Wärtsilä: Stable volume development in a challenging market

Wartsila

Wärtsilä expects its net sales for 2016 to grow by 0-5% and its profitability (comparable operating result as a percent of net sales) to be 12.5-13.0%.

JAAKKO ESKOLA, PRESIDENT AND CEO
“The development of the first half of 2016 was satisfactory, given the prevailing challenges in our operating environment. Net sales remained broadly in line with the previous year, while the lower level of power plant deliveries and tight competition in the energy markets burdened our operating result. Going forward, we expect equipment deliveries to be concentrated towards the end of the year. Order intake development was solid, largely thanks to the somewhat improved sentiment in the power generation industry, which supported growth in Energy Solutions’ ordering activity. Marine Solutions’ orders have also held up fairly well considering the low level of vessel contracting, benefitting from announced fleet renewal activity in the cruise and ferry markets. Services’ net sales have grown at a slower pace; however, we expect improved activity levels to support a pick-up in volumes in the coming quarters. Based on the current trends in our end markets and the increased uncertainty in the global economy, our outlook for demand development remains cautious.

Pursuing growth through innovative solutions is one of the key cornerstones of Wärtsilä’s strategy, which is why I am pleased to highlight the acquisition of Eniram, a company specialised in energy management and data analytics solutions. Eniram complements our existing digital offering and enhances our expertise in data analytics, modelling, and performance optimisation. It is an important investment for our digital future. During the second quarter, we also announced the acquisition of American Hydro. This investment is aimed at strengthening our presence and competences in the industrial and hydro power service markets.”

SECOND QUARTER HIGHLIGHTS
– Order intake increased 3% to EUR 1,194 million (1,159)
– Net sales decreased 3% to EUR 1,196 million (1,230)
– Book-to-bill 1.00 (0.94)
– Comparable operating result EUR 122 million, or 10.2% of net sales (EUR 137 million or 11.1%)
– Earnings per share 0.19 euro (0.54)
– Cash flow from operating activities EUR 202 million (47)

HIGHLIGHTS OF THE REVIEW PERIOD JANUARY-JUNE 2016
– Order intake increased 1% to EUR 2,465 million (2,443)
– Net sales decreased 2% to EUR 2,163 million (2,218)
– Book-to-bill 1.14 (1.10)
– Comparable operating result EUR 206 million, or 9.5% of net sales (EUR 237 million or 10.7%)
– Earnings per share 0.49 euro (0.97)
– Cash flow from operating activities EUR 189 million (84)
– Order book at the end of the period decreased 5% to EUR 5,083 million (5,325)

MARKET OUTLOOK

The market for liquid and gas fuelled power generation is expected to remain challenging as economic uncertainty continues. Despite slower economic growth in the emerging markets, growth in electricity demand and the availability of international funding for infrastructure projects will continue to support power plant investments. In the industrialised countries, the low economic growth continues to limit demand for new power plants, except for North America where the market situation is more positive for gas-fired power plants. The megatrend towards renewable energy sources is evident, with investments expected to favour utility scale solar PV installations. Furthermore, distributed, flexible, gas-fired power generation continues to gain ground globally. Electricity markets are being developed to reward the necessary flexibility, thereby enabling new profitable investments. Wärtsilä’s systematic market development work in these markets will continue to promote the benefits of Smart Power Generation.

The outlook for the shipping and shipbuilding markets remains challenging. Overcapacity continues to limit demand for new vessels in the merchant segment, while low oil prices impact investments in offshore exploration and development. In the gas carrier markets, the demand for both LNG and LPG carriers is under pressure due to low oil and gas prices and supply-demand imbalances. The outlook for the cruise and ferry segment remains positive. The demand for cruise vessels is supported by increasing passenger volumes, particularly in Asia, while the contracting of ferries is supported by fleet renewals in Europe, the potential implementation of new emission regulations, and favourable newbuilding prices.

The service market outlook is positive with growth opportunities in selected regions and segments. An increase in the installed base of medium-speed engines and propulsion equipment, as well as the shift to gas based technology, offsets the slower service demand for older installations and the uncertainty regarding short-term demand development in the merchant marine segment. In the offshore segment, the growth in the installed base during recent years is expected to partially compensate for the challenging outlook in specific regions. The service outlook for gas-fuelled vessels remains favourable.

Service demand in the power plant segment continues to be good with an especially positive outlook in the Middle East and Africa. Customers in both the marine and power plant markets continue to show healthy interest in long-term service contracts, as evidenced by the growth in the installed engine base covered by agreements.

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