These are the main question areas our investors and analysts addressed during meetings and conferences in relation to our first quarter 2008 result release.
Q: Ship orders have been going down during the beginning of the year - what is the outlook for the shipping industry and the Ship Power business?
A: Shipbuilding has been booming for several years and last year demand was extremely high especially in the Merchant segment and specifically bulk carriers. During the beginning of the year we have seen the ordering of new vessels normalising which has been long anticipated and can even be seen as healthy. Wärtsilä foresees an active Ship Power market for at least the second quarter, during the third quarter it is expected that a slowdown will be seen within the merchant segment ordering.
Q: Have you seen any cancellations of your orders?
A: We have not seen any cancellations of our orders. We have booked advance payments for approx. 1,100 MEUR, which represent a bit less than 15% of the total order book. This brings solidity to our order book.
Q: Why is there negative growth is Ship Power, is it because of cancellations?
A: The net sales and profitability of the different businesses varies due to timing and lumpiness of the deliveries. Therefore there is nothing extraordinary behind this. It is fluctuation due to timing of deliveries.
Q: Wärtsilä’s market shares have been going steadily down in its main SP segments? What are the reasons?
A: 4-stroke market shares jumped up a year ago due to peril of orders for LNG carriers. The competitiveness of 4-stroke engines as such has not suffered, except due to availability of engines.
Q: The Power Plants business has gotten a large amount of very large orders during Q1 - is this a pattern that will continue the whole year?
A: In the Power Plant market the situation remains good. The continued high ordering activity is expected in all segments for at least the next two quarters with no signs of slowdown.
Q: Can we expect that the Power Plant orders will remain this big or become even larger in the future?
A: The average size of Power Plant orders has increased and is not expected to decrease.
Q: What will be the cost for allocating more capacity to the Power Plant business?
A: Since the basic component in both the Ship Power and Power Plants application is the same, namely the engine, also the capacity for both businesses is the same. This means that the capacity is roughly spoken interchangeable and there is no additional capacity cost for allocating more capacity to Power Plants.
Q: How do you see Services growth going forward? Will it be at same levels as 2007? Where does the growth come from?
A: Our Services growth target is 10-15% organically, during the past years we have clearly exceeded that target. We expect growth to continue but we don’t give guidance of the individual businesses. Our guidance is that net sales for Wärtsilä are expected to grow about 25% in 2008.
Q: You have been capacity constrained, what is the situation now?
A: Wärtsilä manufacturing is based on an outsourcing model and this means that our main constraints have come from the supply chain. Our subsuppliers have been adding capacity but we are still constrained to some extent due to this.
Q: Raw material prices have been going up strongly lately and cost inflation has taken many by surprise. How well have you been able to monitor the price increases into your selling prices?
A: Rising material prices is a phenomenon we have lived with for a few years now. We monitor prices on a daily basis and act accordingly. With project based pricing we can keep risks within the scope of normal business risk.
Q: Currency issues - how does the weak US dollar affect Wärtsilä?
A: The order book and equity is hedged and Wärtsilä’s dollar exposure is fairly limited (2007 13% of sales in USD). Therefore short term currency fluctuations and the weak UD dollar does not really have any major impact but on long term it might affect our customers purchase power, this we haven’t seen yet as you can see in our order intake for Q1 with several projects from the US.
Q: How much will your capital expenditure be in 2008?
A: Total investments will be appr. 200 million excluding acquisitions in 2008. Maintenance CAPEX is in line or below depreciation. Depreciation is increasing due to the recent investments.
