and '18. When we boost it significantly, let's say, the Scrubber business that's totally gone today, we are actually delivering the order book out. So I think to give one ratio for Wärtsilä is basically impossible. It depends very much on, let's say, which sector is moving and which sector is not moving. And that will drive the working capital. But we are really, let's say, focused on keeping it as low as possible and trying to get also, let's say, financed by our customers and suppliers to a large extent and, hopefully, an increasing extent by getting good advanced payments and also payment terms with our suppliers.

Okay. And Jaakko, just a quick follow-up question. You talked about scrubbers previously being a sort of profitable business for you. Obviously, orders have been weak there, but I assume you were still delivering sales this year. So I just wondered what was the level of scrubber sales this year? And it would also be helpful to know kind of the EBIT contribution to understand, obviously, one of the headwinds into next year or into this year as other parts of the business, obviously, will do better, but that's clearly one that will have challenges. So that would be helpful.

Scrubber sales forecast this year is definitely going to -- I mean, at this moment, I have to say that it's going to be lower than last year. Last year, it was around EUR 300 million, if I remember right, and...

Yes. Correct.

But it's going to be -- it's going up -- at this moment, I have to say that it looks like it will be less. On the other hand, if something happens to the spread, you would definitely -- if you order now, you could still deliver this year. So let's see how it develops. I cannot forecast the exact number, but it's going to be less than last year. Profitability, finally, of course, I mean we -- I hope we will stay at the same level. Let's see how that finally goes out, and let's hope there will not be any postponements. But so far, I think the business has been doing quite well. But ultimately, if you look at end numbers, we might be less -- profitability -- or the profits will be less than this year.

Okay. And maybe just -- so some of the orders kind of compared to that EUR 300 million, presumably, they were much lower. Could you give us a sense of the orders this year -- well, in 2020 that you had relative to that EUR 300 million?

Do we -- no. No, I can't. Sorry. I was looking at Natalia, but no, sorry.

Okay. And would it be above Marine divisional average in terms of profitability? Or should we view it as a sort of equipment business?

Historically, I can say that the profitability of Scrubber business -- okay, now be careful. If you look at Marine Power, which has these big service elements, the profitability -- consolidated profitability is nice, high. If you have pure equipment business without any service, it's normally low. Scrubbers, we have had a better profitability level than in a normal equipment business.

Next question on the line, we have Antti Kansanen, SEB.

Yes. I have a bit of a broader question on capital allocation. You had a fairly strong or really strong cash flow last year. However, there is a kind of a substantial dividend cut to kind of protect the balance sheet. So if we think about capital allocation and MSA, for example, going forward, how do you see your technology portfolio, especially on the Energy, the power plant division, being a fix to the energy transformation that we are seeing right now? Is there something to add, technology-wise, that would be complementary? How should we think about that?

Thank you, Antti. And before I let Sushil to probably open it a bit more, I would say that, today, we first need to solve the future of engines, and then I talk about the new fuels. So we are testing, spending a lot of money running the engines with ammonia, which will definitely be the next step, and we are very close to that one. Of course, together with that one, you need to be able to run the engines with synthetic fuels, so the power to [ axe ] products, and then finally, hydrogen. I mean the trend is good. We will ultimately be there. I'm not going to give you any number or the year exactly, but the development is good. We are mixing quite a lot of hydrogen today to different gases and run the engines. So there, we definitely will be investing, and that will help our Marine Power business ultimately, too. When it comes to other possibilities, is it then something with the storage and so on. But Sushil, could you give your opinion about this? Sushil Purohit.

Thank you, Jaakko, and thanks, Antti, for that question. I think Jaakko already touched upon the future fuel, so that I'm not going to talk too much. But when you talk about energy transition, currently, what is happening is, of course, there's a lot of investment on the renewables, and renewables are intermittent. We have 2 technology. One is engines with a dynamic feature where we can start these engines and ramp up within a couple of minutes and then -- and also ramp down. At the same time, these are really good for the flexibility -- flexible generation. And at the same time, we have also storage, which is an excellent one in our portfolio. So these 2 are really going to be playing a major role in the future when, of course, the energy transition progresses. Right now, there's a lot of investment happening, of course, on the renewables, and we see now quite a bit of momentum on the energy storage. And hopefully, in a couple of years, we will see also quite a strong momentum on the engines. If I just give you an example, on South Australia, I mean, which is in the forefront of energy transition, where you talk about 60%, 70% renewable energy right now in the power systems, there, we delivered last year a gas peaker, a large gas peaker, which actually is then sort of helping the utility to integrate a lot of renewables. And the same utility now we have sort of been now announced by them as one of the preferred vendors for their large energy storage program. So this is Australia, which is in the forefront of energy transition, which is an open market. And they are actually buying our technology, both engines as well as storage. So we have 2 very, very good technology in our portfolio. And of course, we will look out for other technology when we look at -- when we are sort of progressing in this transition and see what fits into our strategy and what adds more value towards our customer. But I think we have -- we are -- we have a pretty good portfolio right now, and the future fuel will, of course, bridge the final push towards the 100% renewable as we have been driving.

Can I ask a follow-up for Sushil, maybe regarding the U.S. market. How do you see that evolving now given especially the role of LNG, blue hydrogen, given the new administration? Maybe U.S. has a bit more positive stance towards carbon capture than Europe, for example. So what does this impact your business and the engine technology, let's say, a storage and backup market?

Yes. Thanks a lot, Antti, for that question. I think yesterday, the President here has signed an executive order also, so we need to look at what it says. But clearly, I think the new administration is going to do a lot of stuff on getting more and more renewables into the power system. And that will clearly sort of also increase the demand for flexibility. And we already see that United States is moving pretty fast on the energy storage. We start to see that also in our own order books. And then we are now expecting the same thing will happen going forward on the engine side. Of course, carbon capture is going to be a solution future fuels. We are talking about all kinds of -- other type of fuels that may play a part in the mix as well. But we are in a transition. I think we must not forget. I mean you cannot wake up to a 100% renewable tomorrow. There is a path that we need to look at. And if you have seen, we have been working quite heavily in modeling different states and -- including California. And the fastest path towards a sort of carbon-neutral future, we'll have to include, of course, a tremendous amount of renewables, but flexible generation as well as energy storage. So we are looking at it with a lot of eagerness on how this will unfold now in terms of energy transition.

Next question on the line, we have Antti Suttelin from Danske Bank.

Two questions. First, ship contracting. You said you observed some recovery in November, December. The question I would have is, do you think this was one-off only? Or do you think this potentially could continue, meaning that the trough would have been passed by now in overall ship contracting? That's my first question, please.

Thank you, Antti. And now Roger Holm, Head of our Marine Power, would probably be the right person to talk about the contracting and how does it look going forward.

Yes. Thank you, Antti, for the question. And yes, it was slightly better in Q4 and especially towards the end of the year on vessel contracting. I think the estimate is some slight improvements in 2021 compared to 2020. And I think that should happen. It has been so low levels for quite some time and even lower now during 2020. I don't expect huge movement. But looking at it now, we would see some slight recoveries on the contracting volumes.

Okay. And then I guess this is a Jaakko question. You closed the year with a lower order book year-over-year. Does this now mean that '21 sales will inevitably fall? Is there any chance that new order intake could be so strong that sales wouldn't fall this year?

Thank you, Antti, and that's a very good question. The starting point, as I said, is lower than last year. But hearing and looking at our organization and our salespeople, I hope it will not be. But as you know, we don't guide -- say these numbers or profitability numbers. Visibility is really, really bad. The market conditions are really shaky. And I only wish -- and then let's see when we continue, I mean how more would we know in April and so on. We are ready. We are spending a lot of R&D to new products, new ideas to help our customers. And then, as you know very well, that we need to get also service levels. I mean that's one element with our customers, the transactional business, which goes through the whole -- every year. And certain segments, I mean this is so easy to calculate that if ships are not sailing, you don't get too many transactional service business. But the moment they go out, the moment there is a ship, which is even half-empty, goes out, cruise ship or ferry or any kind of a ship, it -- the engines are running, and that will mean more business. So let's see how months go on and hope that the sailings will continue to increase month by month.

Okay. Understood. And all the best, Jaakko.

Thank you, Antti.

I think the moderator is giving me an opportunity to ask a question here that's come in from the lines. So from the line of Daniela Costa, she asks...

Sorry, Natalia, this is echoing. I can't hear.

Is it better now?

Okay. Let's try.

I'll try to be slow, so maybe the echo doesn't disturb. Daniela asks how much the cost overruns in Marine and Energy are affecting the EBIT this -- in 2020 and how much is still expected to impact in 2021.

And now we are cost overruns, and now we are talking about our problem projects. And okay, I don't have a number exactly how much it affected 2020. But going forward, we -- and as we said earlier, most of -- I mean we said that EUR 100 million was going out in 2020 with 0 margin. So that's something which everybody should remember. And now almost everything is out. There are a couple of projects which will be finalized this year, but they will not -- or shouldn't, they will not affect or has a major impact on profitability this year anymore. But there are a couple of projects still where the final handover is this year.

Thank you, Jaakko. And then one follow-up question from her on the portfolio business. She asks what the prospect for timing is to divest the remaining portion of the portfolio business.

Yes, that's a good question. And now portfolio business. And as we announced, we sold our entertainment business. It has always been a little bit strange business to be in. But Tamara de Gruyter, Head of Marine Power -- Marine Systems and, at the same time, looking after our portfolio business and the divestments. Tamara, you are in Holland, I hope not in quarantine, but probably not too much able to move anywhere. But please, could you open up a bit the portfolio business and the future?

Yes. Thank you, Jaakko, and good morning to everyone, and thank you for a good question, Daniela. I think with the portfolio business, we managed to divest 3 of our business units in last year. And as Jaakko said, we last week signed the divestment of our entertainment. So we still have 4 business units left in portfolio business. And it's always a bit difficult to estimate the exact timing of that. And it also depends a bit on the situation in the total market with the COVID and how many interested buyers we have. I would say that the forecast at this moment is that we will expect that the majority of the businesses, we could sell in this year, maybe one slipping to 2021. But yes, it is a bit uncertain, and we are preparing them for exit and working hard on them. But the exact time line is difficult to give, but majority should be in this year.

And slipping to 2022.

Sorry, 2022. Thank you.

Yes. Good. Thank you, Tamara.

And then also from the lines, a question from Sebastian Kuenne from RBC on the Voyage business. When do we expect Voyage business to breakeven? And how much sales volume do we need to see before it starts to turn profitable?

Yes. The Voyage, as already said, we need to look at the EBIT numbers. But Sean hasn't been able to answer any questions yet, Sean Fernback from Germany. I think -- are you in Berlin or Hamburg, please?

I'm in Berlin. Yes. Well -- so Voyage is, as you may know, is a collection of very interesting companies that have been acquired since 2014. And the business took the decision to carve it out from the larger Marine business, which was effective July 1 this year, just after I came in. And that's really allowed us to get a much better visibility around the cost structure of Voyage as it stands today. And as Jaakko alluded to earlier, there's a very, very significant program underway to address some of that and look at some of the waste in the business. And a lot of that is a result of really not take -- doing the synergy exercises as you would do normally when you -- post-acquisition. So there's -- like I say, there's a lot of work going on there. And I think the second thing I would say is that we have a very, very broad portfolio of products and services and quite a mix in the sense that some very forward-looking innovations to address the market and the industry as it changes through this journey of digitalization, but also some that are -- some legacy products and services that we carry and carry very low margin and high cost and, therefore, sort of destroy a bit of value in the business. So again, in this current program of transformation, we are looking at reshaping that portfolio to very much address the needs of the business or the market and the industry as we see it changing going forward, as we see decarbonization coming more and more under pressure with owner operators, as we see the need for more autonomous solutions being required by certain innovative owner operators. And that's helping us take decisions around shaping the portfolio. And I believe in doing so, then the business will start to -- those numbers will start to improve significantly. So we're comfortably optimistic that we will end the year in a lot better shape than we did in 2020. So I think I would leave it at that for now.

And then a second question still from Sebastian, on the storage market. He is asking around the margins of the business, whether or not it's fair to assume that this is a pass-through item. And thus, how is the margin of the storage business?

Margins in storage business, and -- Sushil, would you be able -- of course, we don't guide margins or say exactly where our margins are. But Sushil, could you elaborate a bit about storage and margins?

Thank you for the question. I think, like Jaakko said, we cannot, of course, guide the margins. Of course, what we see is it's a growth market right now. We see strong growth in that market. Maybe the margins are slightly below our normal engine projects. But what we are also seeing is there's a tremendous amount of activity on the sourcing side when you talk about the storage prices are declining. So it's very difficult to really guide on margin as such. At the same time, I think we -- if you look at the volume going into the market, it's not only us, but from the electric vehicles or the big-scale energy storage. And behind the meter energy storage, there's a lot of activities going on. And we are seeing strong growth. And even in our own order books, we are seeing, as Jaakko mentioned, it's -- the market has been resilient in spite of the headwind we faced from the COVID in other sites. So we are -- it's -- we are hoping that when the volumes are going to be strong, we will also be able to get the margins to a very good level.

And then one more question, from Tomi Railo at DNB. He asks about the cruise market. Have you started to experience a pickup in cruise service? What do we hear from cruise operators? And what is the outlook for 2021?

Yes. Cruise business, and Roger, I mean it's a business which is important to us, and definitely, we need to follow very carefully. But Roger Holm, Head of Marine Power, please.

Thank you, Tomi, for the question. And I don't think we expect in Q1 big movements on cruise. We, in Q4, saw some small activities on the service side, but it's still on a very limited level. As we see it today, I would hope that we would see some -- start to see some more activities on that part in Q2. But of course, it's very much connected to how fast the vaccinations can be rolled out in the customer target segments, and that will determine a lot on how we will see a gradual ramp back of cruise activities during then the whole remaining part of 2021.

Those were all the questions I had received. Moderator, are there any questions on the line still?

Yes. Next one, we have Erkki Vesola from Inderes.

About the storage or the storage, all the orders you are getting, it's obviously an increasing part of your Energy business. But how about the aftermarket side of this? Is there any maintenance business once the storage solutions have been delivered? Or are we just talking about, say, potential [ GEMs ] upgrades, et cetera?

Yes. Thank you, Erkki. And again, Sushil, a lot of questions to Energy. So you are busy now, Sushil Purohit. Something about storage and services.

Yes. Okay. I think on the services side, of course, we -- most of our energy storage projects that we are now taking into our order books are always associated with the long-term service agreement. So that is good. Of course, these are -- these type of products are not requiring a lot of service and a lot of parts as we do it in the engine side. But we are -- we're making the first steps in providing services. Going forward, we are, of course, working on various things to see what added value we can bring in terms of providing our customers support on managing, not only the storage assets, but also sort of managing the portfolio. So again, it's very early stage in our thought process, and then we'll see how we go forward on that. But just to make it clear, we are getting long-term service agreements with most of our projects.

Okay. And Jaakko, all the best in the future on your, say, less hectic days.

Thank you, Erkki. And this was the last question. So thank you all. As you know, this was my last quarterly results presentation, and I really want to thank you all for your support, your interest in Wärtsilä and sometimes helping us also to understand better where we are. So good luck with all of you. And in April, you will see Håkan Agnevall as our new CEO running the show. Thank you, and bye-bye.