June 2014: Wärtsila publishes interim report

This release is a summary of Wärtsilä's Interim Report January - June 2014.

Second quarter highlights:

• Order intake increased 9% to €1163 million.
• Net sales decreased 2% to €1132 million
• Operating result before non-recurring items €122 million, or 10.8% of net sales (€111 million or 9.6%)?
• Earnings per share €0.42
• Cash flow from operating activities €61 million

Highlights of the review period January - June 2014:

• Order intake decreased 5% to €2305 million
• Net sales increased 5% to €2144 million
• Operating result before non-recurring items €212 million, or 9.9% of net sales (€181 million or 8.9%)?
• Earnings per share €0.73
• Cash flow from operating activities €172 million
• Order book at the end of the period decreased 4% to €4554 million

Events after the reporting period

Wärtsilä and China State Shipbuilding Corporation announced the establishment of a joint venture, which will take over Wärtsilä's two-stroke engine business. Going forward, the two-stroke engine business will be reported as discontinued operations.

Wärtsilä and China State Shipbuilding Corporation announced the establishment of a joint venture for manufacturing medium and large bore medium-speed diesel and dual-fuel engines.

Wärtsilä's prospects for 2014 revised

Wärtsilä estimates its profitability for 2014 (EBIT% before non-recurring items) to be around 11.5%, due to the two-stroke business transaction. Net sales are expected to grow by around 5%.

Previously Wärtsilä expected its net sales to grow by 0 - 10% and its operational profitability (EBIT% before non-recurring items) to be around 11%.

Björn Rosengren, President and CEO said:

"The first half of 2014 has developed well. I am pleased to note that the ongoing restructuring measures have already made a positive contribution to our operating result. The savings we have achieved through these measures, together with the improved Ship Power and Services performance, have compensated for the low volumes in the Power Plants business and resulted in profitability increasing to 9.9%.

“Contracting in the marine markets was active and Ship Power's second quarter order intake developed favourably, especially in the offshore and gas carrier segments. The challenges in the overall power generation markets, however, continued to affect our Power Plants business. Orders remained fairly low, although improving from the weak levels seen in the first quarter. I am confident that activity will improve in the second half. The Services business had an active quarter in terms of signing long-term service contracts with marine customers. The interest for agreements continues to be strongest in the more specialised vessel segments.

“In July, Wärtsilä and China State Shipbuilding Corporation announced the establishment of a joint venture company, which will assume total responsibility for Wärtsilä's two-stroke engine business. Our ownership in the joint venture will be 30%. The responsibility for servicing Wärtsilä's two-stroke engines will remain with our Services business. The partnership will enhance the position of Wärtsilä's two-stroke technology in the marine engine market, and will provide a strong base for future investments in leading two-stroke technology and customer support. The transaction will have a positive impact on our continuing operations and consequently our estimate for 2014 profitability has been increased to around 11.5%. We have also narrowed down our net sales guidance to around 5% growth."

Market outlook

Power generation markets closely follow the global macro-economic situation. Based on the market challenges seen during the first half year and the revised GDP forecasts for 2014, the overall market for liquid and gas fuelled power generation is expected to continue to be challenging. Ordering activity remains focused on the emerging markets, especially those with oil and gas production based economies, which continue to invest in new power generation capacity. Furthermore, the current market situation is creating pent-up demand in emerging countries where investment decisions have been delayed. In the OECD countries, demand is mainly driven by CO2 neutral generation and the ramp down of older, largely coal-based generation.

The main drivers supporting activity in the shipping and offshore sectors are in place, yet growth has nevertheless been slow. Despite improving seaborne trade, overcapacity is still affecting demand in the traditional merchant markets. Increased scrapping and a more balanced fleet growth support gradual freight market recovery. In the offshore segment, current oil price levels support investments in projects with controlled exploration and development costs. The importance of fuel efficiency and the introduction of environmental regulations are clearly visible. The regulatory environment is also increasing interest in gas as a marine fuel, which is further strengthened in the US by favourable pricing. Offshore activity is anticipated to continue; however a decline in the contracting of drilling units and certain support vessels may be seen. The shipping markets are expected to remain active, especially within the gas carrier segment, although the contracting of traditional merchant vessels is likely to decline.

The overall service market outlook remains stable, with positive developments in selected regions. An increase in the installed base offsets the slower service demand for older installations and the continued emphasis of merchant marine customers on reducing operating expenses. The outlook for services to offshore and gas fuelled vessels remains favourable. The interest for service agreements is strong in both of Wärtsilä's end markets. Demand for services in the power plant segment continues to be good. From a regional perspective, the outlook for the Middle East and Asia is positive, and is supported by interest in power plant related services. The outlook is also good in the Americas and in Africa.

Edited from source by Elizabeth Corner

Read the article online at: https://www.worldpipelines.com/business-news/18072014/june-2014-wartsila-publishes-interim-report/