Wärtsilä sells stake in two-stroke business to China

18 Jul 2014
Björn Rosengren: “The partnership will enhance Wärtsilä’s position in the marine engine market”

Björn Rosengren: “The partnership will enhance Wärtsilä’s position in the marine engine market”

Wärtsilä has announced its intention to form a joint venture with China State Shipbuilding Corporation, in which CSSC will hold the larger share, to take over Wärtsilä’s two-stroke engine business.

The news was broken by Wärtsilä’s president and CEO Björn Rosengren, while giving the group’s interim report covering January to June 2014. Mr Rosengen said the Wartsila would take 30% ownership in the joint venture, with CSSC holding the other 70%, though responsibility for servicing of two-stroke engines would remain with the Wartsila Services business.

Mr Rosengren continued: “The partnership will enhance the position of Wärtsilä’s two-stroke technology in the marine engine market, and will provide a strong base for future investments in leading two-stroke technology and customer support.”

He expects the transaction to have a positive impact on Wärtsilä’s operating result and consequently has revised the overall profitability estimate for 2014 upwards to around 11.5%. The move is also expected to allow a firmer estimate of sales for the year: net sales are now expected to grow by 5%, whereas previous estimates put 2014 sales growth at 0-10%.

The value of the transaction is put at around €46 million. The closing of the transaction is subject to the required regulatory approvals, which are expected in the first quarter of 2015.

At the same time, Wärtsilä and CSSC announced an agreement to establish another joint venture company, for manufacturing medium and large bore medium-speed diesel and dual-fuel engines. The CSSC Wärtsilä Engine (Shanghai) Co factory will be located in Lingang, Shanghai and is expected to have its first engine ready for delivery by the end of 2015. The Wärtsilä share of the joint venture is 49%, representing an equity investment by Wärtsilä of about €27 million.

Outlining the general performance of the group over the report period, Mr Rosengren said: "The first half of 2014 has developed well. I am pleased to note that the ongoing restructuring measures have already made a positive contribution to our operating result. The savings we have achieved through these measures, together with the improved ship power and services performance, have compensated for the low volumes in the power plants business and resulted in profitability increasing to 9.9%.

“Contracting in the marine markets was active and ship power's second quarter order intake developed favourably, especially in the offshore and gas carrier segments. The services business had an active quarter in terms of signing long-term service contracts with marine customers. The interest for agreements continues to be strongest in the more specialised vessel segments.”

The outlook remains cautious, but favourable. The interim report says that the main drivers supporting activity in the shipping and offshore sectors are in place, yet growth has nevertheless been slow. Despite improving seaborne trade, overcapacity is still affecting demand in the traditional merchant markets. Increased scrapping and a more balanced fleet growth support gradual freight market recovery. In the offshore segment, current oil price levels support investments in projects with controlled exploration and development costs. The importance of fuel efficiency and the introduction of environmental regulations are clearly visible. The regulatory environment is also increasing interest in gas as a marine fuel, which is further strengthened in the US by favourable pricing. Offshore activity is anticipated to continue; however a decline in the contracting of drilling units and certain support vessels may be seen. The shipping markets are expected to remain active, especially within the gas carrier segment, although the contracting of traditional merchant vessels is likely to decline.

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