Wärtsilä’s Interim Financial Report January–March 2020
Net sales stable, profitability burdened by COVID-19 impacts and mix
This release is a summary of Wärtsilä’s Interim Report January–March 2020. The complete report is attached to this release as a pdf file. It is also available on the company website at www.wartsila.com.
HIGHLIGHTS OF THE REVIEW PERIOD JANUARY–MARCH 2020
The markets in which Wärtsilä operates are being affected by the coronavirus (COVID-19) outbreak and the measures taken to contain the global pandemic. This will materially impact Wärtsilä’s net sales and earnings for 2020 starting in March. The full financial impact cannot be quantified at this time, as it will depend on the duration and severity of the measures taken to contain the virus spread, and the pace of the eventual market recovery. Consequently, Wärtsilä withdrew its market outlook for 2020 on 31 March 2020 pending an improvement in visibility.
JAAKKO ESKOLA, PRESIDENT AND CEO
“During the first quarter of 2020, Wärtsilä’s business environment was characterised by a sudden increase in uncertainty related to the coronavirus pandemic and its longer-term impact on the global economy. Net sales increased slightly from the corresponding period last year, thanks to growth in both equipment deliveries and service activity in the Marine Business. Energy equipment deliveries, on the other hand, declined largely due to project timing and some COVID-19 related delays. Measures taken to contain the spread of COVID-19 have resulted in factories running at lower than usual capacity and in restricted mobility of field service personnel. Our operating result was consequently impacted by weaker fixed cost absorption, as well as by the mix of service sales and the delivery of the projects we flagged last year to be affected by cost overruns.
Demand in the first quarter was reasonable considering the prevailing market conditions. The decline in marine order intake was largely due to the lack of scrubber investments, as fuel spreads have narrowed. Equipment order intake in the Energy Business improved, thanks to the turnkey contracts received for two large power plants in Latin America. The effects of the coronavirus pandemic are increasingly becoming visible in the demand environment of our markets. The cruise segment in particular has been severely affected by the actions taken to contain the virus spread, while several energy project sites have been demobilised. The risk of weakening economic activity has caused shipowners and operators to re-evaluate their investment plans. Similarly, in the energy markets, deteriorating macroeconomic conditions and the anticipated decrease in electricity consumption are resulting in postponed investment decisions for new power generation capacity.
The weakened demand outlook, in combination with anticipated delivery postponements and challenges in accessing customer sites, will have a material effect on our financial development this year. To mitigate this impact, we have taken proactive steps to lower our cost base with approximately EUR 100 million by reducing working hours and initiating temporary layoffs, as well as by limiting the use of external personnel and consultants. The first concrete actions have been taken in locations where operations have been adversely impacted by the pandemic.
While adjustments to our cost base are necessary, we must also secure our ability to capture future growth opportunities. In this context, the progression of our Marine Business reorganisation into three independent businesses is central. It will allow us to accelerate strategy execution and simplify the business structure in order to increase the agility and speed of our decision-making. In addition, although we are reducing discretionary spending, we remain committed to investing in R&D projects that are critical to our long-term success. Among other initiatives, we are actively working on developing the use of alternative, commercially viable and environmentally friendly fuels to reduce greenhouse gas emissions in the shipping and energy sectors. I am therefore pleased to highlight both the advances we have recently made in testing the use of ammonia in our engines and fuel systems, as well as the funding we have received for the X-Ahead project. The aim of this project is to develop deep expertise in the technical and business potential of Power-to-X, which will be used to promote a carbon neutral economy. These initiatives are indicative of our commitment to enabling sustainable societies with smart technology.”
|of which services||627||653||-4%||2,676|
|Order book, end of period*||5,745||5,977||-4%||5,878|
|of which services||592||573||3%||2,502|
|% of net sales||4.5||7.9||7.0|
|Comparable operating result||56||102||-45%||457|
|% of net sales||4.8||8.9||8.8|
|Comparable adjusted EBITA**||65||113||-42%||498|
|% of net sales||5.6||9.8||9.6|
|Profit before taxes||43||78||-45%||315|
|Cash flow from operating activities||42||35||232|
|Net interest-bearing debt, end of period||849||658||726|
|Gross capital expenditure||27||23||122|
|Personnel, end of period||18,642||19,225||-3%||18,795|
*During 2019, Wärtsilä implemented stricter requirements for the booking of new orders, which resulted in certain projects being removed from the Energy Business’ order book. The order book for the first quarter of 2019 has been adjusted to reflect this change.
**Comparable adjusted EBITA excludes items affecting comparability and purchase price allocation amortisation.
Wärtsilä’s financial information for 2019 has been adjusted to reflect the group’s new reporting structure. As of the first quarter of 2020, Wärtsilä Marine Business and Wärtsilä Energy Business constitute the reportable segments of the group, while Portfolio Business is reported as other business activities. This restatement has no impact on the group’s total financial figures. Wärtsilä presents certain alternative performance measures in accordance with the guidance issued by the European Securities and Markets Authority (ESMA). The definitions of these alternative performance measures are presented in the Calculations of financial ratios section of the interim report.
ANALYST AND PRESS CONFERENCE
A fully virtual analyst and press conference will be held today, Tuesday 21 April 2020, at 10:00 a.m. Finnish time (8:00 a.m. UK time). The combined web- and teleconference will be held in English and can be viewed by registering on: http://www.mediaserver.fi/live/wartsila.
To participate in the teleconference, please register at the following address: http://emea.directeventreg.com/registration/6094129. You will receive dial-in details by e-mail once you have registered. If problems occur, please press *0 for operator assistance. Please press *6 to mute your phone during the teleconference and to unmute.
A recording of the webcast will be available on the company website later during the day.
For further information, please contact:
Executive Vice President & CFO
Tel: +358 10 709 5444
Vice President, Investor Relations
Tel: +358 10 709 5637
For press information, please contact:
Executive Vice President, Communications, Branding & Marketing
Tel: +358 10 709 5599
Wärtsilä in brief
Wärtsilä is a global leader in smart technologies and complete lifecycle solutions for the marine and energy markets. By emphasising sustainable innovation, total efficiency and data analytics, Wärtsilä maximises the environmental and economic performance of the vessels and power plants of its customers. In 2019, Wärtsilä’s net sales totalled EUR 5.2 billion with approximately 19,000 employees. The company has operations in over 200 locations in more than 80 countries around the world. Wärtsilä is listed on Nasdaq Helsinki.