Wärtsilä reports hit to marine sales due COVID-19 in Q1 results
Technology group Wärtsilä reported reduced sales across the group’s activities with order intake down by 12% in Q1 2020 although a growth in equipment deliveries and service activity in the marine sector was recorded.
Jaakko Eskola, President and CEO of the group said “During the first quarter of 2020, Wärtsilä’s business environment was characterised by a sudden increase in uncertainty related to the coronavirus pandemic and its longer-term impact on the global economy. Net sales increased slightly from the corresponding period last year, thanks to growth in both equipment deliveries and service activity in the Marine Business. Energy equipment deliveries, on the other hand, declined largely due to project timing and some COVID-19 related delays. Measures taken to contain the spread of COVID-19 have resulted in factories running at lower than usual capacity and in restricted mobility of field service personnel. Our operating result was consequently impacted by weaker fixed cost absorption, as well as by the mix of service sales and the delivery of the projects we flagged last year to be affected by cost overruns.
Demand in the first quarter was reasonable considering the prevailing market conditions. The decline in marine order intake was largely due to the lack of scrubber investments, as fuel spreads have narrowed. Equipment order intake in the Energy Business improved, thanks to the turnkey contracts received for two large power plants in Latin America. The effects of the coronavirus pandemic are increasingly becoming visible in the demand environment of our markets. The cruise segment in particular has been severely affected by the actions taken to contain the virus spread, while several energy project sites have been demobilised. The risk of weakening economic activity has caused shipowners and operators to re-evaluate their investment plans. Similarly, in the energy markets, deteriorating macroeconomic conditions and the anticipated decrease in electricity consumption are resulting in postponed investment decisions for new power generation capacity.
The weakened demand outlook, in combination with anticipated delivery postponements and challenges in accessing customer sites, will have a material effect on our financial development this year. To mitigate this impact, we have taken proactive steps to lower our cost base with approximately €100m by reducing working hours and initiating temporary layoffs, as well as by limiting the use of external personnel and consultants. The first concrete actions have been taken in locations where operations have been adversely impacted by the pandemic.
While adjustments to our cost base are necessary, we must also secure our ability to capture future growth opportunities. In this context, the progression of our Marine Business reorganisation into three independent businesses is central. It will allow us to accelerate strategy execution and simplify the business structure in order to increase the agility and speed of our decision-making. In addition, although we are reducing discretionary spending, we remain committed to investing in R&D projects that are critical to our long-term success. Among other initiatives, we are actively working on developing the use of alternative, commercially viable and environmentally friendly fuels to reduce greenhouse gas emissions in the shipping and energy sectors. I am therefore pleased to highlight both the advances we have recently made in testing the use of ammonia in our engines and fuel systems, as well as the funding we have received for the X-Ahead project. The aim of this project is to develop deep expertise in the technical and business potential of Power-to-X, which will be used to promote a carbon neutral economy. These initiatives are indicative of our commitment to enabling sustainable societies with smart technology.”