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Wärtsilä Corporation Interim report

Wärtsilä Corporation Interim report

January – September 2019

“The third quarter proved to be challenging, both in terms of equipment demand trends and financial performance. I am pleased to note that services related order intake increased in both businesses.”

Jaakko Eskola, President & CEO

Q3 interim report PDF

Third quarter burdened by project related challenges and low equipment demand – services activity remains sound

“The third quarter proved to be challenging for Wärtsilä, both in terms of equipment demand trends and financial performance. The decline in order intake reflected weak vessel contracting and softened demand for scrubber systems, as well as continued slow decision-making in the energy markets. While the project pipeline is healthy in both businesses, visibility on order intake timing is limited and competition is intensifying. Price pressure remains a headwind in the prevailing market environment. I am pleased to note that despite the challenges we face in the equipment businesses, services related activity remained sound.

Wärtsilä’s financial performance was significantly below that of the previous year. The decline in net sales was anticipated, as energy equipment and scrubber deliveries are concentrated towards the latter part of the year. Our operating result, on the other hand, was weakened by unforeseen cost overruns in a handful of complex marine and energy projects. The full-year result will be impacted by a one-time charge amounting to EUR 150 million, of which EUR 84 million has already been recognised. A review of the projects in question revealed incorrect underlying assumptions in cost estimates, insufficient risk identification, and supplier related challenges. We have taken corrective actions to prevent similar issues from occurring in the future. These include introducing tighter controls on technical assessments and the supplier approval process, as well as strengthening the project management organisation. With these measures, we aim to improve our project execution quality and 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."


Signature

Jaakko Eskola

President & CEO

Wärtsilä's prospects

The demand for Wärtsilä’s services and solutions in the coming 12 months is expected to be somewhat below that of the previous 12 months. Demand by business area is anticipated to be as follows:
  • Soft in Wärtsilä Marine Business, due to lower vessel contracting volumes and a decline in the demand for scrubber solutions from last year’s exceptionally high level. Activity in the marine services market is expected to be stable.
  • Weak in Wärtsilä Energy Business (downgraded from soft). Market conditions in the energy industry are challenging, as the rapidly changing energy landscape is creating uncertainty among customers. The geopolitical and economic environment is further slowing decision-making. The demand for energy services is expected to be stable.
Wärtsilä’s current order book for 2019 deliveries is EUR 1,708 million (1,364), comprised mainly of equipment deliveries. The comparable operating result for the full year 2019 is expected to be approximately EUR 100 million lower than in the previous year (EUR 577 million in 2018).

Highlights

Highlights of the third quarter 2019

  • Order intake decreased 29% to EUR 979 million (1,372)
  • Net sales decreased 16% to EUR 1,118 million (1,330)
  • Book-to-bill amounted to 0.88 (1.03)
  • Comparable operating result decreased to EUR 39 million (141), which represents 3.5% of net sales
    (10.6).
  • Earnings per share decreased to -0.01 euro (0.17)
  • Cash flow from operating activities decreased to EUR -61 million (122)

Highlights of the review period January-September 2019

  • Order intake decreased 15% to EUR 3,772 million (4,433)
  • Order book at the end of the period increased 6% to EUR 6,294 million (5,918)
  • Net sales decreased 4% to EUR 3,486 million (3,642)
  • Book-to-bill amounted to 1.08 (1.22)
  • Comparable operating result decreased to EUR 254 million (352), which represents 7.3% of net sales
    (9.7)
  • Earnings per share decreased to 0.20 euro (0.39)
  • Cash flow from operating activities decreased to EUR -63 million (121)

As announced in September, Wärtsilä’s full-year operating result will be impacted by a one-time charge related to project cost overruns in the Marine and Energy Businesses amounting to EUR 150 million. Of the total amount, EUR 84 million was booked in the period January-September and EUR 65 million in the third quarter.

Key figures
MEUR 7-9/2019 7-9/2018 Change 1-9/2019 1-9/2018 Change 2018
Order intake 979 1 372 -29% 3 772 4 433 -15% 6 307
of which services 679 640 6% 1 954 1 898 3% 2 598
Order book, end of period 6 294 5 918 6% 6 166
Net sales 1 118 1 330 -16% 3 486 3 642 -4% 5 174
of which services 578 571 1% 1 762 1 688 4% 2 419
Book-to-bill 0.88 1.03 1.08 1.22 1.22
Operating result 11 141 -92% 198 337 -41% 543
% of net sales 1.0 10.6 5.7 9.2 10.5
Comparable operating result1 39 141 -72% 254 352 -28% 577
% of net sales 3.5 10.6 7.3 9.7 11.2
Comparable adjusted EBITA2 49 152 -68% 285 384 -26% 621
% of net sales 4.4 11.5 8.2 10.5 12.0
Profit before taxes -0 130 -100% 162 308 -48% 502
Earnings/share, EUR -0.01 0.17 0.20 0.39 0.65
Cash flow from operating activities -61 122 -63 121 470
Net interest-bearing debt, end of period3 987 647 333
Gross capital expenditure 79 258 306
Gearing 0.44 0.28 0.14
Solvency, % 39.4 43.7 44.4
Personnel, end of period 19 018 19 420 -2% 19 294
1Items affecting comparability in the third quarter of 2019 included costs related primarily to restructuring programmes of EUR 28 million (0). During January-September, items affecting comparability amounted to EUR 56 million (15).
2Comparable adjusted EBITA excludes items affecting comparability and purchase price allocation amortisation.
3The increase in net interest-bearing debt is largely related to the inclusion of lease liabilities on balance sheet as a result of the new IFRS 16 standard.

As of the first quarter of 2019, Wärtsilä’s financial reporting has been amended to reflect its new organisational structure. The two business areas, Wärtsilä Marine Business and Wärtsilä Energy Business, constitute the reportable segments. Financial reporting for 2018 has been adjusted to reflect this change. Wärtsilä will additionally report the services related order intake and net sales for the two segments. In Wärtsilä Marine Business, order intake and net sales for retrofit scrubber projects have been transferred from services to new equipment. The comparison figures have been adjusted accordingly.

Wärtsilä presents certain alternative performance measures in accordance with the guidance issued by the European Securities and Markets Authority (ESMA). The definition of these alternative performance measures is presented in the calculations of financial ratios.

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