Message to the shareholders
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Dear shareholder,
The autumn of 2008 marked a turning point in the development of Wärtsilä’s business environment. As the first signals of what turned out to become the widest financial crisis in recent history hit Wärtsilä, we entered the new phase with a record high order book. |
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Even with part of that order book being cancelled, the year 2009 was very successful in terms of delivery volumes. Group net sales, EUR 5,260 million grew by 14 percent compared to the year 2008. Operating profit reached an all time high level of EUR 638 million (525) and the operating margin stood at 12.1 percent (11.4 percent). The Services business, which structurally has a very short order book, maintained its volumes in spite of significant lay ups of vessels.
The order intake, however, was affected by weak demand, particularly for marine equipment. During the 1990’s, new ships were ordered at the rate of 1,500 ships per year and during the boom years of 2003-2008 at the rate of 4,500 ships per year. In 2009 only 400 new ships were ordered. This naturally had an effect on our Ship Power business. New orders representing only EUR 317 million (1,826) were received and cancellations representing a value of EUR 410 million were recorded.
The demand for power plants continued at a healthy level. The reasons are evident: most parts of the world have neglected making adequate investments into power generation capacity for years. Environmental considerations favour investment into renewable power sources and the active search and exploration of natural resources, particularly in Africa, requires electricity. Wärtsilä’s technology is well positioned to respond to the needs arising from these trends. Although economic uncertainty held contracting activity back during the first part of the year, order intake recovered towards the end of the year.
The Services business, representing 35 percent (40) of group turnover, has proven to be resilient to the financial downturn. A strong global presence, new service products and concepts combined with a broad installed base have all helped Services to maintain its business at good level of the previous year.
During the last two to three years, the demand in most industrial sectors has increased rapidly. This has put our supply chain under severe pressure and has resulted in price increases, delays and even occasional quality problems. Thanks to systematic investment and development work together with gradually decreasing demand, the situation normalised during 2009 and component prices started to fall. We expect this trend to continue.
The low contracting activity in the shipbuilding sector is expected to continue for more or less another two years. The first signs of recovery can be seen in some Offshore and Special vessel segments. The concentration of shipbuilding activity to Asia, particularly to China, is expected to continue. This is the basis for the adjustments in capacity within Wärtsilä Ship Power and Industrial Operations that were initiated during 2009. At the beginning of the year 2010, we announced our plans to strengthen our propeller and generating set production platform in China. Our Ship Power sales organisation has been adjusted to reflect the current needs of the market. These measures have had, and will have, an effect on employment within the group. This is naturally unfortunate, but unavoidable in order to stay competitive in the changing market environment. I am confident that Wärtsilä will emerge even stronger in the marine markets as a result of this restructuring process - without compromising on our corporate values: Energy, Excellence and Excitement.
Wärtsilä is a technology company and we continue to be committed to investing into research and development. These investments have remained steady at 2.7 percent of turnover (2.6). We consider it our obligation to continue developing products and services that radically reduce the level of emissions to both the air and the sea. Improved ship design, more efficient engines and propulsors, use of gas as fuel, and optimised, flexible power plant solutions all contribute to a more sustainable environment. It is our strategy to maintain and develop this proprietary know-how and to develop new service concepts around it while strengthening our production capabilities close to the markets.
Due to the low demand in the shipbuilding sector, we expect net sales to decline by 10-20 percent in 2010. As a result of a stable service business, the good demand for power plants and proper adaptation of capacity, our operational profitability should be between 9-10 %, well within the upper end of our long term target range.
Let me take this opportunity to thank our shareholders for your interest in our company, our customers for the confidence you have shown in our products and services, and last but not least, our employees for your undivided attention and dedication to the development of Wärtsilä.