2016 was a satisfactory year, considering the continued challenges in our end markets. Thanks to a good fourth quarter highlighted by successful delivery execution, growth in Services’ revenues, and an improved project mix, we were able to meet our revised net sales and profitability targets for the year.

Our Services business, which in 2016 represented 46% of net sales, provides a good foundation for achieving our long-term target of profitable growth. Despite the headwinds we faced in the offshore segment, where weak market conditions caused customers to postpone equipment maintenance, our Services business performance continued to be resilient. Our growing installed base of medium-speed engines and propulsion equipment, as well as the shift to gas based technology, supports our long-term ambitions. We will continue to focus on developing our lifecycle service offering to provide enhanced value to our customers, and to explore opportunities beyond our installed base by expanding our business model to cover new market areas and multiple brands.

Jaakko Eskola, President & CEO, Wärtsilä

Activity improved in the power generation markets during 2016. This was mainly fuelled by demand from the emerging markets, where economic growth and energy infrastructure development drove interest in Wärtsilä’s power plant solutions. Policy reforms and increasing investments in renewable energy sources also contributed to power plant investments globally. These trends, which favour Wärtsilä’s flexible, clean, and efficient power plant solutions, are also expected to support positive market development in the coming year. During the year, Wärtsilä also entered the solar energy market with solar hybrid solutions, consisting of solar photo-voltaic (PV) plants and internal combustion engines. This decision will create new business opportunities as we find new ways to help our customers in their quest for less carbon-intensive energy systems.

In the marine markets, contracting activity fell to an exceptionally low level. The majority of the volume decline was seen in the shipping industry, where overcapacity and low earnings remain the key challenges. Low oil prices and reduced capital expenditures from oil companies continued to limit demand also in the offshore industry. For some years already, Wärtsilä has focused on developing an extensive offering and a wide market exposure. This positioning served us well in 2016, enabling us to capture opportunities in niche markets, such as cruise and ferry, where the demand for new vessels was unaffected by the general market weakness. Nevertheless, a certain pressure on order intake was unavoidable, and this meant that we had to react to the early signs of weakening markets by announcing in April additional efficiency improvement measures. Such measures, while unfortunate, are necessary for safeguarding our competitive position. Going forward, we will continue to pursue more cost-efficient and flexible ways of operating.

Marine environmental regulations took a step forward in 2016, with ratification of the ballast water convention in September. This was soon followed by the decision to implement the global sulphur cap in 2020, reducing the sulphur content of marine fuel to 0.5%. The investments we have made in developing our environmental portfolio will help us to support our customers as they evaluate means of complying with the upcoming regulations.

Thanks to a solid fourth quarter, we were able to meet our net sales and profitability targets for the year.

In order to secure our leading position in sustainable innovation, we must continuously look into new ways of developing our business. Wärtsilä’s digital transformation is important in this context, as not only does it provide enhanced value to our customers in the form of new, data-analytics driven solutions, it also enables us to develop our internal processes through, for instance, the increased use of robotics in our manufacturing and testing processes. The appointment of our Chief Digital Officer will surely accelerate this transformation as our digital strategy is formulated, and the related organisation takes root. From an organisational development perspective, our Operational Excellence initiative is also important. Its aim is to establish a mentality of continuous improvement, and to enable us to share best practices that exist throughout our business areas and functions. In 2016, we launched what we call the Wärtsilä Operational Excellence Academy, in which we aim to provide a learning environment where our people can develop new ways of working and set new standards of performance.

We continue to be well positioned to benefit from the trends of increasing demand for efficiency and changing energy needs.

While working constantly to improve performance, we at the same time endeavour to foster an inclusive corporate culture, by respecting diversity and emphasising high ethical standards. 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. Equally important is providing a safe working environment for our people. I am pleased that we have continued to move steadily closer to our ongoing target of zero lost-time injuries.

Looking into 2017, we expect our business environment to remain largely unchanged. We continue to be well positioned to benefit from the trends of increasing demand for efficiency and changing energy needs. This, together with our efforts to optimise internal operations as described above, will support us in reaching our long-term target for profitable growth.

I would like to take this opportunity to thank our shareholders for your confidence in Wärtsilä’s future, our customers for your trust in our products and services, and the entire Wärtsilä personnel for your commitment towards reaching our common goals.

Source: Jaakko Eskola, President & CEO, Wärtsilä