Wärtsilä: Next 12 Months Will Be ‘Challenging’

Marine market likely to be soft, energy market expected to be weak in 2020

Trade tensions and an anticipated slowdown in the global economy are dimming the outlook for Wärtsilä’s marine and energy businesses.

The assessment came during the company’s earnings report presented by Jaakko Eskola, president & CEO of the company.

Looking ahead, the company said it expects its Marine Business to be ‘soft’ over the next 12 months because of lower vessel contracting volumes and a decline in the demand for scrubber solutions from last year’s exceptionally high level. Activity in the marine services market is expected to be stable.

The company also downgraded its Energy Business outlook from ‘soft’ to ‘weak’. The company said market conditions in the energy industry are challenging, as the rapidly changing energy landscape is creating uncertainty among customers. The geopolitical and economic environment is further slowing decision-making. The demand for energy services is expected to be stable.

Wärtsilä’sthird-quarter orderintake totaled EUR 979 million, a decrease of 29% compared to the corresponding period last year. The Marine Business was down 30% and the Energy Business was down 25%.

“The third quarter proved to be challenging for Wärtsilä, both in terms of equipment demand trends and financial performance,” Eskola said in a release. “The decline in order intake reflected weak vessel contracting and softened demand for scrubber systems, as well as continued slow decision-making in the energy markets. While the project pipeline is healthy in both businesses, visibility on order intake timing is limited and competition is intensifying. Price pressure remains a headwind in the prevailing market environment. I am pleased to note that despite the challenges we face in the equipment businesses, services related activity remained sound.”

Economic uncertainty, trade tensions, and the impact of upcoming regulations have resulted in subdued activity in the marine market, with 655 contracts for new vessels registered during the period January-September 2019, compared with 801 in the same period of 2018. Newbuild orders in all the major vessel segments have declined, with liquefied natural gas (LNG) carrier and cruise vessel segments being the least affected. The company said demand for larger cruise vessels has stabilized following the contracting of most of the major fleet replacement programs and the increased interest in the refurbishment of the existing fleet due to capacity constraints at shipyards. In the offshore sector, interest in vessel contracting is burdened by reactivation and upgrades of stacked vessels, as well as by the slow rate of growth in vessel utilization and day rates, the company said.

Sustainability issues and regulations are pushing increased efforts to minimize the environmental footprint of the shipping industry. This is resulting in a growing interest in LNG as a fuel and in hybrid battery packs across all vessel segments. Uncertainty concerning bunker fuel pricing and availability has delayed decision-making among customers for scrubber technology investments, despite supportive initial price indications.

The demand for marine services was sound, the company reported. Activity improved from a low level in the offshore support vessel segment, where the laid-up fleet is increasingly being re-activated into production around the globe. Activity continued to be at a good level in the gas carrier segment, as LNG carriers are reaching their maintenance windows for major overhauls. In the container and general cargo vessel segments, economic and geopolitical uncertainties resulted in stable demand for services.

Activity in the energy equipment business was weak in the third quarter of 2019. Decision-making was slow globally, as utilities update their investment plans to achieve ambitious decarbonization targets and macroeconomic uncertainty continues to cause customers to postpone investments, according to the company. The low number of new power plant projects is resulting in a tough competitive environment. The demand for services in the energy markets was healthy, and customers continued to show interest towards long-term service agreements.

Wärtsilä said its market share in the up to 500 MW market segment decreased slightly to 14% (from 15%), while global orders for natural gas and liquid power plants decreased by 14% to 15.1 GW during the 12-month period ending in June 2019. Global orders include gas turbine and Wärtsilä orders with prime movers over 5 MW in size. The data is gathered from the McCoy Power Report.

Wärtsilä Energy’s third-quarter order intake totaled EUR 274 million, a decrease of 25% compared to the corresponding period last year. Services orders include a 5-year extension to a guaranteed asset performance agreement for a 27.65 MW combined heat and power plant in Hungary.

Third-quarter net sales decreased by 47% to EUR 342 million (650) compared to the corresponding period last year. Services net sales increased by 1% to EUR 201 million (199), while equipment net sales decreased by 69% to EUR 141 million (451). The comparable operating result for the quarter was EUR -9 million (73), or -2.7% of net sales (11.2).

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