Interim report January-March 2003

Wärtsilä Corporation
  • Stock exchange release
29 April 2003 at 8:30 AM E. Europe Standard Time

-Wärtsilä Group’s net sales totalled EUR 488.1 (580.9) million
-The order intake of the Power Divisions rose to EUR 590.4 (512.7) million
-The Group operating profit increased to EUR 5.0 (4.2) million
-The Power Divisions’ operating profit improved to EUR 8.3 (1.4) million
-The Group profit before taxes decreased to  EUR 0.3 (3.6) million
-Earnings per share were EUR –0.08 (-0.02)

Wärtsilä Group’s first-quarter net sales decreased 16% due to the timing of projects by the Power Divisions. The consolidated operating profit was EUR 5.0 (4.2) million. The operating profit of the Power Divisions improved to EUR 8.3 (1.4) million. Imatra Steel’s operating loss of EUR -3.4 million was burdened by a EUR 4.5 million one-time writedown of fixed assets. Net financial items amounted to EUR –4.7 (-0.6) million. The Group’s profit before taxes was EUR 0.3 (3.6) million. Earnings per share were EUR -0.08 (-0.02).

Capital expenditure during the period totalled EUR 12.6 (12.3) million, which included the acquisition of the Dutch company Caltax Marine Diesel BV. Cash reserves at the end of March totalled EUR 128.5 (197.3) million. Net interest-bearing loan capital increased to EUR 534.5 (198.8) million due mainly to the John Crane-Lips acquisition in 2002.

The solvency ratio was 34.2% (36.3) and gearing was 0.70 (0.33).

POWER DIVISIONS

The operating profit of the Power Divisions improved to EUR 8.3 (1.4) million, giving a corresponding operating margin of 1.9% (0.3). The intake of new orders was 15.2% higher than in the first quarter of 2002 owing to stronger demand in the Marine business.  
Streamlining measures were continued in the Power Divisions in line with market conditions. The closure of the factory in the Netherlands was completed and its production operations were transferred to Italy. The temporary layoffs started at the Turku factory in the autumn were continued. Negotiations were concluded in France on the reduction of approximately 130 employees during this year and 2004.

MARINE

The Marine division’s order intake doubled during the first three months of the year compared to the same period in 2002. Part of this growth was due to Wärtsilä Propulsion, which was not part of the Group during the comparable period but the intake of marine engine orders was also substantially higher than one year ago. The Marine order book is slightly lower than last year’s but higher than at the end of 2002.

Demand remained lively for tankers and containerships, whereas the bulk carrier market slackened somewhat. Demand for offshore and special-purpose vessels is showing signs of livelier activity. The global shipyard order book remained constant during the first quarter.

Wärtsilä successfully completed the factory acceptance test of the first Wärtsilä 50DF (dual-fuel) engine in January. Four of these engines will be installed in an LNG (liquified natural gas) carrier under construction at the Chantiers de l’Atlantique shipyard in France. This will be the first LNG carrier in the world to be powered by electric propulsion and one of the few that, instead of the usual steam turbine plant, will have more efficient internal combustion engines (diesel engines).

In February Wärtsilä received the order for three Sulzer 9RT-flex60C low-speed engines. The engines are destined for vessels under construction for Safmarine, a subsidiary of the Danish company A.P. Møller. The engines will be built by Wärtsilä’s Korean licensee manufacturer HSD Engine Co Ltd. Sulzer RT-flex engines are the first low-speed engines with common-rail technology.

POWER PLANTS

Activity in the energy sector continues to be at a low level. A general feeling of caution resulting from the war in Iraq was reflected in the postponement of decisions and for this reason forecasting market trends is difficult.

The intake of orders for Wärtsilä power plants was at the same level as one year ago and satisfactory with respect to the previous quarters. The most important orders for oil-fired power plants were gained in India, Ethiopia, Antigua and Ecuador. The largest gas power plant orders were placed by customers in the USA, Hungary, Spain and France. Wärtsilä took a major step forward in its biopower business in Finland with an agreement, signed with Finnforest, for two modularized biopower plants for the company’s sawmills. Biopower plant orders were also received in Sweden and Estonia.

SERVICE

Net sales of the Service division rose 8.9% to EUR 216.9 million. The volume of long-term service and operation agreements now covers over 12,000 MW of Wärtsilä’s total active installed engine base (128,000 MW). The volume of O&M agreements increased 19.8% compared to the first quarter of last year and prospects, especially in India and Africa, are good.

A further company was added to the Ciserv group with Wärtsilä’s acquisition of a Dutch marine engine repair and service company subsequently renamed Ciserv Netherlands BV. This company will increase Wärtsilä’s capacity in Northern Europe to provide repair and reconditioning services for 2-stroke engines and components.

ENGINE MANUFACTURING AND TECHNOLOGY

The thrust of Wärtsilä’s product development activities is on environmentally sound combustion and engine technology. Wärtsilä and MAN B&W Diesel began a wide-ranging research project under the auspices of the EU. The project focuses on reducing engine exhaust emissions. Orders for the first Sulzer RT-flex96C engines were received from Korea and Japan.

Engine manufacturing volumes were at a low level during the first quarter of the year. The streamlining measures started in the autumn are being continued.

IMATRA STEEL

Imatra Steel’s net sales grew 1.8% during period due to an increase in its component business. No significant changes were observed in the special steels market.

Imatra Steel reported a first-quarter operating loss of EUR –3.4 (+2.7) million. The result was burdened by a EUR 4.5 million one-time writedown of fixed assets and also by a steep rise in raw materials and energy prices.

HOLDING IN ASSA ABLOY

Wärtsilä’s holding in Assa Abloy is 7.6%. Its market value at the close of the period was EUR 208.8 million and its book value in the consolidated balance sheet was EUR 67.4 million.

GENERAL MEETING

Wärtsilä’s Annual General Meeting, held on 12 March 2003, decided to pay a normal dividend of EUR 0.25 per share and an extra dividend of EUR 1.50 per share. The terms of the convertible subordinated debentures and the bond with warrants were changed corresponding to the amount of the extra dividend. The meeting confirmed the number of members of the Board of Directors to be six. Göran J. Ehrnrooth, Risto Hautamäki, Jaakko Iloniemi, Antti Lagerroos, Bertel Langenskiöld and Paavo Pitkänen were elected to the Board. Authorized Public Accountant KPMG Wideri Oy Ab were appointed to be the company’s auditors. The Meeting also renewed the Board’s authorizations to purchase and dispose of the company’s own shares.

The Board elected Antti Lagerroos as its Chairman and Göran J. Ehrnrooth as the Deputy Chairman. The Board also appointed the members of the Audit Committee: Antti Lagerroos, Göran J. Ehrnrooth and Paavo Pitkänen.

MARKET CONDITIONS

Investment activity in the tanker, bulk carrier and containership markets has focused especially on large vessels and shipyards in Asia are starting to reach full capacity. The outlook in the shipbuilding industry this year is positive due to a recovery in freight prices, the availability of venture capital, and regulations requiring double hulls in new tankers.

The number of power plant projects in progress is at a satisfactory level despite the global uncertainty and several fairly large orders are expected this year. Wärtsilä estimates that its full year intake of power plant orders will be higher than in 2002. Postponement of decisions, however, remains a continuing feature of the power business. The intake of orders for biopower plants is expected to continue flowing favourably.

Acquisitions by Service division are aimed at broadening and deepening the company’s service capabilities as this will offer Wärtsilä good opportunities to increase its share of the market for 2-stroke engine service. Business operations will focus on levering the synergies offered by the Ciserv group and increasing sales of service contracts and service products.

PROSPECTS

The Power Divisions’ order book at the close of the reporting period was at a lower level than on the same date last year, although an improvement compared to the end of 2002.

Net sales of the Power Divisions are expected to grow slightly, with the strongest growth evident in the Service business. Streamlining measures will be continued. The profitability of the Power Divisions is expected to improve slightly from 2002.

The market outlook in Imatra Steel’s business remains unstable and there is still need for raising steel and component prices. Imatra Steel’s net sales are forecast to increase and its operational EBIT to improve as a result of streamlining measures.

28 April 2003

Wärtsilä Corporation
Board of Directors

The figures in this interim report are unaudited.

A CONFERENCE CALL IN ENGLISH
on the January-March 2003 results will be held this Tuesday,
29 April 2003, starting at 10.45 am local time (8.45 am UK time). To participate, please call +44 8700 013118, “Wärtsilä Q1 results”. The opportunity will be given during the conference to put questions to President & CEO Ole Johansson and to CFO Raimo Lind.

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