Interim report Q2 2014
GOOD DEVELOPMENT IN PROFITABILITY
This release is a summary of Wärtsilä’s Interim Report January-June 2014. The complete report is attached to this release as a pdf-file. It is also available at http://www.wartsilareports.com/en-US/2014/q2/frontpage/ and on the company website at www.wartsila.com.
SECOND QUARTER HIGHLIGHTS
- Order intake increased 9% to EUR 1,163 million (1,071)
- Net sales decreased 2% to EUR 1,132 million (1,152)
- Book-to-bill 1.03 (0.93)
- Operating result before non-recurring items EUR 122 million, or 10.8% of net sales (EUR 111 million or 9.6%)
- Earnings per share EUR 0.42 (0.39)
- Cash flow from operating activities EUR 61 million (38)
HIGHLIGHTS OF THE REVIEW PERIOD JANUARY-JUNE 2014
- Order intake decreased 5% to EUR 2,305 million (2,424)
- Net sales increased 5% to EUR 2,144 million (2,034)
- Book-to-bill 1.07 (1.19)
- Operating result before non-recurring items EUR 212 million, or 9.9% of net sales (EUR 181 million or 8.9%)
- Earnings per share EUR 0.73 (0.76)
- Cash flow from operating activities EUR 172 million (122)
- Order book at the end of the period decreased 4% to EUR 4,554 million (4,763)
EVENTS AFTER THE REPORTING PERIOD
- Wärtsilä and China State Shipbuilding Corporation announced the establishment of a joint venture, which will take over Wärtsilä’s two-stroke engine business. Going forward, the two-stroke engine business will be reported as discontinued operations.
- Wärtsilä and China State Shipbuilding Corporation announced the establishment of a joint venture for manufacturing medium and large bore medium-speed diesel and dual-fuel engines.
WÄRTSILÄ'S PROSPECTS FOR 2014 REVISED
Wärtsilä estimates its profitability for 2014 (EBIT% before non-recurring items) to be around 11.5%, due to the two-stroke business transaction. Net sales are expected to grow by around 5%.
Previously Wärtsilä expected its net sales to grow by 0-10% and its operational profitability (EBIT% before non-recurring items) to be around 11%.
BJÖRN ROSENGREN, PRESIDENT AND CEO
“The first half of 2014 has developed well. I am pleased to note that the ongoing restructuring measures have already made a positive contribution to our operating result. The savings we have achieved through these measures, together with the improved Ship Power and Services performance, have compensated for the low volumes in the Power Plants business and resulted in profitability increasing to 9.9%.
Contracting in the marine markets was active and Ship Power’s second quarter order intake developed favourably, especially in the offshore and gas carrier segments. The challenges in the overall power generation markets, however, continued to affect our Power Plants business. Orders remained fairly low, although improving from the weak levels seen in the first quarter. I am confident that activity will improve in the second half. The Services business had an active quarter in terms of signing long-term service contracts with marine customers. The interest for agreements continues to be strongest in the more specialised vessel segments.
In July, Wärtsilä and China State Shipbuilding Corporation announced the establishment of a joint venture company, which will assume total responsibility for Wärtsilä’s two-stroke engine business. Our ownership in the joint venture will be 30%. The responsibility for servicing Wärtsilä's two-stroke engines will remain with our Services business. The partnership will enhance the position of Wärtsilä’s two-stroke technology in the marine engine market, and will provide a strong base for future investments in leading two-stroke technology and customer support. The transaction will have a positive impact on our continuing operations and consequently our estimate for 2014 profitability has been increased to around 11.5%. We have also narrowed down our net sales guidance to around 5% growth.”
EVENTS AFTER THE REPORTING PERIOD
Wärtsilä and China State Shipbuilding Corporation (CSSC) announced an agreement to establish a joint venture, which will take over Wärtsilä's two-stroke engine business. CSSC will own 70% of the business and Wärtsilä’s ownership will be 30%. Responsibility for servicing Wärtsilä's two-stroke engines will remain with Wärtsilä Services. The partnership will boost the position of Wärtsilä’s two-stroke technology in the marine engine market and provide a strong base for future investments in leading two-stroke technology and customer support. The value of the transaction is approximately EUR 46 million. The financial impact of the deal will be dependent on the timing of the closing and certain related mechanisms. The deal will have a positive effect on Wärtsilä’s continuing operations. The closing of the transaction is subject to the required regulatory approvals, which are expected in the first quarter of 2015. Going forward, the two-stroke engine business will be reported as discontinued operations.
Wärtsilä and China State Shipbuilding Corporation (CSSC) announced an agreement to establish a joint venture company, for manufacturing medium and large bore medium-speed diesel and dual-fuel engines. The CSSC Wärtsilä Engine (Shanghai) Co. Ltd factory will be located in Lingang, Shanghai and is expected to have its first engine ready for delivery by the end of 2015. The Wärtsilä share of the joint venture is 49 per cent and the size of Wärtsilä's equity investment is approximately EUR 27 million.
Power generation markets closely follow the global macro-economic situation. Based on the market challenges seen during the first half year and the revised GDP forecasts for 2014, the overall market for liquid and gas fuelled power generation is expected to continue to be challenging. Ordering activity remains focused on the emerging markets, especially those with oil and gas production based economies, which continue to invest in new power generation capacity. Furthermore, the current market situation is creating pent-up demand in emerging countries where investment decisions have been delayed. In the OECD countries, demand is mainly driven by CO2 neutral generation and the ramp down of older, largely coal-based generation.
The main drivers supporting activity in the shipping and offshore sectors are in place, yet growth has nevertheless been slow. Despite improving seaborne trade, overcapacity is still affecting demand in the traditional merchant markets. Increased scrapping and a more balanced fleet growth support gradual freight market recovery. In the offshore segment, current oil price levels support investments in projects with controlled exploration and development costs. The importance of fuel efficiency and the introduction of environmental regulations are clearly visible. The regulatory environment is also increasing interest in gas as a marine fuel, which is further strengthened in the US by favourable pricing. Offshore activity is anticipated to continue; however a decline in the contracting of drilling units and certain support vessels may be seen. The shipping markets are expected to remain active, especially within the gas carrier segment, although the contracting of traditional merchant vessels is likely to decline.
The overall service market outlook remains stable, with positive developments in selected regions. An increase in the installed base offsets the slower service demand for older installations and the continued emphasis of merchant marine customers on reducing operating expenses. The outlook for services to offshore and gas fuelled vessels remains favourable. The interest for service agreements is strong in both of Wärtsilä’s end markets. Demand for services in the power plant segment continues to be good. From a regional perspective, the outlook for the Middle East and Asia is positive, and is supported by interest in power plant related services. The outlook is also good in the Americas and in Africa.
ANALYST AND PRESS CONFERENCE AT 10.00 A.M. LOCAL TIME
An analyst and press conference will be held on Friday 18 July 2014 at 10.00 a.m. Finnish time (8.00 a.m. UK time), at the Wärtsilä headquarters in Helsinki, Finland. The combined web- and teleconference will be held in English and can be viewed at the following address: http://wcc.webeventservices.com/r.htm?e=798106&s=1&k=6415F8D0193EE508B3A23434515F2566.
To participate in the teleconference please register at the following address: http://emea.directeventreg.com/registration/58115145. You will receive dial-in details by e-mail once you have registered. If problems occur, please press *0 for operator assistance. Please use *6 to mute your phone during the teleconference and the same code to unmute.
An on-demand version of the webcast will be available on the company website later the same day.
For further information, please contact:
Executive Vice President & CFO
Tel: +358 10 709 5640
Director, Investor Relations
Tel: +358 40 187 7809
For press information, please contact:
Executive Vice President, Communications & Branding
Tel: +358 10 709 5599
Wärtsilä in brief
Wärtsilä is a global leader in complete lifecycle power solutions for the marine and energy markets. By emphasising technological innovation and total efficiency, Wärtsilä maximizes the environmental and economic performance of the vessels and power plants of its customers. In 2013, Wärtsilä's net sales totalled EUR 4.7 billion with approximately 18,700 employees. The company has operations in more than 200 locations in nearly 70 countries around the world. Wärtsilä is listed on the NASDAQ OMX Helsinki, Finland. www.wartsila.com