Wärtsilä Corporation QUARTERLY REPORT 30 October 2007 at 8.30 local
time
YET ANOTHER QUARTER OF STRONG ORDER INTAKE - MARKET EXPECTED TO
REMAIN ACTIVE
HIGHLIGHTS OF THE THIRD QUARTER JULY- SEPTEMBER 2007
- Order intake EUR 1,514 million (1,090), growth 39%
- Net sales EUR 933 million (767), growth 22%
- Operating result EUR 96 million (56), growth 71%
- Profitability 10.3% (7.3)
HIGHLIGHTS OF THE REVIEW PERIOD JANUARY-SEPTEMBER 2007
- Order intake EUR 4,039 million (3,304), growth 22%
- Order book total EUR 6,162 million (4,108), growth 50%
- Net sales EUR 2,491 million (2,204), growth 13%
- Operating result EUR 233 million (162), growth 43%
- Profitability 9.3% (7.4)
- EPS 1.69 (comparable EPS 1.42)
- Cash flow strongly positive
OLE JOHANSSON, PRESIDENT & CEO:"Good demand continued in the markets boosting new orders and
resulting in an order book of EUR 6 billion. Net sales grew strongly
by 22% supported by the strong order book in Ship Power and high
activity in Services. 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%. Full year profitability will exceed 9%. Wärtsilä sees
further possibilities for growth in 2008.
ANALYST AND PRESS CONFERENCE
An analyst and press conference will be held on Tuesday 30 October
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=1841477.
To participate in the teleconference and have the possibility to ask
questions, please call: +358 9 8248 3735 and enter the PIN-code 8503.
To only listen to the teleconference call the same number and enter
PIN-code 8823. An on-demand version of the conference will be
available on the company website later the same day.
Wärtsilä Corporation
Raimo Lind Eeva Kainulainen
Executive Vice President & Vice President, Corporate
CFO 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
150 Wärtsilä locations in close to 70 countries around the world.
INTERIM REPORT JANUARY-SEPTEMBER 2007
The figures in this interim report are unaudited.
THIRD QUARTER 7-9/2007 IN BRIEF
EUR million 7-9/2007 7-9/2006 Change
Order intake 1 514 1 090 39%
Net sales 933 767 22%
Operating result 96 56 71%
% of net sales 10.3% 7.3%
Profit before taxes 95 58 1) 63%
Earnings per share, EUR 0.71 0.40 1)
1) For comparability reasons the 7-9/2006 figure does not
include Wärtsilä's share of Ovako's profit after taxes, EUR 3
million.
REVIEW PERIOD 1-9/2007 IN BRIEF
MEUR 1-9/2007 1-9/2006 Change 2006
Order intake 4 039 3 304 22 % 4 621
Order book 30 September 6 162 4 108 50 % 4 439
Net sales 2 491 2 204 13 % 3 190
Operating result 233 162 43 % 262
% of net sales 9.3% 7.4% 8.2%
Profit before taxes 227 163 1) 39% 255 2)
Earnings per share, EUR 1.69 1.42 1) 2.03 2)
Cash flow from
operating activities 299 172 74% 302
Interest-bearing net debt
at the end of the period 61 185 -67% 55
Gross capital expenditure 172 142 21% 193
1) For comparability reasons the 1-9/2006 figure does not
include Wärtsilä's share of Ovako's profit after taxes, EUR 18
million and the capital gain of EUR 124 million from the sale of Assa
Abloy B shares.
2) For comparability reasons the 2006 figure does not include
Wärtsilä's share of Ovako's profit after taxes, EUR 67 million and
the capital gain of EUR 124 million from the sale of Assa Abloy B
shares.
MARKET DEVELOPMENT
Ship Power
During the period, vessel order volumes have continued to grow from
last year and it is clear that for the year 2007, new all-time-high
figures will be reached, both in terms of number of vessels and
tonnage. As regards the number of vessels, contracting is
approximately 15% above the previous year's level, while tonnage is
up by 40%. Among the shipbuilding nations, China has kept its
position during the review period January-September 2007, having 41%
of new vessel orders, while Korea, the number two shipbuilding
nation, has 30%. Europe has a 9% and Japan has a 10 % share of
vessels ordered during 2007. On a year-on-year comparison, China and
Korea have gained market share whereas Europe and Japan's share has
diminished.
Order volumes for the bulk carrier segment doubled compared to the
previous year, and this continues to be the strongest segment. In the
container vessel segment, the boom continued in the ultra large
sizes. The offshore market is still very active and a slowdown in
demand can be seen only in small supply vessels.
Wärtsilä Ship Power market shares
The third quarter did not bring any major changes to Wärtsilä market
shares. In medium-speed main engines, Wärtsilä's share remained at
42% for the 12 month period ending at the end of the third quarter
(42% at the end of the previous quarter). Market share for low-speed
main engines grew slightly to 16% (15% at the end of the previous
quarter), while auxiliary engines' market share remained at 5% (5% at
the end of the previous quarter). The total market for medium-speed
main engines decreased from 9,400 MW to 8,700 MW. The low-speed
market grew significantly to 34,100 MW (29,400). The very high demand
in the bulk carrier segment in Asian yards has decreased the yard
capacity for vessels powered by medium-speed engines and this has led
to the somewhat slower development in demand for medium-speed
engines. Bulk carriers are mainly powered by low-speed engines.
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 healthy
level.
Wärtsilä's market shares in Power Plants
Wärtsilä has a strong foothold in the market for heavy fuel oil (HFO)
power plants. For the period June 2006 to May 2007 Wärtsilä's market
share was approximately 38% (34) of the HFO market in Wärtsilä's
power range. In the market for light fuel oil (LFO) power plants,
including liquid biofuels, Wärtsilä had 24% (23). The gas power plant
market is growing and Wärtsilä sees good growth potential in it.
Wärtsilä's market share in the relevant gas power plant market grew
to approximately 12% (8).
ORDER INTAKE AND ORDER BOOK
Wärtsilä's order intake continued to be very strong and amounted to
EUR 1,514 million (1,090) in the third quarter, representing a 39%
growth. In the Ship Power business, the July - September period again
marked an all-time-high quarter with an order intake totalling EUR
766 million. This was 56% higher than for the corresponding period in
2006. During the third quarter orders for various kinds of merchant
vessels exceeded those for the previously dominant offshore segment.
Wärtsilä also received many orders for auxiliary engines for bulk
carriers to be built in Chinese shipyards. Demand in the offshore
segment remained strong and Wärtsilä booked several orders for anchor
handlers, supply vessels, and other offshore vessels - both for
European and Asian customers. A slight slowdown could be seen in
offshore supply vessels.
The Power Plant market was active during the third quarter and the
order intake for the third quarter amounted to EUR 420 million (335),
representing growth of 25%. Orders for 969 MW were booked during the
period. The most active market areas in terms of order intake during
the third quarter were Europe (362 MW) and Africa (295 MW). All
customer segments remained active. During the quarter Wärtsilä was
particularly successful in the Russian and Eastern European markets.
Important oil and gas industry orders were booked for gas compression
purposes in Hungary, oil pumping in Russia, and for refinery power
production in the Ukraine. Additionally, the first order ever from
Belarus was secured for a combined heat and power installation. The
Italian liquid bio fuel market continued to be active and Wärtsilä
received 7 orders during the quarter for more than 70 MW in total.
Important gas-fired orders totalling 216 MW were received from four
customers in Turkey and an additional 108 MW was sold to Azerbaijan.
The African market continues to be active with orders coming from
many parts of the African continent. Wärtsilä's single biggest order
this quarter was a 122 MW oil fired plant to a utility customer in
Morocco.
In the review period January-September Wärtsilä's order intake
totalled EUR 4,039 million (3,304), representing growth of 22%. The
Ship Power order intake grew by a further 19% to EUR 1,960 million
from the very high level of EUR 1,651 million. The Power Plant order
intake amounted to EUR 958 million (716), representing growth of 34%.
At the end of the review period Wärtsilä's order book stood at a new
all-time high level of EUR 6,162 million (4,108), representing growth
of 50%. The Ship Power order book stood at EUR 4,183 million (2,801),
corresponding to deliveries for approximately two years. The Power
Plants order book stood at EUR 1,548 million (967).
Order intake, third quarter 7-9/2007
MEUR 7-9/2007 7-9/2006 Change
Ship Power 766 490 56 %
Services 326 266 23 %
Power Plants 420 335 25 %
Order intake, total 1 514 1 090 39 %
Order intake Power Plants
MW 7-9/2007 7-9/2006 Change
Oil, MW 495 163 204 %
Gas plants, MW 402 425 -5 %
Renewable fuels, MW 87 70 24 %
Order intake review period 1-9/2007
MEUR 1-9/2007 1-9/2006 Change 2006
Ship Power 1 960 1 651 19 % 2 270
Services 1 118 934 20 % 1 322
Power Plants 958 716 34 % 1 027
Order intake, total 4 039 3 304 22 % 4 621
Order intake Power Plants
MW 1-9/2007 1-9/2006 Change 2006
Oil, MW 939 712 32 % 766
Gas plants, MW 761 707 8 % 1 232
Renewable fuels, MW 404 229 76 % 353
Orderbook by business
MEUR 30.9.2007 30.9.2006 Change 2006
Ship Power 4 183 2 801 49 % 3 020
Services 429 338 27 % 357
Power Plants 1 548 967 60 % 1 061
Order book, total 6 162 4 108 50 % 4 439
NET SALES
During the third quarter Wärtsilä's net sales increased by 22%. Ship
Power net sales grew by 69% and Services net sales by 26%. Organic
growth in Services accounted for 24% in the third quarter. Power
Plants net sales decreased by 17% due to the uneven character of the
business. In terms of net sales the fourth quarter will be the
strongest for the Power Plants business.
Wärtsilä's net sales for the review period January-September totalled
EUR 2,491 million (2,204), a growth of 13%. Ship Power net sales grew
strongly by 50% to EUR 871 million (580). Power Plants net sales
amounted to EUR 491 million (706). The net sales from the Services
business increased to EUR 1,119 million (916), a growth of 22% over
the corresponding period last year. Organic growth represented 18% of
Services net sales growth. Services net sales accounted for 45% of
Wärtsilä's total net sales, Ship Power represented 35% and Power
Plants 20%.
Net sales, third quarter 7-9/2007
MEUR 7-9/2007 7-9/2006 Change
Ship Power 310 184 69 %
Services 394 312 26 %
Power Plants 228 274 -17 %
Net sales, total 933 767 22 %
Net sales review period 1-9/2007
MEUR 1-9/2007 1-9/2006 Change 2006
Ship Power 871 580 50 % 985
Services 1 119 916 22 % 1 266
Power Plants 491 706 -31 % 934
Net sales, total 2 491 2 204 13 % 3 190
FINANCIAL RESULTS
In the third quarter the operating result rose to EUR 96 million (56)
and the profitability increased to 10.3% (7.3). In the review period
1-9/2007 the operating result improved to EUR 233 million (162),
representing profitability of 9.3% (7.4).
In the review period 1-9/2007 the financial items amounted to EUR -6
million
(1). Net interest totalled EUR -7 million (-9). Dividends received
amounted to EUR 7 million (8). Profit before taxes was EUR 227
million (305, out of which EUR 142 million refers to Wärtsilä's share
of Ovako profit after taxes and sales of Assa Abloy B shares)
Taxes in the reporting period amounted to EUR 64 million (61). 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 1.69 (2.59,
comparable EPS 1.42).
BALANCE SHEET, FINANCING AND CASH FLOW
Liquid reserves at the end of the period amounted to EUR 202 million
(143). Net interest-bearing loan capital totalled EUR 61 million
(185). The solvency ratio was 46.1% (47.3) and gearing was 0.08
(0.15).
Cash flow from operating activities for January-September 2007 was
strong and totalled EUR 299 million (172).
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 106 million.
CAPITAL EXPENDITURE
Gross capital expenditure in the review period totalled EUR 172
million (142), which comprised EUR 59 million (76) in acquisitions
and investments in securities and EUR 113 million (66) in production
and information technology investments. Depreciation amounted to EUR
56 million (53).
Due to the strong volume growth the total capital expenditure for
2007 is expected to be EUR 170 million excluding acquisitions.
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 during the second half of 2008. The Trieste delivery centre
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 the
different authorities to start the business, have been received.
To support its growth targets, Wärtsilä has acquired companies in
order to broaden the Services and Ship Power product offering, and to
increase geographical presence in key areas.
In February Wärtsilä acquired the Swedish company Senitec AB. The
company specializes 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.
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 finalized at the beginning of July.
In August Wärtsilä acquired the Scottish company, Electrical Power
Engineering (Scotland) Ltd. The company specializes in electrical
power engineering solutions for marine, offshore, industrial and
utilities segments.
The total acquisition price of the acquisitions mentioned above is
EUR 42 million out of which EUR 24 million is reported as goodwill.
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 8.2% of the total shares
were acquired. This implies a consideration of EUR 11 million, of
which EUR 8 million has been recognised as goodwill. Wärtsilä holds
97.9% 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 South Korea, the world's largest
shipbuilding country, to provide training for customers' engineers.
In May Wärtsilä and Vietnam Shipbuilding Industry Corporation
(Vinashin) signed a licence agreement for the manufacture and sale of
Wärtsilä low-speed marine engines in Vietnam.
Wärtsilä Ship Power is in the process of reorganising into five Ship
Power customer segments: Merchant, Offshore, Cruise & Ferry, Navy,
and Special Vessels. The aim is to respond better to market
requirements and technology development, as well as to be prepared
for market fluctuations. The new organisation will be fully
operational by the end of 2007.
MANUFACTURING
The new production facilities in both Vaasa and Trieste became
operational during the third quarter. Ramp up to full utilization is
expected during the fourth quarter as planned. Investments to
increase the propulsion production capacity, gearboxes and
controllable pitch propellers in India, the Netherlands and Norway
are proceeding according to plan. Most of this additional propulsion
capacity will become available in 2008.
Construction work in the joint venture with Hyundai Heavy industries
in Korea to manufacture dual-fuel engines for LNG carriers has
started and is proceeding according to plan.
The establishment of the joint venture between Wärtsilä, China
Shipbuilding Industry Corporation (CSIC) and Mitsubishi Heavy
Industries (MHI) to manufacture large low-speed marine engines in
China is proceeding according to plan. Production is expected to
begin in the fourth quarter of 2008.
Good progress has been made to enlarge the supplier base in order to
ensure capacity and availability of components.
R&D
In June Wärtsilä and MAN Diesel submitted a follow-up of the Hercules
project, a new large-scale collaborative research project;
Hercules-B, to the European Commission. The principal aim of the
proposed Hercules-B is to considerably improve the efficiency of
marine diesel propulsion systems and to achieve substantial
reductions in fuel consumption and emissions. The first phase of the
Hercules project ended in September.
During the third quarter Wärtsilä introduced the new 20-cylinder 46F
engine offering more power and lower emissions while maintaining high
energy efficiency.
PERSONNEL
Wärtsilä had 15,040 (13,100) employees on average during the
reporting period and 15,811 (13,986) at the end of September. The
largest personnel increases took place in the Services business where
the personnel increase was close to 11% compared to the corresponding
period 2006. At the end of the period the Services business employed
9,288 (8,387).
SHARES AND SHAREHOLDERS
SHARES ON HELSINKI EXCHANGES
30 September 2007 A-share B-share Total
Number of shares 23 579 587 72 228 127 95 807 714
Number of votes 235 795 870 72 228 127 308 023 997
Number of shares
traded,
1-9/2007 4 373 696 87 172 298 91 545 994
1 Jan.- 30 September
2007 High Low Average 1) Close
A-share 50.50 38.05 45.71 48.60
B-share 51.94 38.44 46.45 48.05
1) Trade-weighted
average price.
Market capitalization 30 Sept. 2007 30 Sept. 2006
MEUR 4616 3021
Foreign shareholders 30 Sept. 2007 30 Sept. 2006
32.8% 28.5%
CHANGES IN OWNERSHIP
On 3 July 2007 Varma Mutual Pension Insurance Company increased its
holding in Wärtsilä Corporation. Following the transaction Varma
owned 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 3 July 2007 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.
On 22 August 2007 Svenska Litteratursällskapet i Finland r.f.
increased its holding in Wärtsilä Corporation. Following the
transaction it owns over 1/20 of the company's votes, 1,546,596 A
shares and 17,000 B shares giving a total holding of 1,563,596
Wärtsilä shares or 1.63% of Wärtsilä's share capital and 5.03% of the
total votes.
On 23 August 2007 Varma Mutual Pension Insurance Company increased
its holding in Wärtsilä Corporation. Following the transaction it
owns over one tenth (1/10) of the company's votes, 3,547,257 A shares
and 1,188,691 B shares giving a total holding of 4,735,948 Wärtsilä
shares or 4.94% of Wärtsilä's share capital and 11.91% 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 192.903
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. Various measures by Wärtsilä to ensure
the availability of these key components have been initiated and many
suppliers have invested in their production capacity, many of which
are already operational.
MARKET OUTLOOK
The outlook for the global economy remains strong and is expected to
remain favourable in the near future. The shipping and shipbuilding
industries continue to be active. The freight markets have remained
strong and freight rates are still at historically high levels.
Slightly higher interest rates, inflation and the recent developments
in the US credit market 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 to be active, at least for the next two
quarters. Also offshore investments in both vessels and various
production units are expected to remain at a high level for at least
half a year. It is also expected that the market for passenger-cargo
vessels will revive during the fall and winter.
Demand in the Power Plants business is expected to remain strong for
the next two quarters. Power Plants is enjoying all-time high inquiry
levels and requests for quotations. All relevant customer segments
and geographical areas remain active. Wärtsilä's power generation
equipment brings added value in terms of fuel flexibility and
efficiency, in a market where energy security and the responsible use
of fuels are at the forefront of the energy debate.
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%. Full year profitability will exceed 9%. Wärtsilä sees
further possibilities for growth in 2008.
WÄRTSILÄ INTERIM REPORT JANUARY - SEPTEMBER 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 unaudited.
29 October 2007
Wärtsilä Corporation
Board of Directors
CONDENSED INCOME STATEMENT
MEUR 1-9/2007 1-9/2006 2006
Net sales 2 491 2 204 3 190
Other income 11 14 25
Expenses -2 214 -2 002 -2 881
Depreciation and impairment -56 -53 -72
Operating result 233 162 262
Financial income and expenses -6 1 -7
Net income from assets available 124 124
for sale
Share of profit of associates 19 68
Profit before taxes 227 305 447
Taxes for the period -64 -61 -94
Profit for the financial period 163 245 353
Attributable to:
Equity holders of the parent 161 244 351
company
Minority interest 1 1 2
Total 163 245 353
Earnings per share attributable to equity holders of the
parent company:
Earnings per share, EUR 1.69 2.59 3.72
Diluted earnings per share, EUR 1.68 2.56 3.71
CONDENSED BALANCE SHEET
MEUR 30 Sep 2007 30 Sep 2006 31 Dec 2006
Non-current assets
Intangible assets 647 593 602
Property, plant and equipment 357 298 315
Equity in associates 11 3 3
Investments available for sale 168 163 183
Deferred tax receivables 72 81 87
Other receivables 43 7 43
1 297 1 146 1 233
Current assets
Equity in associates 1 127 6
Inventories 1 113 881 838
Other receivables 980 807 932
Cash and cash equivalents 202 143 179
2 296 1 958 1 955
Assets 3 593 3 104 3 188
Shareholders' equity
Share capital 335 331 334
Other shareholders' equity 889 886 882
Total equity attributable to 1 225 1 217 1 217
equity holders of the parent
Minority interest 8 10 13
Total shareholders' equity 1 232 1 227 1 230
Non-current liabilities
Interest-bearing debt 253 208 205
Deferred tax liabilities 80 58 74
Other liabilities 76 74 73
409 341 352
Current liabilities
Interest-bearing debt 43 123 66
Other liabilities 1 909 1 413 1 540
1 951 1 536 1 606
Total liabilities 2 360 1 877 1 958
Shareholders' equity and 3 593 3 104 3 188
liabilities
CONDENSED CASH FLOW STATEMENT
MEUR 1-9/2007 1-9/2006 2006
Cash flow from operating activities:
Profit before taxes 227 305 447
Depreciation and impairment 56 53 72
Financial income and expenses 6 -1 6
Selling profit and loss of fixed assets and -3 -121 -129
other adjustments
Share of profit of associates -19 -68
Changes in working capital 126 16 52
Cash flow from operating activities
before
Financial items and taxes 411 234 379
Net financial items and income taxes -112 -62 -77
Cash flow from operating activities 299 172 302
Cash flow from investing activities:
Investments in shares and acquisitions -59 -76 -86
Net investments in tangible and intangible -110 -53 -94
assets
Proceeds from sale of shares 149 318
Cash flow from other investing activities 11 9 11
Cash flow from investing activities -159 29 148
Cash flow from financing activities:
Issuance of share capital 3 7 19
New long-term loans 65 2 6
Amortization and other changes in long-term -30 -31 -37
loans
Dividends paid -168 -141 -283
Changes in short term loans and other 15 -10 -92
financing activities
Cash flow from financing activities -115 -174 -387
Change in liquid funds, increase (+) / 25 27 63
decrease (-)
Cash and cash equivalents at beginning of 179 120 120
period
Fair value adjustments, investments 1
Exchange rate changes -4 -4 -4
Cash and cash equivalents at end of period 202 143 179
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
MEUR Total equity attributable to equity holders Minority Total
of the parent
interest equity
Fair
value
Share Trans- and
Share issue lation other Retained
capital premium differences reserves earnings
Shareholders'
equity on 31
December 2006 334 58 3 128 693 13 1 230
Translation
differences 1 2
Other changes -6 -6
Available-for-sale
investments
gain / loss
from fair
valuation,
net of taxes -9 -9
Cash flow hedges
after taxes 18 18
Net income
recognized
directly in equity 1 9 -5 5
Profit for the
financial period 161 1 163
Total recognized
income an expense
for the period 1 9 161 -4 167
Options exercised 1 2 3
Dividends paid -167 -1 -168
Shareholders'
equity on 30
September 2007 335 60 4 137 688 8 1 232
Shareholders'
equity on 31
December 2005 329 44 7 147 626 10 1163
Translation
differences -2 -1 -2
Other changes 1 1
Available-for-sale
investments
gain/loss from
fair valuation,
net of taxes 10 10
transferred to
income statement,
net of taxes -81 -81
Cash flow hedges
after taxes 26 26
Net income
recognized
directly in equity -2 -45 0 -46
Profit for the
financial period 244 1 245
Total recognized
income and expense
for the period -2 -45 244 1 199
Options exercised 2 5 7
Dividends paid -141 -141
Shareholders'
equity on 30
September 2006 331 49 5 102 729 10 1228
BUSINESS SEGMENTS
Income statement 1-9/2007 Power Holdings Unallocated Group
MEUR Businesses
Net sales 2 491 2 491
Operating result 233 233
Financial income and expenses, 6 -12 -6
dividends
Profit before taxes 227
Assets 3 368 131 94 3 593
Liabilities 2 229 131 2 360
Investments 172 172
Depreciation and impairment -56 -56
Income statement 1-9/2006 Power Holdings Unallocated Group
MEUR Businesses
Net sales 2 204 2 204
Operating result 162 162
Financial income and expenses, 8 -7 1
dividends
Net income from assets 124 124
available for sale
Share of profit of associates 18 19
Profit before taxes 305
Assets 2 734 270 100 3 104
Liabilities 1 756 120 1 877
Investments 142 142
Depreciation and impairment -53 -53
Geographical segments Europe Asia Americas Other Group
MEUR
Net sales 1-9/2007 1 034 903 313 241 2 491
Net sales 1-9/2006 860 804 403 136 2 204
INTANGIBLE ASSETS AND PROPERTY, PLANT &
EQUIPMENT
MEUR 1-9/2007 1-9/2006 2006
Intangible assets
Book value at 1 January 602 541 541
Changes in exchange rates -6 -1 -4
Acquisitions 46 59 69
Additions 22 14 22
Depreciation and impairment -22 -20 -28
Disposals and intra-balance 5 2
sheet transfer
Book value at end of period 647 593 602
Property, plant and
equipment
Book value at 1 January 315 273 273
Changes in exchange rates -1 -4 -6
Acquisitions 1 18 18
Additions 91 52 84
Companies sold -17
Depreciation and impairment -34 -33 -44
Disposals and intra-balance 2 -8 -11
sheet transfer
Book value at end of period 357 298 315
GROSS CAPITAL EXPENDITURE
MEUR 1-9/2007 1-9/2006 2006
Investments in securities 59 76 86
and acquisitions
Other investments 113 66 107
Group 172 142 193
During the review period investments in the factories in Vaasa,
Finland and Trieste, Italy amounted to EUR 31 million, and Wärtsilä
had commitments related to the investment programmes amounting to EUR
4 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 16 million during the review period, and
Wärtsilä had commitments related to the enlargements amounting to EUR
13 million at the end of the review period. In addition, Wärtsilä's
commitment related to the investment programme in the Korean joint
venture Wärtsilä Hyundai Engine Company Ltd. amounted to EUR 6
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, a
propeller repair company McCall propellers Ltd. in U.K., marine
business of the UK-based Railko Ltd., a company specializing in
synthetic stern tube bearing technology and a Scottish company
Electrical Power Engineering (Scotland) Ltd. specializing in
electrical power engineering solutions for marine, offshore,
industrial and utilities segments. In addition Wärtsilä acquired 8.2%
of Wärtsilä India Ltd. and at the end of the review period the
percentage of ownership was 97.9%
MEUR 1-9/2007
Acquisition costs 53
Acquired assets to fair 20
value
Goodwill 33
Specification of acquired
assets:
Intangible assets 14
Property, plant and 1
equipment
Inventories 3
Receivables 9
Cash and cash equivalents 2
Minority interest 3
Liabilities -6
Deferred tax liabilities -4
Total 20
INTEREST-BEARING LOAN
CAPITAL
MEUR 30 Sep 2007 30 Sep 2006 31 Dec 2006
Long-term liabilities 253 208 205
Current liabilities 43 123 66
Loan receivables -33 -5 -36
Cash and bank balances -202 -143 -179
Net 61 185 55
FINANCIAL RATIOS 1-9/2007 1-9/2006 2006
Earnings per share, EUR 1.69 2.59 3.72
Diluted earnings per share, 1.68 2.56 3.71
EUR
Equity per share, EUR 12.78 12.86 12.74
Solvency ratio, % 46.1 47.3 47.0
Gearing 0.08 0.15 0.07
PERSONNEL
1-9/2007 1-9/2006 2006
On average 15 040 13 100 13 264
At end of period 15 811 13 986 14 346
CONTINGENT LIABILITIES
MEUR 30 Sep 2007 30 Sep 2006 31 Dec 2006
Mortgages 14 15 20
Chattel mortgages 9 21 21
Total 23 37 42
Guarantees and contingent
liabilities
On behalf of Group 412 300 317
companies
Nominal amount of rents
according
to leasing contracts 52 50 50
Total 465 350 367
NOMINAL VALUES OF
DERIVATIVE INSTRUMENTS
MEUR Total amount of which closed
Interest rate swaps 140
Foreign exchange forward 1 133 131
contracts
Currency options, purchased 14
CONDENSED INCOME STATEMENT, QUARTERLY
MEUR 7-9/ 4-6/ 1-3/ 10-12/ 7-9/ 4-6/ 1-3/
2007 2007 2007 2006 2006 2006 2006
Net sales 933 797 761 986 767 845 592
Other income 3 4 4 11 4 8 2
Expenses -821 -710 -683 -880 -696 -764 -541
Depreciation and -19 -18 -18 -18 -18 -18 -18
impairment
Operating result 96 73 63 99 56 70 36
Financial income and -2 -1 -4 -8 1 2 -3
expenses
Net income from assets 124
available for sale
Share of profit of 50 4 8 7
associates
Profit before taxes 95 72 60 141 61 204 40
Taxes for the period -26 -20 -17 -33 -20 -53 12
Profit for the financial 68 52 42 108 42 151 52
period
Attributable to:
Equity holders of the 68 52 42 107 41 150 52
parent company
Minority interest 1 1 1
Total 68 52 42 108 42 151 52
Earnings per share attributable to equity
holders of the parent company:
Earnings per share, EUR 0.71 0.54 0.44 1.13 0.44 1.60 0.55
Diluted earnings per 0.70 0.54 0.44 1.15 0.43 1.58 0.55
share, EUR
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
