Wärtsilä Corporation STOCK EXCHANGE RELEASE 1.8.2002 at 8.30
WÄRTSILÄ POWER DIVISIONS SHOW CLEAR IMPROVEMENT IN PERFORMANCE IN SECOND QUARTER
The Group’s net sales increased 19.4% to EUR 1,282.3 (1,073.8) million in the first six months of the year. The operating profit was EUR 148.8 (560.2) million, which included a capital gain of EUR 111.1 (550.4) million on the sale of Assa Abloy shares. Operational EBIT totalled EUR 37.7 (39.8) million. Net financial items were EUR -1.5 (-0.8) million. The profit before extraordinary items amounted to EUR 147.3 (559.4) million. Earnings per share (EPS) were EUR 1.58 (6.43).
Capital expenditure for the period totalled EUR 363.1 (32.9) million. This comprised EUR 330.6 (8.2) million in investments in securities and EUR 32.5 (24.7) million in production investments.
The largest investment during the period was the acquisition, for EUR 323.7 million, of the propulsion system supplier John Crane-Lips in April. This company has been consolidated since 1 April 2002. Metalock Singapore Ltd’s marine repair operations, which will be consolidated from the third quarter, were acquired for EUR 4.9 million. In April Wärtsilä made a public offer to the minority shareholders of Wärtsilä India Ltd to acquire the entire share capital of this company. A total of 3.5% of the shares were acquired for approximately EUR 1.6 million during the offer period, raising Wärtsilä’s holding to 88.3%.
Depreciation amounted to EUR 49.9 (45.1) million, and included EUR 3.6 million in goodwill amortization on the John Crane-Lips acquisition.
During the reporting period Wärtsilä sold Assa Abloy shares for altogether 1,260 million Swedish krona (EUR 138 million).
Cash reserves at the close of the period totalled EUR 212.5 (421.0) million. Interest-bearing loan capital amounted to EUR 373.7 (-166.8) million. The solvency ratio was 35.1% (41.3) and gearing was 0.47 (-0.08).
The Power Divisions reported an almost three-fold increase in operating profit in the second quarter compared to the comparable period of last year, EUR 30.7 (10.9) million, which raised the corresponding operating margin to 4.7% (2.1). The order intake has slowed down during the year. Maintaining capacity utilisation and achieving the long-term profitability target of 7-8% next year will require a pick-up in business activity in the latter half of the year.
The six-month operating profit was EUR 32.1 (3.6) million and the corresponding operating margin was 2.7% (0.4). The operating profit includes an approx. EUR 13 million project activity provision entered in the first-quarter accounts.
Further measures are being taken to raise efficiency. Wärtsilä Switzerland has shifted focus to technology, licensing and servicing of Sulzer low-speed engines and agreement has been reached with this company’s personnel on the reduction of approx. 130 employees. These reductions have begun and will be completed during 2003.
Wärtsilä reached agreement in March on the termination of engine manufacturing, engineering and related activities in Zwolle, the Netherlands. Transfer of these activities to Trieste, Italy, has started. A service and sales organization remains in Zwolle. Manufacture of engine components will be handed over to an outside supplier. Approximately 320 employees will be made redundant as a result of the reorganization. By the close of the period the number of employees had decreased by about 100.
The EUR 90 million cost provision entered in the fourth-quarter accounts last year is expected to be sufficient to cover the costs of these measures.
The global shipyard order intake increased slightly during the second quarter from the record low level at the beginning of the year. The growth was due to new orders for tankers and bulk carriers. Although containership orders increased somewhat compared to the first quarter, the order book of these vessels has decreased. Similarly, the order book for cruise ships continues to decrease rapidly and only a few significant orders have been placed this year.
Wärtsilä’s acquisition of John Crane-Lips, the world’s leading supplier of marine propulsion systems, was completed at the beginning of April. The company was renamed Wärtsilä Propulsion.
Wärtsilä Propulsion, consolidated within the Wärtsilä Marine division since 1 April, contributed EUR 58.3 million of Marine’s total net sales, had an order book of EUR 195,5 million and reported a clearly positive operating profit.
General uncertainty in the global economy coupled with unsettled issues related to electricity market deregulation and the future structure of the electricity markets in several countries, have slowed the pace of investments in the energy sector, resulting in the postponement of both large and medium-sized energy projects. Small projects are making progress and being implemented in different parts of the world.
The intake of new orders for both heavy fuel oil (HFO) and gas power plants became substantially slower in the second quarter. The order book is at an unsatisfactory level.
The largest gas power plant orders were placed in the USA, Pakistan and Colombia. The largest orders for HFO power plants were gained in Turkey and India. Wärtsilä also received orders for biopower plants in Finland and Sweden.
Net sales of the Service division continued to rise, but remained below the long-term growth target. Second-quarter growth was 7.7%. The volume of long-term service and operation agreements increased 17.3% to 9,321 MW. The volume of operation and maintenance (O&M) agreements now covers 1,824 MW or more than 90 power plants around the world, representing growth of 20.9%. The largest market for O&M services is India. The volume of Wärtsilä’s O&M agreements now covers more than 11,000 MW (9,457)or approximately 9% of Wärtsilä’s active engine base.
The acquisition of Metalock Singapore Ltd’s marine engine repair and reconditioning business was completed in May and the acquired operation was renamed Ciserv Singapore Pte Ltd. The Ciserv companies, Ciserv AB in Sweden and Ciserv Singapore, are part of the Service division’s expansion strategy. Ciserv, which specializes in the repair and reconditioning of marine engines and in the service and repair of marine equipment, offers a full portfolio of reconditioning services covering a wide range of engine brands.
Manufacturing and technology
The Group’s internal divisions Technology and Manufacturing were merged at the beginning of April, forming the Engine Division.
The termination of engine manufacturing in Zwolle, the Netherlands, and the transfer of operations to Trieste in Italy proceeded according to plan.
Product development concentrated on continuous improvements to existing products. New engine types incorporating environmental protection technology were introduced on the market. Wärtsilä is also currently evaluating various product concepts based on new technologies.
Imatra Steel’s net sales increased in the first half of the year following an expansion of its forging operations. Growth was 1.7% on the same period last year. The market for special engineering steels remained weak overall. Imatra Steel’s operating profit was 5.2% (5.9) of net sales. Net sales of the Scottish company Scottish Stampings, acquired last year, totalled EUR 9.8 million.
Installation work under the first stage of the investment programme to modernize the Imatra Steel Works’ base metallurgical processes is in progress during July and August. The renewed heavy rolling mill will be brought into operation in August.
Wärtsilä sold 10 million Assa Abloy shares for 1,260 million Swedish krona (EUR 138 million) at the end of May, recording a capital gain of approximately EUR 111 million on the transaction. Wärtsilä will pay roughly EUR 35 million in tax on the sale.
Assa Abloy announced a privileged issue of 10 million new shares. Wärtsilä’s holding, taking into account the sale and new issue, decreased to 7.6% of the share capital and to 22.9% of the votes. The market capitalization of this holding at the close of the period totalled EUR 396 million.
The closing price of Assa Abloy’s B-share on June 30, 2002, was SEK 129,50. The book value of the holding in Wärtsilä’s consolidated balance sheet was EUR 67 million.
ANNUAL GENERAL MEETING
The Annual General Meeting on 12 March 2002 approved the distribution of a normal dividend of EUR 0.50 per share and an extra dividend of EUR 3.50 per share. The terms of the convertible subordinated debentures and the bond with warrants were changed corresponding to the amount of extra dividend. The number of members of the Board of Directors was reduced by one when Mr Christoffer Taxell announced that he would not stand for re-election. In other respects the composition of the Board remained unchanged. The meeting also approved a new share option scheme for key employees in the Group. Implementation of the scheme is conditional upon the company’s achieving the minimum profitability targets set by the Board of Directors for 2003. Altogether 37 employees subscribed for options under the scheme. The Board’s authorizations to repurchase and dispose of the company’s own shares were renewed.
SHARES AND SHAREHOLDERS
Based on agreements between If Skadeförsäkring Holding AB and Sampo Oyj, If Skadeförsäkring Holding group’s holding of the Wärtsilä voting rights rose above 5% of the total votes and Sampo Oyj’s holding decreased to below 5% of the total shares and votes. This change took place on 2 January 2002.
PROSPECTS FOR 2002
The unfavourable trend in global marine orders during the first half of the year has affected Wärtsilä Marine’s order intake and order book. Comparable net sales has increased owing to deliveries under the strong order book of recent years. The increase in net sales this year is also due to the John Crane-Lips acquisition. Order activity is expected to pick up in the second half of the year although the general uncertainty of the markets makes it difficult to forecast the order intake.
Estimating the intake of new power plant orders to the end of the year is difficult owing to the global economic uncertainty. Wärtsilä is involved in several large HFO power plant projects, final decisions on which are expected at the end of the year. The volume of gas power plant orders is not expected to reach last year’s level. Demand for bio power plants is growing in line with expectations.
The Group will continue to develop the Service business and its growth is expected to increase.
The order intake of the Power Divisions is at an unsatisfactory level considering next year. However, net sales for the full year 2002 is expected to grow based on the current order book. The operational profitability is still expected to remain at the same level as in 2001. The benefits of the restructuring measures decided last year and being implemented this year will be felt in 2003.
The market outlook for Imatra Steel continues to be unsettled and any change in demand will not be evident until the autumn. Net sales is forecast to grow as a result of growth in the forging business and the result is expected to remain unchanged.
31 July 2002
Board of Directors
The figures in this interim report are unaudited.
A CONFERENCE CALL IN ENGLISH on the January-June 2002 results will be held this Thursday, 1 August 2002, starting at 11.00 am (Eastern European Time, 9.00 am UK time). To participate, please call +44 8700 013 119, "Wärtsilä Q2 results". The opportunity will be given during the conference to put questions to President and CEO Ole Johansson and to CFO Raimo Lind.
Interim Report Q2 2002 PDF, 104Kb »