Wärtsila’s Ship Power Business Takes a Hit

Finnish ship engine and power plant maker Wärtsila saw ordering in the marine market slowing down in the first quarter of 2015, leading to a 1% drop in net sales compared to the same period a year before.

The company eneded the quarter with EUR 988 million (USD 1.06 billion)in net sales, EUR 9m less than in the first quarter of 2014.

However, the services and power plant divisions helped the company increase its order intake for the period by 15%, reaching EUR 1.285bn.

Despite a drop in orders in the marine market, Wärtsilä expects its net sales for 2015 to grow by 0-10% and its operational profitability (EBIT% before non-recurring items) to be between 12.0-12.5%.

”As anticipated, the year 2015 started with a slow marine market. Low oil prices are causing a wait and see attitude among offshore customers that, combined with subdued vessel contracting, resulted in fewer orders being received within the Ship Power business,” said Björn Rosengren, President and CEO, Wärtsilä Corporation.

”Services’ development was clearly the highlight of the first quarter. The increased maintenance activity seen towards the end of last year continued into the first quarter, boosting both order intake and sales. Services’ sales grew by 11%, which compensated for the lower delivery volumes in the Ship Power and Power Plants businesses.”

The outlook for the shipping and shipbuilding market environment remains cautious due to weaker market conditions in the dry bulk and offshore segments, says Wärtsilä.

Overcapacity continues to affect demand for conventional merchant vessels. However, increased scrapping together with a more balanced fleet growth support a gradual recovery in the freight market.

The decline in oil prices presents opportunities in the markets for crude oil tankers and containerships, as lower bunkering costs are expected to have a positive impact on operating expenses for ship owners.

The sentiment in the gas carrier market remains healthy; activity is however expected to revert to normal levels after strong ordering volumes in 2014.

The outlook for cruise and ferry is positive and is backed by new entrants to the market, fleet renewals and increased passenger traffic from Asia. The importance of fuel efficiency and environmental regulations is clearly visible, driving interest in environmental solutions and gas as a marine fuel for the broader marine markets.

The overall service market outlook is cautiously positive with growth opportunities in selected regions and segments. An increase in the installed base of medium-speed engines and propulsion equipment offsets the slower service demand for older installations and uncertainty regarding short-term demand development in the merchant marine segment.

The service demand for installations operating on oil based fuels is expected to grow as recent oil price developments have had a favourable impact on operating costs. The service outlook for gas fuelled vessels remains favourable.

Customers in both the marine and power plant markets continue to show healthy interest in long-term service agreements, says Wärtsilä.