Wärtsilä Corporation ANNUAL FINANCIAL STATEMENT 5 February 2008 at
8.30 local time
NET SALES GREW 18% IN 2007 AND PROFITABILITY IMPROVED TO 10.1% - IN
2008 PROFITABILITY WILL EXCEED 11%
FOURTH-QUARTER HIGHLIGHTS
- Good market conditions continued
- Strong growth continued, order intake grew 21% to EUR 1,594 million
(1,318)
- Net sales EUR 1,272 million (986), growth 29%
- Operating income (EBIT) grew 47% to EUR 146 million, or 11.5%
percent of net sales (EUR 99 million and 10.1%).
HIGHLIGHTS OF THE REPORTING PERIOD 1-12/2007
- Market activity high in both Ship Power and Power Plants
- Strong ordering activity continued, order intake grew 22% to EUR
5,633 million (4,621). Power Plant orders grew 38%
- Order book total EUR 6,308 million (4,439), growth 42%
- Net sales grew 18% to EUR 3,763 million (3,190)
- Operating income (EBIT) grew 45% to EUR 379 million, or 10.1%
percent of net sales (EUR 262 million and 8.2%).
- EPS increased to EUR 2.74 (3.72, comparable EPS 2.03)
- Strong cash flow from operating activities EUR 431 million (302)
- The Board of Directors proposes a dividend of EUR 2.25 per share
HIGHLIGHTS 2008
- Net sales will grow by about 25%
- Profitability will exceed 11%
OLE JOHANSSON, PRESIDENT & CEO:"2007 was in many respects, yet another record year. Market activity
continued high and we were once again able to show strong growth in
order intake despite of a very high comparison base, new orders grew
by 22 percent. Net sales grew by 18 percent and our profitability
improved and reached a to date all time high of 10.1 percent. We
expect market activity to continue solid during the first half of
2008. In Ship Power some slowdown might be seen at the end of the
spring but we expect activity in the Power Plant market to continue
to be very strong. Based on the strong order book and capacity
investments we will continue our positive development and 2008 will
be a year of strong growth and further improved profitability".
WÄRTSILÄ'S PROSPECTS IN 2008
Based on the strong order book, Wärtsilä's net sales are expected to
grow by about 25% in 2008. Profitability will exceed 11%. Wärtsilä's
profitability varies considerably from one quarter to another. This
pattern will repeat itself during the current year. The first quarter
is likely to be the weakest and the last quarter the best.
ENCLS: Board of Directors' proposal to the Annual General
Meeting
ANALYST AND PRESS CONFERENCE
An analyst and press conference will be held on Tuesday 5 February
2008 starting at 10.45 a.m. Finnish time (8.45 a.m. UK time) at the
Wärtsilä headquarters in Helsinki, Finland. The conference can be
viewed on the Internet at the following address:
http://194.100.179.98:80/wip/directlink.do?newbrowser=1&pid=2054416
To participate in the teleconference, please call: +358(0)9 8248 3101
and enter the PIN-code 4217. If you want to ask questions during the
teleconference, press ## and you will hear the voice of the
conference operator. The operator will then ask you to repeat the
PIN-code for the conference. After this the operator will open the
line for you so you can ask questions.
An on-demand version of the conference will be available on the
company website www.wartsila.com later the same day.
WÄRTSILÄ'S FINANCIAL STATEMENTS BULLETIN 2007
The numbers stated in this bulletin are audited.
Fourth quarter 10-12/2007 in brief
EUR million 10-12/2007 10-12/2006 Change
Order intake 1 594 1 318 21%
Net sales 1 272 986 29%
Operating result 146 99 47%
% of net sales 11.5% 10.1%
Profit before taxes 145 92 1) 58%
Earnings per share, EUR 1.05 0.61 1)
1) For comparability reasons the 10-12/2006 figure does not
include Wärtsilä's share of Ovako's profit after taxes, EUR 49
million.
Review period 1-12/2007 in brief
MEUR 1-12/2007 1-12/2006 Change
Order intake 5 633 4 621 22%
Order book 31 December 6 308 4 439 42%
Net sales 3 763 3 190 18%
Operating result 379 262 45%
% of net sales 10.1% 8.2%
Profit before taxes 372 255 2) 46%
Earnings per share, EUR 2.74 2.03 2)
Cash flow from
operating activities 431 302 43%
Interest-bearing net debt
at the end of the period -27 55
Gross capital expenditure 231 193 20%
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.
Operating environment and markets
Ship Power markets continued active in 2007
Demand accelerated during the spring and once again ordering levels
hit an all time high both in terms of vessels ordered and tonnage. As
regards the number of vessels the contracting level was appr. 20%
above the previous years' level, while tonnage was 40% higher than in
2006. Although the total annual volume was clearly above 2006, vessel
orders were lower in December than in earlier months of the year.
This appears to be due to a somewhat more nervous atmosphere in the
market and slightly softened freight rates.
During the year demand was very strong especially in the merchant
vessel segment. This was fuelled by the very high ordering of the
bulk carriers driven by high earnings of owners. Demand for container
vessels was brisk, and was even surprisingly strong in the bigger end
of the vessel range. As expected, tanker orders declined after the
record year in 2006. During the review period the LNG vessel market
was not active and new investments were postponed due to delays of
related production and terminal facility investments.
For the offshore segment the year was good with high utilization and
day rates. The very high oil price has made investments into the
offshore segment very attractive. Exploitation of deeper water
reserves requires new kinds of equipment which has also increased
demand in this segment. During the review period many new
semi-submersible rigs, drill ships and pipe layers were ordered.
After very strong demand in 2006 a slowdown could be seen in the
market for anchor handlers and supply vessels, mainly due to long
lead times and a fear of over capacity. Demand in the more stable
cruise and ferry market remained at the same levels as 2006. In the
special vessel segment, demand was lower only for tugs, especially in
Asian shipyards. This was mainly due to allocation of building slots
to other vessel types. In European yards, the volumes remained at
last year's levels.
China continued its growth in shipbuilding, and with 41% of new
vessels ordered in 2007, became the leading shipbuilding nation.
Korea, the second biggest shipbuilding nation had 30% of new vessel
orders and Japan and Europe 10% each. Other countries accounted for
9%. Compared to the corresponding period in 2006 both China and Korea
gained market share whereas the market shares of Japan and Europe
have decreased.
Market shares in Ship Power
The total market volume for medium-speed main engines at the end of
fourth quarter was 8,800 MW (8,700 at the end of the previous
quarter) and Wärtsilä's market share was 38% (42 at the end of the
previous quarter). Wärtsilä's market share has somewhat suffered from
capacity constrains and longer lead times. Another reason behind the
decrease in market share was the inactivity in the LNG segment where
Wärtsilä's 50 DF engine has had a very strong position. Wärtsilä's
market share for low-speed main engines remained unchanged at 16%
(16), whereas the total market volume grew strongly to 38,100 MW
(34,100 at the end of the previous quarter). The market for auxiliary
engines totalled 9,000 MW (8,200) and Wärtsilä's market share was 6%
(5).
In propulsor equipment Wärtsilä managed to regain its position in
fixed pitched propellers (FPP) with the help of the investment it
made in the Chinese joint venture company. In 2007 Wärtsilä's market
share for FPP's increased to 15% from 11% in the corresponding period
2006. In controllable pitched propellers (CPP), Wärtsilä has suffered
from capacity constraints and its market share has, therefore,
declined to 18% (36).
Demand in the Power Plant markets remained high
Demand in the Power plant market remained high and all segments
relevant to Wärtsilä - baseload production, industrial self
generation and grid stability and peaking as well as power solutions
for the oil and gas industry - 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
According to the statistics compiled by Diesel and Gas Turbine
magazine, Wärtsilä's market share of heavy fuel oil plants between
June 2006 and May 2007 was 38% (34%). In the market for light fuel
oil to Wärtsilä, Wärtsilä's market share increased to 24% (23%),
mainly as a result of high demand for Wärtsilä's power plants fuelled
by liquid bio-fuels. The market for gas power plants, including both
reciprocating engines and gas turbines was roughly 10,900 MW
(10,400), Wärtsilä's share in this segment was 12 % (8%). The total
global market for oil and gas power plants in Wärtsilä's power range
was 14,060 MW (14,750).
Strong ordering continued
In the fourth quarter Wärtsilä's order intake continued to be strong
and amounted to EUR 1,594 million (1,318), representing 21% growth.
The order intake for Ship Power was at the same very high level as in
the corresponding period 2006, EUR 640 million (619). The Ship Power
order intake for the quarter consisted mainly of orders from the
offshore and merchant segments. Ship Power received many large scope
orders from Norwegian yards for offshore anchor handling and supply
vessels. Different kinds of tankers and general cargo vessels were
the main contributors in merchant orders.
The order intake for the Power Plants business was very strong for
the forth quarter, and 49% higher than during the corresponding
period 2006, totalling EUR 463 million (311). During the quarter the
largest oil-fired power plant orders were received from Cameroon,
Peru and El Salvador. The largest gas power plant orders were
received from Trinidad and Tobago, Indonesia and Argentina. During
the last quarter of 2007 Wärtsilä was awarded a contract to supply
the first biomass power plant to the Czech Republic.
During the review period January - December 2007 the order intake
totalled EUR 5,633 million (4,621), representing growth of 22%. Most
new orders, EUR 2,600 million (2,270), were registered in Ship Power
and represented a growth of 15% on the corresponding period 2006.
In Ship Power the order intake was clearly dominated by the offshore
segment at the beginning of the year. Wärtsilä booked many orders for
semi-submersible rigs, drill ships, floating production units as well
as for various supply vessels. One of the big landmarks during 2007
was the contract to supply an entire power, automation and propulsion
system for a well-testing FPSO vessel for Brazilian Dynamic Producer
Inc. In the offshore supply vessel market the greatest demand came
from the Norwegian, Singaporean and Chinese shipyards. The offshore
segment represented 36% of total Ship Power order intake in 2007.
During the latter part of 2007 various kinds of merchant vessels were
the more dominant, and ordering activity for smaller offshore supply
vessels showed a slight slowdown from the previous very strong boom.
The merchant vessel segment represented 43% of the total order intake
for Ship Power. The merchant vessel segment includes both larger
vessels that use low-speed main engines and smaller vessels with
medium-speed main engines. Vessels using medium-speed main engines
are of stronger relevance to Wärtsilä from an earnings point of view
due to the licensee business model of the low-speed engine
manufacturing and Wärtsilä's better market position in medium-speed
applications. During the review period Wärtsilä received orders for
bulk carriers, various cargo vessels and tankers. The ship yards in
the merchant vessel segment are mainly situated in Korea and China.
The special vessels segment represented 10%, cruise&ferry 7% and navy
5% of Ship Power's total order intake for the review period.
During the review period January - December 2007 growth in Power
Plant orders was very strong at 38% and totalled EUR 1,421 million
(1,027). The increase in order intake was mainly based on flexible
baseload power plants orders from Africa, the Americas and Europe.
The largest single orders came from Pakistan, Morocco, Trinidad and
Tobago, Senegal and El Salvador. Flexible baseload power plants
accounted for 67% of Power Plants total order intake. In the
industrial self-generation segment the Italian liquid bio-fuel market
continued to be active during 2007 and Wärtsilä received orders
totalling more than 400 MW in total. The industrial self-generation
customer segment accounted for 20% of total Power Plant orders in
2007. Important oil and gas industry orders were received from
Russia, Hungary, the Ukraine, Ecuador and Peru. This customer segment
accounted for 11% of total order intake.
At the end of the review period Wärtsilä's order book stood at EUR
6,308 million (4,439), a growth of 42%. The Ship Power order book
stood at EUR 4,292 million (3,020), representing growth of 42%. The
Power Plants order book was 52% higher than in the previous year and
totalled EUR 1,608 million (1,061). The order book combined with
active projects gives Wärtsilä a good baseload for 2009.
Order intake by business
MEUR 10-12/2007 10-12/2006 Change
Ship Power 640 619 3%
Services 489 388 26%
Power Plants 463 311 49%
Order intake, total 1 594 1 318 21%
MEUR 1-12/2007 1-12/2006 Change
Ship Power 2 600 2 270 15%
Services 1 607 1 322 22%
Power Plants 1 421 1 027 38%
Order intake, total 5 633 4 621 22%
Order intake Power Plants
MW 10-12/2007 10-12/2006 Change
Oil, MW 419 54 681%
Gas, MW 245 524 -53%
Renewable fuels, MW 79 124 -36%
MW 1-12/2007 1-12/2006 Change
Oil, MW 1 358 766 77%
Gas, MW 1 005 1 232 -18%
Renewable fuels, MW 483 353 37%
Orderbook by business 31.12.2007 31.12.2006 Change
Ship Power 4 292 3 020 42 %
Services 405 357 14 %
Power Plants 1 608 1 061 52 %
Orderbook, total 6 308 4 439 42 %
Net sales grew strongly
During the fourth quarter Wärtilä's net sales increased to EUR 1,272
million (986), representing growth of 29%. Ship Power net sales grew
by 11% to EUR 448 million (404) and Services by 23% to EUR 431
million (350). 21% of the Services net sales in the fourth quarter
was organic. During the quarter the biggest growth in net sales was
in the Power Plants business where net sales totalled EUR 391 million
(228), and grew by 72% compared to the corresponding period 2006.
Wärtsilä's net sales for the review period January - December
totalled EUR 3,763 million (3,190), a growth of 18%. Ship Power net
sales grew strongly by 34% and amounted to EUR 1,320 million (985).
Services net sales grew by 22% to EUR 1,550 million (1,266), with 19%
of the full-year Services net sales being organic. Power Plant net
sales fell by 6% to EUR 882 million (934). Growth in Power Plants
during the review period was limited by capacity and slot allocation
between Ship Power and Power Plants. Services net sales accounted for
41% of total net sales, Ship Power for 35% and power Plants for 24%.
Net sales by business
MEUR 10-12/2007 10-12/2006 Change
Ship Power 448 404 11%
Services 431 350 23%
Power Plants 391 228 72%
Net sales, total 1 272 986 29%
MEUR 1-12/2007 1-12/2006 Change
Ship Power 1 320 985 34%
Services 1 550 1 266 22%
Power Plants 882 934 -6%
Net sales, total 3 763 3 190 18%
Operating profit improved, strong profitability
In the fourth quarter the operating result rose to EUR 146 million
(99) the profitability increased to 11.5% (10.1). In the review
period 1-12/2007 the operating result improved to EUR 379 million
(262), representing profitability of 10.1% (8.2).
In the review period 1-12/2007 the financial items amounted to EUR -8
million (-7). Net interest totalled EUR -11 million (-13). Profit
before taxes was EUR 372 million (447, out of which EUR 191 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 106 million (94). Taxes
in the comparison period included deferred tax assets totalling EUR
+26 million relating to previously recognized restructuring expenses.
The profit for the financial period was EUR 265 million (353).
Earnings per share for the review period were EUR 2.74 (3.72,
comparable EPS 2.03). Return on Investment (ROI) was 26.0% (31.8).
Return on Equity (ROE) was 20.8% (29.5)
Financial position strong
Cash flow from operating activities was 431 million (302). The
financial position was strong. In addition to strong cash flow from
operating activities, advanced payments increased during the review
period and were EUR 860 million (572). Liquid reserves at the end of
the period amounted to EUR 296 million (179). Net interest-bearing
loan capital totalled EUR -27 million (55). The solvency ratio was
45.9% (47.0) and gearing was -0.01 (0.07).
Capital Expenditure
Gross capital expenditure in the review period totalled EUR 231
million (193), which comprised EUR 65 million (86) in acquisitions
and investments in securities and EUR 166 million (107) in production
and information technology investments. Depreciation amounted to EUR
78 million (72).
During the review period, investments in the factories in Vaasa,
Finland and Trieste, Italy amounted to EUR 33 million and the
investment in the enlargement of propulsion equipment manufacturing
in the Netherlands and China amounted to EUR 17 million. In addition,
Wärtsilä had commitments related to the investment programmes
amounting to EUR 9 million, while Wärtsilä's commitment related to
the investment programme in the Korean joint venture Wärtsilä Hyundai
Engine Company Ltd. amounted to EUR 12 million at the end of the
review period. Due to the strong volume growth, the total capital
expenditure for 2008 is expected to be EUR 200 million excluding
acquisitions.
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 100 million.
Personnel
Wärtsilä Group had, on average, 15,337 (13,264) employees on average
during the year 2007 and 16,336 (14,346) at year end. The total
personnel increase was 1,990 people. The increase came mainly through
new recruitments with 107 employees coming via acquired companies.
The largest personnel increases took place in the Services business.
The largest increases were in Europe and Asia. The number of
employees in Finland increased by 385 persons in 2007.
Strategy and objectives
Wärtsilä's strategic aim is to strengthen its leading position in its
markets and to ensure continued growth by offering its customers the
best lifecycle efficiency and reliability available. This is made
possible by an integrated equipment and service portfolio that
matches customers' needs globally. Wärtsilä will also grow by adding
new products and services to its offering and by broadening its
global geographical presence. Wärtsilä will increase its capabilities
in automation, as well as strengthen its offering of solutions for
environmentally safe and reliable power system operation through a
combination of organic growth, partnerships and acquisitions.
Strategic acquisitions and joint ventures in 2007
To support the growth targets, Wärtsilä has taken several strategic
steps aimed at broadening the Services and Ship Power product
offering, and increasing geographical presence in key areas.
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.
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.
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.
In July Wärtsilä acquired the marine business of Railko Ltd. in the
UK, a company specializing in stern tube bearing technology.
In August the Scottish company, Electrical Power Engineering
(Scotland) Ltd was acquired. The company specializes in electrical
power engineering solutions for the marine, offshore, industrial and
utilities segments.
The total price of these acquisitions was EUR 43 million, out of
which EUR 25 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 delisting offer was successful and
8.5% of the total shares were acquired. The shares of Wärtsilä India
Ltd were de-listed 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, a service workshop and an office were opened in
Vietnam to serve the growing Vietnamese shipping, shipbuilding and
power industries.
The demand for training services is steadily growing 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.
In October Wärtsilä and Bryansk Engineering Works (BMZ), signed a
licence agreement for the manufacture of Wärtsilä low-speed marine
diesel engines in Russia.
In November Wärtsilä and V.Ships, a company specialising in ship
management, agreed to cooperate on the provision of a broad spectrum
of marine technical services in the marine market.
Wärtsilä Ship Power was reorganised into five Ship Power customer
segments: Merchant, Offshore, Cruise&Ferry, Navy and Special vessels.
The aim is to better respond to market requirements and technology
development, as well as to be prepared for market fluctuations.
Financial targets
The Group's average net sales growth target is 6-7% over the cycle.
The growth target for the Ship Power and Power Plants businesses is
4% and for the Services business 10-15%. The Group's operating profit
target (EBIT%) is 8-10% of net sales over the cycle with a range of
+/- 2%. The solvency target is 35-40%.
Sustainable development
The Sustainability Report, which is part of the annual report, is
prepared in accordance with the GRI Guidelines. It represents a
balanced and reasonable view of our organization's economic,
environmental and social performance. The sustainability report is
assured.
Option schemes
Wärtsilä's option schemes covering key employees of the Group were
launched in 2001 and 2002. The 2001 option rights have been listed on
the Helsinki Exchange since 2005 and the 2002 option rights since
2004. The 2001 option scheme ended March 31 2007.
Under the terms and conditions of Wärtsilä's 2001 and 2002 option
schemes, the share subscription price of the 2001 options was 14.60
euros and the share subscription price of 2002 options is 7.40 euros.
During the subscription period 3,418,944 shares were subscribed based
on the 2001 and 2002 option schemes, which corresponds to 3.7% of the
total number of shares. A total of 31,056 shares have not been
subscribed.
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 a total of 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. The authorization was not exercised during the review
period.
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.
Share capital and shares
A total of 415,209 Wärtsilä B shares were subscribed during the
period under the 2001 and 2002 option schemes. This increased the
share capital by EUR 1,453,231.50 following which, the share capital
amounts to EUR 335,893,463.50.
SHARES ON HELSINKI EXCHANGES
31 December 2007 A-share B-share Total
Number of shares 23,579,587 72,389,974 95,969,561
Number of votes 235,795,870 72,389,974 308,185,844
Number of shares traded,
1-12/2007 13,412,121 125,257,269 138,669,390
1 Jan.- 31 December 2007 High Low Average 1) Close
A-share 58.00 38.05 52.73 53.09
B-share 58.89 38.44 52.06 52.09
1) Trade-weighted average
price.
Market capitalization 31 Dec. 2007 31 Dec. 2006
EUR million 5,023 3,898
Foreign shareholders 31 Dec. 2007 31 Dec. 2006
50.0% 29.3%
Changes in ownership
During 2007 Wärtsilä was notified of the following changes in
ownership in accordance with the Finnish Securities Act chapter 2
Paragraph 9:
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.
On 20 December 2007 Fiskars Corporation decreased its holding in
Wärtsilä Corporation to less than 1/20 (5%) of the share capital and
voting rights. Following the transaction it holds 752,047 A shares
and 65,429 B shares giving a total holding of 817,476 shares or 0.85%
of Wärtsilä's share capital and 2.46% of the total votes.
On 20 December 2007 Avlis AB, a wholly owned subsidiary of Fiskars
Corporation, increased its holding in Wärtsilä Corporation to more
than 3/20 (15%) of the share capital and more than ¼ (25%) of the
voting rights. Following the transaction it holds 8,500,000 A shares
and 6,500,000 B shares giving a total holding of 15,000,000 shares or
15.63% of Wärtsilä's share capital and 29.69% of the total votes.
Manufacturing
During 2007 the investment programs to increase the production
capacity of medium speed engines in Finland and Italy were finalized.
The new production assets were ramped up to full utilization during
the fourth quarter as planned. In terms of output a total of 5,416 MW
(4,256) of four-stroke engines manufactured in Wärtsilä's own
factories were delivered during 2007. In 2008 Wärtsilä estimates
engine deliveries from its own factories to exceed 6,000 MW.
The establishment of joint ventures and capacity investments are
proceeding according to plan. Construction work in the joint venture
with Hyundai Heavy Industries in Korea to manufacture dual fuel
engines for the LNG market has started and capacity will be available
in the fourth quarter of 2008. To meet increasing demand in Asia, and
in particular the growing shipbuilding market in China, Wärtsilä has
established a joint-venture with CSIC and Mitsubishi Heavy Industries
to manufacture low-speed engines in China. The project is proceeding
according to plan and manufacturing is scheduled to start during the
fourth quarter of 2008. The capacity additions from the joint venture
engine factories will become operational mainly in 2009.
Investments to increase the propulsion production capacity in the
Netherlands became operational during the last quarter of 2007.
Investments to increase the propulsion production capacity in Norway
and India for gearboxes and controllable pitch propellers are
proceeding according to plan and will become operational during the
second half of 2008. Wärtsilä's joint venture company, Wärtsilä CME
Zhenjiang Propeller Co. Ltd., doubled its production capacity for
fixed pitch propellers, making the company the biggest manufacturer
of this type of propellers in China and one of the biggest in the
world.
Production of compact thrusters and seals & bearings in the
Wärtsilä's facilities in Wuxi in China started in the third quarter
and full capacity utilization will be achieved during 2008.
The integration of engine and propulsion manufacturing and R&D into
one global organisation called Wärtsilä Industrial Operations was
finalized in 2007.
During the review period Wärtsilä continued to develop capacity for
critical components and investments have been implemented by many of
the company's supplier. The main part of the investments became
operational in 2007.
R&D
During 2007 several R&D milestones were achieved. Wärtsilä, together
with other European players, has participated in a large SOFC (Solid
Oxide Fuel Cell) project. A significant milestone in this project was
the start up of the WFC20 fuel cell prototype in the Wärtsilä Fuel
Cell test centre in October.
In 2007 Wärtsilä and MAN Diesel submitted a follow-up of the Hercules
project, a new large-scale collaborative research project -
Hercules-Beta to the European Commission. The principal aim of the
proposed Hercules-Beta is to considerably improve the efficiency of
marine diesel propulsion systems and achieve substantial reductions
in fuel consumption and emissions. The first phase of the Hercules
project ended in September.
Wärtsilä signed an agreement on research and development cooperation
with the University of Vaasa and the University of Applied Sciences
in Vaasa. This is an additional step in Wärtsilä's efforts to
increase co-operation between Wärtsilä and universities globally.
During the review period the Wärtsilä Auxpac 26 engine was
successfully tested. The Auxpac 26 engine enhances Wärtsilä's Auxpac
product range to meet market demand for bigger auxiliary engines.
Deliveries of Auxpac 26 will start in 2008.
Wärtsilä introduced the new 20-cylinder 46F engine, which offers more
power and less emission while maintaining high energy efficiency, for
power plant installations.
In 2007 Wärtsilä's research and development expenses totalled EUR 122
million (85).
Risks and business uncertainties
The short supply of certain key components continues. Bottlenecks
exist, for example, in castings and forgings where global demand
exceeds supply. Various measures by Wärtsilä to ensure the
availability of these key components have continued and a number of
suppliers have invested in their production capacity, many of which
are already operational.
Market outlook 2008
The strongly growing fleet has for a longer period of time already,
suggested a weakening flow of new vessel orders. Despite the
expectations of normalised demand, activity in the shipping and
shipbuilding markets continued to be very high until the end of the
year. During the autumn the sentiment in the market has become more
cautious and slightly softened freight rates have also had an impact.
The US credit crisis has tightened the financial market and also
impacted the attractiveness of new investments, although it should be
noticed that ship owners have operated on very profitable markets for
a long period of time and are therefore not directly dependent on the
credit market for funding new investments. Even though ordering
levels seem to have normalised during the last month of 2007 it is
still too early to judge whether this is an indication of a start of
a more stable period or if the market is temporarily catching its
breath. For Wärtsilä Ship Power ordering activity remains on a good
level and a stable order flow is expected to continue for at least
the next quarter. During the latter part of the spring some slow down
in ordering activity might be seen.
The main drivers for continued growth in the power plant market
remain world economic growth as well as the need to increase
efficiency and versatility in power generation due to high fuel
prices. Other drivers for the power plant market demand are
environmental concerns and fuel availability issues. Flexible
baseload as well as industrial self-generation are forecasted to
remain active market segments throughout the Middle East, Africa and
the Americas. Power Plants sees continued growth potential in the
grid stability services market in North Americas as well as other
developed countries. It is foreseen that the liquid bio-fuel market
will remain active in Central Europe. The growth economies Brazil,
Russia, India and China offer interesting market potential for
Wärtsilä
Wärtsilä's power plant solutions are ideally suited for today's
markets which require high efficiency and operational flexibility as
well as environmental sustainability. For Wärtsilä Power Plants
continued high ordering activity is expected in all segments during
at least the first half of 2008.
Due to the long order book Wärtsilä has time to react to potential
fluctuations in the market. This is supported by the flexible
manufacturing model and the solid growth in the Services business.
The Services business will continue to constitute a considerable
share of Wärtsilä's net sales.
Wärtsilä's prospects in 2008
Based on the strong order book, Wärtsilä's net sales are expected to
grow by about 25% in 2008. Profitability will exceed 11%. Wärtsilä's
profitability varies considerably from one quarter to another. This
pattern will repeat itself during the current year. The first quarter
is likely to be the weakest and the last quarter the best.
WÄRTSILÄ FINANCIAL STATEMENT BULLETIN 2007
This financial statement bulletin is prepared in accordance with IAS
34 (Interim Financial Reporting) using the earlier published
accounting policies and methods of computation. 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 financial statements.
4 February 2008
Wärtsilä Corporation
Board of Directors
Consolidated Income Statement
MEUR 2007 2006
Net sales 3 763 3 190
Change in inventories of
finished goods & work in progress 59 88
Work performed by the Group and capitalized 8 2
Other income 21 25
Material and services -2 249 -1 955
Employee benefit expenses -728 -629
Depreciation -78 -72
Other expenses -417 -387
Operating result 379 262
Income from financial assets 7 8
Interest income 8 4
Other financial income 12 23
Interest expenses -18 -17
Other financial expenses -16 -26
Net income from investments available for 124
sale
Share of profit of associates 1 68
Profit before taxes 372 447
Income taxes -106 -94
Profit for the financial period 265 353
Attributable to:
Equity holders of the parent company 262 351
Minority interest 3 2
Total 265 353
Earnings per share attributable to equity
holders of the parent company:
Earnings per share, EUR 2.74 3.72
Diluted earnings per share, EUR 2.73 3.71
Consolidated Balance Sheet, Assets
MEUR 31 Dec. 2007 31 Dec. 2006
Non-current assets
Intangible assets 202 185
Goodwill 445 417
Property, plant and equipment 365 300
Investment properties 13 15
Equity in associates 16 3
Investments available for sale 155 183
Interest-bearing investments 12 35
Deferred tax receivables 70 87
Other receivables 7 8
1 283 1 233
Current assets
Equity in associates* 1 6
Inventories 1 081 838
Interest-bearing receivables 2 1
Trade receivables 874 772
Income tax receivables 11 8
Other receivables 201 151
Cash and cash equivalents 296 179
2 466 1 955
Assets 3 749 3 188
*Shares in Oy Ovako Ab.
Consolidated Balance Sheet, Shareholders'
equity and liabilities
MEUR 31 Dec. 2007 31 Dec. 2006
Shareholders' equity
Share capital 336 334
Share premium reserve 61 58
Translation differences 3 3
Fair value reserve 127 128
Retained earnings 788 693
Total equity attributable to equity holders 1 315 1 217
of the parent
Minority interest 10 13
Total shareholders' equity 1 325 1 230
Liabilities
Non-current liabilities
Interest-bearing debt 245 205
Deferred tax liabilities 81 74
Pension obligations 45 53
Provisions 25 20
Advances received 1) 394 276
Other liabilities 3 1
792 628
Current liabilities
Interest-bearing debt 38 66
Provisions 139 117
Advances received1) 466 296
Trade payables 348 271
Income tax liabilities 35 78
Other liabilities 605 503
1 632 1 330
Total liabilities 2 424 1 958
Shareholders' equity and liabilities 3 749 3 188
1) In 2006, the total amount of Advances received was
presented in Current liabilities.
Consolidated Cash Flow Statement
MEUR 2007 2006
Cash flows from operating activities:
Profit before taxes 372 447
Adjustments:
Depreciation 78 72
Financial income and expenses 8 6
Selling profit and loss of fixed assets and -7 -129
other changes
Share of profit of associates -1 -68
Cash flow before changes in working capital 450 327
Changes in working capital:
Current assets, non-interest-bearing, -162 -125
increase (-) / decrease (+)
Inventories, increase (-) / decrease (+) -251 -189
Current liabilities, non-interest-bearing, 548 365
increase (+) / decrease (-) 1)
Changes in working capital 135 52
Cash flow from operating activities before 585 379
financial items and taxes
Financial items and taxes:
Interest and other financial expenses -42 -24
Interest and other financial income 15 4
Income taxes -127 -56
Financial items and taxes -154 -77
Cash flow from operating activities 431 302
Cash flow from investing activities:
Investments in shares and acquisitions -65 -86
Investments in tangible and intangible -166 -99
assets
Proceeds from sale of shares 7 318
Proceeds from sale of tangible and 2 5
intangible assets
Loan receivables, increase (-) / decrease 2
(+) and other changes
Dividends received from investments 7 8
Cash flow from investing activities -214 148
Cash flow after investing activities 217 450
Cash flow from financing activities:
Issuance of share capital 4 19
New long-term loans 65 6
Amortization and other changes in long-term -33 -37
loans
Dividends paid -168 -283
Loan receivables, increase (-) / decrease 5 -7
(+)
Current loans, increase (+) / decrease (-) 31 -85
Cash flow from financing activities -95 -387
Change in liquid funds, increase (+) / 122 63
decrease (-)
Cash and cash equivalents at beginning of 179 120
period
Fair value adjustments, investments 1 1
Exchange rate changes -6 -4
Cash and cash equivalents at end of period 296 179
1) Including advances received current and
non-current.
Statement of Changes in Shareholders' Equity
Total equity attributable to equity holders Minority Total
of the parent
interest equity
Fair
value
Share Share Trans- and
issue lation other Retained
MEUR capital premium differences reserves earnings
Shareholders'
equity on 1
January 2006 329 44 7 147 626 10 1 163
Translation
differences -4 -1 -1 -5
Other changes 3 3
Available-for-sale
investments
gain / loss
arising from fair
valuation, net
of taxes 25 25
transferred to
income statement,
net of taxes -81 -81
Cash flow hedges
gain / loss
arising from fair 34 34
valuation, net
of taxes
transferred to
income statement, 3 3
net of taxes
Net income
recognized
directly in equity -4 -19 -1 2 -22
Profit for the
financial period 351 2 353
Total recognized
income and
expenses for the
period -4 -19 351 3 331
Options exercised 5 14 19
Dividends paid -283 -283
Shareholders'
equity on 31
December 2006 334 58 3 128 693 13 1 230
Other changes -6 -5
Available-for-sale
investments
gain / loss
arising from fair -18 -18
valuation, net
of taxes
Cash flow hedges
gain / loss
arising from fair 17 17
valuation, net
of taxes
Net income
recognized
directly in equity -1 -6 -7
Profit for the
financial period 262 3 265
Total recognized
income and
expenses for the
period -1 262 -2 259
Options exercised 1 3 4
Dividends paid -167 -1 -168
Shareholders'
equity on 31
December 2007 336 61 3 127 788 10 1 325
BUSINESS SEGMENTS
Income statement 2007 Power Holdings Unallocated Group
MEUR Businesses
Net sales 3 763 3 763
Operating result 379 379
Financial income and expenses, 6 -14 -8
dividends
Net income from assets
available for sale
Share of profit of associates 1 1
Profit before taxes 372
Assets 3 549 119 81 3 749
Liabilities 2 308 116 2 424
Investments 231 231
Depreciation and impairment -78 -78
Income statement 2006 Power Holdings Unallocated Group
MEUR Businesses
Net sales 3 190 3 190
Operating result 262 262
Financial income and expenses, -15 8 -7
dividends
Net income from assets 124 124
available for sale
Share of profit of associates 1 67 68
Profit before taxes 447
Assets 2 891 202 94 3 188
Liabilities 1 806 152 1 958
Investments 193 193
Depreciation and impairment -72 -72
Geographical segments Europe Asia Americas Other Group
MEUR
Net sales 2007 1 442 1 432 520 369 3 763
Net sales 2006 1 245 1 141 582 222 3 190
INTANGIBLE ASSETS AND PROPERTY,
PLANT & EQUIPMENT
MEUR 2007 2006
Intangible assets
Book value at 1 January 602 541
Changes in exchange rates -6 -4
Acquisitions 47 69
Additions 33 22
Depreciation and impairment -30 -28
Disposals and intra-balance sheet 2
transfer
Book value at end of period 646 602
Property, plant and equipment
Book value at 1 January 315 273
Changes in exchange rates 3 -6
Acquisitions 1 18
Additions 133 84
Companies sold -17
Depreciation and impairment -48 -44
Disposals and intra-balance sheet -9 -11
transfer
Book value at end of period 377 315
GROSS CAPITAL EXPENDITURE
MEUR 2007 2006
Investments in securities and 65 86
acquisitions
Other investments 166 107
Group 231 193
During the review period investments in the factories in Vaasa,
Finland and Trieste, Italy amounted to EUR 33 million, and Wärtsilä
had commitments related to the investment programmes amounting to EUR
2 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 17 million during the review period and
Wärtsilä had commitments related to the enlargements amounting to EUR
7 million at the end of the review period. In addition, Wärtsilä's
commitments of the investment programme in the Korean joint venture
Wärtsilä Hyundai Engine Company Ltd. amounted to EUR 12 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
8.5% of Wärtsilä India Ltd. and at the end of the review period the
percentage of ownership was 98.2%. If all companies had been acquired
on 1 January 2007 Wärtsiläs (pro forma) net sales would have been EUR
3,798 million and (pro forma) operating income EUR 382 million.
MEUR 2007
Acquisition costs 54
Acquired assets to fair value 21
Goodwill 33
Specification of acquired assets:
Intangible assets 14
Property, plant and equipment 1
Inventories 3
Receivables 9
Cash and cash equivalents 2
Minority interest 3
Liabilities -6
Deferred tax liabilities -3
Total 21
INTEREST-BEARING LOAN CAPITAL
MEUR 31 Dec. 2007 31 Dec. 2006
Long-term liabilities 245 205
Current liabilities 38 66
Loan receivables -14 -36
Cash and bank balances -296 -179
Net -27 55
FINANCIAL RATIOS 2007 2006
Earnings per share, EUR 2.74 3.72
Diluted earnings per share, EUR 2.73 3.71
Equity per share, EUR 13.70 12.74
Solvency ratio, % 45.9 47.0
Gearing -0.01 0.07
PERSONNEL
2007 2006
On average 15 337 13 264
At end of period 16 336 14 346
CONTINGENT LIABILITIES
MEUR 31 Dec. 2007 31 Dec. 2006
Mortgages 13 20
Chattel mortgages 8 21
Total 22 42
Guarantees and contingent 479 317
liabilities on behalf of Group
companies
Nominal amount of rents according 69 50
to leasing contracts
Total 548 367
NOMINAL VALUES OF DERIVATIVE
INSTRUMENTS
MEUR Total amount of which closed
Interest rate swaps 140
Foreign exchange forward contracts 1 284 214
Currency options, purchased 34
CONDENSED INCOME STATEMENT,
QUARTERLY
MEUR 10-12/ 7-9/ 4-6/ 1-3/ 10-12/ 7-9/ 4-6/ 1-3/ 2007 2007 2007 2007 2006 2006 2006 2006
Net sales 1 272 933 797 761 986 767 845 592
Other income 10 3 4 4 11 4 8 2
Expenses -1 114 -821 -710 -683 -880 -696 -764 -541
Depreciation and
impairment -22 -19 -18 -18 -18 -18 -18 -18
Operating result 146 96 73 63 99 56 70 36
Financial income and
expenses -1 -2 -1 -4 -8 1 2 -3
Net income from assets
available for sale 124
Share of profit of
associates 1 50 4 8 7
Profit before taxes 145 95 72 60 141 61 204 40
Taxes for the period -43 -26 -20 -17 -33 -20 -53 12
Profit for the
financial period 103 68 52 42 108 42 151 52
Attributable to:
Equity holders of the
parent company 101 68 52 42 107 41 150 52
Minority interest 2 1 1 1
Total 103 68 52 42 108 42 151 52
Earnings per share attributable to
equity holders of the parent company:
Earnings per share,
EUR 1,05 0,71 0,54 0,44 1,13 0,44 1,60 0,55
Diluted earnings per
share, EUR 1,05 0,70 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
Wärtsilä Corporation ENCLOSURE TO THE FINANCIAL STATEMENTS BULLETIN
5.2.2008
PROPOSAL OF THE BOARD
The parent company's distributable funds total 577,382,733.65 euros,
which includes 159,240,111.16 euros in net profit for the year. There
are 95,969,561 shares with dividend rights.
The Board of Directors proposes to the Annual General Meeting that
the company's distributable earnings be disposed of in the following
way:
- a dividend of EUR 2.25 per share be paid, making EUR 215,931,512.25
a total of
- that the following sum be retained in EUR 361,451,221.40
shareholders' equity
Totalling EUR 577,382,733.65
No significant changes have taken place in the company's financial
position since the end of the financial year. The company's liquidity
is good and in the opinion of the Board of Directors the proposed
dividend will not put the company's solvency at risk.
