Wärtsilä Corporation Interim Report q2 2014

Market outlook

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.

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%.

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