ORDER INTAKE INCREASED, HOWEVER A MEUR 200 WRITE-DOWN BURDENED OPERATING RESULT
HIGHLIGHTS OF JANUARY–MARCH 2022
THE WAR BETWEEN RUSSIA AND UKRAINE AND ITS IMPACT ON WÄRTSILÄ
Wärtsilä strongly condemns the war in Ukraine. Human rights, safety, and prosperity are very important for Wärtsilä, and we value a peaceful and stable business environment wherever we operate.
After Russia’s attack into Ukraine, Wärtsilä immediately suspended all deliveries, sales, orders, and bidding to Russia. We are complying with all current and will comply with all future trade sanctions applicable to our operations.
In the current environment, it is not viable for Wärtsilä to maintain activities in Russia, and therefore the company has decided to further downscale its Russian operations. Adjusting the operations will be done in accordance with local regulations. During this process, our priority continues to be the safety and wellbeing of our employees.
As a result of these steps, Wärtsilä made a write-down of approximately EUR 200 million in the first quarter financial reporting. The EUR 200 million write-down includes approximately EUR 75 million of impairment of Voyage related goodwill and intangible assets, approximately EUR 50 million of impairment related to assets in Russia, and approximately EUR 75 million of write-downs related to trade-sanctioned projects and receivables. The write-down is included in items affecting comparability and, therefore, does not impact the comparable operating result.
All these actions regarding our business in Russia also have a negative impact on Wärtsilä’s operational financials. Russia related activities accounted for approximately 5% of Wärtsilä’s net sales in 2021, of which service net sales was approximately EUR 40 million.
Wärtsilä’s Board of Management monitors the situation continuously as it evolves, supported by a dedicated crisis task force.
WÄRTSILÄ’S PROSPECTS
Wärtsilä expects the demand environment in the second quarter to be similar to that of the corresponding period in the previous year. However, the prevailing market conditions make the outlook uncertain.
Hakan Agnevall, President & CEO: Growth in the Equipment business
“The continued impact from Covid-19 and the Russian attack into Ukraine in the first quarter of 2022 intensified overall uncertainty in the global business environment and amplified concerns related to cost inflation and global economic development. While the Covid-19 situation stabilised or improved in certain parts of the world, the recent lockdowns in China show that the impact is far from over. Overall, we saw uncertainty increase on the demand and supply side in both our end markets.
I want to take this opportunity to once again state that Wärtsilä strongly condemns the war in Ukraine. Human rights, safety, and prosperity are very important for us, and we value a peaceful and stable business environment wherever we operate. After Russia’s attack into Ukraine, we immediately suspended all deliveries, sales, orders, and bidding to Russia. Furthermore, we have decided to further downscale our Russian operations. Adjusting the operations will be done in accordance with local regulations. During this process, our priority continues to be the safety and wellbeing of our employees.
In the energy markets, the sanctions and an unforeseen price volatility had a negative impact on global supply chains. For example, the price of lithium nearly doubled during the first quarter. This type of development has led to higher prices in our offering, and customer decision making slowing, especially in the energy storage business. The need for power system flexibility to support renewable energy sources remains and resulted in for example an order to supply 110 MW of flexible thermal balancing power to Italy. The energy transition in Europe may even accelerate as Europe strives to become less dependent on Russian oil and gas. We continue to see long-term opportunities in balancing power globally.
In the marine markets, newbuild investments eased as a result of higher prices and limited shipyard capacity. Bunker fuel has widely become more expensive than ever, and activity levels in our key vessel segments continued to vary. The cruise industry faced temporary headwinds, as surging Covid-19 infections slowed down vessel reactivations. At the end of March, around 70% of the cruise fleet capacity was active, which was flat compared to the situation at the end of December. Activity in the offshore oil and gas segment, however, has seen a notable increase, as higher crude oil prices have supported demand. The need for Europe to be less dependent on Russian gas might lead to opportunities in maritime LNG transportation.
Total order intake grew by 11%, supported by a good level of equipment orders in the Marine Power, Marine Systems, and Energy businesses. The demand for services also improved. Net sales increased by 30%, driven mainly by growth in energy equipment deliveries. Comparable profitability improved. We foresee cost inflation to remain high during the rest of 2022. Growth in equipment deliveries, and the large installed base support our long-term opportunities in the service business. Our comparable operating result increased by 61%, thanks to higher sales volumes, especially in the Energy business. Unfortunately, the operating result ended up being heavily negative, due to a write-down of approximately EUR 200 million made as a result of a decision to downscale operations in Russia. The situation in Russia will impact our sales volumes during the remainder of 2022.
I am pleased to highlight the several tangible steps that we took to contribute to a more sustainable marine industry. We announced a collaboration with Solstad Offshore aimed at achieving a 50% reduction in CO2 emissions by 2030 for their 90 vessel fleet. Together with Grimaldi Group, we unveiled a new system that filters out microplastics from open loop exhaust gas scrubber washwater to tackle the amount of such microplastics in the world’s oceans. On top of this, we received our first order for newbuild methanol-fuelled engines and the methanol fuel supply system MethanolPac, which will be delivered to a new offshore wind installation vessel. This further extends our leading position in support of the maritime industry’s decarbonisation ambitions, and in the use of methanol as a fuel.
Taking note of the rising energy crisis, Wärtsilä published the report “Europe’s Energy Future”, showing how Europe can, by scaling up its renewables capacity, cut its power sector gas consumption in half, reduce energy costs by hundreds of billions, and increase energy independence by 2030. The approach modelled in the report is ambitious but achievable, if we increase the share of renewable energy in electricity generation from around 33% today to over 60% by 2030.
We expect the demand environment in the second quarter to be similar to that of the corresponding period in the previous year. However, the prevailing market conditions make the outlook uncertain. As earlier communicated the share of equipment sales relative to service sales will be high during 2022. In the longer term, we expect the use of renewable energy to accelerate, which sets the scene for more balancing power, while rising fuel costs emphasise the need for fuel efficient solutions.”
