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Strategy

Wärtsilä aims at profitable growth by providing advanced technologies and lifecycle solutions to its marine and energy market customers.

Increasing environmental awareness and changing energy needs are affecting the way that our customers operate. With our integrated offering of services and products, we are well positioned today to respond to the need for energy efficient, innovative, and flexible solutions. We will meet the increasing demand for gas-based technologies with our industry-leading multiple fuel products and LNG solutions. Our objective is to leverage our project management and engineering competences to achieve growth by offering our customers new and innovative solutions. Our digital transformation will provide increased customer value and optimised performance. Our growth ambitions are supported by our superior global service network.

With our production and supply chain management, we constantly seek new ways to maintain high quality and cost efficiency – often in co-operation with leading industrial partners in our key growth markets. Our market driven investments in R&D and our focus on digitalisation create a strong foundation for securing and strengthening our position at the forefront of market innovation. This innovative culture, together with our constant emphasis on safety, diversity, and high ethical standards, attract skilled and committed people and provides the basis for a high performing organisation. Our entrepreneurial drive, customer focus, and passion for doing right not only create new opportunities and environmentally sustainable solutions, but also bring value to all our stakeholders.

Strategy implementation in 2016

During the year, Wärtsilä launched several concepts and solutions aimed at improving customers' operational efficiency. These include the updated Nacos Platinum navigation, automation and control system featuring Intelligent Route Planning, and a zero-emissions ferry concept designed to run either entirely on batteries or in a battery-engine hybrid configuration. The first Wärtsilä 31 engines, recognised by Guinness World Records as being the world’s most efficient four-stroke diesel engine, were ready for delivery at year-end, and Wärtsilä received two new orders for the next generation engine. Within the Services business, customer emphasis on optimising efficiency supported demand for long-term service agreements.

The importance of natural gas fuelled applications in both the power generation and marine markets is evident. In 2016, gas and multi-fuel applications accounted for 82% of Energy Solutions' quotation activity and for 45% of its order intake. Significant gas-based contracts won included a 100 MW combined heat and power plant to Kraftwerke Mainz-Wiesbaden AG in Germany, as well as a 225 MW Smart Power Generation plant to Denton Municipal Electric in the USA. The latter will provide balancing power for the local community. In the marine markets, Wärtsilä maintained its position as a leading supplier of dual-fuel engines and gas handling systems. The increasing share of gas-based installations within the installed engine base continues to provide growth opportunities for the Services business.

The International Maritime Organization made decisions concerning several environmental topics affecting the marine industry during the year. These included the ratification of the Ballast Water Convention, and the implementation date for the global cap on the sulphur content in marine fuel. Wärtsilä is well placed to help its customers with both of these developments with its wide range of environmental solutions, which includes systems for ballast water treatment and exhaust gas cleaning, as well as dual-fuel engines and related gas technology. Addressing the increasing focus on carbon footprint reduction, Wärtsilä announced its entry into the solar market in early 2016, with hybrid power plants comprising both solar PV plants and internal combustion engines.

Efficiency improvement, fuel flexibility, and the reduction of environmental impact were all areas emphasised in the company’s R&D investments, which amounted to EUR 131 million or 2.7% of net sales. Investing in technological leadership is vital for ensuring the competitiveness of Wärtsilä’s product portfolio, and for securing a leading position in sustainable innovation.

Wärtsilä’s focus on digitalising its operations and customer offering continued during 2016. The acquisition of Eniram was an important step in strengthening Wärtsilä’s offering in the fields of data analytics, modelling, and performance optimisation. In August, Wärtsilä appointed a Chief Digital Officer to the Board of Management, with responsibility for defining, developing, and executing Wärtsilä’s digital strategy, organisational blue print, and related digital governance. Subsequently, a new digital organisation was announced with the aim of accelerating Wärtsilä’s digital transformation.

To promote a high performance culture, Wärtsilä has continued its leadership development programmes in many areas. New initiatives in 2016 included an innovative learning solution, Growth Lab, which aims at developing future leaders through action-based learning. In support of Wärtsilä’s focus on establishing a culture focused on continuous improvement, the company also developed an Operational Excellence Academy learning framework and portal with supporting materials for all those staff in the organisation involved in leading operational excellence. Wärtsilä’s aim is to foster an inclusive corporate culture by respecting diversity and providing a vision for the future with opportunities to grow for our people. Actions during 2016 have varied from management team inclusive culture and diversity workshops to all employee events. Additionally, the diversity aspect has been incorporated into Wärtsilä's co-operation activities with educational institutes, its presentations at recruitment fairs, and into the contents of its management training programmes.

Personnel safety is a priority for Wärtsilä and during the year, the company moved steadily closer to its on-going target of zero lost-time injuries. Lost-time injury frequency was 2.59, which represents a decrease of 9% compared to the previous year. During 2016, Wärtsilä continued expanding its WeCare programme. WeCare is a global software and way of working for reporting and investigating near misses, hazards, and accidents. A total of 11,550 incidents were reported to the WeCare system in 2016, a 46% increase compared to the previous year. Wärtsilä also arranged a global safety day under the theme ‘Safe by Choice’, during which the safety implications of choices made in the daily working environment were highlighted within the organisation.

Financial targets and guidance realisation

Wärtsilä’s long-term financial target is to grow faster than global GDP, and to maintain its operating profit margin between 14% at the peak of the cycle and 10% at the trough. Furthermore, the target is to maintain gearing below 0.50, and to pay a dividend of at least 50% of earnings per share over the cycle.

On 27 January 2016, Wärtsilä estimated its net sales for 2016 to grow by 0-5% and operational profitability to be 12.5-13.0%. The expectations were revised on 12 October, due to fewer than anticipated power plant deliveries in 2016. According to the revised guidance, net sales were expected to decline by around 5% and profitability was estimated to be around 12.0%.

Wärtsilä’s performance in 2016 was in line with both its long-term targets and its revised guidance for the year. Net sales for 2016 decreased by 5%, bringing Wärtsilä’s 5-year compound annual growth rate to 3% compared to the global real GDP compound annual growth rate of 0.4% during the corresponding period. Profitability was 12.1%. Gearing was 0.07 and the Board of Directors' proposed dividend of EUR 1.30 per share represents 73% of operational earnings.

Long-term financial targets
Target Development in 2016 Development in 2015
Net sales growth faster than global GDP 5% decline 5% growth
Comparable operating result margin between 10% and 14% 12.1% 12.2%
Gearing below 0.50 0.07 0.17
Dividend payment at least 50% of earnings per share over the cycle 73%1 53%
1 Proposal of the Board of Directors.

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