Message to the shareholders
For Wärtsilä, 2010 was a year of recovery. At the same time it was a year of further consolidation and restructuring of activities.
We entered the year with a rapidly decreased order book, and it was hard to predict when a recovery could actually be expected. As a result of the severe financial crisis, world trade had deteriorated sharply in 2009 and there was a lot of surplus shipping capacity available. Although the power plants market did not suffer as such from overcapacity, financing conditions caused the postponement of projects that otherwise would have proceeded well.
It also became apparent that the post crisis industrial structure would be even more competitive than before. Asian shipyards now claim an even bigger share of the world's shipbuilding markets. Component and systems suppliers need to adapt to that. The boom years preceding the crisis had seen capacity additions that now may be redundant.
Adapting to these conditions, and maintaining competitiveness and profitability, is our top priority. We therefore decided in the beginning of 2010 to further align our engine and propulsor production. These decisions mean that production is moved closer to the markets in China, while our European production footprint is being consolidated. The Service business, with sales remaining at last year's levels, has undertaken restructuring measures to adapt capacity to market needs. Furthermore, our administration resources had to be reviewed, and towards the end of the year redundancy programmes were introduced in this sector.
Reducing capacity through temporary and permanent lay-off programmes is, of course, not an objective in itself. Nor is it even a desirable solution. However, I am pleased to note that Wärtsilä's personnel has fully understood the seriousness of the situation and the necessity of the measures taken. In a survey conducted at the end of 2010, the vast majority of Wärtsilä's employees expressed their commitment to Wärtsilä, and to the company's goals.
Group personnel decreased to 17,528 (18,541) by the end of the year.
The ordering of new ships started already in the spring of 2010, far earlier than expected. The total number of ships ordered has almost doubled compared to the year before. A number of bulk carriers were ordered in the spring and, towards the end of the year, shipping companies started again to order container vessels. Activity in the offshore sector has continued to be high. Wärtsilä's Ship Power order intake slowly started to recover in line with the turn in the market. Our concentration on ship design, total solutions, and operational support has proven to be a success. We are able to serve our customers, both ship owners and yards alike, in the continuous efforts towards more efficient and sustainable shipping.
The world's need for sustainable and reliable power did not vanish with the financial crisis, and activity in our Power Plants division has remained high. Power plant solutions based on our new, bigger gas engines are meeting with good customer demand. Customers appreciate the high efficiency - even at variable load - of these engines, as well as their superior load management capabilities, and modularised design that allows for easy capacity additions as demand increases. More than 50 percent of the new power plant capacity installed by Wärtsilä in 2010 was accompanied by long-term operational agreements.
Long-term operations and management agreements, which earlier were virtually non-existent in the shipping industry, are today widely discussed. I am pleased to note that some of the world's undisputed leaders in shipping have signed such agreements with our Services division. This division, which accounted for 40 percent of group sales in 2010, has proven to be resilient to the financial crisis.
Of our net sales, 23 percent last year came from the so called BRIC countries. These will continue to be at the centre of our activities in the future. Brazil, with its large energy resources, is broadening its industrial capabilities, and Wärtsilä will be part of that. In Russia, we signed a joint venture agreement last year to produce Wärtsilä designed locomotive engines, and the first such engine began test runs in late 2010. India has been a focus of our activities since the early 1980's, and our footprint in China will continue to grow. Today, we operate three joint ventures and a sizable wholly owned operation in China, with approximately 1,800 employees. In terms of sales for Wärtsilä, China again ranked number one.
Wärtsilä is committed to developing its modern product and services portfolio. In 2010, our R&D expenditure equalled 3 percent of sales. In 2011 this will be at least at the same level. Our products and activities play a central role in ensuring the future for sustainable global shipping and electricity generation. High ethical standards in our operations are non-negotiable. In this context, we are committed to supporting the UN Global Compact and its ten principles with respect to human rights, labour, the environment, and anti-corruption.
Due to the fall in new contracting activity in 2009, our net sales in 2010 fell by 13 percent to 4.6 billion euro following a period of strong growth. In 2011 we will again see some growth in sales. We are also pleased to note that profitability remained at a good level, 10.7 percent, and is expected to improve again slightly in 2011. For the longer term, we believe that the new more lean structure, our good position in the markets, and our efficient services organisation should enable us to reach operating margins of up to 14 percent.
I would like to take this opportunity to thank our shareholders for your confidence in our company, our customers for your trust in our products and services, and last but not least, the entire staff of Wärtsilä for your commitment towards our common goals.
President & CEO