Wärtsilä Corporation QUARTERLY REPORT 3 August 2007 at 8.30 local time STRONG ORDER INTAKE CONTINUED - MARKET EXPECTED TO REMAIN ACTIVE HIGHLIGHTS OF THE SECOND QUARTER APRIL-JUNE 2007 - Order intake EUR 1,369 million (1,190), growth 15% - Net sales EUR 797 million (845), -6% - Operating result EUR 73 million (70) - Profitability 9.2% (8.3) HIGHLIGHTS OF THE REVIEW PERIOD JANUARY-JUNE 2007 - Order intake EUR 2,526 million (2,214), growth 14% - Order book total EUR 5,460 million (3,772), growth 45% - Net sales EUR 1,558 million (1,437), growth 8% - Operating result EUR 136 million (106), growth 29% - Profitability 8.8% (7.4) - EPS 0.98 (2.15; comparable EPS 0.75) - Cash flow continued to be strongly positive OLE JOHANSSON, PRESIDENT & CEO:"Good demand continued in the markets boosting new orders and resulting in yet another all-time high order book of EUR 5.5 billion. Slight decline in net sales during the second quarter is due to the timing of the power plant deliveries. The Services grew strongly at 23%. Profitability developed as expected. The enlarged manufacturing capacity in Vaasa, Trieste and China will support continuing growth prospects." WÄRTSILÄ'S PROSPECTS IN 2007 Demand in the ship power and energy markets looks likely to remain active for Wärtsilä for the next two quarters. Based on the strong order book, Wärtsilä's net sales are expected to grow this year by around 15%. Profitability will exceed 9%. Wärtsilä's profitability varies considerably between the quarters as will also be the case this year. Wärtsilä sees further possibilities for growth in 2008. ANALYST AND PRESS CONFERENCE An analyst and press conference will be held on Friday 3 August 2007 starting 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 can be viewed on the Internet at the following address: http://194.100.179.98:80/wip/directlink.do?newbrowser=1&pid=1592175. To participate in the teleconference and have the possibility to ask questions, please call: +358 9 8248 6642 and enter the PIN-code 657020. To only listen to the teleconference call the same number and enter PIN-code 831966. An on-demand version of the conference will be available on the company website later the same day. Wärtsilä Corporation Raimo Lind Executive Vice President & CFO Eeva Kainulainen Vice President, Corporate Communications Wärtsilä in brief Wärtsilä enhances the business of its customers by providing them with complete lifecycle power solutions. When creating better and environmentally compatible technologies, Wärtsilä focuses on the marine and energy markets with products and solutions as well as services. Through innovative products and services, Wärtsilä sets out to be the most valued business partner of all its customers. This is achieved by the dedication of more than 15,000 professionals manning 130 Wärtsilä locations in close to 70 countries around the world. INTERIM REPORT JANUARY-JUNE 2007 The figures in this interim report are unaudited. SECOND QUARTER 4-6/2007 IN BRIEF MEUR 4-6/2007 4-6/2006 Change Order intake 1 369 1 190 15% Net sales 797 845 -6% Operating result 73 70 4% % of net sales 9.2% 8.3% Profit before taxes 72 204 1) Earnings/share, EUR 0.54 1.60 1) 1) The April-June 2006 result includes Wärtsilä's share of Ovako's profit after taxes EUR 8 million and a capital gain of EUR 124 million from the sale of Assa Abloy B-shares. REVIEW PERIOD JANUARY - JUNE 2007 IN BRIEF MEUR 1-6/2007 1-6/2006 Change 2006 Order intake 2 526 2 214 14% 4 621 Order book, 30 June 5 460 3 772 45% 4 439 Net sales 1 558 1 437 8% 3 190 Operating result 136 106 29% 262 % of net sales 8.8% 7.4% 8.2% Profit before taxes 132 244 1) 447 2) Earnings/share, EUR 0.98 2.15 3) 3.72 3) Cash flow from operating activities 129 49 302 Interest-bearing net debt at the end of the period 178 293 55 Gross capital Expenditure 112 116 193 1) The January-June 2006 result includes Wärtsilä's share of Ovako's profit after taxes, EUR 15 million and a capital gain of EUR 124 million from the sale of Assa Abloy B-shares. 2) The 2006 result includes Wärtsilä's share of Ovako's profit after taxes, EUR 67 million, and a capital gain of EUR 124 million from the sale of Assa Abloy B shares. 3) The January-June 2006 result also includes deferred tax assets totalling EUR +26 million relating to previously recognized restructuring expenses. MARKET DEVELOPMENT Ship Power The shipbuilding market during the first half of 2007 was very active despite a somewhat slow start at the beginning of the year. Measured in number of vessels contracting was above the level of the corresponding period last year with 1,676 (1,566) vessels registered. Measured in deadweight tons, the order level was also higher than in the same period last year especially due to the very high volume of dry bulk vessels ordered. The shift in focus from smaller to larger vessels and revitalization of the container vessel market have evened out the differences between the geographical shipbuilding markets. China remains the biggest beneficiary having a share of 42% in the number of vessels ordered. Korea has closed the gap from the beginning of the year, raising its share to 33%. Europe received 8% and Japan 9% of the new orders. Wärtsilä's market shares in Ship Power The total market volume for medium-speed main engines for the last 12 months at the end of the second quarter 2007 was 9,400 MW. Wärtsilä's share fell slightly from a very high level to 42% (46% at the end of the previous quarter). The change in the order mix from big engines to smaller ones was the main factor behind this development. The low-speed main engine market grew to 29,400 MW (27,700). Wärtsilä's market share in this market was 15% (14% at the end of the previous quarter). In auxiliary engines Wärtsilä's market share was 5% (6% at the end of the first quarter of 2007). Power Plants Demand in the Power Plant market remained high and all segments relevant to Wärtsilä - baseload production, industrial self-generation and grid stability - were active during the review period. Markets continued to be globally active. Demand for oil-fired power plants was strong during the review period, especially in Africa and the Middle East. The order intake for power plants running on renewable fuels, which includes among others liquid bio-fuel power plants, continued actively especially in Italy. Demand for gas-fired power plants, remained at a good level. Wärtsilä's market shares in Power Plants Wärtsilä has a strong foothold in the market for heavy fuel oil (HFO) power plants and holds approximately a third of the market in Wärtsilä's power range. In the market for light fuel oil (LFO) power plants, including liquid biofuels, Wärtsilä has approximately a quarter of the market. The gas power plant market is a growing market where Wärtsilä sees good growth potential. Wärtsilä's current market share in gas power plants is approximately 8% of the relevant market. ORDER INTAKE AND ORDER BOOK Wärtsilä's order intake continued strong showing growth of 15% in the second quarter and amounted to EUR 1,369 million (1,190). In the Ship Power business the April-June period marked an all time high quarter with the order intake amounting to EUR 673 million (660). The Power Plants order intake for the second quarter amounted to EUR 326 million (243) representing growth of 34%. In the review period January-June Wärtsilä's order intake totalled EUR 2,526 million (2,214), representing growth of 14%. The Ship Power order intake grew further by 3% from the high level in the corresponding period last year (1,161) and was EUR 1,194 million. Offshore vessels and platforms continued to dominate the new orders. One of the landmarks was a contract to supply an entire power, automation and propulsion system for a well-testing FPSO vessel for Brasilian Dynamic Producer Inc. In the cruise ship segment Wärtsilä received an order for the second vessel in the project Genesis for Caribbean Cruise Ltd. Delivery will consist of the main engines and transverse tunnel thrusters. The Power Plants order intake for the review period was 41% higher than during the corresponding period last year and totalled EUR 537 million (381). The largest oil-fired power plant orders were received from Pakistan, Senegal and Aruba. Success in the liquid bio-fuel power plants continued during the second quarter and Wärtsilä received three orders with a total output of 114 MW in Italy. The largest gas power plant orders were received from Russia and Bangladesh. At the end of the review period Wärtsilä's order book stood at an all-time high of EUR 5,460 million (3,772), representing growth of 45%. Some 30% of Wärtsilä's total order book is due for delivery in 2007. The Ship Power order book was EUR 3,681 million (2,505), corresponding deliveries for approximately two years. The Power Plants order book stood at EUR 1,361 million (887), roughly half of which is due for delivery in 2007. ORDER INTAKE, SECOND QUARTER 4-6/2007 MEUR 4-6/2007 4-6/2006 Change Ship Power 673 660 2% Services 369 286 29% Power Plants 326 243 34% Order intake, total 1 369 1 190 15% Order intake Power Plants MW 4-6/2007 4-6/2006 Change Oil 313 377 -17% Gas 236 177 33% Renewable fuels 114 17 554% ORDER INTAKE REVIEW PERIOD 1-6/2007 MEUR 1-6/2007 1-6/2006 Change 2006 Ship Power 1 194 1 161 3% 2 270 Services 792 668 19% 1 322 Power Plants 537 381 41% 1 027 Order intake, total 2 526 2 214 14% 4 621 Order intake Power Plants MW 1-6/2007 1-6/2006 Change 2006 Oil 443 549 -19% 766 Gas 358 283 27% 1 232 Renewable fuels 317 159 99% 353 ORDER BOOK MEUR 30 June 2007 30 June 2006 Change 2006 Ship Power 3 681 2 505 47% 3 020 Services 416 377 10% 357 Power Plants 1 361 887 53% 1 061 Order book, total 5 460 3 772 45% 4 439 NET SALES During the second quarter Wärtsilä's net sales decreased by 6% due to the timing of power plant deliveries. Ship Power net sales grew 24% and Services net sales by 23%. Organic growth in Services accounted for 17%. Power Plants net sales decreased by 62%. Wärtsilä's net sales for the review period January-June totalled EUR 1,558 million (1,437), growth of 8%. Ship Power net sales grew strongly by 42% to EUR 561 million (397), representing 36% of Wärtsilä's total net sales. Power Plants net sales amounted to EUR 262 million (432), 17% of total net sales. The net sales from the Services business increased to EUR 726 million (604), growth of 20% on the corresponding period last year. Organic growth represented 15% of Services net sales growth. Services net sales accounted for 47% of total Wärtsilä net sales. NET SALES 4-6/2007 MEUR 4-6/2007 4-6/2006 Change Ship Power 305 245 24% Services 374 304 23% Power Plants 112 292 -62% Net sales, total 797 845 -6% NET SALES REVIEW PERIOD 1-6/2007 MEUR 1-6/2007 1-6/2006 Change 2006 Ship Power 561 397 42% 985 Services 726 604 20% 1 266 Power Plants 262 432 -39% 934 Net sales, total 1 558 1 437 8% 3 190 FINANCIAL RESULTS In the second quarter the operating result rose to EUR 73 million (70) and the profitability increased to 9.2% (8.3). In the review period 1-6/2007 the operating result improved to EUR 136 million (106), representing profitability of 8.8 % (7.4). In the review period 1-6/2007 the financial items amounted to EUR -5 million (-1). Net interest totalled EUR -6 million (-7). Dividends received amounted to EUR 6 million (8). Profit before taxes was EUR 132 million (244). Taxes in the reporting period amounted to EUR 37 million (41). Taxes in the comparison period included deferred tax assets totalling EUR +26 million relating to previously recognized restructuring expenses. Earnings per share for the review period were EUR 0.98 (2.15). BALANCE SHEET, FINANCING AND CASH FLOW Liquid reserves at the end of the period amounted to EUR 133 million (137). Net interest-bearing loan capital totalled EUR 178 million (293). The solvency ratio was 44.3% (44.0) and gearing was 0.18 (0.25). Cash flow from operating activities for January-June 2007 was strong and totalled EUR 129 million (49). HOLDINGS Wärtsilä owns 7,270,350 B shares in Assa Abloy, or 2.0% of the total. This holding has been booked in the balance sheet at its market value at the end of the reporting period, EUR 119 million. CAPITAL EXPENDITURE Gross capital expenditure in the review period totalled EUR 112 million (116), which comprised EUR 43 million (72) in acquisitions and investments in securities and EUR 69 million (44) in production and information technology investments. Depreciation amounted to EUR 37 million (35). Due to the strong volume growth the total capital expenditure for 2007 is expected to be approx. EUR 200 million. STRATEGIC ACQUISITIONS AND JOINT VENTURES In January Wärtsilä and Hyundai Heavy Industries Co. Ltd (HHI) signed an agreement to set up a 50/50-owned joint venture in Korea to manufacture dual-fuel engines for LNG (liquefied natural gas) carriers. The total equity of the company will be EUR 58 million, Wärtsilä's share being EUR 29 million. The joint venture will manufacture Wärtsilä 50DF dual-fuel engines for the Korean, Japanese, Chinese and Taiwanese shipbuilding markets. The first engine will be delivered in the second half of 2008. The Trieste delivery center in Italy will continue to manufacture Wärtsilä 50DF dual-fuel engines for the marine markets outside East Asia and for the growing worldwide power plant market. In June the European Union competition authorities cleared the joint venture and the permits from different authorities have been received to start the business. In February Wärtsilä acquired the Swedish company Senitec AB. The company is specialized in environmental technology products for separating waste such as oily water and sludge in power plants, harbours and ships. This new business gives Wärtsilä the possibility to expand its offering of environmental solutions in waste management. In February Wärtsilä acquired the entire business of Marine Propeller (Pty) Ltd in Cape Town, South Africa. Marine Propeller (Pty) Ltd focuses mainly on repairing propellers. In May Wärtsilä continued extending its service offering in Propulsion services with the acquisition of UK-based propeller repair company McCall Propellers Ltd. The acquisitions complement Wärtsilä's propeller services. The total acquisition price of the acquisitions mentioned above is EUR 25 million out of which EUR 17 million is reported as goodwill. In May Wärtsilä signed an agreement to acquire the marine business of Railko Ltd. in the UK, a company specializing in stern tube bearing technology. The acquisition will improve Wärtsilä's competitive position in oil-lubricated bearing systems and adds water-lubricated bearings to the product portfolio. Railko's products are used on all types of vessels, from cruise ships to cargo vessels. The acquisition was closed at the beginning of July. OTHER STRATEGIC ISSUES In January Wärtsilä announced a public offer to the minority shareholders of Wärtsilä India Ltd to acquire 1,240,599 shares, or 10.3% of the share capital. The offer period expired on 23 March 2007. The delisting offer was successful and pursuant to the offer 7.3% of the total shares were acquired. This implies a consideration of EUR 10 million, of which EUR 7 million was recognised as goodwill. Wärtsilä Corporation holds directly or indirectly 97.0% of Wärtsilä India shares. The shares of Wärtsilä India Ltd were delisted from the Bombay Stock Exchange on 18 June 2007. To improve marine customer service in the rapidly growing Chinese markets Wärtsilä opened a large reconditioning workshop in Shanghai in March. In May Wärtsilä also opened a service workshop close to Saigon port in Ho Chi Minh City and an office in Hanoi to serve the growing Vietnamese shipping, shipbuilding and power industries. The demand for training services is steadily rising and Wärtsilä opened a new training centre in Korea to provide customer training in the world's largest shipbuilding country. MANUFACTURING The investment programmes for enlarged production capacity of medium-speed engines in Vaasa and Trieste to meet the growing market demand are proceeding. The full capacity increase will be in use during the second half of 2007 as planned. Wärtsilä's worldwide supplier network has continued to build up capacity and most of these investments made by the suppliers will also be operational during 2007. In May Wärtsilä and Vietnam Shipbuilding Industry Corporation (Vinashin) signed a licence agreement for the manufacture and sale of certain types of Wärtsilä low-speed engines in Vietnam. The first engine delivery is scheduled for the beginning of 2010. Wärtsilä's joint venture company in China, Wartsila CME Zhenjiang Propeller Co Ltd, opened its new fixed pitch propeller factory in June. The new factory doubles Wärtsilä's capacity to manufacture this type of propeller. The manufacturing and technology activities of the propulsor business are being merged with the engine manufacturing into an Industrial Operations organization. The target of the new structure is to further strengthen untilization of core competences. R&D Wärtsilä is further increasing its focus on combustion research and engine performance technology development by making new investments in this area. The current Hercules programme aiming at reduction of fuel consumption and CO2 emissions ends in September 2007. The main parties in the present programme, Wärtsilä and MAN Diesel, are preparing the next phase of the project. The proposal for the next phase was submitted to the EU Commission at the beginning of June. Testing of the Wärtsilä Auxpac 26 engine began during the review period with positive results. This product will enhance the Auxpac product range to meet market demand for bigger auxiliary engines. PERSONNEL Wärtsilä had 14,791 (12,650) employees on average during the reporting period and 15,180 (12,918) at the end of June. The largest personnel increases took place in the Services business where the personnel increase was close to 19% compared to the correponding period 2006. At the end of the period the Services business employed 8,937 (7,537). SHARES AND SHAREHOLDERS SHARES ON HELSINKI EXCHANGES 30 June 2007 A-share B-share Total Number of shares 23 579 587 72 223 078 95 802 665 Number of votes 235 795 870 72 223 078 308 018 948 Number of shares traded 1-6/2007 868 828 57 218 179 58 087 007 1 Jan.- 30 June 2007 High Low Average 1) Close A-share 50.50 38.05 45.80 47.80 B-share 51.40 38.44 46.38 48.90 1) Trade-weighted average price. Market capitalization 30 June 2007 30 June 2006 EUR million 4 659 3 110 Foreign shareholders 30 June 2007 30 June 2006 32.6% 28.8% CHANGES IN OWNERSHIP AFTER THE REPORTING PERIOD On 3rd of July Varma Mutual Pension Insurance Company increased its holding in Wärtsilä Corporation. Following the transaction Varma owns 2,795,615 A shares and 1,188,691 B shares giving a total holding of 3,984,306 Wärtsilä shares or 4.16% of Wärtsilä's share capital and 9.46% of the total votes. On 3rd of July Sampo plc decreased its holding in Wärtsilä Corporation. Following the transaction Sampo owns 584,668 A shares or 0.61% of Wärtsilä's share capital and 1.90% of the total votes. OPTION SCHEMES During the review period Wärtsilä had two option schemes. The 2001 option scheme ended on 31 March 2007. The 2002 option scheme will end on 31 March 2008. Based on the option schemes altogether 197.952 shares, representing 0.2 % of the share capital remained unsubscribed at the end of the review period. DECISIONS TAKEN BY THE ANNUAL GENERAL MEETING Wärtsilä's Annual General Meeting on 14 March 2007 approved the financial statements and discharged the company's President & CEO and the members of the Board of Directors from liability for the financial year 2006. The Meeting approved the Board of Directors' proposal to pay a dividend of 1.75 euros per share. Wärtsilä's Annual General Meeting decided that the Board of Directors shall have six members. The following were elected to the Board: Ms Maarit Aarni-Sirviö, Mr Heikki Allonen, Mr Göran J. Ehrnrooth, Mr Antti Lagerroos, Mr Bertel Langenskiöld and Mr Matti Vuoria. The firm of authorized public accountants KPMG Oy Ab were appointed as the company's auditors. AUTHORIZATIONS GRANTED TO THE BOARD OF DIRECTORS The AGM authorized the Board to issue new Series A and/or Series B shares in one or several instalments. The share issue can be executed on the conditions and at the price determined by the Board. Under this authorization at most totally 9,555,434 new shares may be issued. Within this total amount of shares - at most 2,357,958 new A shares and at most 7,197,476 new B shares are issued to the shareholders in proportion to their existing holdings, and/or - at most 9,555,434 B shares are issued, disapplying the pre-emptive right of the shareholders provided that the Company has important financial grounds for doing so. The authorization may be exercised, within the restrictions listed above, to develop the company's capital structure, to broaden its ownership base, as consideration in acquisitions or when the company acquires assets related to its business. The rights issue may also be executed as payment in kind or by using the right of set-off. The authorization remains in force until the following Annual General Meeting. ORGANIZATION OF THE BOARD OF DIRECTORS The Board of Directors of Wärtsilä Corporation elected Antti Lagerroos as its chairman and Göran J. Ehrnrooth as the deputy chairman. The Board decided to establish an Audit Committee, a Nomination Committee and a Compensation Committee. The Board appointed from among its members the following members to the Committees: Audit Committee: Chairman Antti Lagerroos; Members Maarit Aarni-Sirviö, Heikki Allonen and Matti Vuoria. Nomination Committee: Chairman Antti Lagerroos; Members Göran J. Ehrnrooth and Matti Vuoria. Compensation Committee: Chairman Antti Lagerroos; Members Heikki Allonen and Matti Vuoria. RISKS AND BUSINESS UNCERTAINTIES The very high demand has led to a short supply of certain key components. Examples of bottlenecks are castings and forgings where global demand exceeds supply. Wärtsilä has taken several measures to ensure the availability of these key components. Investments have been implemented by many of the company's suppliers and most of these will be operational during 2007. MARKET OUTLOOK The outlook for the global world economy remains strong and is expected to remain favourable in the near future. The shipping and shipbuilding industries continue to be active. The freight market has remained strong and freight rates are still at historically high levels. Slightly higher interest rates and inflation have not affected the shipbuilding market. However, the increase in deliveries of new ships has become faster than growth in demand for new tonnage and this is expected to start affecting the freight market in the medium term. The market is expected to continue active at least for upcoming six months. Also offshore investments in both vessels and various production units are expected to remain at a high level for at least half a year. In the Power Plant market the situation remains good. Order intake is expected to remain high during the reminder of the year with particularily good prospects in South Asia, Africa and the Americas. WÄRTSILÄ'S PROSPECTS FOR 2007 Demand in the ship power and energy markets looks likely to remain active for Wärtsilä for the next two quarters. Based on the strong order book, Wärtsilä's net sales are expected to grow this year by around 15%. Profitability will exceed 9%. Wärtsilä's profitability varies considerably between the quarters as will also be the case this year. Wärtsilä sees further possibilities for growth in 2008. WÄRTSILÄ INTERIM REPORT JANUARY - JUNE 2007 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 2006. 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. Amended and new International Financial Reporting Standards (IFRS) as of 1 January 2007: - IFRS 7, financial instruments: Disclosures - Amendment to IAS 1, Capital disclosures - IFRIC 8: Scope of IFRS 2 - IFRIC 9, Reassessment of Embedded Derivatives - IFRIC 10, Interim financial Reporting and Impairment. The adoption of the new and revised standards and interpretations does not have any material affect on the interim financial report. This interim report is unadited. CONDENSED INCOME STATEMENT MEUR 1-6/2007 1-6/2006 2006 Net sales 1 558 1 437 3 190 Other income 8 10 25 Expenses -1 393 -1 305 -2 881 Depreciation and impairment -37 -35 -72 Operating result 136 106 262 Financial income and expenses -5 -1 -7 Net income from assets available for sale 124 124 Share of profit of associates 15 68 Profit before taxes 132 244 447 Taxes for the period -37 -41 -94 Profit for the financial period 95 203 353 Attributable to: Equity holders of the parent company 94 203 351 Minority interest 1 2 Total 95 203 353 Earnings per share attributable to equity holders of the parent company: Earnings per share, EUR 0.98 2.15 3.72 Diluted earnings per share, EUR 0.98 2.13 3.71 CONDENSED BALANCE SHEET 31 December MEUR 30 June 2007 30 June 2006 2006 Non-current assets Intangible assets 634 594 602 Property, plant and equipment 333 291 315 Equity in associates 11 126 3 Investments available for sale 184 148 183 Deferred tax receivables 76 92 87 Other receivables 43 7 43 1 281 1 258 1 233 Current assets Equity in associates 1 6 Inventories 1 087 847 838 Other receivables 929 887 932 Cash and cash equivalents 133 137 179 2 149 1 871 1 955 Assets 3 430 3 129 3 188 Shareholders' equity Share capital 335 331 334 Other shareholders' equity 817 835 882 Total equity attributable to equity holders of the parent 1 152 1 166 1 217 Minority interest 8 10 13 Total shareholders' equity 1 160 1 176 1 230 Non-current liabilities Interest-bearing debt 259 222 205 Deferred tax liabilities 77 56 74 Other liabilities 75 75 73 411 353 352 Current liabilities Interest-bearing debt 89 212 66 Other liabilities 1 771 1 389 1 540 1 860 1 601 1 606 Total liabilities 2 270 1 954 1 958 Shareholders' equity and liabilities 3 430 3 129 3 188 CONDENSED CASH FLOW STATEMENT MEUR 1-6/2007 1-6/2006 2006 Cash flow from operating activities: Profit before taxes 132 244 447 Depreciation and impairment 37 35 72 Financial income and expenses 5 1 6 Selling profit and loss of fixed assets and other adjustments -3 -126 -129 Share of profit of associates -15 -68 Changes in working capital 51 -41 52 Cash flow from operating activities before financial items and taxes 221 98 379 Net financial items and income taxes -92 -49 -77 Cash flow from operating activities 129 49 302 Cash flow from investing activities: Investments in shares and acquisitions -43 -72 -86 Net investments in tangible and intangible assets -66 -31 -94 Proceeds from sale of shares 148 318 Cash flow from other investing activities 10 10 11 Cash flow from investing activities -99 55 148 Cash flow from financing activities: Issuance of share capital 3 7 19 New long-term loans 61 2 6 Amortization and other changes in long-term loans -18 -13 -37 Dividends paid -168 -141 -283 Changes in short term loans and other financing activities 46 64 -92 Cash flow from financing activities -76 -82 -387 Change in liquid funds, increase (+) / decrease (-) -46 22 63 Cash and cash equivalents at beginning of period 179 120 120 Fair value adjustments, investments 1 1 Exchange rate changes -1 -4 -4 Cash and cash equivalents at end of period 133 137 179 STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Total equity attributable to equity MEUR holders of the parent Minority Total interest equity Fair value Share and Share issue Translation other Retained capital premium differences reserves earnings Shareholders' equity on 31 December 2006 334 58 3 128 693 13 1 230 Translation differences 3 4 Other changes -5 -5 Available-for-sale investments gain / loss from fair valuation, net of taxes 1 1 Cash flow hedges after taxes 1 1 Net income recognized directly in equity 3 2 -5 0 Profit for the financial period 94 1 95 Total recognized income and expense for the period 3 2 94 -4 95 Options exercised 1 2 3 Dividends paid -167 -1 -168 Shareholders' equity on 30 June 2007 335 60 6 130 620 8 1 160 Shareholders' equity on 31 December 2005 329 44 7 147 626 10 1 163 Translation differences -1 -1 -2 Other changes 1 1 Available-for-sale investments gain/loss from fair valuation, net of taxes -1 -1 transferred to income statement, net of taxes -81 -81 Cash flow hedges after taxes 28 28 Net income recognized directly in equity -1 -54 -55 Profit for the financial period 203 203 Total recognized income and expense for the period -1 -54 203 148 Options exercised 2 5 7 Dividends paid -141 -141 Shareholders' equity on 30 June 2006 331 49 6 93 687 10 1 176 BUSINESS SEGMENTS Income statement 1-6/2007 Power Holdings Unallocated Group MEUR Businesses Net sales 1 558 1 558 Operating result 136 136 Financial income and expenses, dividends 6 -10 -5 Profit before taxes 132 Assets 3 198 145 87 3 430 Liabilities 2 157 113 2 270 Investments 112 112 Depreciation and impairment -37 -37 Income statement 1-6/2006 Power Holdings Unallocated Group MEUR Businesses Net sales 1 437 1 437 Operating result 106 106 Financial income and expenses, dividends 8 -9 -1 Net income from assets available for sale 124 124 Share of profit of associates 15 15 Profit before taxes 244 Assets 2 770 252 108 3 129 Liabilities 1 840 114 1 954 Investments 116 116 Depreciation and impairment -35 -35 Geographical segments Europe Asia Americas Other Group MEUR Net sales 1-6/2007 677 558 188 134 1 558 Net sales 1-6/2006 539 488 310 99 1 437 INTANGIBLE ASSETS AND PROPERTY, PLANT & EQUIPMENT MEUR 1-6/2007 1-6/2006 2006 Intangible assets Book value at 1 January 602 541 541 Changes in exchange rates -1 -3 -4 Acquisitions 34 56 69 Additions 15 10 22 Depreciation and impairment -14 -13 -28 Disposals and intra-balance sheet transfer -3 3 2 Book value at end of period 634 594 602 Property, plant and equipment Book value at 1 January 315 273 273 Changes in exchange rates -4 -6 Acquisitions 1 18 18 Additions 54 34 84 Companies sold -17 Depreciation and impairment -23 -22 -44 Disposals and intra-balance sheet transfer 3 -8 -11 Book value at end of period 333 291 315 GROSS CAPITAL EXPENDITURE MEUR 1-6/2007 1-6/2006 2006 Investments in securities and acquisitions 43 72 86 Other investments 69 44 107 Group 112 116 193 During the review period investments in the factories in Vaasa, Finland and Trieste, Italy amounted to EUR 18 million, and Wärtsilä had commitments related to the investment programmes amounting to EUR 9 million at the end of the review period. The investment in the enlargement of propulsion equipment manufacturing in the Netherlands and China amounted to EUR 5 million during the review period, and Wärtsilä had commitments related to the enlargements amounting to EUR 11 million at the end of the review period. IMPACT OF ACQUISITIONS ON THE CONSOLIDATED BALANCE SHEET During the reporting period Wärtsilä has acquired the propeller repair business of the South African company Marine Propeller (Pty) Ltd., a Swedish environmental technology company Senitec AB and a propeller repair company McCall Propellers Ltd in UK. In addition, Wärtsilä acquired 7.3% of Wärtsilä India Ltd. and at the end of the review period the percentage of ownership was 97.0%. MEUR 1-6/2007 Acquisition costs 35 Acquired assets to fair value 11 Goodwill 24 Specification of acquired assets: Tangible and intangible assets 7 Property, plant and equipment 1 Inventories 1 Receivables 4 Minority interest 3 Liabilities -3 Deferred tax liabilities -2 Total 11 INTEREST-BEARING LOAN CAPITAL 31 December MEUR 30 June 2007 30 June 2006 2006 Long-term liabilities 259 222 205 Current liabilities 89 212 66 Loan receivables -36 -4 -36 Cash and bank balances -133 -137 -179 Net 178 293 55 FINANCIAL RATIOS 1-6/2007 1-6/2006 2006 Earnings per share, EUR 0.98 2.15 3.72 Diluted earnings per share, EUR 0.98 2.13 3.71 Equity per share, EUR 12.03 12.33 12.74 Solvency ratio, % 44.3 44.0 47.0 Gearing 0.18 0.25 0.07 PERSONNEL 1-6/2007 1-6/2006 2006 On average 14 791 12 650 13 264 At end of period 15 180 12 918 14 346 CONTINGENT LIABILITIES 31 December MEUR 30 June 2007 30 June 2006 2006 Mortgages 15 15 20 Chattel mortgages 22 21 21 Total 38 37 42 Guarantees and contingent liabilities On behalf of Group companies 391 304 317 On behalf of associated companies 1 Nominal amount of rents according to leasing contracts 51 39 50 Total 442 345 367 NOMINAL VALUES OF DERIVATIVE INSTRUMENTS of which MEUR Total amount closed Interest rate swaps 140 Foreign exchange forward contracts 1 169 135 Currency options, purchased 22 7 Currency options, written 8 8 CONDENSED INCOME STATEMENT, QUARTERLY 4-6/ 1-3/ 10-12/ 7-9/ 4-6/ 1-3/ MEUR 2007 2007 2006 2006 2006 2006 Net sales 797 761 986 767 845 592 Other income 4 4 11 4 8 2 Expenses -710 -683 -880 -696 -764 -541 Depreciation and impairment -18 -18 -18 -18 -18 -18 Operating result 73 63 99 56 70 36 Financial income and expenses -1 -4 -8 1 2 -3 Net income from assets available for sale 124 Share of profit of associates 50 4 8 7 Profit before taxes 72 60 141 61 204 40 Taxes for the period -20 -17 -33 -20 -53 12 Profit for the financial period 52 42 108 42 151 52 Attributable to: Equity holders of the parent company 52 42 107 41 150 52 Minority interest 1 1 Total 52 42 108 42 151 52 Earnings per share attributable to equity holders of the parent company: Earnings per share, EUR 0.54 0.44 1.13 0.44 1.60 0.55 Diluted earnings per share, EUR 0.54 0.44 1.15 0.43 1.58 0.55 CALCULATION OF FINANCIAL RATIOS Earnings per share (EPS) Profit before taxes - income taxes - minority interests ------------------------------------ Adjusted number of shares over the financial year Equity per share Shareholders' equity ------------------------------------ Adjusted number of shares at the end of the period Solvency ratio Shareholders' equity + minority interests ------------------------------------ x 100 Balance sheet total - advances received Gearing Interest-bearing liabilities - cash and bank balances ------------------------------------ Shareholders' equity + minority interests 2 August 2007 Wärtsilä Corporation Board of Directors