Wärtsilä Corporation INTERIM REPORT 19 October 2011 at 8.30 a.m. local time
GOOD GROWTH IN ORDER INTAKE
THIRD QUARTER HIGHLIGHTS
- Order intake increased by 11% to EUR 1,118 million (1,004)
- Order intake in joint venture companies grew significantly, EUR 182 million
(68)
- Net sales decreased 18% to EUR 851 million (1,039)
- Operating result EUR 94 million, or 11.0% of net sales (EUR 117 million and
11.2%)
- Earnings per share amounted to EUR 0.28 (0.41)
- Book-to-bill increased to 1.31 (0.97)
- Wärtsilä acquired Cedervall, a manufacturer of shaft seal and bearing systems
for the marine industry
HIGHLIGHTS OF THE REVIEW PERIOD JANUARY-SEPTEMBER 2011
- Order intake increased by 9% to EUR 3,267 million (3,002)
- Order intake in joint venture companies grew significantly, EUR 216 million
(73)
- Net sales decreased to EUR 2,970 million (3,091), -4%
- Operating result EUR 324 million (328), 10.9% of net sales (10.6)
- At the end of the period the order book totalled EUR 4,042 million (4,243),
-5%
- Earnings per share amounted to EUR 1.05 (1.18)
- Cash flow from operating activities EUR 303 million (491)
The operating result and earnings per share are shown excluding nonrecurring
items. Wärtsilä recognised EUR 6 million (2) of nonrecurring items related to
restructuring measures during the third quarter and EUR 17 million (59) of
nonrecurring items during the review period January-September 2011.
BJÖRN ROSENGREN, PRESIDENT AND CEO:
"This is my first time presenting Wärtsilä's result and I am pleased as it was
strong in many ways. Wärtsilä's resilience in terms of solid profitability and
increasing order intake in all three businesses gives us good possibilities for
the future. In addition to the active Offshore segment, order intake grew
significantly in our Korean joint venture, which focuses on dual-fuel engines
for LNG carriers. This emphasises our strong position in the gas engine markets.
Power Plants received some landmark orders, in addition to good ordering
activity globally. Mining sector customers, utilities and Independent Power
Producers actively placed orders. The third quarter developed as expected in
terms of net sales, which was on a lower level compared to the previous year.
This development was mainly related to the timing of deliveries. While certain
marine service markets are suffering from uncertainties in the global economy,
the power plant service market is more stable. In the slightly longer term, we
see good prospects arising for environmental services. Despite the increased
uncertainties in the global economy during this quarter, our prospects for net
sales and profitability for the year 2011 remain the same."
WÄRTSILÄ'S PROSPECTS FOR 2011 REITERATED
Wärtsilä expects its net sales for 2011 to decline by 0-5% compared to last year
and operational profitability (EBIT% before nonrecurring items) to be around
11%.
ANALYST AND PRESS CONFERENCE
An analyst and press conference will be held on Wednesday 19 October 2011, at
10.45 a.m. Finnish time (8.45 a.m. UK time), at the Wärtsilä headquarters in
Helsinki, Finland. The combined web- and teleconference will be held in English
and can be viewed on the internet at the following
address:http://storm.zoomvisionmamato.com/player/wartsila/objects/cfrvmw0h/.
To participate in the teleconference please register at the following address:
http://www.yourconferencecentre.com/r.aspx?p=1&a=DRjQeElqqoXIHD.
You will receive dial-in details by e-mail once you have registered. If you want
to ask questions during the teleconference, press the *-button followed by the
1-button on your phone to register for a question and the # -key to withdraw a
question. The event name is: Wärtsilä Interim Report Q3 2011. Please be ready to
state your details and the name of the conference to the operator. If problems
occur, please press the *-button followed by the 0-button.
An on-demand version of the webcast will be available on the company website
later the same day.
For further information, please contact:
Raimo Lind
Executive Vice President & CFO
Tel: +358 10 709 5640
raimo.lind@wartsila.com
Pauliina Tennilä
Director, Investor Relations
Tel: +358 40 570 5530
pauliina.tennila@wartsila.com
For press information, please contact:
Atte Palomäki
Group Vice President, Communications & Branding
Tel: +358 40 547 6390
atte.palomaki@wartsila.com
Wärtsilä in brief
Wärtsilä is a global leader in complete lifecycle power solutions for the marine
and energy markets. By emphasising technological innovation and total
efficiency, Wärtsilä maximises the environmental and economic performance of the
vessels and power plants of its customers. In 2010, Wärtsilä's net sales
totalled EUR 4.6 billion with approximately 17,500 employees. The company has
operations in 160 locations in 70 countries around the world. Wärtsilä is listed
on the NASDAQ OMX Helsinki, Finland.
INTERIM REPORT JANUARY-SEPTEMBER 2011
This interim report is unaudited.
THIRD QUARTER 7-9/2011 IN BRIEF
MEUR 7-9/2011 7-9/2010 Change
Order intake 1 118 1 004 11%
Net sales 851 1 039 -18%
Operating result 94 117 -20%
% of net sales 11.0% 11.2%
Profit before taxes 83 140
Earnings/share, EUR 0.28 0.41
REVIEW PERIOD JANUARY-SEPTEMBER 2011 IN BRIEF
MEUR 1-9/2011 1-9/2010 Change 2010
Order intake 3 267 3 002 9% 4 005
Order book, end of period 4 042 4 243 -5% 3 795
Net sales 2 970 3 091 -4% 4 553
Operating result 324 328 -1% 487
% of net sales 10.9% 10.6% 10.7%
Profit before taxes 298 298 548
Earnings/share, EUR 1.05 1.18 1.68
Cash flow from operating activities 303 491 663
Interest-bearing net debt
at the end of the period -57 91 -165
Gross capital expenditure 140 54 98
The operating result and earnings per share are shown excluding nonrecurring
items. Wärtsilä recognised EUR 6 million (2) of nonrecurring items related to
restructuring measures during the third quarter and EUR 17 million (59) of
nonrecurring items during the review period January-September 2011.
MARKET DEVELOPMENT
SHIP POWER
Contracting for specialised tonnage continued to be strong
Overall vessel contracting activity slowed down in the third quarter. 916
contracts have been registered in 2011, which is in line with expectations of
lower contracting compared to 2010. The slowdown continues to be linked with
certain merchant segments, such as bulk carriers and tankers.
Meanwhile, activity continued to be on a good level in the special vessel
markets. During 2011, 44 LNG carriers have been contracted, compared to 10
vessels contracted during 2008-2010. Offshore vessels, notably drillships, have
also seen a significant rise in contracting activity during 2011. The shift in
contracting activity towards specialised tonnage means that the amount of
capital invested in new buildings during 2011 is at the same level as
investments in 2010, despite lower overall vessel contracting numbers. Korea and
China continue to dominate contracting activity, securing 40% and 35% of
contracts placed in 2011 (in number of vessels).
Ship Power market shares
Wärtsilä's share of the medium speed main engine market increased from 44% (at
the end of the previous quarter) to 46%. The market share in low speed engines
increased to 18% (17). In the auxiliary engine market Wärtsilä's share remained
at 3% (3).
POWER PLANTS
Natural gas based power plant market continued to be active
Activity in the natural gas based power plant market continued at a high level
despite the global economic slowdown. The liquid fuel based power plant markets
were less active during the third quarter. The financial crisis led to the
postponement of investments for power generation in 2009 and 2010, and this is
now creating demand in several markets.
Power Plants market position
During the period July 2010 - June 2011, the overall market for gas and liquid
fuel based power plants grew to approximately 70.1 GW (51.1). This includes all
prime mover units of over 5 MW. Wärtsilä's share represents 4.5% of the market
(4.8).
SERVICES
Power plant service market stable
The European markets, which are dominated by marine customers, continued to be
slow in the third quarter. In the Americas, the Middle East and Asia where there
are a mix of marine and power customers, development of the service market was
more stable. Service activities in these areas are also supported by higher
economic growth. In the Merchant segment especially, customers are holding back
on maintenance spending. However, the Offshore and Container vessel segments
continued to be active. The interest in various service agreements also
continued to increase.
ORDER INTAKE
Good order intake in all three businesses and joint ventures
Wärtsilä's order intake for the third quarter totalled EUR 1,118 million
(1,004), an increase of 11%. In relation to the previous quarter, Wärtsilä's
order intake decreased by 4% (EUR 1,170 million in the second quarter of 2011).
The book-to-bill ratio for the third quarter was 1.31 (0.97).
Ship Power's order intake for the third quarter totalled EUR 196 million (176),
an increase of 11%. Compared to the previous quarter, order intake decreased by
36% (EUR 306 million in the second quarter of 2011). During the third quarter,
Offshore and Special Vessels segment orders continued to be active. Important
orders were booked for drillships, as well as for cruise and navy applications.
The Merchant segment represented 30% of the total order intake. It was followed
by the Offshore segment with a 25% share, and Cruise & Ferry with a 20% share.
The Special Vessels and Navy segments both represented 11% of the order intake,
and Ship Design accounted for 2%.
The order intake for Power Plants in the third quarter was on a high level and
totalled EUR 466 million (393). This was 19% higher than for the corresponding
period last year, and 11% higher than in the previous quarter (EUR 419 million
in the second quarter of 2011). During the third quarter, Wärtsilä received a
large turnkey project order from the Dominican Republic, several midsize
projects from Africa, Australia and the United Arab Emirates, as well as a large
gas power plant order from Turkey.
Order intake for the Services business totalled EUR 455 million (433) in the
third quarter, an increase of 5% from the corresponding period 2010. Compared to
the previous quarter, order intake increased by 2% (EUR 444 million in the
second quarter of 2011).
The total order intake for the review period January-September 2011 was EUR
3,267 million (3,002), which represents an increase of 9% compared to the
corresponding period 2010. The book-to-bill ratio for the review period was
1.10 (0.97). Ship Power's order intake was EUR 675 million (479), an increase of
41% from the corresponding period last year. Power Plants' order intake was EUR
1,138 million (1,097), which is 4% higher than in 2010. Services' order intake
for the review period totalled EUR 1,450 million (1,421), an increase of 2% over
the corresponding period in 2010.
Order intake in joint ventures
During the review period, the joint venture company in Korea, Wärtsilä Hyundai
Engine Company Ltd (WHEC), received orders for dual-fuel engines for 16 LNG
carriers. Total order intake in WHEC and in the joint venture company Wärtsilä
Qiyao Diesel Company Ltd in China producing auxiliary engines, totalled EUR 182
million (68) in the third quarter. Order intake for the review period January-
September grew significantly to EUR 216 million (73). Wärtsilä's share of
ownership in these companies is 50% and the profits will be reported as a share
of result of associates and joint ventures.
Third quarter order intake by business
MEUR 7-9/2011 7-9/2010 Change
Ship Power 196 176 11%
Power Plants 466 393 19%
Services 455 433 5%
Order intake, total 1 118 1 004 11%
Order intake Power Plants
MW 7-9/2011 7-9/2010 Change
Oil 311 475 -34%
Gas 609 393 55%
Renewable fuels 0 0
Order intake for the review period by business
MEUR 1-9/2011 1-9/2010 Change 2010
Ship Power 675 479 41% 657
Power Plants 1 138 1 097 4% 1 413
Services 1 450 1 421 2% 1 931
Order intake, total 3 267 3 002 9% 4 005
Order intake Power Plants
MW 1-9/2011 1-9/2010 Change 2010
Oil 926 1 574 -41% 1 797
Gas 1 480 767 93% 1 377
Renewable fuels 0 1 1
ORDER BOOK
The total order book at the end of the review period stood at EUR 4,042 million
(4,243), a decrease of 5%. In relation to the previous quarter, Wärtsilä's order
book increased by 7% (EUR 3,779 million in the second quarter of 2011). The Ship
Power order book stood at EUR 1,740 million (2,038), which is 15% lower than at
the same date last year. At the end of the review period, the Power Plants order
book amounted to EUR 1,478 million (1,517), a decrease of 3%. The Services order
book totalled EUR 825 million (689) at the end of the review period,
representing an increase of 20%.
Order book by business
MEUR 30 Sept. 2011 30 Sept. 2010 Change 31 Dec. 2010
Ship Power 1 740 2 038 -15% 1 825
Power Plants 1 478 1 517 -3% 1 299
Services 825 689 20% 671
Order book, total 4 042 4 243 -5% 3 795
NET SALES
Wärtsilä's net sales for the third quarter decreased by 18% to EUR 851 million
(1,039) compared to the corresponding period last year. Net sales for Ship Power
totalled EUR 197 million (277), a decrease of 29%. Power Plants' net sales for
the third quarter totalled EUR 243 million (321), which is 24% lower than in the
corresponding quarter last year. The third quarter net sales for Services
amounted to EUR 412 million (435), a decrease of 5%. The reason for the decline
is mainly related to the timing of deliveries. Another factor is a further
decline in global economic sentiment, which has an impact on Services customers'
maintenance and investment spending.
Wärtsilä's net sales for January-September 2011 decreased by 4% and totalled EUR
2,970 million (3,091). Ship Power's net sales decreased by 14% and totalled EUR
713 million (831). Net sales for Power Plants totalled EUR 952 million (948).
Net sales from the Services business were stable and amounted to EUR 1,303
million (1,307). Ship Power accounted for 24%, Power Plants for 32% and Services
for 44% of the total net sales.
Of Wärtsilä's net sales for January-September 2011, approximately 69% was EUR
denominated, 13% USD denominated, with the remainder being split between several
currencies.
Third quarter net sales by business
MEUR 7-9/2011 7-9/2010 Change
Ship Power 197 277 -29%
Power Plants 243 321 -24%
Services 412 435 -5%
Net sales, total 851 1 039 -18%
Net sales for the review period by business
MEUR 1-9/2011 1-9/2010 Change 2010
Ship Power 713 831 -14% 1 201
Power Plants 952 948 0% 1 525
Services 1 303 1 307 0% 1 823
Net sales, total 2 970 3 091 -4% 4 553
FINANCIAL RESULTS
The third quarter operating result before nonrecurring expenses totalled EUR 94
million (117), which is 11.0% of net sales (11.2). For the review period
January-September 2011, the operating result before nonrecurring expenses was
EUR 324 million (328), which is 10.9% of net sales (10.6). Including
nonrecurring expenses, the operating result was EUR 307 million or 10.3% of net
sales. Wärtsilä recognised EUR 17 million (59) of nonrecurring expenses related
to the restructuring measures during the review period January-September 2011.
Financial items amounted to EUR -9 million (-3). Net interest totalled EUR -3
million (-8). Dividends received totalled EUR 3 million (6). The deviation in
other financial items is mainly due to losses from exchange rates, which were
positive during the corresponding period of 2010. Profit before taxes amounted
to EUR 298 million (298). Taxes in the reporting period amounted to EUR 96
million (80). Earnings per share after nonrecurring expenses were 0.99 euro
(1.07) and equity per share was 7.84 euro (7.89).
BALANCE SHEET, FINANCING AND CASH FLOW
Cash flow from operating activities for January-September 2011 totalled EUR 303
million (491). Net working capital at the end of the period totalled EUR 122
million (229). Advances received at the end of the period totalled EUR 632
million (EUR 603 million at the end of the previous quarter). Cash and cash
equivalents at the end of the period amounted to EUR 658 million (578). Net
interest-bearing loan capital totalled EUR -57 million (91).
Wärtsilä had interest bearing debt totalling EUR 604 million (688) at the end
of September 2011. The existing funding programmes include long-term loans of
EUR 507 million, unutilised Committed Revolving Credit Facilities totalling
EUR 548 million and Finnish Commercial Paper programmes totalling
EUR 700 million. The total amount of short-term debt maturing within the next
12 months is EUR 97 million.
The solvency ratio was 41.3% (40.5) and gearing was -0.03 (0.07).
CAPITAL EXPENDITURE
Gross capital expenditure in the review period totalled EUR 140 million (54),
which comprised EUR 97 million (5) in acquisitions and investments in
securities, and EUR 43 million (49) in intangible assets and property, plant and
equipment. Depreciation amounted to EUR 84 million (87).
Maintenance capital expenditure for 2011 will be below depreciation. Possible
acquisition opportunities may affect capital expenditure for the year.
STRATEGIC STEPS, ACQUISITIONS AND EXPANSION OF NETWORK
The set up of a joint venture between Wärtsilä and Jiangsu CuiXing Marine
Offshore Engineering Co. Ltd. for the manufacturing of Wärtsilä 26 and Wärtsilä
32 medium-speed marine engines in China, announced in June, is proceeding
according to plan.
In July, Wärtsilä acquired Cedervall, one of the leading manufacturers of shaft
seal and bearing systems for the marine industry. This acquisition strengthens
Wärtsilä's leading position in the global service market, in line with its
strategy. The combination of Wärtsilä's and Cedervall's businesses will create
the market leader for oil and water lubricated seals and bearings, as well as
for sterntubes. The total preliminary consideration of the transaction is EUR
81 million.
During the review period Wärtsilä continued expanding its Services network. A
new workshop was inaugurated in Gdansk, Poland during the second quarter. During
the third quarter a new workshop facility was opened in Helsinki, Finland. This
workshop is strategically located near the main shipping routes.
RESTRUCTURING PROGRAMMES
In 2009, Wärtsilä began the process of adapting its activities to lower demand
through various restructuring measures with the aim of reducing approximately
1,800 persons. This target has nearly been reached.
When fully implemented, it is estimated that the reductions will decrease costs
by approximately EUR 130 million. Of these cost savings, about EUR 60 million
had materialised by the end of 2010. The remainder of the savings will gradually
materialise during 2011. Wärtsilä anticipates that the majority of these cost
savings will be permanent. The total nonrecurring costs related to the
restructuring will be approximately EUR 150 million, out of which EUR 115
million has been recognised by the end of 2010. In the review period January-
September 2011, Wärtsilä recognised EUR 17 million (59) of nonrecurring items
related to the restructuring measures. The remainder of the costs will be
recognised during 2011.
PERSONNEL
Wärtsilä had 17,875 (17,704) employees at the end of September 2011. The average
number of personnel for January-September 2011 totalled 17,838 (18,116). Ship
Power employed 989 (974) people. Power Plants employed 830 (845) people,
Services 11,200 (11,157) and Wärtsilä Industrial Operations 4,062 (4,347)
people.
Of Wärtsilä's total employees, 19% (19) were located in Finland, 6% (7) in the
Netherlands and 30% (31) in the rest of Europe. Personnel employed in Asia
represented 33% (31), out of which 7% (7) were in China, in India 7% (6), in
Singapore 4% (5), and in the rest of Asia 14% (13).
MANUFACTURING
In July, CSSC Guangzhou Marine Diesel Co. Ltd., a member of the state-owned
China State Shipbuilding Corporation and Wärtsilä jointly signed a license
agreement for the manufacturing and sale of Wärtsilä 2-stroke engines in China.
It covers the entire engine portfolio with a power range from 4,300 to 80,000 kW
per engine. With the shipbuilding industry increasingly concentrated in Asia,
the local manufacture of Wärtsilä's marine engines is a key element in the
company's growth strategy.
Activities in Wärtsilä's joint venture with Transmashholding in Russia are
proceeding according to plan. The joint venture is preparing to manufacture
modern and multipurpose diesel engines, including a new and technically advanced
version of the Wärtsilä 20 engine, to be used in shunter locomotives and for
various marine and power applications.
Workload in the factories is continuously evaluated against the current order
book and market development, and adjustments are made where necessary.
RESEARCH & DEVELOPMENT
During the third quarter, Wärtsilä's dual-fuel engines exceeded three million
running hours in both land-based and marine applications. This milestone
represents a dual-fuel track record that cannot be matched by any other engine
manufacturer. Today, the total number of Wärtsilä dual-fuel engines delivered to
both marine and land-based applications is 470. The fuel flexibility of these
engines offers numerous tangible benefits, both economic and environmental.
Wärtsilä has successfully tested its new low-speed gas engine technology in
trials conducted at the company's facilities in Trieste, Italy. The tests have
demonstrated that the engine performance fully complies with the upcoming IMO
Tier III nitrogen oxide limits, thereby setting a new benchmark for low-speed
engines running on gas. The new 2-stroke test engine is part of Wärtsilä's 2-
stroke dual-fuel gas engine technology development programme.
SUSTAINABLE DEVELOPMENT
Wärtsilä is well positioned to reduce the use of natural resources and
emissions, thanks to its various technologies and specialised services.
Wärtsilä's R&D efforts continue to focus on the development of advanced
environmental technologies and solutions. The company is committed to supporting
the UN Global Compact and its principles with respect to human rights, labour,
the environment and anti-corruption. Wärtsilä's share is included in several
sustainability indexes.
CHANGES IN MANAGEMENT
Mr Björn Rosengren M.Sc. (Tech.), born 1959, started as the new President and
CEO of Wärtsilä Corporation on 1 September 2011. Mr Rosengren succeeded Mr Ole
Johansson, who retired at that time.
SHARES AND SHAREHOLDERS
The figures in the table below have been adjusted to reflect the increased
number of shares resulting from the free share issue approved by Wärtsilä
Corporation's Annual General Meeting on 3 March 2011.
Shares on the Helsinki Exchange
30 Sept. 2011 Number of Number of Number of shares traded
shares votes 1-9/2011
--------------------------------------------------------------------------------
WRT1V 197 241 130 197 241 130 146 271 797
1 Jan. -30 Sept. 2011 High Low Average 1) Close
--------------------------------------------------------------------------------
Share price 29.55 15.50 29.01 17.91
1) Trade-weighted average price
30 Sept. 2011 30 Sept. 2010
-----------------------------------------------------------------------
Market capitalisation, EUR 3,533 4,721
million
Foreign shareholders 47.0% 49.4%
Flagging notifications
During the review period January-September 2011, Wärtsilä was informed of the
following changes in ownership:
On 5 January 2011, BlackRock, Inc. increased its holding in Wärtsilä
Corporation. Following the transaction BlackRock, Inc owned 4,941,593 shares
(the number of shares as before the free share issue) or 5.01% of Wärtsilä's
share capital and total votes.
On 9 August 2011, BlackRock, Inc. decreased its holding in Wärtsilä Corporation.
Following the transaction BlackRock, Inc. owned 9,838,853 shares or 4.99% of
Wärtsilä's share capital and total votes.
DECISIONS TAKEN BY THE ANNUAL GENERAL MEETING
Wärtsilä's Annual General Meeting held on 3 March 2011 approved the financial
statements and discharged the members of the Board of Directors and the
company's President & CEO from liability for the financial year 2010. The
Meeting approved the Board of Directors' proposal to pay a dividend of EUR 1.75
per share and an extra dividend of EUR 1.00 per share, totalling EUR 2.75 per
share. The dividend was paid on 15 March 2011.
The Annual General Meeting decided that the Board of Directors shall have nine
members. The following were elected to the Board: Ms Maarit Aarni-Sirviö, Mr
Kaj-Gustaf Bergh, Mr Alexander Ehrnrooth, Mr Paul Ehrnrooth, Mr Lars Josefsson,
Mr Bertel Langenskiöld, Mr Mikael Lilius, Mr Markus Rauramo and Mr Matti Vuoria.
Authorized public accountants KPMG Oy Ab were appointed as the company's
auditors for the year 2011.
Free share issue
The Annual General Meeting decided to approve the free share issue in accordance
with the proposal of the Board of Directors. The free share issue was
implemented by applying the pre-emptive right of the shareholders so that for
each old share one new share was issued. Thereby a total of 98,620,565 new
shares were issued. The new shares were registered in the trade register on 8
March 2011.
Organisation of the Board of Directors
The Board of Directors of Wärtsilä Corporation elected Mikael Lilius as its
chairman and Matti Vuoria as the deputy chairman. The Board decided to establish
an Audit Committee, a Nomination Committee and a Remuneration Committee. The
Board appointed from among its members the following members to the Committees:
Audit Committee:
Chairman Markus Rauramo, Maarit Aarni-Sirviö, Alexander Ehrnrooth, Bertel
Langenskiöld
Nomination Committee:
Chairman Mikael Lilius, Kaj-Gustaf Bergh, Lars Josefsson, Matti Vuoria
Remuneration Committee:
Chairman Mikael Lilius, Paul Ehrnrooth, Matti Vuoria
RISKS AND BUSINESS UNCERTAINTIES
Shipping and ship building are sensitive to the global economic outlook and
uncertainty is increasing over the strength of the global economy. At present
the main risk for Ship Power is still the slippage of ship yard delivery
schedules.
In the Power Plants business, uncertainty in the financial markets may impact
the timing of bigger projects.
Increasing risks in the financial markets may have a negative impact on
Services' order intake, especially for larger upgrades and conversion projects.
The annual report for 2010 contains a thorough description of Wärtsilä's risks
and risk management.
MARKET OUTLOOK
Ship Power
Overall vessel contracting activity is expected to be at a lower level than
during 2010, but the mix of vessels to be contracted should continue to favour
specialised tonnage. In the short term, uncertainty over the outlook of the
global economy, coupled with low earnings for shipowners, will affect
contracting activity for the main merchant vessel types, such as bulk carriers,
tankers and container vessels. Contracting activity is expected to remain strong
for offshore vessels, especially production and support vessels, as well as for
LNG carriers and other specialised vessels. In newbuilding of ships, interest in
natural gas as a fuel, environmentally sound designs and fuel efficiency is
expected to remain strong. A significant number of additional dual-fuel engine
orders for LNG carriers are expected to materialise. Dual-fuel engine orders for
LNG carriers are booked in the order intake of the joint venture Wärtsilä
Hyundai Engine Company Ltd. Intense competition and price pressure prevails in
the market. Wärtsilä expects Ship Power's order intake in 2011 to be
significantly better than in the previous year.
Power Plants
Recovery in the power generation market is expected to continue in 2011. The
growing emerging markets will continue to invest in new power generation
capacity, which will increase demand, especially in the flexible baseload
segment. The ramp down of older coal based generation, as well as the increasing
amount of renewable generation, will increase the demand for gas based
generation in the medium to long term. We expect to see an increasing demand for
a new type of generation based on fuel and operational flexibility. These
developments are supported by the production of shale gas in the US, and the
expectation that natural gas prices will remain competitive. Wärtsilä Power
Plants estimates its order intake in 2011 to be better than in 2010.
Services
Despite the economic uncertainty, the overall service market outlook remains
rather stable. Economic growth prospects in BRIC countries are still considered
to be good, and the service market outlook continues strongest in these
countries. Economic development and the service markets are expected to remain
challenging in Europe. The marine service market is still suffering from
overcapacity in certain segments and this is likely to continue. The active
installed base growth is slowing down due to increased scrapping and idling of
vessels. The power plant service market is expected to increase steadily.
WÄRTSILÄ'S PROSPECTS FOR 2011 REITERATED
Wärtsilä expects its net sales for 2011 to decline by 0-5% compared to last year
and operational profitability (EBIT% before nonrecurring items) to be around
11%.
WÄRTSILÄ INTERIM REPORT JANUARY-SEPTEMBER 2011
This interim financial report is prepared in accordance with IAS 34 (Interim
Financial Reporting) using the same accounting policies and methods of
computation as in the annual financial statements for 2010. All figures in the
accounts have been rounded and consequently the sum of individual figures can
deviate from the presented sum figure.
Use of estimates
The preparation of the financial statements in accordance with IFRS requires
management to make estimates and assumptions that affect the valuation of the
reported assets and liabilities and other information, such as contingent
liabilities and the recognition of income and expenses in the income statement.
Although the estimates are based on the management's best knowledge of current
events and actions, actual results may differ from the estimates.
IFRS amendments
Of the amended International Financial Reporting Standards (IFRS) and
interpretations mandatory as of 1 January 2011 the following are applicable on
the Group reporting:
* Amendment to IAS 32 Financial instruments: Presentation - Classification of
Rights Issues
* Revised IAS 24 Related Party Disclosures
The adaption of the revised standards and interpretations does not have any
material effect on the interim report.
This interim report is unaudited.
CONDENSED INCOME STATEMENT
MEUR 1-9/2011 1-9/2010 2010
--------------------------------------------------------------------------------
Net sales 2 970 3 091 4 553
Other operating income 35 31 52
Expenses -2 620 -2 769 -4 082
Depreciation, amortisation and impairment -84 -87 -116
Share of result of associates and joint ventures 6 3 5
Operating result 307 269 412
Financial income and expenses -9 -3 -13
Net income from financial assets available for sale 32 149
Profit before taxes 298 298 548
Income taxes -96 -80 -151
--------------------------------------------------------------------------------
Profit for the financial period 201 218 397
--------------------------------------------------------------------------------
Attributable to:
Owners of the parent 195 210 386
Non-controlling interests 7 8 11
--------------------------------------------------------------------------------
Total 201 218 397
--------------------------------------------------------------------------------
Earnings per share attributable to equity holders of the parent company:
--------------------------------------------------------------------------------
Earnings per share, EUR (basic and diluted) 0.99 1.07 1.96
--------------------------------------------------------------------------------
STATEMENT OF COMPREHENSIVE INCOME
Profit for the financial period 201 218 397
Other comprehensive income after tax:
Exchange differences on translating foreign operations -8 12 17
Financial assets available for sale
fair valuation 6 28 30
transferred to statement of income -21 -110
Cash flow hedges -12 4 -9
Share of other comprehensive income of associates and joint ventures 1
--------------------------------------------------------------------------
Other comprehensive income -15 23 -71
--------------------------------------------------------------------------
Total comprehensive income for the period 187 240 326
--------------------------------------------------------------------------
Total comprehensive income attributable to:
Owners of the parent 180 232 313
Non-controlling interests 7 9 13
--------------------------------------------------------------------------
187 240 326
CONDENSED STATEMENT OF FINANCIAL POSITION
MEUR 30 Sep. 2011 30 Sep. 2010 31 Dec. 2010
--------------------------------------------------------------------------------
Non-current assets
Intangible assets 821 773 780
Property, plant and equipment 446 449 466
Investments in associates and joint
ventures 83 61 65
Financial assets available for sale 26 156 18
Deferred tax receivables 122 98 122
Other receivables 32 30 32
--------------------------------------------------------------------------------
1 530 1 568 1 483
Current assets
Inventories 1 312 1 473 1 244
Other receivables 940 1 092 1 192
Cash and cash equivalents 658 578 776
--------------------------------------------------------------------------------
2 909 3 143 3 213
--------------------------------------------------------------------------------
Total assets 4 439 4 711 4 696
--------------------------------------------------------------------------------
Equity
Share capital 336 336 336
Other equity 1 211 1 220 1 302
--------------------------------------------------------------------------------
Total equity attributable to equity
holders of the parent 1 547 1 556 1 638
Non-controlling interests 25 22 26
--------------------------------------------------------------------------------
Total equity 1 572 1 578 1 664
Non-current liabilities
Interest-bearing debt 507 599 572
Deferred tax liabilities 67 93 70
Other liabilities 229 242 189
--------------------------------------------------------------------------------
803 934 831
Current liabilities
Interest-bearing debt 97 89 56
Other liabilities 1 969 2 110 2 145
--------------------------------------------------------------------------------
2 065 2 199 2 201
Total liabilities 2 868 3 133 3 032
--------------------------------------------------------------------------------
Total equity and liabilities 4 439 4 711 4 696
--------------------------------------------------------------------------------
CONDENSED CASH FLOW STATEMENT
MEUR 1-9/2011 1-9/2010 2010
--------------------------------------------------------------------------------
Cash flow from operating activities:
Profit for the financial period 201 218 397
Depreciation, amortisation and impairment 84 87 116
Financial income and expenses 9 3 13
Selling profit and loss of fixed assets and other changes -2 -31 -147
Share of result of associates and joint ventures -6 -3 -5
Income taxes 96 80 151
Changes in working capital 91 333 370
--------------------------------------------------------------------------------
Cash flow from operating activities before financial
items and taxes 474 687 896
Financial items and paid taxes -171 -195 -233
--------------------------------------------------------------------------------
Cash flow from operating activities 303 491 663
--------------------------------------------------------------------------------
Cash flow from investing activities:
Investments in shares and acquisitions -91 -5 -6
Net investments in property, plant and equipment and
intangible assets -43 -44 -83
Proceeds from sale of financial assets available for sale 4 36 173
Cash flow from other investing activities 3 9 -5
--------------------------------------------------------------------------------
Cash flow from investing activities -127 -3 79
--------------------------------------------------------------------------------
Cash flow from financing activities:
Proceeds from non-current borrowings 37 37
Repayments and other changes in non-current loans -25 -24 -76
Changes in current loans and other changes 14 2 -2
Dividends paid -278 -175 -175
--------------------------------------------------------------------------------
Cash flow from financing activities -289 -159 -216
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Change in cash and cash equivalents, increase (+) /
decrease (-) -113 329 525
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period 776 244 244
Exchange rate changes -5 5 7
Cash and cash equivalents at end of period 658 578 776
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
Total equity attributable to equity holders of
MEUR the parent Non-
controlling Total
interests equity
--------------------------------------------------------------------------------
Fair
Share value
Share issue Translation and other Retained
capital premium differences reserves earnings
--------------------------------------------------------------------------------
Equity on 1
January 2011 336 61 8 12 1 221 26 1 664
Dividends -271 -8 -279
Total
comprehensive
income for the
period -9 -6 194 7 187
--------------------------------------------------------------------------------
Equity on 30
Sep. 2011 336 61 -1 7 1 144 25 1 572
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Equity on 1
January 2010 336 61 -6 99 1 006 16 1 512
Dividends -173 -2 -175
Total
comprehensive
income for the
period 11 10 210 9 240
--------------------------------------------------------------------------------
Equity on 30
Sep. 2010 336 61 5 110 1 044 22 1 578
--------------------------------------------------------------------------------
GEOGRAPHICAL AREAS Europe Asia Americas Other Total
MEUR
----------------------------------------------------
Net sales 1-9/2011 928 1 239 468 335 2 970
Net sales 1-9/2010 896 1 130 719 346 3 091
----------------------------------------------------
INTANGIBLE ASSETS AND PROPERTY, PLANT & EQUIPMENT
MEUR 1-9/2011 1-9/2010 2010
-----------------------------------------------------------------
Intangible assets
Book value at 1 January 780 779 779
Changes in exchange rates -2 16 20
Acquisitions 64
Additions 12 10 17
Amortisation and impairment -32 -32 -42
Disposals and intra-balance sheet transfer 6
-----------------------------------------------------------------
Book value at end of period 821 773 780
-----------------------------------------------------------------
Property, plant and equipment
Book value at 1 January 466 457 457
Changes in exchange rates -2 9 14
Acquisitions 15
Additions 31 40 75
Depreciation and impairment -53 -54 -73
Disposals and intra-balance sheet transfer -10 -3 -6
-----------------------------------------------------------------
Book value at end of period 446 449 466
-----------------------------------------------------------------
GROSS CAPITAL EXPENDITURE
MEUR 1-9/2011 1-9/2010 2010
--------------------------------------------------------------------------
Investments in securities and acquisitions 97 5 6
Intangible assets and property, plant and equipment 43 49 92
--------------------------------------------------------------------------
Total 140 54 98
--------------------------------------------------------------------------
IMPACT OF ACQUISITION ON THE CONSOLIDATED BALANCE SHEET
On August 31, 2011 Wärtsilä obtained control of Cedervall, a manufacturer of
shaft seal and bearing systems for the marine industry, by acquiring 100% of
shares and voting interests in the company.
Taking control of Cedervall will enable Wärtsilä to strengthen its leading
position in the global marine service market, in line with Wärtsilä's strategy.
The combination of Wärtsilä's and Cedervall's businesses will create the market
leader for oil and water lubricated seals and bearings, as well as for
sterntubes.
The total consideration is calculated on the basis of Cedervall's preliminary
balance sheet as per 31 August, 2011 which is prepared, in all material respect,
in accordance with IFRS' and Wärtsilä Group's accounting principles.
The total preliminary consideration of the transaction is EUR 81 million and the
amount will be revised after the final closing of the accounts, which is
expected to materialise during the fourth quarter in 2011. The acquisition does
not include any additional consideration.
The preliminary goodwill of EUR 40 million reflects the value of know-how and
expertise in marine seal and bearing systems as well as Wärtsilä's widened
propulsion line product portfolio, which strengthens Wärtsilä's total propulsion
solutions offering. The goodwill recognised for Cedervall is not tax deductible.
The following table summarises the consideration paid for Cedervall and the
amounts of the assets acquired and liabilities assumed recognised at the
acquisition date. The below mentioned acquisition consideration and the fair
values at August 31, 2011 are preliminary until the final closing of the
accounts.
Total consideration (EUR million) August 31, 2011
--------------------------------------------------------------------------------
Cash 81
--------------------------------------------------------------------------------
Total consideration transferred 81
The assets and liabilities arising from the acquisition
are as follows:
Intangible assets 23
Property, plant and equipment 15
Inventories 7
Trade and other receivables 6
Cash and cash equivalents 6
--------------------------------------------------------------------------------
Total assets 56
--------------------------------------------------------------------------------
Provisions 1
Interest-bearing liabilities 1
Trade and other liabilities 6
Deferred tax liabilities 8
--------------------------------------------------------------------------------
Total 16
--------------------------------------------------------------------------------
According to the preliminary valuation of the fair value of the net assets
(including technology, customer relations, trademarks and valuation of order
book) amounted to EUR 41 million.
The fair value of current trade receivables and other receivables is
approximately EUR 6 million and includes trade receivables with a fair value of
EUR 5 million. The fair value of trade receivables does not include any
significant risk.
The Group incurred during the third quarter acquisition-related costs of EUR
0.4 million related to external legal fees and due diligence costs. The total
acquisition-related costs are estimated to be approximately EUR 1 million. The
costs have been included in the other operating expenses in the condensed income
statement.
The net sales included in the condensed income statement since August 31, 2011
contributed by Cedervall companies was EUR 2 million and operating profit EUR 0
million.
Had Cedervall been consolidated from January 1, 2011, the condensed income
statement would show net sales of EUR 2,994 million and operating profit EUR
310 million.
INTEREST-BEARING LOAN
CAPITAL
MEUR 1-9/2011 1-9/2010 2010
--------------------------------------------------------------------------------
Non-current liabilities 507 599 572
Current liabilities 97 89 56
Loan receivables -3 -19 -17
Cash and cash equivalents -658 -578 -776
--------------------------------------------------------------------------------
Net -57 91 -165
--------------------------------------------------------------------------------
FINANCIAL RATIOS 1-9/2011 1-9/2010 2010
--------------------------------------------------------------------------------
Earnings per share, EUR
(basic and diluted) 0.99 1.07 1.96
Equity per share, EUR 7.84 7.89 8.30
Solvency ratio, % 41.3 40.5 40.8
Gearing -0.03 0.07 -0.09
--------------------------------------------------------------------------------
PERSONNEL
1-9/2011 1-9/2010 2010
--------------------------------------------------------------------------------
On average 17 838 18 116 18 000
At end of period 17 875 17 704 17 528
--------------------------------------------------------------------------------
CONTINGENT LIABILITIES
MEUR 1-9/2011 1-9/2010 2010
-------------------------------------------------------------
Mortgages 57 56 59
Chattel mortgages 17 18 18
-------------------------------------------------------------
Total 74 74 77
-------------------------------------------------------------
Guarantees and contingent liabilities
on behalf of Group companies 429 619 623
on behalf of associated companies 10 9 9
on behalf of others
Nominal amount of rents according
to leasing contracts 68 75 74
-------------------------------------------------------------
Total 507 703 706
-------------------------------------------------------------
NOMINAL VALUES OF DERIVATIVE INSTRUMENTS
MEUR Total amount of which closed
---------------------------------------------------------------
Interest rate swaps 20
Foreign exchange forward contracts 1109 172
Currency options, purchased 54
Currency options, written 60
---------------------------------------------------------------
CONDENSED STATEMENT OF
INCOME, QUARTERLY
MEUR 7-9/2011 4-6/2011 1-3/2011 10-12/2010 7-9/2010 4-6/2010
--------------------------------------------------------------------------------
Net sales 851 1 036 1 083 1 462 1 039 1 131
Other operating
income 20 4 10 21 13 11
Expenses -758 -906 -956 -1 313 -910 -1 007
Depreciation,
amortisation and
impairment -27 -28 -29 -29 -29 -28
Share of result of
associates and joint
ventures 2 1 3 2 2
Operating result 88 108 111 143 114 105
Financial income and
expenses -5 -4 -10 -6 4
Net income from
financial assets
available for sale 117 32
Profit before taxes 83 108 107 251 140 109
Income taxes -30 -35 -31 -71 -35 -31
--------------------------------------------------------------------------------
Profit for the
financial period 53 73 76 179 104 79
--------------------------------------------------------------------------------
Attributable to:
Owners of the parent 51 70 74 176 101 76
Non-controlling
interests 3 2 2 4 3 3
--------------------------------------------------------------------------------
Total 53 73 76 179 104 79
--------------------------------------------------------------------------------
Earnings per share attributable to equity
holders of the parent company:
--------------------------------------------------------------------------------
Earnings per share,
EUR 0.26 0.35 0.38 0.89 0.51 0.39
--------------------------------------------------------------------------------
CALCULATION OF FINANCIAL RATIOS
Earnings per share (EPS)
Profit for the period attributable to equity holders of the parent
company
-------------------------------------------------------------------------
Adjusted number of shares over the period
Equity per share
Equity attributable to equity holders of the parent company
-------------------------------------------------------------------------
Adjusted number of shares at the end of the period
Solvency ratio
Equity
-------------------------------------------------------------------------x 100
Total equity and liabilities - advances received
Gearing
Interest-bearing liabilities - cash and cash equivalents
-------------------------------------------------------------------------
Equity
18 October 2011
Wärtsilä Corporation
Board of Directors
[HUG#1555905]
