The year 2019 was characterised by a difficult demand environment and weaker than anticipated financial performance. Despite the increase in marine equipment sales and service volumes, energy equipment deliveries declined due to external factors affecting the energy market. While this did impact our operating result, the primary setback was the cost overruns we experienced in a handful of complex marine and energy projects, which were caused by inaccurate assumptions in cost estimates, insufficient risk identification, and supplier related challenges.
I am convinced that our project management capabilities will soon be re-established at their previous level of excellence. To achieve this, and to prevent a re-occurrence in future projects of the issues we have faced in 2019, we have undertaken a number of actions to improve the quality of our project execution and to ensure better upfront identification of risks and opportunities. I am confident that this will enable us to live up to our reputation for providing high quality and value enhancing solutions, coupled with superior project management capabilities.
Order intake affected by difficult market conditions
Vessel contracting fell short of initial forecasts, largely due to concerns related to the implications of geopolitical developments on seaborne trade. Furthermore, there was a decline in scrubber orders from the exceptionally high levels of the previous year. This was a result of uncertainty related to the price and availability of bunker fuels. Considering these factors, we can be pleased with the level of equipment orders received in the Marine Business. Our extensive market exposure and broad offering of solutions have once again allowed us to capture opportunities in those segments where activity has been more robust, such as cruise ships and gas carriers.
Energy policies are being revised to promote sustainable development and to combat climate change. In order to achieve ambitious decarbonisation targets, utilities globally are updating their investment strategies. This, in combination with an unfavourable macroeconomic environment, has caused customers to defer investment decisions. Because of this, the demand for new gas and liquid fuelled power generation capacity declined significantly during the year, creating a background of uncertainty for our Energy Business. Although equipment orders in the Energy Business failed to meet our expectations, energy service orders developed well, as did the orders for energy storage and optimisation solutions.
Strengthening the focus on lifecycle solutions
While 2019 did not prove to be an easy year for Wärtsilä, the operational challenges we experienced masked positive developments on many fronts; most notably, the return to growth in services following two years of stable development. I am particularly pleased to highlight the increased order intake for service agreements, which included the Energy Business’ largest ever long-term operation and maintenance agreement. This was signed with Energia del Pacifico for a power plant under construction in El Salvador.
The importance of these agreements to our strategy is emphasised by the fact that we renewed our organisational structure at the beginning of 2019, forming it around two businesses integrating both equipment and services. A central aim of this change is to better enable the tailoring of our lifecycle solutions to specific market needs. I am pleased to note that we have realised certain benefits of this reorganisation, for example through improved cooperation internally with regards to developing and executing our full lifecycle offering. I strongly believe that this provides a foundation for strengthening lifecycle partnerships with our customers, which in turn will support progression towards our long-term target of profitable growth.
Putting our Smart Marine and Smart Energy visions into action
As a result of the need to significantly raise efficiency levels and comply with tightening environmental legislation, there is a rapid transformation taking place in both the marine and energy sectors. Wärtsilä has taken a leading position in enabling this transformation process through its Smart Marine and Smart Energy visions, where the latest technologies are being developed and employed to meet the evolving needs in both these end markets.
Several key orders were received during the year that validate the commercial feasibility of our Smart Marine vision. The order to supply Anglo-Eastern’s fleet of more than 600 vessels with Wärtsilä’s Fleet Optimisation Solution (FOS) illustrates that the shipping industry is increasingly looking at leveraging the latest digital solutions to maximise efficiency and performance. FOS enables voyage planning, speed management, weather routing, ship-to-shore reporting, and fleet performance management to reduce fuel consumption. Furthermore, in the field of autonomous vessels, following last year’s successful testing, we received our first order for SmartDock during 2019, making it the world’s first commercially available auto-docking solution.
In the energy market, an order we received from Cambodia is an excellent example of the role we can play in providing fast-starting, flexible solutions that enable the integration of increasing levels of power from renewable sources, while simultaneously securing power system reliability. In addition to adding much needed capacity to the grid, the plant will provide the balancing flexibility that is essential when adding fluctuating supplies of solar and wind to the power system. Another example of how our solutions can support the transition to carbon-free resources is the 100 MW/100 MWh total capacity energy storage project awarded to us in South East Asia. The energy storage system, which includes our advanced energy management software platform GEMS, will support the region in reducing its reliance on fossil fuels. These orders represent a clear indication of the steps we have taken in realising our vision to lead the industry’s transformation towards a 100% renewable future.
New technologies based on innovations and collaboration
Investing in technological leadership is vital for ensuring the competitiveness of Wärtsilä’s product portfolio and for securing a leading position in sustainable innovation. The focus of our R&D activities, the cost of which amounted to 3.2% of sales in 2019, is on areas such as efficiency improvement, fuel flexibility, and the reduction of environmental impacts. While we remain dedicated to developing the core technologies within our portfolio, as illustrated by the two new engine additions to the Wärtsilä 31 family, our research and development activities have increasingly turned to developing new digital solutions, with the emphasis on optimising performance through data insights. Examples of some of the advances made during the year include a new online platform that allows our customers to manage their installations more efficiently, and the introduction of Expert Insight, which leverages artificial intelligence and advanced diagnostics to remotely monitor equipment and systems in real time.
Collaboration with industry stakeholders is an essential element in the development of technologies needed to meet the changing market requirements. Among the year’s partnership projects were agreements aimed at accelerating the development and commercialisation of renewable fuels in the energy markets. In the marine sector, our project to develop an autonomous harbour tug, IntelliTug, is an excellent example of the role collaboration plays within our innovation activities. Developed in collaboration with PSA Marine, the project took a decisive leap from drawing board to practical application during the year. Following the successful installation of a first-of-its-kind dynamic positioning system onboard the harbour tug ‘PSA Polaris’, trials are now being carried out in the Port of Singapore under real-world conditions.
In the field of energy, an important example of our partnership agreements are those focusing on exploring the role that Power-to-X, namely the generation of synthetic fuel from excess CO2 emissions, plays in a carbon-neutral future. Such projects include providing funding to start-ups, as well as collaborating with academia and companies that are developing innovative technologies to speed the development of renewable fuels and capture opportunities to market them globally.
Collaboration is also extremely important to the success of the Smart Technology Hub, our new centre of research, product development and production being built in Vaasa, Finland. As the project progressed from planning to implementation in 2019, the selection of the first partners for the Smart Partner Campus took place. This is where research and product development activities can be carried out together with Wärtsilä's customers and suppliers, start-ups, and universities.
A consistent emphasis on responsible business conduct
While our strategy places a strong emphasis on reducing harmful environmental impact, social considerations are of equal importance to us. We always intend to contribute towards the well-being of society and to foster an inclusive corporate culture by respecting diversity, providing equal opportunities, and demonstrating high ethical standards. In this context, we are committed to supporting the UN Global Compact and its principles with respect to human rights, labour, the environment, and anti-corruption. Another clear priority is ensuring safe working conditions and strengthening safety leadership within the company. The increase in the number of safety walks carried out by management, and the adherence to near-miss reporting, show that safety is taken seriously throughout the organisation. Furthermore, the decline in our lost time injury frequency shows that we are moving in the right direction.
Short-term challenges, longer-term optimism
The business environment is expected to continue to be challenging during the upcoming year. For this reason, we remain cautious on the demand outlook. Our focus will be on improving operational efficiency, with the aim of mitigating, to the extent possible, the near-term performance headwinds related to pricing and mix. We have also taken steps to simplify our portfolio in order to strengthen the focus on core businesses. This entails moving non-core activities into a separate business unit, with the aim of accelerating their performance and unlocking value.
Looking further ahead, we have a solid basis for future performance thanks to our sizeable order book and service opportunities arising from our large installed base. Furthermore, we have the means and the solutions, through our broad offering of flexible technologies and strong in-house capabilities, to enable growth in the adoption of renewable energy sources, and to contribute to the decarbonisation of the maritime industry.
I would like to take this opportunity to thank our shareholders for their continued support. To our customers, I say thank you for your trust in our solutions and services, and finally yet importantly, I want to thank our personnel for their continued dedication and for putting us firmly on the path towards achievement of our common goals.
President & CEO
|Net sales||5 170||1 684||1 118||1 217||1 151||5 174|
|Marine||3 330||1 020||776||801||733||2 815|
|Energy||1 840||664||342||416||418||2 359|
|Depreciation, amortisation and impairment||-180||-39||-58||-42||-41||-130|
|Comparable operating result1||457||202||39||113||102||577|
|Comparable operating result1, %||8.8||12.0||3.5||9.3||8.9||11.2|
|Profit before taxes||315||153||-0||83||78||502|
|Earnings per share, EUR||0.37||0.17||-0.01||0.11||0.10||0.65|
|Order intake||5 327||1 555||979||1 377||1 416||6 307|
|Balance sheet total||6 398||6 398||6 360||6 198||6 337||6 059|
|Interest-bearing liabilities, gross2||1 096||1 096||1 365||1 132||1 162||823|
|Cash and cash equivalents||369||369||374||383||501||487|
|Order book, end of period||5 878||5 878||6 294||6 470||6 330||6 166|
|Year-end market capitalisation||5 828||5 828||6 080||7 547||8 512||8 222|
|Personnel, number at end of period||18 795||18 795||19 018||19 239||19 225||19 294|
|1||Figures exclude items affecting comparability.|
|2||The increase in net interest-bearing debt is partly related to the inclusion of lease liabilities on balance sheet as a result of the new IFRS 16 standard.|