Growth in order intake and net sales
The year 2018 was marked by positive momentum in ordering activity in our marine related businesses, and growth in net sales. The latter was primarily due to increased newbuild marine and energy deliveries, which, in combination with slower than anticipated development in transactional service volumes and higher costs related to research, development, and digitalisation, burdened profitability.
Well positioned in challenging markets
In the energy markets, economic development, geopolitical uncertainty, and currency fluctuations resulted in a slowdown in customer decision-making, which adversely affected ordering activity. Although the competitive environment is demanding, our offering is well positioned to respond to the prevailing market trends. The costs of solar and wind power continue to decrease, and it has become increasingly economical to replace traditional baseload capacity with renewables and flexibility. This expansion of renewable energy was evidenced with major contracts from Australia and the USA being awarded to us. At the same time, the continued need for reliable capacity to support economic growth and alleviate power shortages is supporting power plant investments in the emerging markets.
The pace of recovery in the marine markets has been slower than anticipated, thus burdening the newbuild market and causing many customers to limit their service spend to essential repairs and maintenance. Overcapacity and geopolitical uncertainty are the primary sources of concern. Our broad market exposure has once again served us well, as vessel contracting activity has favoured the more specialised segments such as cruise and ferry and LNG carriers. Our customers’ appetite for service in these segments has also remained healthy. Environmental considerations emerged as a key theme in the marine markets. For Wärtsilä, this was reflected in a significant growth in demand for exhaust gas cleaning systems in both the newbuild and retrofit markets, as customers sought to prepare themselves for compliance with the approaching IMO 2020 global sulphur cap.
Progress towards realising our vision for the marine and energy markets
Maximising renewable generation is essential in ensuring a sustainable and profitable future for the energy industry. In this context, Wärtsilä launched a new vision for the energy market during the year. Our ambition is to lead the industry’s transformation towards a future that utilises 100% renewable energy, with flexible capacity as the enabler. The introduction of new solutions for the integration of renewables and storage, such as the Wärtsilä Hybrid Solar and GridSolv, an advanced modularised energy storage solution, represents concrete examples of the steps we have taken in realising this vision.
The marine industry is being transformed through increasing connectivity, new business models, and a stronger focus on environmental compliance. We are committed to supporting our customers by taking a leading role in this transition. This forms the basis for our Smart Marine vision, which emphasises leveraging the opportunities offered by digitalisation to promote safety, alleviate environmental impact, and improve efficiency. A key milestone for the year was further strengthening our offering of smart solutions through the acquisition of Transas, a leader in marine navigation solutions, training and simulation services, as well as ship traffic control. Other examples of progress made in the field of intelligent shipping include the successful testing of our automated dock-to-dock concept, and a project initiated to develop an autonomously navigated harbour tug.
With the growth in digital solutions, cyber security has become vital to the operation and management of many safety, security, and protection systems in the shipping environment. With this in mind, we entered into a partnership with Templar Executives, a specialist cyber security company, to establish a cyber academy offering courses designed to support and enhance the collective cyber maturity of the wider shipping community. The partnership has also resulted in the introduction of a new international cyber intelligence and incident support platform, MCERT, that enhances cyber resilience for the maritime ecosystem.
Emphasising collaboration, new ways of working, and responsible business conduct
Attracting and retaining personnel is key for safeguarding our future success. Our aim is to foster an inclusive corporate culture, emphasising diversity and high ethical standards, and safe working conditions. In this context, we are committed to supporting the UN Global Compact and its principles with respect to human rights, labour, the environment, and anti-corruption. In 2018, the lost-time injury frequency increased slightly to 2.50 (2.48). After successive years of improvement in this area, we are disturbed to see even this small increase. We will re-double our efforts towards achieving our goal of zero time lost through injuries.
Our organisation is developing along with its transformation into a technology services company. Collaboration and knowledge sharing, both within the Group and externally with partners, suppliers and customers, is central to aligning ourselves to changing market requirements and for developing the smart technologies needed. In this, we emphasise new working methods and sustainable development throughout the organisation. Our focus on these areas is enhanced with our move during the autumn into state-of-the-art office premises in Helsinki, wherein the latest smart real estate technologies are incorporated, and with our decision to build a new centre for research, development and production, in Vaasa, Finland. When finalised in 2020, this Smart Technology Hub will enable more agile and efficient testing, development, and production of solutions for the maritime, oil and gas, and energy industries. We also opened an Acceleration Centre in Singapore, focusing on areas such as intelligent vessels, connected smart port operations, cyber-physical security, and digital acceleration with start-ups. This represents yet another example of our commitment to promoting innovation and collaboration within our operating sphere.
Looking ahead
We enter the year with a new organisation formed around two business areas that incorporate both newbuild activities and services. With this structure our primary focus is to enhance the value that we deliver to customers through a stronger emphasis on lifecycle solutions that are tailored to specific market needs, increased flexibility, and even faster response times. I am confident that this change will enable us to develop stronger partnerships with our customers and ensure the continued rapid development of innovative solutions, thereby accelerating our progression towards the long-term target of profitable growth.
Market conditions in 2019 are expected to be largely in line with those seen during the previous year. The pace of recovery in the marine markets will remain slow, and, while the need for flexible power capacity supports activity in the energy markets, the competitive environment remains a concern. For these reasons, the demand outlook for both our businesses is solid. To stay competitive in the current market environment, we must initiate actions to increase customer value and secure profitable growth. This is the basis for the group-wide realignment program announced in January 2019. In addition to reviewing our cost structure, planned actions include an increased focus on targeted sales activities, developing the agreements-based and “as-a-service” business, and optimising the business portfolio.
I would like to take this opportunity to thank the entire Wärtsilä personnel for its commitment to furthering our common goals, our customers for your trust in our solutions and services, and last but not least, our shareholders for your confidence in Wärtsilä’s future development.
Jaakko Eskola
President & CEO
