Wärtsilä Corporation Interim Report q2 2014

CEO REVIEW

The ongoing restructuring 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%.

-Björn Rosengren, President and CEO

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Good development in profitability

“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 operating result 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.”

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Björn Rosengren, President and CEO

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%.


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)

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 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.

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)


KEY FIGURES

MEUR 4-6/2014 4-6/2013 Change 1-6/2014 1-6/2013 Change 2013
Order intake 1 163 1 071 9% 2 305 2 424 -5% 4 872
Order book at the end of the period 4 554 4 763 -4% 4 426
Net sales 1 132 1 152 -2% 2 144 2 034 5% 4 654
Operating result (EBIT)1 122 111 10% 212 181 17% 520
% of net sales 10.8 9.6 9.9 8.9 11.2
Profit before taxes 2 109 104 190 200 507
Earnings/share, EUR 2 0.42 0.39 0.73 0.76 1.98
Cash flow from operating activities 61 38 172 122 578
Net interest-bearing debt at the end of the period 350 658 276
Gross capital expenditure 47 49 134
Gearing  0.19 0.40 0.15
1 EBIT is shown excluding non-recurring items. Wärtsilä recognised non-recurring items related to restructuring measures amounting to EUR 10 million (1) in the second quarter and EUR 16 million (2) during the review period January-June 2014.
2 Earnings/share and profit before taxes for January-June 2013 and the full year 2013 include the sale of Wärtsilä’s shares in Sato Oyj.