Sales up, but Russia takes bite out of profits for Wärtsilä

Covid, Russia’s invasion of Ukraine challenge markets

Wärtsilä saw net sales increase 30% in the first quarter, but the company lost money in large part because of a writedown of Russian assets as it plans to leave that country.

Chief Executive Håkan Agnevall reported the company’s comparable operating profit increased 61% to 65 million euros. Net sales increased by 30% to 1.23 billion.

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. 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,” Agnevall said.

The situation in Russia will impact sales volumes during the remainder of 2022, he added.

Wärtsilä reported a surge in orders during the fourth quarter of 2021 and saw net sales grow by 4% over the full year.

“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,” Agnevall said. “While the Covid-19 situation stabilized 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.”

After Russia’s attack into Ukraine, the company immediately suspended all deliveries, sales, orders, and bidding to Russia.

In the energy markets, the sanctions and an unforeseen price volatility had a negative impact on global supply chains, Agnevall said, noting 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,” he said. “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 the company’s 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, Agnevall said.

“We expect the demand environment in the second quarter to be similar to that of the corresponding period in the previous year,” Agnevall said. “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 emphasize the need for fuel efficient solutions.”

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