An expected weakness in its Ship Power business area has hurt the 1Q15 result of Wartsila, the Finnish engineering group, although the company retained guidance regarding its full year performance unchanged.
Group net profit fell to EUR64 million (USD70 million) in 1Q15 from EUR70 million in the same period last year, while revenues declined to EUR988 million from EUR997 million.
“As anticipated, the year 2015 started with a slow marine market. Low oil prices are causing a wait and see attitude among offshore customers that, combined with subdued vessel contracting, resulted in fewer orders being received within the Ship Power business,” said Bjorn Rosengren, CEO, in a statement.
On a brighter note, the Service business which includes equipment maintenance and ship design in the marine business plus servicing of land based diesel power plants, had a good start of the year, with net sales rising 11% to EUR485 million in 1Q15 year-on.
Commenting on the performance of the Service business area in shipping, the company said: “Although merchant customers continue to focus on optimising maintenance expenditure, the decline in oil prices and the resulting lower fuel costs have positively impacted service volumes. From a regional perspective, marine service activities developed especially well in the US, Canada, and Norway.”
However, the Ship Power business area had a challenging start for the year as its net sales fell by 11% to EUR321 million, a much deeper fall than the 1% decline in total net sales of the group.
“The outlook for the shipping and shipbuilding market environment remains cautious due to weaker market conditions in the dry bulk and offshore segments. Low oil prices continue to impact investments in exploration and development, limiting demand for offshore drilling and support vessels,” Wartsila said.
“Overcapacity continues to affect demand for conventional merchant vessels. However, increased scrapping together with a more balanced fleet growth, support a gradual recovery in the freight market. The decline in oil prices presents opportunities in the markets for crude oil tankers and containerships, as lower bunkering costs are expected to have a positive impact on operating expenses for ship owners,” Wartsila said.
The company, which is best known for its Wartsila and Sulzer diesel engines in the marine sector, has grown its marine business portfolio towards services from ship design to equipment maintenance in order to reduce impacts of cyclicality and to maintain the company closer to its customers through the lifecycle of a ship.