marine solutions: setting our course in challenging markets

© Wärtsilä

Marine Solutions:

Setting our coursein challenging marketsRoger Holm

President, Marine Solutions & Executive Vice President

29 September 2016 Roger Holm1

© Wärtsilä 29 September 2016 Roger Holm2

The most complete marineoffering on earth

We are the leading provider ofinnovative products and integrated solutions in the marine and oil & gas industries.

As a leader in our fields, we need to continuously develop and transform ourselves to meet changing customer needs.

We have a passion to do right for our customers and the environment.


Our offering covers all market segments

MARINE SOLUTIONS

OIL & GAS MERCHANT NAVY SPECIAL VESSELS

THROUGH

OFFERING:

LEADER IN: EFFICIENCY GAS AND DUAL-FUEL SOLUTIONS ENVIRONMENTAL SOLUTIONS

• Lifecycle solutions for ship owners and operators

• Integrated solutions for the shipbuilding industry, owners and operators

• The best customer value and customer experience in the marine industry

CRUISE & FERRY

© Wärtsilä

POTENTIAL IN NICHE VESSEL SEGMENTS DESPITE CHALLENGING MARKET CONDITIONS



Marine markets heading towards rebalancing, but more is neededSeaborne trade impacted by maturing of Chinese economy

0

500

1000

1500

2000

2500

3000

3500

00 03 06 09 12 15 18 21 24 27

Net fleet growth Deliveries

Removals

-6%

-3%

0%

3%

6%

9%

12%

90 92 94 96 98 00 02 04 06 08 10 12 14 16

Seaborne trade growth GDP growth

0%

2%

4%

6%

8%

10%

12%

14%

16%

99 01 03 05 07 09 11 13 15 17 19

Deliveries, removals, and fleet growth, Number of vessels

World seaborne trade and GDP development

China GDP

MARINE MARKETS

While Chinese driven demand for CAPEX commodities decreases, the demand for OPEX commodities and personal travel increases. Cruise, LPG, LNG and tanker sectors benefit from the Chinese transition.

Source: Clarksons Platou, IMF, Goldman Sachs


Oversupply in the world oil market continues – However the balance is expected to tighten in 2017, while producers drive cost

OIL AND GAS

Crude oil supply and demand

Million barrels per day

Offshore E&P Capex and Brent oil price

MUSD USD/bblMillion barrels per day

-2,0

-1,5

-1,0

-0,5

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

82

84

86

88

90

92

94

96

98

100

Ja

nA

pr

Ju

lO

ct

Ja

nA

pr

Ju

lO

ct

Ja

nA

pr

Ju

lO

ct

Ja

nA

pr

Ju

lO

ct

Ja

nA

pr

Ju

lO

ct

Ja

nA

pr

Ju

lO

ct

2012 2013 2014 2015 2016 2017

Balance Supply Demand

0

20

40

60

80

100

120

0

50 000

100 000

150 000

200 000

250 000

300 000

1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020

EP Expenditure (MUSD) Brent oil price (USD/bbl)

Source: EIA, Bloomberg, Clarksons Platou, Rystad Energy


INTRODUCTION OF ENVIRONMENTAL LEGISLATION CONTINUES

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2025

Global cap 0.5% SOx

Global Ballast Water Management Convention

NOx Tier III in NECA(North America)

NOx Tier II(Global)

Global 0.5% SOx

limit reviewed

All ECA 0.1% SOx

North Europe ECA Max 1.0% SOx in fuel

0.1% SOx

in EU ports Global cap3.5% SOx

US Ballast Water Management Convention

North America ECA 1.0% SOx

NOx Tier III proposed for North Europe

SOx legislation:• Current cost of low sulphur fuels have

reduced the pressure to consider

alternative solutions

• LNG gaining popularity

NOx legislation:• Only North American waters affected

from 1.1.2016

• NOx reducing techniques such as

selective catalytic reduction (SCR) or

exhaust gas recirculation (EGR) are

needed

Ballast Water Convention:• The Convention will enter into force on

8 September 2017

• Applies for all vessels above 400GT in

operation and newbuild

Black and grey water:• Regulations being developed locally

• Non-discharge zones and port facilities

compete with onboard cleaning

• EU Inland water ways 2013 Black and

grey water

IMO MEPC.159(55)

USA EPA VGPGrey water

AlaskaGP2013

IMO MEPC.227(64)

IMO PolarCode

Inert Gas System mandatory for newbuild tankers

above 8.000 DWT as of 1 January 2018

Source: Marine Solutions internal analysis, IMO


Drivers vary in different vessel segments

SHORT-TERM OUTLOOK

Bulk: Imbalanced market as a result of

over-ordering and slowing Chinese imports.

Tankers: Low oil prices support

demand for oil, oil products and

oil storage. Worries of oversupply

as the fleet is rapidly expanding.

LPG: Strong demand

growth in China and

India. Worries of

oversupply, as OB

at 23% of fleet.

LNG: Plentiful supply and low prices encourage new countries to

consider gas, leading to shifts in trade patterns. Significant order

book limit ordering. Low oil prices restrain LNG infrastructure

developments.

Containers: Severe

supply and demand

imbalances in most

trade lanes.

Offshore: Low oil prices, oversupply of oil and gas,

oversupply of vessels and reduced capital expenditure

limit contracting.

Ferries: Fleet renewal, potential

implementation of new emission

regulations and favourable

newbuilding prices drive contracting.

Cruise: Ordering

expected to remain

on good levels due to

increasing passenger

volumes in Asia.

Offshore

Contai-

ners

Bulk LNG

Ferry

Cruise

Tankers

LPG

Source: Marine Solutions BI internal analysis, Clarkson Platou & IHS.


General market sentiment remains weak, but activity in selected segments is still resilient

VESSEL CONTRACTING

3 556

3 952

5 217

6 069

4 599

2 815

3 933

2 946

2 638

4 086

2 906

1 924

388

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

2004 2006 2008 2010 2012 2014 2016

Merchant Cruise&Ferry Offshore Specials Navy

Total contracting

Number of vessels

Selected segments contracting

Number of vessels

0

10

20

30

40

50

60

70

80

90

Jan-14 Jun-14 Nov-14 Apr-15 Sep-15 Feb-16 Jul-16

Cruise and Ferry Special vessels LNG carriers

LPG carriers Other merchant Navy

Source: Clarksons Platou. Historical contracting as per September 1st, 2016. Note: Other merchant = MPP, general cargo, RoRo and vehicle carriers.

YTD


Cruise industry booming due to increasing passenger volumes in Asia

CRUISE

0

2

4

6

8

10

12

14

16

18

20

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Fleet Orderbook

0%

20%

40%

60%

2016 2017 2018 2019 2020

Annual market capacity growth

North America Europe Asia/Pacific

Cruise vessel deliveriesNumber of vessels

0

2 000 000

4 000 000

6 000 000

8 000 000

2015 2016 2017 2018 2019 2020

Asian passenger capacity

China Australia Other Asia

China CAGR 2015-2020: 26%

Source: Clarksons Platou, Cruise Industry News.

© Wärtsilä

0

300

600

07 08 09 10 11 12 13 14 15 20 25 30

Share of LNG of total gas imports in 2015:

China: 43% India: 100%


Abundance and low prices of LNG encourages new countries to consider gas Global LNG supply will surge in 2016 after five years of stagnation

LNG

• Global LNG trade estimated to grow by 3% in 2016

• New supply coming online, which will lead to major shifts in trade routes

• Demand for LNG driven by low gas prices and more cost-efficient solutions for regasification

• China, India and ASEAN countries will emerge as key buyers, while demand growth in Japan and Korea weakens

0

50

100

150

200

250

300

00 02 04 06 08 10 12 14 16

• A more cost efficient alternative, expected to gain in popularity over permanent import terminals

• Mobility and flexibility of the asset

• Conversion of modern LNG carriers allows fast deployment

Natural gas imports: Emerging marketsBn m3

LNG TRADE World seaborne LNG trade FSRU (Floating Storageand Regasification Unit) Million tonnes

Source: Clarksons Platou, Lloyds List, Bloomberg, IEA.

China natural gas imports India natural gas imports

© Wärtsilä

OPPORTUNITIES THROUGH OUR BROAD PRODUCT PORTFOLIO AND CONNECTIVITY


© Wärtsilä13

Wärtsilä Gas Solutions

29 September 2016 Roger Holm

WÄRTSILÄ KNOWS GAS


OUR PORTFOLIO PROVIDES ROBUST SUPPORT FOR DIGITALISATION

DYNAMIC POSITIONINGNACOS PLATINUM SENSORS IN OUR CORE PRODUCTS

• Full-blown automation,

navigation and control system

• Intelligent route planning

• Plug-in software for various

applications (also 3rd party)

• Remote maintenance and

connection

• Advanced security layers

against cyber threats

• Enabling future-proof

automated concepts

• Enabling big data generation for

onboard and onshore purposes

• An engine example: 178 sensors

in W31DF providing a vast range

of usage / condition data


Wärtsilä has developedand delivered sophisticated battery/hybrid systems since 2007.

These systems include energy management control, power electronicsand battery integrations.

MARINE HYBRID SOLUTIONS

• Fuel savings and reduced emissions

• Optimised engine operation

• Reduced engine transients

• Increased redundancy and efficient operations

• Increased performance


The ferry can run 100% on battery

The new Wärtsilä «On-Air» induction charging system «Top up battery» when loading and unloading the vehicles

Wärtsilä wireless system can transfer up to 1 MW of electricity

Automatic mooring (by Cavotec) and Wärtsilä charging station reduce operation time and avoid waste of ferry energy

WÄRTSILÄ ZERO EMISSIONS FERRY CONCEPT

Wärtsilä Induction

charging on ferry

Wärtsilä

Propulsion

Wärtsilä

Automation

Batteries

Wärtsilä Induction

charging on shore


We are well positioned to ride the upcoming ballast water management system retrofit wave

BALLAST WATER MANAGEMENT

• Technology choice

– Aquarius-UV or Aquarius-EC

• Design & Engineering

– Modular or bespoke design

• Supply, PM & Installation

– Supervisory full turnkey

• System integration

• Fleet-wide agreements

• Crew training

• Global life-cycle support

Global minimum standard

Entry into force September 2017

US specific requirements

Entry into force December 2013

Newbuild market

• Annual opportunity based on vessel contracting

• BWMS included in new ship specifications

Retrofit market

• ~34,000 ships

Competition

• Currently ~50 competitors, expected to reduce to 10-20

Wärtsilä equipment and service thought leadership

Legislative drivers

http://www.uscg.mil/default.asp

http://www.uscg.mil/default.asp


We benefit from exposure to different vessel segments

ORDER INTAKE COMPARED TO VESSEL CONTRACTING

0 500 1000 1500 2000 2500

TraditionalMerchant

MerchantGas Carriers

Offshore

Navy

Cruise &Ferry

SpecialVessels

2013 2014 2015 2016 2017 2018 2019 2020

Rolling annual order intake per vessel segment, MEUR

Ships contracted 2013-2020 (actual / Wärtsiläforecast), units

Source: Clarksons Platou, IHS, Wärtsilä internal forecast & AMI International (Navy forecast).

0

200

400

600

800

1 000

1 200

1 400

1 600

1 800

2 000

Q12013 Q22013 Q32013 Q42013 Q12014 Q22014 Q32014 Q42014 Q12015 Q22015 Q32015 Q42015 Q12016 Q22016

Merchant Trad Merchant Gas Carriers Offshore Navy Cruise & Ferry Special Vessels Other


Increasing order value potential across vessel segments

BUSINESS POTENTIAL DEVELOPMENT

Earlier scope value + Hamworthy + MSI Business potential

Merchant 1-3 MEUR 1-5 MEUR 1-5 MEUR 1-13 MEUR

Gas carriers 2-12 MEUR 5-15 MEUR 1-2 MEUR 1-29 MEUR

FSRU 4-15 MEUR 20-30 MEUR 4-45 MEUR

Offshore 1-15 MEUR 1-5 MEUR 1-10 MEUR 1-30 MEUR

Cruise 5-20 MEUR 4-10 MEUR 20-33 MEUR 4-63 MEUR

Ferry 3-7 MEUR 2-3 MEUR 2-15 MEUR 2-25 MEUR

Special vessels 1-7 MEUR 1-3 MEUR 1-10 MEUR 1-20 MEUR

Navy 1-15 MEUR <1 MEUR 2-15 MEUR <1-31 MEUR


WIDE COMPETITIVE LANDSCAPE DUE TO A BRODER OFFERING

E&A Propulsion

Environ-

mental

Solutions

Engines

Marine Solutions

Flow

Systems

Ship

Design

Gas

Systems

Major Shipyards

LGE

Exhaust Gas

CleaningBallast Water

ManagementInert GasCompressors

http://www.scana.no/

http://www.scana.no/

http://www.thrustmastertexas.com/index.html

http://www.thrustmastertexas.com/index.html

http://www.wilhelmsen.com/services/maritime/companies/wts

http://www.wilhelmsen.com/services/maritime/companies/wts


Restructuring measures taken in Marine Solutions(2015 and 2016 programs)

Announced headcount reductions –1,100 in total

FTEs

Announced annual savings –MEUR 80 in total

MEUR

0

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30

35

40

45

2015 2016

0

100

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700

2015 2016

Program closed –

targets reached

Program closed –

targets reached

Program in progress –

on track

Program in progress –

on track

ADAPTING OUR COST STRUCTURE


Operational excellence – We are increasingly lean and flexible

Capacity costdevelopment

MS level reduction during the past 12 months

Engine assembly lead time development

Recent example from one factoryand product line

Engine production WIPinventory reduction

Recent example from one factoryand product line

100%90%

100%

76%

100%

48%

-10%

-24%

-52%

CONTINUOUS IMPROVEMENT


FOCUS ON INNOVATION

Thought

Leadership

Innovation

Culture

Market

Shaping

Internal ideas

Think Tank

Open innovation

Proposal for

Radical Innovation Project

Minimum Viable

Product / Service

Prototype

Demonstrator

New Product/

System/ Service

• Organise think tanks to accelerate innovative ideation

• Engage in customer innovation workshops

• Scout for trends and new solutions through cooperation with other companies

(JV’s, universities, start-ups and customers)

Refine

Discover

Placing the Bet

Demonstrate Approve

Develop Commercial Launch

Drive

Go to Market

Deploy


Our broad portfolio supportsus in challenging markets

• Contracting continues to be challenging, visibility is shortening

• Opportunities in niche segments: Cruise & Ferry, Specials, RoRo

• Regulatory pressures will attract investments in newbuild and retrofit markets

• We are adapting to an environment of lower demand

• Our recent acquisitions have further strengthened our market positionand product portfolio

THANK YOU!

marine solutions: setting our course in challenging markets

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