Wärtsilä Corporation has published its annual financial report for the year 2013. Please find below the message to shareholders from President & CEO
Björn Rosengren.
"Dear shareholders,
For Wärtsilä, 2013 was a year of varying activity within our different end markets. While the improvement in global vessel contracting was significant, power generation markets declined for the second consecutive year.
Unfavourable exchange rates and some delayed deliveries at the end of the year led to a slightly weaker than expected net sales development. Profitability on the other hand developed well, reaching 11.2% for the full year. I am pleased with the resilience we have shown in reaching our profitability targets, despite the lower level of sales. Cash flow from operating activities development was strong, increasing to EUR 578 million during the year.
Global economic policies and fluctuations in emerging market currencies delayed customer decision-making in the power generation markets. Our Power Plants order intake developed accordingly, decreasing by 15%. 82% of the orders received were for gas based power plants, showing that there is continued demand for our fuel flexible solutions. Major orders were received for a 274 MW dual-fuel power plant from Jordan and a 220 MW natural gas fuelled power plant from Oregon, USA.
In the shipbuilding industry, competitive new building prices combined with the increased fuel efficiency of modern vessels attracted investments in the merchant segment. Furthermore, oil price levels supported activity in the offshore markets, including operations in harsh and deep water areas. This resulted in stronger vessel contracting and a more balanced order mix compared to recent years. In line with overall market activity, Ship Power’s order intake developed well, increasing by 14% in 2013. Several notable orders were received in the offshore industry and the demand for dual-fuel engines and gas handling systems continued to be active. In the latter part of 2013, we launched our 2-stroke, low pressure, dual-fuel engine. The first order for this technology was received shortly thereafter, and we feel that this technology could very well be a game changer for merchant shipping.
Overcapacity in the marine market continued to impact global fleet utilisation and our customers’ remained focused on reducing operating expenses. The continued good demand for power plant related services compensated for this development and contributed to the overall stability of the service market. I am pleased to note that our concentration on long-term service agreements has proven successful in 2013. The share of contracts in Services net sales increased during the year, and several important agreements were signed with both power plant and marine customers.
As certain emerging countries, such as China and Brazil, gain a stronger foothold in the shipbuilding industry, we must adapt our operations accordingly. During 2013, Wärtsilä announced the set up of a new, fully-owned manufacturing facility in Brazil to meet the local content requirement and the increasing demand, particularly in the offshore market. We also began to construct production facilities for Wärtsilä Yuchai Engine Co. Ltd, our latest joint venture in China. These initiatives will enable us to better serve our customers locally, thus strengthening our competitiveness in these key markets.
In 2012, we took the first steps towards restructuring our organisation so as to increase the flexibility and speed of our operations. In this way we can better address the changing market environment. The success of this realignment resulted in the decision to take the next step and combine the PowerTech and Ship Power 4-stroke organisations into one single business unit. In this new set up, all activities, from R&D and manufacturing to sales, are combined into one organisation. This change will further enhance transparency and accountability within Wärtsilä; factors which will enable us to better support our customers and increase the efficiency of our operations. I believe these changes are essential in order to be able to capture the growth opportunities that we have identified in the market.
As a global leader in complete lifecycle solutions for the marine and energy markets, Wärtsilä has a key role to play in providing sustainable solutions for the shipping and power generation sectors. A strong emphasis on research and development is necessary for maintaining our competitiveness going forward. Efficiency improvement, fuel flexibility, and environmental performance are the key focus areas of our R&D investments, which in 2013 represented 4.0% of net sales. Responsible business conduct and the safety of our personnel is our priority. The positive trend in lost time injury frequency continued, reaching an all time low in 2013. We remain committed to supporting the UN Global Compact and its principles with respect to human rights, labour, the environment and anti-corruption.
Our strategic priorities are well in line with the fundamental changes occurring in our end markets. The world's need for sustainable and reliable power has not vanished and we see growth opportunities in gas power plants as part of our Smart Power Generation concept. The regulatory environment is also driving interest in gas in the marine markets, and it is expected that the share of gas-fuelled vessels will increase significantly in the coming years.
LNG Bunkering
Today, gas availability represents one of the main barriers for its wider scale use. Infrastructure expansion is partly planned to take place through investments in midsized LNG distribution, which represents an interesting opportunity for Wärtsilä. By combining our experience in engineering, procurement and construction project execution with our LNG handling expertise, we can offer turnkey LNG terminal solutions, thus positioning us well in this up and coming market. The new emission regulations are becoming imminent, and vessel owners are preparing themselves to comply with the new requirements. The progress we have made in environmental solutions, both in terms of receiving type approvals for our ballast water systems and in strengthening our extensive reference list of exhaust gas cleaning systems, supports our growth ambition in this field.
Wärtsilä is well positioned to pursue growth even in today’s challenging market environment. However, only by increasing the efficiency and flexibility of our organisation globally can we secure profitability and maintain competitiveness going forward. This is the basis for the Group-wide efficiency programme announced at the beginning of 2014. Our market outlook remains cautious, although a slight improvement may be seen in certain areas. In 2014, we anticipate some growth in net sales and expect operating margins to be around 11%.
I would like to take this opportunity to thank our customers who have entrusted their business to us during these challenging times and our personnel for their continuous efforts in serving our customers globally. I am also very thankful to our shareholders for all the interest expressed in Wärtsilä, and for the trust placed in our future potential."
