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1. Segment information | |||||
As of 2019 Wärtsilä is organised into two business areas, Wärtsilä Marine Business and Wärtsilä Energy Business, according to its two main customer markets. The Businesses cover both new equipment sales and services for their respective markets. The new organisational structure enables Wärtsilä to accelerate growth and the implementation of its Smart Marine and Smart Energy strategies. Integrating newbuild and service activities enhances customer value by strengthening the focus on complete lifecycle solutions tailored to specific market needs. Wärtsilä Marine Business and Wärtsilä Energy Business constitute Wärtsilä’s operating and reportable segments. Wärtsilä's highest operative decision maker (CODM, Chief Operating Decision Maker) is the President and CEO, with the support of the Board of Management and in some cases the Board of Directors. Wärtsilä Marine Business and Wärtsilä Energy Business are both led by Presidents of respective business area and both are supported by Business management teams. Discrete financial information for the Businesses is provided to the CODM to support decision-making. The segment information presented by Wärtsilä reflects the internal management reporting. The segment information is reported to the level of operating result, as items below the operating result are not allocated to segments. The comparable operating result is used by the CODM also to measure the performance, both on segment and Group level. Assets and liabilities are measured on Group level and not allocated to segments. Internal sales between segments is not reported in the management reporting, revenue and costs of sales are recognised directly to the respective customer projects and orders. The main factors affecting the allocation of indirect and administration costs to the segments are net sales and personnel amount. Management considers these allocation principles the most suitable to reflect the cost carried by each segment. The allocation principles are reviewed regularly. | |||||
Wärtsilä Energy Business | |||||
Wärtsilä Energy Business leads the transition towards a 100% renewable energy future. Wärtsilä helps its customers unlock the value of the energy transition by optimising their energy systems and future-proofing their assets. Wärtsilä’s offering comprises flexible power plants, energy management and storage systems, as well as lifecycle services that enable increased efficiency and guaranteed performance. Wärtsilä’s three main customer segments in the energy markets are utilities, independent power producers and industrial customers. Wärtsilä’s energy solutions are used for a wide variety of applications. These include baseload generation, capacity for grid stability, peaking and load-following generation, and for the integration of wind and solar power. Wärtsilä provides its customers with a comprehensive understanding of energy systems, including fully integrated assets and software, complete with value adding lifecycle services. | |||||
Wärtsilä Marine Business | |||||
Wärtsilä’s aim is to lead the industry’s transformation towards a Smart Marine Ecosystem. Building on a sound foundation of being a leading provider of innovative products, integrated solutions and lifecycle services to the marine and oil & gas industries, Wärtsilä Marine aims to unlock new customer values through connectivity, digitalisation and smart technology. Wärtsilä provides marine power solutions, processing solutions and voyage solutions, which are supported by a broad scope of services ranging from spare part delivery to optimising customer operations, providing performance guarantees and offering cyber intelligence and incident support. Wärtsilä Marine Business derives its revenues from the following products and services: | |||||
Marine power solutions | Processing solutions | Voyage solutions | |||
· Power supply | · Water and waste treatment | · Automation, navigation & communication | |||
· Power conversion | · Gas solutions for marine | · Simulation & training solutions | |||
· Propulsion | and land-based applications | · Fleet operations solutions | |||
· Exhaust treatment | · Ship traffic control solutions | ||||
· Special products | |||||
· Entertainment systems | |||||
Wärtsilä’s marine customer base covers all the main vessel segments, including traditional merchant vessels, gas carriers, cruise & ferry, navy, and special vessels. In the oil & gas industry, Wärtsilä is active in serving offshore installations and related industry vessels, as well as land-based gas installations. Wärtsilä’s customers comprise ship owners, shipyards and ship management companies. In Wärtsilä Marine Business, order intake and net sales for retrofit scrubber projects have been transferred from services to new equipment. The comparison period figures for the segment reporting and the service information have been adjusted to reflect the new reporting structure. | |||||
MEUR | 2019 | 2018 | |||
Net sales | |||||
Wärtsilä Marine Business | 3 330 | 2 815 | |||
Wärtsilä Energy Business | 1 840 | 2 359 | |||
Total | 5 170 | 5 174 | |||
Depreciation, amortisation and impairment | |||||
Wärtsilä Marine Business | -147 | -102 | |||
Wärtsilä Energy Business | -33 | -28 | |||
Total | -180 | -130 | |||
Share of result of associates and joint ventures | |||||
Wärtsilä Marine Business | -9 | 13 | |||
Total | -9 | 13 | |||
Operating result | |||||
Wärtsilä Marine Business | 237 | 349 | |||
Wärtsilä Energy Business | 125 | 194 | |||
Total | 362 | 543 | |||
Operating result as a percentage of net sales (%) | |||||
Wärtsilä Marine Business | 7.1 | 12.4 | |||
Wärtsilä Energy Business | 6.8 | 8.2 | |||
Total | 7.0 | 10.5 | |||
Comparable operating result | |||||
Wärtsilä Marine Business | 305 | 380 | |||
Wärtsilä Energy Business | 152 | 197 | |||
Total | 457 | 577 | |||
Comparable operating result as a percentage of net sales (%) | |||||
Wärtsilä Marine Business | 9.1 | 13.5 | |||
Wärtsilä Energy Business | 8.3 | 8.4 | |||
Total | 8.8 | 11.2 | |||
Alternative performance measures | |||||
Wärtsilä provides certain financial performance measures, which are not defined by IFRS. These alternative performance measures are followed and used by management to measure the Group's performance and financial position. These alternative performance measures also provide useful information to the capital markets. The alternative performance measures should not be evaluated in isolation from the IFRS measures. The alternative performance measure calculation definitions are disclosed in Calculations of financial ratios. | |||||
Wärtsilä discloses comparable performance measures to enhance comparability between periods. Certain income and expenses are presented as items affecting comparability when they have significant impact on the consolidated statement of income. Items affecting comparability consist of income and expenses, which result from restructuring activities aiming to adjust the capacity of Wärtsilä’s operations. They may also include other income and expenses incurred outside Wärtsilä’s normal course of business, such as impairment charges, acquisition related costs, settlements recorded as a result of legal proceedings with third parties or unforeseen obligations from earlier discontinued businesses. The reconciliation of comparable operating result to operating result is presented in the table below: | |||||
Measures of profit and items affecting comparability | |||||
MEUR | 2019 | 2018 | |||
Comparable adjusted EBITA | 498 | 621 | |||
Purchase price allocation amortisation | -41 | -43 | |||
Comparable operating result | 457 | 577 | |||
Items affecting comparability: | |||||
Restructuring costs | |||||
Social plan costs | -31 | -8 | |||
Impairment and write-downs | -23 | -19 | |||
Other restructuring costs and transfer costs | -17 | -2 | |||
Other items affecting comparability | |||||
Impairment and write-downs | -13 | ||||
Litigation settlements | -6 | ||||
Acquisition related costs | -6 | ||||
Other | -4 | ||||
Items affecting comparability, total | -95 | -35 | |||
Operating result | 362 | 543 | |||
Entity wide information | |||||
In addition to segment information, Wärtsilä reports the services revenue and order intake for both segments. Wärtsilä continues to report information for the geographical areas Finland, other European countries, Asia, the Americas, and other. In the geographical information net sales are split by customer destination and non-current assets by customer origin. Non-current assets consist of goodwill, intangible assets, property, plant and equipment, right-of-use assets, and investments in associates and joint ventures. | |||||
Geographical information | |||||
During the financial period 1 January - 31 December 2019 and 1 January - 31 December 2018 Wärtsilä did not have any individual significant customers or countries. The sales to the USA represented 11% (14) and sales to China 11% (7) of the total net sales. | |||||
2019 | 2018 | ||||
MEUR | Net sales | Non-current assets | Net sales | Non-current assets | |
Finland | 78 | 324 | 56 | 242 | |
Other European countries | 1 612 | 1 595 | 1 429 | 1 534 | |
Asia | 1 968 | 114 | 1 867 | 90 | |
The Americas | 1 098 | 271 | 1 245 | 266 | |
Other | 414 | 7 | 577 | 5 | |
Total | 5 170 | 2 310 | 5 174 | 2 137 | |
Service information | |||||
MEUR | 2019 | 2018 | |||
Net sales | |||||
Marine service | 1 639 | 1 577 | |||
Energy service | 863 | 842 | |||
Total | 2 502 | 2 419 |
2. Acquisitions | |
Acquisitions 2019 | |
Ships Electronic Services Ltd | |
In May, Wärtsilä acquired 100% of Ships Electronic Services Ltd (“SES”), a UK based company specialising in navigation and communication electronics, installation, maintenance and repair services, mainly for commercial and leisure vessels. SES’ turnover was approximately GBP 10 million and the company employed a staff of 47. The enterprise value of the transaction was GBP 3.2 million. The consideration paid and the impact on profit for the financial period are not significant. |
|
Acquisitions 2018 | |
Transas Group | |
In May, Wärtsilä acquired 100% of Transas, a global company headquartered in the U.K. | |
Transas is a global market leader in marine navigation solutions that include complete bridge systems, digital products and electronic charts. The company is also a leader in professional training and simulation services, ship traffic control, as well as monitoring, and support. | |
The following tables summarise the amounts for the consideration paid for Transas, the cash flow from the acquisition, and the amounts of the assets acquired and liabilities assumed recognised at the acquisition date. | |
Total consideration | MEUR |
Consideration transferred | 183 |
Total consideration transferred | 183 |
Cash flow from the acquisition | MEUR |
Consideration paid in cash | 183 |
Cash and cash equivalents of the acquired company | -12 |
Total cash flow from the acquisition | 171 |
The assets and liabilities arising from the acquisition | MEUR |
Intangible assets | 66 |
Property, plant and equipment | 2 |
Inventories | 8 |
Trade and other receivables | 50 |
Deferred tax assets | 2 |
Cash and cash equivalents | 12 |
Total assets | 140 |
Provisions | 3 |
Interest-bearing debt | 29 |
Trade payables and other liabilities | 39 |
Deferred tax liabilities | 13 |
Total liabilities | 83 |
Total net assets | 57 |
Goodwill | 113 |
The fair values of the acquired identifiable intangible assets at the date of the acquisition (including technology, customer relations, and trademarks) amounted to EUR 55 million. The fair value of the current trade receivables and other receivables is approximately EUR 50 million. The fair value of the trade receivables does not include any significant risk. | |
The goodwill of EUR 113 million reflects the value of know-how and expertise in digital marine solutions and services. The acquisition takes Wärtsilä a significant step closer to achieving its mission of enabling sustainable societies with smart technologies. It will also speed delivery on the company’s promise to disrupt the industry by establishing an ecosystem that is digitally connected across the entire supply chain, through applications that are secure, smart and cloud-based. | |
During 2018 the Group incurred acquisition-related costs of EUR 3 million related to external legal fees and due diligence costs. The costs have been included in the other operating expenses in the consolidated statement of income. | |
Pro forma | |
If the acquisition had occurred on 1 January 2018, management estimates that the consolidated net sales would have been EUR 5,213 million. The impact in the consolidated operating result would not have been significant. In determining these amounts, management has assumed that the fair value adjustments, which arose on the date of the acquisition would have been the same if the acquisition had occurred on 1 January 2018. | |
Other acquisitions | |
In February, Wärtsilä acquired 100% of Trident B.V. and LOCK-N-STITCH Inc. In October, Wärtsilä acquired 100% of Burriel Navarro, S.L. | |
Trident B.V. is a Netherland based company specialised in underwater ship maintenance, inspection, and repair services. With this acquisition, Wärtsilä builds in-house competence, captures the full potential of services’ product synergies, and strengthens its position in the market. | |
LOCK-N-STITCH Inc. is an American engineering company serving customers within the marine and energy sectors as well as other industries. It specialises in cast iron repairs. The acquisition strengthens Wärtsilä’s service portfolio for customers operating multiple brands. | |
Burriel Navarro, S.L is a company operating in underwater services in the main ports of Spain. The acquisition supports the growth of Wärtsilä’s underwater services and expands the company’s local presence in the European market. | |
The following tables summarise the amounts for the consideration paid, the cash flow from the acquisitions and the amounts of the assets acquired and liabilities assumed recognised at the acquisition dates. | |
Total consideration | MEUR |
Consideration transferred | 27 |
Total consideration transferred | 27 |
Cash flow from the acquisitions | MEUR |
Consideration paid in cash | 23 |
Contingent consideration | 4 |
Cash and cash equivalents of the acquired companies | -1 |
Total cash flow from the acquisitions | 26 |
The assets and liabilities arising from the acquisitions | MEUR |
Intangible assets | 10 |
Property, plant and equipment | 2 |
Inventories | 1 |
Trade and other receivables | 6 |
Cash and cash equivalents | 1 |
Total assets | 19 |
Trade payables and other liabilities | 4 |
Deferred tax liabilities | 3 |
Total liabilities | 6 |
Total net assets | 13 |
Goodwill | 13 |
The fair values of acquired identifiable intangible assets at the dates of the acquisitions (including technology, customer relations, and trademarks) amounted to EUR 10 million. The fair value of current trade receivables and other receivables is approximately EUR 6 million. The fair value of the trade receivables does not include any significant risk. | |
The goodwill of EUR 13 million reflects the value of know-how and expertise in advanced underwater services. | |
During 2018, the acquisition-related costs the Group incurred related to external legal fees and due diligence costs were insignificant. The costs have been included in the other operating expenses in the consolidated statement of income. | |
Pro forma | |
If the acquisitions had occurred on 1 January 2018, management estimates that the consolidated net sales would have been EUR 5,176 million. The impact in the consolidated operating result would not have been significant. In determining these amounts, management has assumed that the fair value adjustments, which arose on the dates of the acquisitions would have been the same if the acquisitions had occurred on 1 January 2018. |
3. Disposals | ||
Disposals 2019 | ||
In 2019, there were no disposals. | ||
Disposals 2018 | ||
Disposal of pumps business | ||
On 31 October 2018, Wärtsilä divested its pumps business to Solix Group, a Scandinavian investment company. Wärtsilä Pumps has belonged to the Wärtsilä Marine Solutions organisation and became part of the Group along with the acquisition of Hamworthy in 2012. The Wärtsilä Pumps business recorded sales of approximately EUR 50 million in 2017. The cash consideration of the transaction was EUR 45 million, and in addition EUR 20 million of the transaction price was reported as a receivable in the non-current other receivables in the consolidated statement of financial position in 2018. Wärtsilä reported a gain of EUR 27 million in other operating income from the transaction. | ||
Other disposals | ||
On 20 October 2018, Wärtsilä sold its majority interest in Wärtsilä Yuchai Engine Co. Ltd. The consideration received and the impact on profit for the financial period were not significant. |
4. Assets held for sale | ||
In December, Wärtsilä announced the divestment of shares in Wärtsilä ELAC Nautik GmbH (ELAC Nautik) to Cohort plc. ELAC Nautik's main market focus is on hydroacoustic products, including sonars, underwater communication systems and echo systems for small and medium sized military submarines. Wärtsilä, through its Smart Marine Ecosystem approach, is leading the marine industry’s transition into a new era of high efficiency, greater safety, and outstanding environmental performance. As this is Wärtsilä's core strategy for Marine Business, and ELAC Nautik business has no clear synergistic link to Wärtsilä’s Smart Marine activities in transforming the marine sector, the portfolio is aligned to those growth businesses that can drive this transition. Additionally, Wärtsilä has started preparations to divest its Entertainment business, which is also classified as assets held for sale. The assets held for sale belong to the Wärtsilä Marine Business segment and they are valued at the lower of book value or fair value. Subject to approvals, completion of these transactions is expected in the early part of 2020. |
||
Items on statement of financial position | ||
MEUR | 31.12.2019 | |
Property, plant and equipment | 3 | |
Right-of-use assets | 4 | |
Deferred tax assets | 8 | |
Inventories | 18 | |
Other receivables, current | 39 | |
Cash and cash equivalents | 11 | |
Assets held for sale | 82 | |
Interest-bearing debt, non-current | 4 | |
Deferred tax liabilities | 8 | |
Other liabilities, non-current | 8 | |
Other liabilities, current | 47 | |
Liabilities directly attributable to assets held for sale | 68 | |
Net assets | 14 |
5. Disaggregation of revenue | |||
Revenue from the contracts with customers is derived over time and at a point in time in the following revenue types. | |||
Net sales by revenue type | |||
MEUR | 2019 | 2018 | |
Products | |||
Wärtsilä Marine Business | 846 | 765 | |
Wärtsilä Energy Business | 338 | 380 | |
Total | 1 184 | 1 145 | |
Goods and services | |||
Wärtsilä Marine Business | 509 | 469 | |
Wärtsilä Energy Business | 93 | 88 | |
Total | 603 | 557 | |
Projects | |||
Wärtsilä Marine Business | 1 786 | 1 377 | |
Wärtsilä Energy Business | 1 113 | 1 615 | |
Total | 2 899 | 2 992 | |
Long-term agreements | |||
Wärtsilä Marine Business | 189 | 204 | |
Wärtsilä Energy Business | 296 | 276 | |
Total | 484 | 480 | |
Total | 5 170 | 5 174 | |
Timing of satisfying performance obligations | |||
MEUR | 2019 | 2018 | |
At a point in time | |||
Wärtsilä Marine Business | 2 622 | 2 210 | |
Wärtsilä Energy Business | 1 105 | 1 531 | |
Total | 3 728 | 3 740 | |
Over time | |||
Wärtsilä Marine Business | 708 | 606 | |
Wärtsilä Energy Business | 735 | 828 | |
Total | 1 442 | 1 434 | |
Total | 5 170 | 5 174 | |
Product sales consist of sales of spare parts and standard equipment for which the revenue is recognised at a point in time when the control of the products has transferred to customer, in general at the delivery of the goods. | |||
Goods and services -type of revenue involves short-term field service jobs, which includes the delivery of a combination of service and equipment. The revenue is recognised at a point in time when service is rendered. | |||
Projects contain short-term and long-term projects. Depending on the contract terms and the duration of the project, the revenue is recognised at a point in time or over time. Revenue related to long-term projects, such as construction contracts, integrated solutions projects, ship design, and energy solutions contracts, is recognised over time. Revenue for tailor-made equipment delivery projects is recognised at a point in time. | |||
Long-term agreements contain long-term operating and maintenance agreements for which the revenue is recognised over time. |
6. Other operating income | ||
MEUR | 2019 | 2018 |
Capital gains | 15 | 32 |
Government grants | 8 | 7 |
Sale of scrapped material | 3 | 3 |
Sale of by-products | 2 | 2 |
Rental income | 1 | |
Income related to cancelled orders* | 2 | 10 |
Insurance indemnities | 9 | 4 |
Other | 27 | 24 |
Total | 67 | 80 |
* Expenses related to cancelled orders are recorded on respective expense accounts. |
7. Material and services | ||
MEUR | 2019 | 2018 |
Purchases during the financial period | -1 723 | -1 598 |
Change in inventories | 7 | 40 |
External services | -1 287 | -1 294 |
Total | -3 003 | -2 852 |
8. Employee benefit expenses | |||
MEUR | 2019 | 2018 | |
Wages and salaries | 1 028 | 954 | |
Pension costs | |||
Defined benefit plans | 12 | 7 | |
Defined contribution plans | 74 | 71 | |
Other compulsory personnel costs | 146 | 142 | |
Total | 1 260 | 1 175 | |
Management remuneration is specified in Note 32. Related party disclosures. | |||
Long-term incentive schemes | |||
Wages and salaries include EUR 4 million expenses arising from share based long-term incentive schemes (previous year positive impact EUR 21 million). At the end of 2019 Wärtsilä had three long-term incentive schemes active. These schemes are tied to the price development of the company’s share during a pre-determined timeframe, and an upper limit is set for the payable incentive. When an incentive scheme ends and the employment requirement is fulfilled, the incentive is settled in cash (2017-2019 and 2018-2020 incentives schemes) or in company shares (2019-2021 incentive scheme). The Board of Management members shall acquire Wärtsilä shares with 50% of the net bonuses received, until the share ownership corresponding to the individuals' annual gross base salary level has been achieved. | |||
The payment for incentive schemes is based on the share price development during a three-year period. The 2017-2019 incentive scheme comprises 4,332,000 rights, the 2018-2020 incentive scheme 3,609,000 rights and the 2019-2021 incentive scheme 5,108,000 rights. For the incentive scheme 2017-2019 the basis of a share price is EUR 16.19, for the incentive scheme 2018-2020 EUR 22.58 and for the incentive scheme 2019-2021 EUR 16.76. The incentive schemes take into account 100% of dividends paid, and the paid bonus cannot exceed EUR 6.07 per incentive right in the 2017-2019 scheme, EUR 8.47 in the 2018-2020 scheme or EUR 6.56 in the 2019-2021 scheme. | |||
The incentive rights, which are settled in cash, are valued and recognised at fair value at the balance sheet date taking into account the proportion of vesting period passed. The incentive rights, which are settled in company shares, are valued at fair value at the grant date of the scheme and expensed evenly during the vesting period. The fair value determined for the incentive right in 2019-2021 scheme is EUR 2.69. | |||
2019 | 2018 | ||
Personnel on average | 19 110 | 18 899 | |
Personnel at the end of the financial period | 18 795 | 19 294 |
9. Depreciation, amortisation and impairment | ||
MEUR | 2019 | 2018 |
Development expenses | 11 | 11 |
Purchase price allocation amortisation | 41 | 43 |
Other intangible assets | 10 | 12 |
Buildings and structures | 13 | 16 |
Land and buildings, right-of-use assets | 43 | |
Machinery and equipment | 40 | 43 |
Machinery and equipment, right-of-use assets | 6 | |
Other tangible assets | 1 | 1 |
Impairments | 15 | 3 |
Total | 180 | 130 |
10. Other operating expenses | ||
MEUR | 2019 | 2018 |
Travel costs | 134 | 145 |
Rental costs | 48 | 90 |
Legal and consultancy costs | 95 | 89 |
Information technology costs | 65 | 61 |
Other personnel related costs | 59 | 58 |
Administrative costs | 49 | 51 |
Other | 128 | 153 |
Total | 578 | 648 |
11. Financial income and expenses | ||
MEUR | 2019 | 2018 |
Interest income on loans and receivables | 1 | 2 |
Interest income on financial assets at fair value through the statement of income | 23 | 20 |
Interest income on investments at amortised cost | 2 | 1 |
Other financial income | 1 | 1 |
Total financial income | 27 | 24 |
Interest expenses on financial liabilities recognised at amortised cost | -10 | -11 |
Interest expenses on lease liabilities recognised at amortised cost | -5 | |
Interest expenses on financial liabilities at fair value through the statement of income | -36 | -34 |
Net interest from defined benefit plans | -3 | -3 |
Changes in fair values of financial assets/liabilities at fair value through the statement of income | -5 | -4 |
Write-down of financial receivables | -1 | |
Exchange rate differences* | -10 | -6 |
Fee expenses | -2 | -2 |
Other financial expenses | -4 | -4 |
Total financial expenses | -74 | -65 |
Total | -47 | -40 |
* In 2019, the result from the ineffective portion of cash flow hedges related to cancelled orders, EUR -5 million (-2), and exchange rate differences from unhedged internal loans, EUR -8 million (-5) were included in exchange rate differences in the consolidated statement of income. |
12. Income taxes | |||
MEUR | 2019 | 2018 | |
Income taxes | |||
for the financial period | -130 | -126 | |
for prior financial periods | -8 | 1 | |
Change in deferred tax | |||
origination and reversal of temporary differences | 43 | 10 | |
changes in tax rates | -2 | 1 | |
Total | -97 | -116 | |
Reconciliation of effective tax rate: | |||
Profit before taxes | 315 | 502 | |
Tax calculated at the domestic corporate tax rate 20.0% | -63 | -100 | |
Effect of changed tax rates | -2 | 1 | |
Effect of different tax rates in foreign subsidiaries | 15 | 6 | |
Effect of income not subject to tax and non-deductible expenses | -1 | 2 | |
Effect of share of result of associates and joint ventures | -2 | 3 | |
Utilisation of previously unrecognised tax losses carried forward | 1 | ||
Unrecognised taxes on losses carried forward | -13 | -17 | |
Other taxes* | -10 | -10 | |
Other temporary differences** | -13 | -1 | |
Income taxes for prior financial periods | -8 | 1 | |
Tax charge in the consolidated statement of income | -97 | -116 | |
Effective tax rate (%) | 30.7 | 23.1 | |
* Other taxes consist mainly of withholding taxes not utilised and taxes not directly based on taxable income. | |||
** Includes EUR -11 million utilisation of deferred tax assets. | |||
Income taxes related to other comprehensive income are presented in Consolidated statement of comprehensive income. Changes in deferred tax assets and liabilities are presented in Note 24. Deferred taxes. | |||
Wärtsilä is subject to tax audits in some countries, which can result in tax reassessment decisions and obligations to pay additional taxes and related payments. |
13. Earnings per share | |||
Earnings per share is calculated by dividing the profit for the financial period attributable to equity holders of the parent company by the adjusted average number of shares outstanding. During the financial periods there were no programmes with dilutive effect. | |||
MEUR | 2019 | 2018 | |
Profit for the financial period attributable to equity holders of the parent company | 217 | 386 | |
Thousands of shares | |||
adjusted average number of shares outstanding* | 591 723 | 591 723 | |
Earnings per share attributable to equity holders of the parent company (basic and diluted): | |||
Earnings per share (EPS), basic and diluted, EUR | 0.37 | 0.65 | |
* Additional information on the number of shares is presented in Note 26. Equity. |
14. Intangible assets | |||||
Goodwill 2019 | |||||
MEUR | 2019 | ||||
Wärtsilä Group | |||||
Wärtsilä on 1 January | 1 355 | ||||
Acquisitions | -1 | ||||
Changes in exchange rates | 26 | ||||
Total | 1 380 | ||||
Goodwill allocation | |||||
Goodwill arising from business acquisitions is allocated to the Group cash generating units (CGU) that are the Group´s operating segments Wärtsilä Marine Business and Wärtsilä Energy Business. As of 1 January 2019 the goodwill formerly allocated to the Group CGU has been allocated to the respective CGUs based on the fair value of the operating segments. The operating segments represent the lowest level within the Group at which the goodwill is monitored. The companies acquired during the financial period are integrated to the the respective CGU at the acquisition date. The goodwill per CGU is presented in the table below. | |||||
Goodwill per cash generating unit | |||||
MEUR | 2019 | ||||
Wärtsilä Marine Business | 847 | ||||
Wärtsilä Energy Business | 533 | ||||
Total | 1 380 | ||||
Impairment testing of goodwill | |||||
The Group performs its annual impairment testing of goodwill on 30 September. Impairment of goodwill is also carried out when changes in circumstances indicate that the carrying amount may not be recoverable. | |||||
The recoverable amount from the CGUs is determined based on value-in-use calculation. The calculation is made on a discounted cash flow method basis, derived from the order book and five-year cash flow projections from management approved strategic plans. The estimated cash flow of the CGUs is based on utilisation of the existing property, plant and equipment in their current condition with normal maintenance capital expenditure, excluding any potential future acquisitions. Cash flow beyond the five-year period is calculated using the terminal value method. The terminal growth rate used in projections is based on management’s assessment on conservative long-term growth. The terminal growth rate used is 2%. | |||||
The key driver for the valuation is the growth in the global economy and in particular the development of the global power market, the global shipbuilding industry and the demand for related services. The projected development of total costs in the market affects the profitability, whereas no single cost item is considered to have a material impact. The valuation driver for the new equipment sales is the growth in the global economy, whereas for after sales the drivers are also the demand for related services and the projected development in labour cost. | |||||
The applied discount rates are the weighted average pre-tax cost of capital (WACC) for each CGU as defined by Wärtsilä. The components of the WACC rates are risk-free rate, market risk premium, industry specific beta, cost of debt and debt equity ratio. Wärtsilä has used a WACC rate of 9.1% in the calculations for Wärtsilä Marine Business CGU and a WACC rate of 9.4% for Wärtsilä Energy Business CGU. | |||||
As a result of the impairment test, no impairment loss for the CGUs was recognised for the financial period ended 31 December 2019. The recoverable amounts from both the CGUs exceeded their respective carrying value substantially. | |||||
Sensitivity analysis | |||||
The management has assessed that no reasonable possible changes in the key assumptions would cause carrying amount of either CGU to exceed its recoverable amount. Sensitivity analysis has been carried out for the valuation of the recoverable amount for each CGU by changing the assumptions used in the calculation. A change in an assumption that would cause the recoverable amount to equal the carrying amount is presented in the table below separately for each CGU. | |||||
Change | |||||
Wärtsilä Marine Business | |||||
Pre-tax discount rate | increase more than 15 percentage points | ||||
Terminal growth rate | decrease more than 35 percentage points | ||||
Profitability | decrease more than 66 percentage | ||||
Wärtsilä Energy Business | |||||
Pre-tax discount rate | increase more than 13 percentage points | ||||
Terminal growth rate | decrease more than 28 percentage points | ||||
Profitability | decrease more than 64 percentage | ||||
In management’s opinion, the changes in the basic assumptions shall not be seen as an indication that these factors are likely to materialise. The sensitivity analyses are hypothetical and should therefore be treated with caution. | |||||
Goodwill 2018 | |||||
Goodwill allocation | |||||
Goodwill arising from business acquisitions is allocated to the Group cash generating unit (CGU) that is the Group´s operating segment. The operating segment represents the lowest level within the Group at which the goodwill is monitored. The companies acquired during the financial period are integrated to the Group CGU at the acquisition date. Previously separately presented CGUs have also been integrated to the Group CGU during the financial period. The goodwill per CGU is presented in the table below: | |||||
Goodwill per cash generating unit | |||||
MEUR | 2018 | ||||
Wärtsilä on 1 January | 1 237 | ||||
Acquisitions and disposals | 113 | ||||
Changes in exchange rates | 4 | ||||
Total | 1 355 | ||||
Impairment testing of goodwill | |||||
The Group performs its annual impairment testing of goodwill on 30 September. Impairment of goodwill is also carried out when changes in circumstances indicate that the carrying amount may not be recoverable. | |||||
The recoverable amount from the CGU is determined based on value-in-use calculation. The calculation is made on a discounted cash flow method basis, derived from the order book and five-year cash flow projections from management approved strategic plans. The estimated cash flow of CGU is based on utilisation of the existing property, plant and equipment in their current condition with normal maintenance capital expenditure, excluding any potential future acquisitions. Cash flow beyond the five-year period is calculated using the terminal value method. The terminal growth rate used in projections is based on management’s assessment on conservative long-term growth. The terminal growth rate used is 2%. | |||||
The key driver for the valuation is the growth in the global economy and in particular the development of the global power market, the global shipbuilding industry and the demand for related services. The projected development of total costs in the market affects the profitability, whereas no single cost item is considered to have a material impact. The valuation driver for the new equipment sales is the growth in the global economy, whereas for after sales the drivers are also the demand for related services and the projected development in labour cost. | |||||
The applied discount rate is the weighted average pre-tax cost of capital (WACC) as defined by Wärtsilä. The components of the WACC are risk-free rate, market risk premium, industry specific beta, cost of debt and debt equity ratio. When defining the WACC for 2018, it has been considered that the general interest rate is currently on a lower level. Wärtsilä has used a WACC of 8.9% in the calculations. | |||||
As a result of the impairment test, no impairment loss for the CGU was recognised for the financial period ended 31 December 2018. The recoverable amount from the CGU exceeded its carrying value remarkably. | |||||
Sensitivity analysis | |||||
The management has assessed that no reasonable possible changes in the key assumptions would cause the CGU´s carrying amount to exceed its recoverable amount. Sensitivity analysis have been carried out for the valuation of the recoverable amount for the CGU by changing the assumptions used in the calculation. A change in an assumption that would cause the recoverable amount to equal the carrying amount is presented in the table below: | |||||
Change | |||||
Pre-tax discount rate | increase more than 20 percentage points | ||||
Terminal growth rate | decrease more than 68 percentage points | ||||
Profitability | decrease more than 82 percentage | ||||
In management’s opinion, the changes in the basic assumptions shall not be seen as an indication that these factors are likely to materialise. The sensitivity analyses are hypothetical and should therefore be treated with caution. | |||||
Intangible assets | |||||
2019 | |||||
MEUR |
Develop- ment expenses |
Construc- tion in progress and advances paid |
Other intangible assets |
Goodwill | Total |
Cost on 1 January 2019 | 141 | 53 | 857 | 1 361 | 2 411 |
Changes in exchange rates | 11 | 26 | 37 | ||
Acquisitions | 1 | -1 | |||
Additions | 1 | 55 | 8 | 65 | |
Decreases and other changes | -1 | -13 | -14 | ||
Reclassifications | 28 | -24 | -4 | ||
Cost on 31 December 2019 | 169 | 85 | 860 | 1 386 | 2 500 |
Accumulated amortisation and impairment on 1 January 2019 | -94 | -565 | -6 | -665 | |
Changes in exchange rates | -7 | -8 | |||
Accumulated amortisation on decreases and other changes | 11 | 11 | |||
Amortisation during the financial period | -11 | -52 | -62 | ||
Accumulated amortisation and impairment on 31 December 2019 | -104 | -613 | -6 | -723 | |
Carrying amount on 31 December 2019 | 65 | 85 | 247 | 1 380 | 1 776 |
Development costs for internally generated assets capitalised during the financial period amounted to EUR 49 million (30). The carrying amount was EUR 135 million (91). Purchase price allocation amortisation amounted to EUR 41 million (43) and the carrying amount was EUR 209 million (248). |
|||||
2018 | |||||
MEUR |
Develop- ment expenses |
Construc- tion in progress and advances paid |
Other intangible assets |
Goodwill | Total |
Cost on 1 January 2018 | 142 | 21 | 783 | 1 243 | 2 189 |
Changes in exchange rates | -2 | 4 | 2 | ||
Acquisitions and disposals | -2 | 10 | 66 | 113 | 187 |
Additions | 2 | 35 | 8 | 1 | 45 |
Decreases and other changes | -12 | -1 | -13 | ||
Reclassifications | -13 | 13 | |||
Cost on 31 December 2018 | 141 | 53 | 857 | 1 361 | 2 411 |
Accumulated amortisation and impairment on 1 January 2018 | -85 | -521 | -6 | -612 | |
Changes in exchange rates | 1 | 1 | |||
Accumulated amortisation on decreases and other changes | 2 | 12 | 1 | 15 | |
Amortisation during the financial period | -11 | -55 | -66 | ||
Impairments | -1 | -1 | -2 | ||
Accumulated amortisation and impairment on 31 December 2018 | -94 | -565 | -6 | -665 | |
Carrying amount on 31 December 2018 | 47 | 53 | 292 | 1 355 | 1 747 |
15. Property, plant and equipment | ||||||
2019 | ||||||
MEUR |
Land and water |
Build- ings and struc- tures |
Machin- ery and equip- ment |
Construc- tion in progress and advances paid |
Other tangible assets |
Total |
Cost on 1 January 2019 | 31 | 297 | 780 | 40 | 24 | 1 171 |
Transfer to right-of-use assets | -1 | -1 | -2 | |||
Changes in exchange rates | 1 | 2 | 3 | |||
Additions | 3 | 27 | 18 | 1 | 49 | |
Decreases | -1 | -18 | -30 | -50 | ||
Reclassifications | 1 | 22 | -25 | -2 | ||
Cost on 31 December 2019 | 30 | 283 | 798 | 32 | 25 | 1 167 |
Accumulated depreciation and impairment on 1 January 2019 | -1 | -177 | -648 | -21 | -847 | |
Changes in exchange rates | -1 | -1 | ||||
Accumulated depreciation on decreases | 11 | 29 | 41 | |||
Depreciation during the financial period | -13 | -40 | -1 | -54 | ||
Impairments | -1 | -1 | ||||
Accumulated depreciation and impairment on 31 December 2019 | -1 | -179 | -659 | -21 | -860 | |
Carrying amount on 31 December 2019 | 29 | 104 | 139 | 31 | 3 | 307 |
2018 | ||||||
MEUR |
Land and water |
Build- ings and struc- tures |
Machin- ery and equip- ment |
Construc- tion in progress and advances paid |
Other tangible assets |
Total |
Cost on 1 January 2018 | 43 | 313 | 787 | 18 | 23 | 1 185 |
Changes in exchange rates | -1 | -1 | -3 | |||
Acquisitions and disposals | -9 | -22 | -19 | -50 | ||
Additions | 1 | 5 | 23 | 35 | 64 | |
Decreases | -4 | -4 | -22 | -30 | ||
Reclassifications | 7 | 12 | -14 | 5 | ||
Cost on 31 December 2018 | 31 | 297 | 780 | 40 | 24 | 1 171 |
Accumulated depreciation and impairment on 1 January 2018 | -2 | -172 | -642 | -20 | -835 | |
Changes in exchange rates | 1 | 1 | 1 | |||
Accumulated depreciation on decreases and disposals | 1 | 11 | 41 | 53 | ||
Depreciation during the financial period | -16 | -43 | -1 | -60 | ||
Impairments | -2 | -2 | ||||
Reclassifications | -1 | -4 | -5 | |||
Accumulated depreciation and impairment on 31 December 2018 | -1 | -177 | -648 | -21 | -847 | |
Carrying amount on 31 December 2018 | 30 | 120 | 132 | 39 | 3 | 324 |
Value of finance-leased assets included in carrying amount | 1 | 1 | 3 |
16. Leases | |
MEUR | 2019 |
Land and buildings, right-of-use assets | |
Carrying amount on 1 January 2019 | 203 |
Additions | 28 |
Depreciation and impairment | -43 |
Decreases and reclassifications | -14 |
Carrying amount on 31 December 2019 | 174 |
Machinery and equipment, right-of-use assets | |
Carrying amount on 1 January 2019 | 12 |
Additions | 6 |
Depreciation and impairment | -6 |
Decreases and reclassifications | -1 |
Carrying amount on 31 December 2019 | 11 |
Lease liabilities | |
Carrying amount on 1 January 2019 | 215 |
Additions | 33 |
Interest expense | 2 |
Payments | -49 |
Other adjustments | -13 |
Carrying amount on 31 December 2019 | 188 |
Total lease liabilities | |
Non-current | 146 |
Current | 42 |
MEUR | 2019 |
Amounts recognised in statement of income | |
Depreciation and impairment of right-of-use assets | -49 |
Interest expense | -5 |
Expense – short-term leases | -32 |
Expense – leases of low-value assets | -6 |
Expense – variable lease payments | -4 |
17. Investments in associates and joint ventures | ||||||||
MEUR | 2019 | 2018 | ||||||
Carrying amount on 1 January | 66 | 83 | ||||||
Investments | 1 | |||||||
Share of result | -9 | 13 | ||||||
Dividends | -1 | -17 | ||||||
Translation differences | -1 | -1 | ||||||
Reduction of share capital in associates and joint ventures | -13 | |||||||
Impairment | -13 | |||||||
Carrying amount on 31 December | 42 | 66 | ||||||
Summary of financial information (100%): | ||||||||
2019 | ||||||||
MEUR | Holding % | Assets | Equity |
Liabil- ities |
Net sales |
Profit for the financial period |
||
Joint ventures | ||||||||
Wärtsilä Qiyao Diesel Company Ltd. | China | 50.0 | 39 | 19 | 20 | 30 | 2 | |
Wärtsilä Hyundai Engine Co Ltd. | South Korea | 50.0 | 71 | 68 | 3 | 19 | -21 | |
CSSC Wärtsilä Electrical & Automation Co., Ltd. | China | 49.0 | 11 | 2 | 9 | 9 | ||
CSSC Wärtsilä Engine (Shanghai) Co., Ltd. | China | 49.0 | 96 | 20 | 76 | 78 | 1 | |
Repropel Sociedad de reparacao de helices | Portugal | 50.0 | 1 | 1 | 1 | |||
Associated companies | ||||||||
Wärtsilä Land & Sea Academy, Inc. | Philippines | 40.0 | -2 | 2 | ||||
Neptun Maritime AS | Norway | 40.0 | 1 | 1 | ||||
CSSC Wärtsilä Engine (Shanghai) Co., Ltd. factory is manufacturing medium and large bore medium speed diesel and dual-fuel engines at Lingang, Shanghai. Wärtsilä Hyundai Engine Co Ltd. manufactures Wärtsilä 50DF dual-fuel engines for LNG carriers and other marine application in Mokpo, South Korea. Wärtsilä Qiyao Diesel Company Ltd. manufactures marine auxiliary engines in Shanghai, China. CSSC Wärtsilä Electrical & Automation Co., Ltd. manufactures advanced electronical and automation solutions for cruise industry. | ||||||||
2018 | ||||||||
MEUR | Holding % | Assets | Equity |
Liabil- ities |
Net sales |
Profit for the financial period |
||
Joint ventures | ||||||||
Wärtsilä Qiyao Diesel Company Ltd. | China | 50.0 | 26 | 19 | 8 | 17 | ||
Wärtsilä Hyundai Engine Co Ltd. | South Korea | 50.0 | 111 | 91 | 20 | 164 | 29 | |
CSSC Wärtsilä Electrical & Automation Co., Ltd. | China | 49.0 | 2 | 2 | 1 | -1 | ||
CSSC Wärtsilä Engine (Shanghai) Co., Ltd. | China | 49.0 | 70 | 19 | 51 | 49 | -3 | |
Repropel Sociedad de reparacao de helices | Portugal | 50.0 | 1 | 1 | 1 | 1 | ||
Associated companies | ||||||||
Wärtsilä Land & Sea Academy, Inc. | Philippines | 40.0 | -2 | 2 | ||||
Neptun Maritime AS | Norway | 40.0 | 1 | 1 | 1 |
18. Financial assets and liabilities by measurement category | ||||||
2019 | ||||||
MEUR |
Measured at amortised cost |
At fair value through the statement of income |
At fair value through other compre- hensive income |
Carrying amounts of the statement of financial position items |
Fair value |
|
Non-current financial assets | ||||||
Interest-bearing investments | 1 | 1 | 1 | |||
Trade receivables | 19 | 19 | 19 | |||
Derivatives | 5 | 5 | 5 | |||
Other investments | 18 | 18 | 18 | |||
Other receivables | 2 | 2 | 2 | |||
Current financial assets | ||||||
Trade receivables | 1 232 | 1 232 | 1 232 | |||
Trade receivables for sale | 4 | 4 | 4 | |||
Derivatives | 5 | 14 | 18 | 18 | ||
Other financial receivables | 6 | 6 | 6 | |||
Cash and cash equivalents | 343* | 15 | 358 | 358 | ||
Carrying amount by measurement category | 1 600 | 48 | 14 | 1 662 | 1 662 | |
Non-current financial liabilities | ||||||
Interest-bearing debt | 997 | 997 | 1 005 | |||
Derivatives | 14 | 2 | 16 | 16 | ||
Current financial liabilities | ||||||
Interest-bearing debt | 99 | 99 | 99 | |||
Trade payables | 624 | 624 | 624 | |||
Derivatives | 1 | 6 | 7 | 7 | ||
Other financial liabilities | 4 | 4 | 4 | |||
Carrying amount by measurement category | 1 724 | 15 | 8 | 1 747 | 1 756 | |
* In addition, the Group has cash and cash equivalents measured at amortised cost of EUR 11 million related to assets held for sale. | ||||||
2018 | ||||||
MEUR |
Measured at amortised cost |
At fair value through the statement of income |
At fair value through other compre- hensive income |
Carrying amounts of the statement of financial position items |
Fair value |
|
Non-current financial assets | ||||||
Interest-bearing investments | 3 | 3 | 3 | |||
Trade receivables | 49 | 49 | 49 | |||
Derivatives | 3 | 3 | 3 | |||
Other investments | 16 | 16 | 16 | |||
Other receivables | 20 | 20 | 20 | |||
Current financial assets | ||||||
Trade receivables | 1 219 | 1 219 | 1 219 | |||
Trade receivables for sale | 3 | 3 | 3 | |||
Derivatives | 5 | 3 | 8 | 8 | ||
Other financial receivables | 3 | 3 | 3 | |||
Cash and cash equivalents | 466 | 21 | 487 | 487 | ||
Carrying amount by measurement category | 1 758 | 52 | 3 | 1 813 | 1 813 | |
Non-current financial liabilities | ||||||
Interest-bearing debt | 748 | 748 | 754 | |||
Derivatives | 16 | 16 | 16 | |||
Current financial liabilities | ||||||
Interest-bearing debt | 74 | 74 | 74 | |||
Trade payables | 596 | 596 | 596 | |||
Derivatives | 27 | 36 | 63 | 63 | ||
Other financial liabilities | 9 | 9 | 9 | |||
Carrying amount by measurement category | 1 428 | 43 | 36 | 1 507 | 1 513 | |
Fair value hierarchy | ||||||
Financial instruments measured at fair value are classified according to the following fair value hierarchy: instruments measured using quoted prices in active markets (level 1), instruments measured using inputs other than quoted prices included in level 1 observable either directly or indirectly (level 2), and instruments measured using inputs that are not based on observable market data (level 3). Financial instruments measured at fair value include financial assets and liabilities at fair value through the statement of income. Due to the short nature of the current receivables, their carrying amount is considered to be same as their fair value. | ||||||
Specific valuation techniques used to value financial instruments include: | ||||||
• the fair value of forward foreign exchange contracts is determined by using forward rates at the closing date | ||||||
• the fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves | ||||||
• the use of quoted market prices or dealer quotes for similar instruments | ||||||
2019 | 2018 | |||||
MEUR | Level 2 | Level 3 | Level 2 | Level 3 | ||
Financial assets | ||||||
Other investments | 18 | 16 | ||||
Interest-bearing investments, non-current | 1 | 3 | ||||
Other receivables, non-current | 2 | 3 | ||||
Derivatives | 24 | 12 | ||||
Financial liabilities | ||||||
Interest-bearing debt, non-current* | 1 005 | 754 | ||||
Derivatives | 23 | 79 | ||||
* Measured at amortised cost in the consolidated statement of financial position. | ||||||
Additional information on financial liabilities is presented in Note 28. Financial liabilities. | ||||||
Other investments | ||||||
Other investments include unlisted shares carried at fair value. These investments are valued using certain DCF models where critical assumptions relate to WACC level and expected cash flows from future dividends. However, the results from different scenarios vary a lot. Thus, the management considers that the valuation at amortised cost is the best estimate of fair value. | ||||||
MEUR | 2019 | 2018 | ||||
Carrying amount on 1 January | 16 | 13 | ||||
Acquired shares | 2 | 3 | ||||
Carrying amount on 31 December | 18 | 16 | ||||
In 2019, the cost for other unlisted shares (level 3) was EUR 18 million (16), and the market value of them was EUR 18 million (16). |
19. Inventories | ||
MEUR | 2019 | 2018 |
Materials and consumables | 484 | 471 |
Work in progress | 736 | 615 |
Finished products | 53 | 35 |
Advances paid | 93 | 43 |
Total | 1 365 | 1 165 |
In 2019, EUR 4 million (1) impairment for obsolete inventories has been recognised in the consolidated statement of income. Acquisition-related increase in inventories is EUR 1 million (8). | ||
In 2019, the principles for estimating inventory write-down have been adjusted. The current principles are based on a range of coverage, which specifies how long the available quantity of material at a certain date or period can cover the requirements in a subsequent period. In 2019, the total impact is EUR 11 million from the change of write-down estimates to the value of the inventories. |
20. Contract balances | ||
MEUR | 2019 | 2018 |
Trade receivables | 1 255 | 1 271 |
Contract assets | 515 | 557 |
Contract liabilities | ||
Advances received | 452 | 584 |
Deferred income | 465 | 345 |
Trade receivables and contract assets | ||
Non-current | 19 | 49 |
Current | 1 752 | 1 779 |
Contract liabilities | ||
Non-current | 38 | 41 |
Current | 880 | 888 |
Revenue recognised in the financial period that was included in the contract liability on 1 January | 888 | 724 |
Unsatisfied performance obligations, all revenue types | 7 427 | 7 242 |
of which remaining performance obligations from projects and contracts under execution | 3 959 | 3 794 |
Trade receivables related to contracts with customers are non-interest-bearing receivables. Trade receivables have decreased during 2019 due to reclassification to assets held for sale as well as through collection of overdue receivables. Contract assets primarily relate to the Group’s right to consideration for transferred goods or services, but which is not yet billed at the reporting date. The contract assets are transferred to receivables when the rights become unconditional. The contract liabilities mainly relate to the advance consideration received from customers for contracts, but for which the corresponding good or service has not yet been transferred. The contract assets and liabilities arise from long-term service agreements and projects recognised over time such as gas solutions construction contracts, integrated solutions projects, ship design, and energy solutions turnkey contracts. The decrease in contract assets in 2019 contains reclassification to assets held for sale and usual business-related variation mainly in Marine Business projects. In addition, the accrued revenue has decreased in long-term service agreements. The decrease in contract liabilities in 2019 arises from usual business-related variation in projects in both segments. |
21. Other receivables | ||
MEUR | 2019 | 2018 |
Derivatives | 24 | 12 |
Interest and other financial items | 6 | 3 |
Insurance receivables | 6 | 5 |
Rental accruals | 3 | 3 |
Prepaid expenses | 14 | 6 |
Other accruals | 41 | 42 |
Loan receivables | 2 | 3 |
Defined benefit plans | 1 | |
VAT receivables | 111 | 104 |
Other* | 88 | 83 |
Total | 296 | 262 |
Non-current | 15 | 34 |
Current | 281 | 228 |
* Other receivables includes payroll related tax receivables of EUR 9 million (9) in Brazil, which cannot be utilised likely within a year. Other receivables also includes a receivable of EUR 21 million (20) relating to disposal of pumps business. The receivable has been classified as current receivable in 2019. |
22. Cash and cash equivalents | ||
MEUR | 2019 | 2018 |
Cash and bank balances* | 343 | 461 |
Cash equivalents | 15 | 26 |
Total | 358 | 487 |
* EUR 171 million (128) of cash and bank balances relate to cash in countries where repatriation is limited due to local regulation and consequently the cash is not immediately available to the parent company. | ||
In addition, the Group has cash and cash equivalents of EUR 11 million related to assets held for sale. |
23. Net debt reconciliation | ||||||
Net interest-bearing debt | ||||||
MEUR | 2019 | 2018 | ||||
Interest-bearing debt, non-current | 851 | 748 | ||||
Lease liabilities, non-current | 146 | |||||
Interest-bearing debt, current | 58 | 74 | ||||
Lease liabilities, current | 42 | |||||
Total interest-bearing liabilities | 1 096 | 823 | ||||
Interest-bearing receivables | -1 | -3 | ||||
Cash and cash equivalents | -358 | -487 | ||||
Cash and cash equivalents pertaining to assets held for sale | -11 | |||||
Total interest-bearing assets | -370 | -490 | ||||
Total net interest-bearing debt | 726 | 333 | ||||
Net debt reconciliation | ||||||
MEUR |
Carrying amount on 1 January 2019 |
Cash flows |
Changes in exchange rates |
Other non-cash movements |
Carrying amount on 31 December 2019 |
|
Interest-bearing debt, non-current | 746* | 104 | 851 | |||
Interest-bearing debt, current | 73* | -11 | -5 | 58 | ||
Lease liabilities | 215** | -52 | 26 | 188 | ||
Interest-bearing receivables | -3 | 2 | -1 | |||
Cash and cash equivalents | -487 | 119 | -369*** | |||
Net debt | 545 | 162 | -5 | 26 | 726 | |
* Finance lease liabilities have been classified in line with IFRS 16 separately under lease liabilities. | ||||||
** Lease liabilities according to IFRS 16. | ||||||
*** Includes cash and cash equivalents pertaining to assets held for sale. | ||||||
MEUR |
Carrying amount on 1 January 2018 |
Cash flows |
Changes in exchange rates |
Acquistions and disposals |
Carrying amount on 31 December 2018 |
|
Interest-bearing debt, non-current | 517 | 231 | -1 | 748 | ||
Interest-bearing debt, current | 102 | -40 | -6 | 18 | 74 | |
Interest-bearing receivables | -5 | -2 | 6 | -3 | ||
Cash and cash equivalents | -379 | -101 | 4 | -11 | -487 | |
Net debt | 234 | 87 | -2 | 13 | 333 |
24. Deferred taxes | |||||||
Changes in deferred taxes during 2019 | |||||||
MEUR | 1 January 2019 |
Recog- nised in the con- solidated statement of income |
Other compre- hensive income |
Transla- tion dif- ferences |
Acquisi- tions |
31 December 2019 | |
Deferred tax assets | |||||||
Tax loss carry-forwards | 18 | 17 | -1 | 34 | |||
Pension obligations | 21 | 1 | 5 | 27 | |||
Provisions | 28 | 7 | 35 | ||||
Elimination of intragroup margin in inventories | 5 | 1 | 6 | ||||
Fair value reserve | 9 | -3 | 6 | ||||
Other temporary differences | 49 | 6 | -1 | 55 | |||
Reclassification to assets held for sale | -8 | ||||||
Total | 129 | 32 | 2 | -2 | 155 | ||
Deferred tax liabilities | |||||||
Intangible assets and property, plant and equipment | 66 | -10 | 2 | 59 | |||
Fair value reserve | 1 | 1 | |||||
Other temporary differences | 32 | 32 | |||||
Reclassification to assets held for sale | -8 | ||||||
Total | 99 | -10 | 1 | 1 | 83 | ||
Net deferred tax assets/liabilities | 30 | 41 | 1 | -1 | -2 | 72 | |
On 31 December 2019, the Group had temporary differences on which no deferred tax assets were booked totalling EUR 64 million (63), as it is uncertain if they will be realised. Most of the unrecognised deferred tax assets are related to cumulative tax losses. Of these, EUR 29 million (18) will expire within the next five years and the rest will expire later or never. Most of the cumulative tax losses on which deferred tax assets have been booked will never expire. | |||||||
Changes in deferred taxes during 2018 | |||||||
MEUR | 1 January 2018 |
Recog- nised in the con- solidated statement of income |
Other compre- hensive income |
Transla- tion dif- ferences |
Acquisi- tions and disposals |
31 December 2018 | |
Deferred tax assets | |||||||
Tax loss carry-forwards | 18 | 2 | 18 | ||||
Pension obligations | 23 | -2 | 21 | ||||
Provisions | 30 | -2 | 28 | ||||
Elimination of intragroup margin in inventories | 5 | 5 | |||||
Fair value reserve | 6 | 3 | 9 | ||||
Other temporary differences | 49 | 6 | 1 | -7 | 49 | ||
Total | 131 | 1 | 3 | 1 | -6 | 129 | |
Deferred tax liabilities | |||||||
Intangible assets and property, plant and equipment | 57 | -6 | 14 | 66 | |||
Fair value reserve | 2 | -2 | |||||
Other temporary differences | 42 | -2 | -7 | 32 | |||
Total | 102 | -8 | -2 | 7 | 99 | ||
Net deferred tax assets/liabilities | 29 | 9 | 5 | 1 | -13 | 30 |
25. Pension obligations | ||||
MEUR | 2019 | 2018 | ||
Net defined benefit liabilities on 31 December | 155 | 149 | ||
Liability for other long-term employee benefits on 31 December | 15 | 13 | ||
Wärtsilä has defined benefit plans for its employees mainly in Europe and Asia. The major plans are located in Switzerland, Germany, Great Britain and Sweden. The Swiss defined benefit plan accounts for 31% of the Group's total defined benefit obligations and 55% of the plans' assets. Most of the plans provide a lifetime pension to the members at the normal retirement age but there are also plans, which provide a lump sum payment at the retirement date. Most of these defined benefit pension plans are managed by pension funds. Their assets are not included in the Group's assets. The plans' assets are typically invested according to the investment strategies approved by the funds' Board of Trustees, or in some cases they are completely administered by insurance companies. Wärtsilä's subsidiaries make their payments to pension funds in accordance with the local legislation and practice. Authorised actuaries in each country have performed the actuarial calculations required for the defined benefit plans. | ||||
The Swiss Plan | ||||
Wärtsilä operates a defined benefit plan in Switzerland in accordance with the local pension laws and regulations. The plan provides benefits to the members in the form of a pension payable after retirement. The level of benefits provided depends on the accrued retirement savings capital, which is a result of contributions paid up to retirement plus respective interest. The plan is run as a pension fund by the Board of Trustees separately from the company. Contributions to the plan are paid both by the employees as well as by the employers based on a percentage of the insured salary as defined in the pension fund regulations. Contributions by the employers vary depending on the age of the employee and cover on average two thirds of the total contributions. The investment strategy for a pension fund's asset is the responsibility of the Board of Trustees. Assets are invested in accordance with the strategy and the corridors for different investment categories as defined by local laws. Other risks of the plan are longevity of plan members as well as death or disability of employees before their retirement. The pension plan is reinsured for the risk of death and disability until 31 December 2019. Inflationary increases for pensions in payment are at the discretion of the Board of Trustees as benefits paid by the plan are exceeding the minimum level required by law. |
||||
The German Plans | ||||
Wärtsilä operates defined benefit plans in Germany in accordance with the local pension laws and regulations. The plans provide benefits to the members in the form of a pension payable after retirement. The level of benefits provided depends on the accrued retirement savings capital, which is a result of contributions paid up to retirement plus respective interest. The plans vary from unfunded plans to a plan run as a pension fund. In some of the plans, contributions are paid to the plan both by the employees and the employers based on a percentage of the insured salary as defined in the pension fund regulations. However, in some plans only the employer is obliged to make the payments. Contributions by the employers vary depending on the age of the employee, the duration of the employment and also on the position of the employee. The main risks of the plans are longevity of plan members and death or disability of employees before their retirement. In a funded plan, also the investment strategy chosen includes certain risk. Inflationary increases for pensions in payment are valuated on a yearly basis. |
||||
MEUR | 2019 | 2018 | ||
Present value of unfunded defined benefit obligations | 119 | 108 | ||
Present value of funded defined benefit obligations | 182 | 177 | ||
Fair value of plan assets | -146 | -135 | ||
Net liability in the statement of financial position | 155 | 149 | ||
% |
Present value of defined benefit obligations |
Fair value of plan assets |
||
Switzerland | 31 | 55 | ||
Germany | 23 | 5 | ||
Other Europe | 37 | 28 | ||
Asia | 9 | 12 | ||
Total | 100 | 100 | ||
MEUR |
Present value of defined benefit obligation |
Fair value of plan assets |
Net defined benefit liability |
|
Balance on 1 January 2018 | 307 | -154 | 154 | |
Changes in exchange rates | 2 | -2 | -1 | |
Recognised in the statement of income: | ||||
Current service cost | 10 | 10 | ||
Past service cost | -1 | -1 | ||
Gains (-) / losses (+) on curtailments and settlements | -21 | 20 | -2 | |
Interest cost (+) / interest income (-) | 5 | -3 | 3 | |
Remeasurements recognised in other comprehensive income: | ||||
Return on plan assets, excluding interest income | 11 | 11 | ||
Experience adjustments | -6 | -6 | ||
Changes in financial assumptions | -2 | -2 | ||
Contribution paid by the plan members | 1 | -1 | ||
Contribution paid by the employer | -11 | -11 | ||
Benefits paid | -13 | 5 | -8 | |
Balance on 31 December 2018 | 282 | -134 | 149 | |
Balance on 1 January 2019 | 282 | -134 | 149 | |
Changes in exchange rates | 5 | -4 | ||
Recognised in the statement of income: | ||||
Current service cost | 13 | 13 | ||
Gains (-) / losses (+) on curtailments and settlements | -1 | -1 | ||
Interest cost (+) / interest income (-) | 5 | -2 | 3 | |
Remeasurements recognised in other comprehensive income: | ||||
Return on plan assets, excluding interest income | -11 | -11 | ||
Experience adjustments | 1 | 1 | ||
Changes in demographic assumptions | -1 | -1 | ||
Changes in financial assumptions | 30 | 30 | ||
Contribution paid by the plan members | 1 | -1 | ||
Contribution paid by the employer | -10 | -10 | ||
Benefits paid | -21 | 10 | -12 | |
Reclassification to assets held for sale | -15 | 7 | -8 | |
Balance on 31 December 2019 | 299 | -146 | 155 | |
Plan assets invested in: | ||||
% | 2019 | 2018 | ||
Shares and other equity instruments | 18 | 17 | ||
Bonds and other debt instruments | 35 | 33 | ||
Property | 17 | 17 | ||
Other assets | 30 | 33 | ||
The main actuarial assumptions at the end of the financial period are (expressed as weighted averages): | ||||
% | 2019 | 2018 | ||
Discount rate | 1.08 | 1.78 | ||
Future salary growth | 2.03 | 2.16 | ||
Future pension growth | 1.14 | 1.18 | ||
On 31 December 2019, the weighted average duration of the defined benefit obligation was 12 years. The Group expects to contribute EUR 7 million to the plans during the next financial period. | ||||
Assumptions regarding future mortality are set based on actuarial advice in accordance with the published statistics and experience in each country. These assumptions translate into a weighted average life expectancy in years for a pensioner at the retirement age as follows: | ||||
2019 | 2018 | |||
Plan participants retiring at the end of the financial period: | ||||
Male | 17.4 | 17.0 | ||
Female | 20.0 | 17.1 | ||
Plan participants retiring 20 years after the end of the financial period: | ||||
Male | 18.4 | 16.1 | ||
Female | 20.4 | 18.1 | ||
The following table presents a sensitivity analysis for each significant actuarial assumption showing how the defined benefit obligation would have been affected by changes in the relevant actuarial assumption that were reasonably possible at the end of the financial period. This sensitivity analysis applies to the defined benefit obligation only and not to the net defined benefit pension liability in its entirety. | ||||
Sensitivity analysis | ||||
Effect to defined benefit obligation, MEUR |
||||
Change in assumption | 2019 | 2018 | ||
Discount rate | increase 1% | -41 | -33 | |
Discount rate | decrease 1% | 51 | 41 | |
Future salary growth | increase 1% | 10 | 9 | |
Future salary growth | decrease 1% | -8 | -8 | |
Future pension growth | increase 1% | 30 | 25 | |
Future pension growth | decrease 1% | -16 | -15 |
26. Equity | ||||
Equity consists of share capital, share premium, translation differences, fair value reserve, remeasurements of defined benefit liabilities and retained earnings. | ||||
Share capital and number of shares | ||||
MEUR | ||||
Share capital |
Number of shares and votes |
Share capital |
Share premium |
Total |
1 January 2018 | 197 241 130 | 336 | 61 | 397 |
Share issue without payment on 12 March 2018 | 394 482 260 | |||
31 December 2018 | 591 723 390 | 336 | 61 | 397 |
31 December 2019 | 591 723 390 | 336 | 61 | 397 |
Wärtsilä's share does not have a nominal value. Wärtsilä has one series of shares. Each share is assigned one vote in the Annual General Meeting and has equal right to dividend. | ||||
Share Capital | ||||
The subscription price of a share received by the company in connection with share issues is credited to the share capital, unless it is provided in the share issue decision that a part of the subscription price is to be recorded in the fund for invested non-restricted equity. | ||||
Share Premium | ||||
Share premium is restricted equity. It may be reduced in accordance with the rules applying to decreasing share capital in accordance with the Finnish Limited Liability Companies Act. It can also be used to increase the share capital. | ||||
Translation differences | ||||
Translating foreign subsidiaries' financial statements by using different exchange rates in the statement of comprehensive income and in the statement of financial position causes translation differences, which are recognised in equity. Translation differences of foreign subsidiaries’ acquisition cost eliminations and post acquisition gains and losses are also presented in equity. Also translation differences arising from subsidiary net investment and non-current subsidiary loan without agreed settlement dates are presented in equity. The change in translation differences is recognised in other comprehensive income. | ||||
Fair value reserve | ||||
Fair value reserve includes the changes in fair value of derivative financial instruments, if the hedging is effective and eligible for hedge accounting. The changes in items included in fair value reserve are recognised in other comprehensive income. | ||||
MEUR |
Cash flow hedges |
|||
Difference between fair value and carrying amount on 1 January 2018 | -14 | |||
Taxes related to fair value adjustments | 3 | |||
Fair value reserve on 1 January 2018 | -10 | |||
Transferred to the statement of income, net of taxes | -6 | |||
Fair value adjustments | -17 | |||
Taxes related to fair value adjustments | 3 | |||
Fair value reserve on 31 December 2018 | -31 | |||
Transferred to the statement of income, net of taxes | 16 | |||
Fair value adjustments | 4 | |||
Fair value reserve on 31 December 2019 | -11 | |||
Parent company's distributable funds | ||||
After the balance sheet date, the Board of Directors proposed that a dividend of EUR 0.48 per share be paid for the financial period 2019, total dividend payable being EUR 284 million. The remaining part of the retained profits will be carried further in the unrestricted equity. For the profit for the financial period 2018, a dividend of EUR 0.48 per share was distributed, totalling EUR 284 million, and the rest of the retained profits were carried further in the unrestricted equity. | ||||
Additional information on equity is presented in Notes to the parent company financial statements, in Note 10. Shareholders' equity. |
27. Provisions | ||||||
2019 | ||||||
MEUR | Litigation | Warranties |
Onerous contracts |
Restruc- turing |
Other provisions |
Total |
Provisions on 1 January 2019 | 21 | 172 | 67 | 7 | 38 | 305 |
Changes in exchange rates | 1 | |||||
Additions | 4 | 52 | 100 | 20 | 14 | 190 |
Used provisions | -14 | -51 | -71 | -13 | -9 | -159 |
Released provisions | -1 | -7 | -2 | -5 | -14 | |
Provisions on 31 December 2019 | 10 | 174 | 89 | 13 | 38 | 323 |
Non-current | 45 | |||||
Current | 278 | |||||
2018 | ||||||
MEUR | Litigation | Warranties |
Onerous contracts |
Restruc- turing |
Other provisions |
Total |
Provisions on 1 January 2018 | 19 | 173 | 27 | 6 | 35 | 261 |
Acquisitions | 1 | 1 | 1 | 3 | ||
Additions | 12 | 60 | 107 | 9 | 11 | 198 |
Used provisions | -2 | -62 | -64 | -6 | -5 | -138 |
Released provisions | -9 | -5 | -4 | -4 | -21 | |
Provisions on 31 December 2018 | 21 | 172 | 67 | 7 | 38 | 305 |
Non-current | 54 | |||||
Current | 251 | |||||
Warranty provisions include estimated future warranty costs relating to products delivered. The amount of future warranty costs is based on accumulated historical experience. The standard warranty period is one year from the delivery onwards. | ||||||
The Group is a defendant in a number of legal cases which arise out of, or are incidental to, the ordinary course of its business. These lawsuits concern mainly issues such as contractual and other liability, labour relations, property damage and regulatory matters. The Group receives from time to time claims of different amounts and with varying degrees of substantiation. There is currently one unusually sizeable claim, but it is highly unlikely that the outcome of it would be unfavourable. The claim is treated as a contingent liability as it is the Group’s policy to provide for amounts related to the claims as well as for the litigation and arbitration matters when an unfavourable outcome is probable and the amount of loss can be reasonably estimated. |
28. Financial liabilities | |||||
2019 | |||||
Current | Non-current | ||||
MEUR | < 1 year | 1–3 years | 3–5 years | > 5 years | Total |
Loans from other financial institutions* | 56 | 263 | 258 | 328 | 906 |
Lease liabilities | 48 | 65 | 37 | 64 | 215 |
Other interest-bearing debt* | 2 | 2 | |||
Trade payables | 624 | 624 | |||
Derivatives** | 7 | 10 | 5 | 2 | 23 |
Other liabilities | 4 | 4 | |||
Total | 741 | 339 | 301 | 392 | 1 774 |
* Estimated interest expenses, total | 8 | 12 | 8 | 3 | 31 |
Estimated contractual cash flows | 748 | 351 | 309 | 395 | 1 804 |
2018 | |||||
Current | Non-current | ||||
MEUR | < 1 year | 1–3 years | 3–5 years | > 5 years | Total |
Loans from other financial institutions* | 63 | 186 | 311 | 250 | 809 |
Finance lease liabilities* | 1 | 2 | 2 | ||
Other interest-bearing debt* | 11 | 11 | |||
Trade payables | 596 | 596 | |||
Derivatives** | 63 | 12 | 3 | 79 | |
Other liabilities | 9 | 9 | |||
Total | 744 | 199 | 314 | 250 | 1 507 |
* Estimated interest expenses, total | 8 | 13 | 11 | 7 | 39 |
Estimated contractual cash flows | 752 | 212 | 326 | 257 | 1 546 |
** Valuation for derivatives with negative market value by maturity date. Nominal contractual amounts are presented in Note 30. Derivative financial instruments. | |||||
Interest expenses for long-term loans are calculated by using the average interest rate prevailing on 31 December 2019. Fair values of financial liabilities are presented in Note 18. Financial assets and liabilities by measurement category. |
29. Other liabilities | ||
MEUR | 2019 | 2018 |
Accrued expenses | 320 | 295 |
Personnel costs | 125 | 124 |
Derivatives | 23 | 79 |
Interest and other financial items | 4 | 9 |
Other accruals | 41 | 45 |
VAT liabilities | 39 | 26 |
Other | 70 | 67 |
Total | 623 | 645 |
Non-current | 1 | 1 |
Current | 622 | 645 |
30. Derivative financial instruments | |||||
The Group applies hedge accounting to significant foreign currency forward contracts. Detailed financial information is presented in Note 33. Financial risks. | |||||
MEUR | 2019 |
of which closed |
2018 |
of which closed |
|
Nominal values of derivative financial instruments (level 2) | |||||
Interest rate swaps | 400 | 270 | |||
Cross currency swaps | 246 | 238 | |||
Currency forwards, included in hedge accounting | 1 769 | 873 | 1 227 | 314 | |
Currency forwards, no hedge accounting | 597 | 213 | 1 600 | 721 | |
Total | 3 012 | 1 086 | 3 335 | 1 035 | |
Fair values of derivative financial instruments (level 2) | |||||
Interest rate swaps | -7 | -4 | |||
Cross currency swaps | -4 | -8 | |||
Currency forwards, included in hedge accounting | 8 | -22 | |||
Currency forwards, no hedge accounting | 4 | -33 | |||
Total | -67 | ||||
In addition, the Group had copper futures and swaps amounting to 173 tons (264) valued at EUR 1 million (1). | |||||
Foreign currency forward contracts are against transactional risks and fall due during the following 12 months (12). A currency forward is considered closed when there are offsetting cash flows in the same currency with the same value date. Interest rate swaps are denominated in euros and their average maturity is 69 months (48). The average maturity for cross currency swaps is 41 months (54). | |||||
Normally all of the Groups' derivatives are done under International Swaps and Derivatives Association's Master Agreements (ISDA). In case of an event of default under these agreements the non-defaulting party may request early termination and set-off of all outstanding transactions. These agreements do not meet the criteria for offsetting in the statement of financial position. The following table sets out the carrying amounts of recognised financial instruments that are subject to the above agreements. | |||||
MEUR | 2019 | 2018 | |||
Gross fair values of derivative financial instruments subject to ISDAs | |||||
Assets | |||||
Cross currency swaps | 5 | 3 | |||
Currency forwards | 18 | 8 | |||
Total | 24 | 12 | |||
Liabilities | |||||
Interest rate swaps | -7 | -4 | |||
Cross currency swaps | -9 | -11 | |||
Currency forwards | -7 | -63 | |||
Total | -23 | -79 | |||
Net fair values of derivative financial instruments subject to ISDAs | |||||
Assets | 8 | ||||
Liabilities | -8 | -67 | |||
Total | -67 |
31. Collateral, contingent liabilities and other commitments | |||||
2019 | 2018 | ||||
MEUR |
Debt in the statement of financial position |
Collateral |
Debt in the statement of financial position |
Collateral | |
Mortgages given as collateral for liabilities and commitments | |||||
Other commitments | 18 | 10 | 15 | 10 | |
Total | 18 | 10 | 15 | 10 | |
Chattel mortgages and other pledges and securities given as collateral for liabilities and commitments | |||||
Loans from credit institutions | 5 | 1 | 8 | 2 | |
Other commitments | 21 | 17 | |||
Total | 5 | 22 | 8 | 19 | |
MEUR | 2019 | 2018 | |||
Guarantees and contingent liabilities |