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Wrtsil in brief
Wrtsil enhances the business of its customers by Ship Power plants. In parallel with its main service operations Wrtsil has
providing them with complete lifecycle power solutions. Wrtsil is a leading provider of ship machinery, propulsion launched innovative new services that support its customers
When creating better and environmentally compatible and manoeuvring solutions. Wrtsil supplies engines and business operations, such as service for multiple engine brands
generating sets, reduction gears, propulsion equipment, control in key ports, predictive and condition-based maintenance,
technologies, Wrtsil focuses on the marine and energy
systems and sealing solutions for all types of vessels and and training.
markets with products, solutions and services. Through
offshore applications. Wrtsil commands a strong position in
innovative products and services, Wrtsil sets out to be Power Plants
all main marine segments as a supplier of highly rated ship
the most valued business partner of all its customers. Wrtsil is a leading supplier of power plants for the decentra-
machinery and systems.
lized power generation market. Wrtsil offers power plants for
This is achieved by the dedication of more than 14,000
Services baseload, peaking and industrial self-generation purposes.
professionals manning over 130 Wrtsil ofces in almost
Wrtsil supports its customers throughout the lifecycle of In all these main segments Wrtsil holds a strong position.
70 countries around the world. Wrtsils shares are
their installations. Wrtsil provides service, maintenance and
listed on the Helsinki Stock Exchange. reconditioning solutions both for ship machinery and power
Power Plants 29% ( 27 ) Ship Power 31% ( 27 ) Engine Division 16% ( 15 ) Ship Power 18% ( 17 )
Power Plants 6% ( 7 )
Services 61% ( 61 )
Services 40% ( 42 )
2 BUSINESS REVIEW / 2006 IN BRIEF WRTSIL ANNUAL REPORT 2006
2006 in brief
We are doers
Key ratios
IFRS FAS
MEUR 2006 10 12 / 2006 7 9 / 2006 4 6 / 2006 1 3 / 2006 2005 2004 2004
Net sales 3,189.6 985.9 766.8 845.0 591.9 2,638.8 2,478.2 2,478.2
Ship Power 984.7 404.3 183.8 244.9 151.6 710.3 631.2 631.2
Services 1,266.5 350.4 312.0 304.4 299.7 1,093.1 936.8 936.8
Power Plants 934.2 227.8 274.2 292.4 139.7 710.3 651.9 651.9
Imatra Steel 119.0 254.4 254.4
Operational EBIT 261.6 99.2 56.3 70.2 35.9 224.3 112.0 132.0
Power Businesses 261.6 99.2 56.3 70.2 35.9 202.5 87.7 111.6
Imatra Steel 21.8 24.3 20.4
Depreciation and writedowns 1 -71.6 -18.2 -17.9 -17.9 -17.6 -71.6 -74.3 -100.0
Power Businesses -71.6 -18.2 -17.9 -17.9 -17.6 -67.2 -62.0 -87.6
Imatra Steel -4.4 -12.3 -12.4
Operating result 261.6 99.2 56.3 70.2 35.9 224.3 112.0 239.8
Power Businesses 261.6 99.2 56.3 70.2 35.9 202.5 87.7 111.6
Imatra Steel 21.8 24.3 20.4
Capital gains 3 123.9 - - 123.9 - - 107.7 107.7
Prot before taxes 446.8 141.3 61.4 204.1 40.0 212.4 217.3 236.5
Earnings per share, EUR 3.72 1.13 0.44 1.60 0.55 1.80 1.42 1.75
Balance sheet total 3,187.6 3,187.6 3,104.0 3,129.5 3,102.0 2,868.6 2,397.3 2,326.7
Interest-bearing liabilities, gross 270.4 270.4 331.7 434.7 576.0 403.6 320.0 319.5
Cash and bank balances 179.4 179.4 142.6 137.2 114.8 119.6 169.6 168.5
Operating result, % 8.2 10.1 7.3 8.3 6.1 8.5 4.5 9.7
Operational EBIT, % 8.2 10.1 7.3 8.3 6.1 8.5 4.5 5.3
Power Businesses 2 8.2 10.1 7.3 8.3 6.1 8.0 3.9 5.0
Imatra Steel 2 18.3 9.5 8.0
ROI, % 31.8 - - - - 18.0 18.0 20.1
Power Businesses 2 31.8 - - - - 18.9 7.5 10.9
Imatra Steel 2 46.0 7.7 16.8
Gearing 0.07 0.07 0.15 0.25 0.41 0.24 0.17 0.18
Megawatts delivered 7,628 2,695 1,803 1,877 1,253 7,061 6,011 6,011
Order book, end of period, Power Businesses 4,438.9 4,438.9 4,108.2 3,772.1 3,415.4 2,905.7 1,855.3 1,855.3
Order intake, Power Businesses 4,621.1 1,317.6 1,090.0 1,190.1 1,023.4 3,491.1 2,791.4 2,791.4
Personnel, end of period 14,346 14,346 13,986 12,918 12,605 12,008 12,475 12,475
Year-end market capitalization 3,898 3,898 3,021 3,110 2,880 2,348 1,441 1,441
Dear Shareholders
2006 will go down in history as our fth consecutive year of propeller manufacturing plants. We are allocating signicant Our growing level of activity requires new talent worldwide and
growth in terms of contracting for vessel new-builds. Yet another investment to these plants in order to meet the requirements by the end of the year the number of employees had grown to
record number of ships, 2,677 ( 2,442 ), was ordered. Activity in of the record high order book and the expected continuation of 14,346. The availability of skilled people requires attention in
the tanker segment, for instance, was at levels not seen since the strong demand. many parts of the world. Employee satisfaction is therefore regu-
early 1970s. In combination with buoyant demand in the offshore larly monitored and signicant improvements have been achieved
Concentration on value-added services
sector, fed by high oil and gas prices, the strong activity in the in recent years. Through systematic training programmes we
Wrtsils ambition is to support its customers as they
shipbuilding industry boosted Wrtsils Ship Power order intake. strive to develop and maintain well educated, skilled and moti-
develop more efcient and environmentally sound ship designs.
At the same time, vigorous economic activity in most parts vated personnel who work to the highest ethical standards.
We are doing this by offering a broad scope of products and
of the world, along with under-dimensioned investment in elec- The Sustainability Report, which is part of this Annual Report,
designs for ship machinery and propulsion that offers the best
tric power generation, underpinned good demand in our Power has been prepared in compliance with the 2002 GRI Guidelines.
available technology for reducing emissions into the air and
Plants business. High prices for fossil fuels and a general need to It represents a balanced and reasonable presentation of our
water. Supported by our worldwide Services network Wrtsil
reduce emissions support the competitive strength of our oil, gas organizations economic, environmental and social performance.
Ship Power has become the preferred choice for the leading
and biofuel solutions.
shipbuilders, owners and operators in the world. As the national Growth continues in 2007 and 2008
Wrtsil Services, which represented 40 percent of total
and international regulatory framework regarding shipping The good order book and high activity in the markets give us
sales in 2006, continued to grow in line with our long-term target
continuously calls for a reduction of harmful emissions Wrtsil is reason to expect our net sales to grow by around 15 percent in
by almost 16 percent. High activity in global shipping and our
well positioned to provide the best available technologies for this 2007. Protability will exceed 9 percent. Furthermore we expect
expanding offering of Services products supported the increase
purpose. We will relentlessly continue to develop this position the growth to continue in 2008.
in sales of this business.
by adding products, and by enhancing our project handling and I would like to thank our shareholders for the trust you have
Record order books boosted sales and investment service capabilities. shown our company, our customers for your faith in our prod-
The growth in the Groups net sales accelerated throughout The Power Plants business has reached a position as a lead- ucts, and all our employees for your undivided efforts.
the year and, on a comparable basis, was 26.6 percent ( 13 ) for ing supplier of turn-key power plants worldwide for baseload
the full year. Protability developed according to plan. A Group generation, industrial self-generation and grid stability. Our plant
EBIT margin of 8.2 percent ( 8.0 ) in combination with high sales operation and management services are of growing interest to
growth brought total operating income to EUR 261.6 million our customer base. As gas and biofuel power plants gain market
( 202.5 ). The divestment of shares in Assa Abloy and Ovako share, environmentally sound solutions today form the basis for
supported the good development of earnings per share. Cash our competitiveness.
ow was strong due to good protability, favourable working The acquisition in 2006 of ship automation companies in
capital development, and divestments. Norway and Singapore, a ship design company in Germany and Ole Johansson
Healthy protability and strong cash ow are important further acquisitions and greeneld development in our Services
cornerstones for the Groups further development. Our invest- network, all support these goals.
ments today are being directed by concentration of the worlds
A responsible, motivated personnel drives
shipbuilding in Asia and particularly China, and a drive to
competitiveness and sustainability
broaden competence levels and geographical spread in our
Where its employees are concerned, Wrtsils aim is to
Services business. At the same time we are committed to
create and maintain a pleasant and safe working environment.
increasing output and productivity at our European engine and
WE ARE DOERS BUSINESS REVIEW / LETTER TO THE SHAREHOLDERS 5
6 BUSINESS REVIEW / STRATEGY WRTSIL ANNUAL REPORT 2006
Strategy
WE ARE DOERS BUSINESS REVIEW / STRATEGY 7
Most valued
Ship
equipment business partner
Automation
E
LU
&
VA
electrication
ER
M
O
ST
U
C
Propulsion
packages
Mission Vision Values
We provide lifecycle power We will be the most valued Energy Capture opportunities
solutions to enhance the business business partner of and make things happen
of our customers, whilst creating all our customers. Exellence Do things better than
Design & Design better technologies that benet anyone else in our industry
Engine System both the customer
engineering integration & Excitement Foster openness,
installation
support ship design and the environment.
respect and trust
to create excitement.
Service Solutions
8 BUSINESS REVIEW / STRATEGY WRTSIL ANNUAL REPORT 2006
Power Plants
Wrtsil offers power plants for baseload operation, indus-
Strategic steps 2006
trial self-generation, and grid stability and peaking purposes. The
strengths of Wrtsil power plants are their exible design, high In February Wrtsil acquired Aker Kvaerner Power and Wrtsil Qiyao Diesel Company Ltd ( Shanghai ), a marine
efciency and low emission levels. Automation Systems AS (AKPAS) from Aker Kvaerner. generating set factory jointly owned by Wrtsil and
The goal of Wrtsil Power Plants is to strengthen its global The acquisition supports Wrtsils growth strategy and it the Chinese Shanghai Marine Diesel Engine Research
position in the decentralized energy generation market. Wrt- will enhance Wrtsils product portfolio in electric propul- Institute ( SMDERI ), was inaugurated at the end of June.
sil gas and dual-fuel power plants are highly competitive and sion, power distribution and automation, especially in The joint venture marks a strategic step for Wrtsil to be
attracting increasing interest. Power Plants is increasing market the oil and gas and offshore sectors. closer to its Asian customers and to raise its market share
share in the gas power plant segment by offering technology in marine auxiliary generating sets.
The alliance formed by Wrtsil Automation Norway and
based on reciprocating engines as an alternative to other tech- the American Emerson Process Management increases In September Wrtsil, China Shipbuilding Industry
nologies. Growth in heavy fuel oil power plants is more stable Wrtsils capabilities to offer process automation Corporation and Mitsubishi Heavy Industries announced
and in this area Wrtsil is concentrating on carefully dened competence for FPSO vessels. the establishment of a joint company to manufacture
market segments where growth is higher than average. low-speed marine engines in China. This joint venture
Power Plants is also seeking growth by identifying new growth In February Wrtsil announced its acquisition of the
is part of Wrtsils strategy to better serve the Asian
areas that at the same time will reduce the companys sensitivity entire business of Total Automation Ltd, a Singapore-
shipbuilding industry and to strengthen its market share
to business uctuations. based public marine automation company, and all Total
in low-speed engines.
Automations subsidiaries. In addition to general marine
automation, Total Automation has a strong foothold The acquisition in October of the entire business of
within the offshore and LNG sectors. The transaction the Swedish company Stockholms Fartygsreparationer
complements Wrtsils earlier electrical and automation AB gives Wrtsil a base for further expansion along
acquisitions. the Swedish east coast. It also forms part of Wrtsils
strategy to expand the business operations of Wrtsil
In March Wrtsil and the Estonian BLRT Grupp agreed
Services.
on establishing a ship service company in Lithuania to
serve the Baltic market. In December Wrtsil acquired the German ship design
company group SCHIFFKO. SCHIFFKO specializes in the
The Ciserv service group was integrated into Wrtsils
planning and design of ships especially in the container,
Services business in May.
research and offshore vessel segments. The acquisition
In May Wrtsil sold 10 million Assa Abloy AB series B supports Wrtsils strategic focus to grow as a system
shares, after which Wrtsil owned 7,270,350 series B integrator and provider of total solutions to the shipping
shares representing 2.0% of Assa Abloys share capital and shipbuilding market.
and 1.4% of the votes.
In November Wrtsil, SKF and Rautaruukki sold
The German INTEC Injectortechnic GmbH, acquired in the operating companies owned by Oy Ovako Ab,
July, strengthens Wrtsils capabilities in installation and thereby concluding Wrtsils plan to focus on its
services for fuel-injected equipment. core businesses.
seeks to offer its employees an interesting and exciting work- 200 8.0
place where openness, respect, trust, equal opportunity and 150 6.0
scope for personal development prevail. A further aim is to offer 100 4.0
a hazard-free working environment to its employees and contrac-
50 2.0
tors, and to minimize the health and safety risks associated with
0 0
the use of its products and services. Supply chain manage- 00 01 02 03 04 05 06
ment and development are integral elements of the companys Operating prot
operations. EBIT %
Note: 20022004 excluding restructuring provisions and effect from treatment of
Finnish pension system.
Ship Power:
Mastering even
the roughest
conditions
WE ARE DOERS BUSINESS REVIEW / SHIP POWER 11
Wrtsil supplies its marine products for all types of vessels these groups. Shipyard decisions are determined by product Geographically, the hub of the shipbuilding industry today
and offshore applications. The company holds a strong position prices, delivery times and delivery reliability, project manage- is Asia, headed by Korea and China. Wrtsil has expanded its
in all main marine segments as a supplier of highly rated ship ment and ease of installation, along with other factors related presence in Asia in a number of ways including the establishment
machinery and systems. Ship Powers strategy is to strengthen directly to the shipbuilding process. The priorities for shipown- of new engine and propeller manufacturing companies in China.
its leading position in the market and to seek continued growth ers, on the other hand, are engine reliability, operational econ- European shipyards concentrate on special vessels, passenger
by broadening its product offering and further expanding its omy and support, and the ready availability of service. Another and cruise ships; for these segments as well, Wrtsils product
presence in Asia. Compared to its competitors Wrtsils global factor affecting their decisions is the type of vessel in question: portfolio is extremely well suited.
sales and service network, broad product range, and expertise in in the case of sophisticated vessels for special purposes, such
Market position and competitors
putting together complete packages gives the company a unique as cruise ships, the shipowner plays a much stronger role in the
Wrtsil is the market leader in medium-speed main engines.
position. choice of engine than, for example, where cargo vessels are
The largest competitors are the other main suppliers of medium-
concerned. Other factors bearing on decisions are freight rates,
Main products speed diesel engines, Caterpillar (MAK) and MAN Diesel, which
fuel prices, interest rates and the cost of the ship.
Wrtsils reputation in the marine industry is founded on have most of their manufacturing capacity in Europe. In addi-
its engine design capabilities, a long manufacturing heritage, Main market segments tion to its technically advanced products, Wrtsils competitive
and the technical leadership of its solutions. The company has Seaborne transportation Offshore oil exploration and strengths are its own extensive service network and long-term
continuously expanded its range of engines and propulsion - Tankers support customer relationships.
equipment. Ship Powers strengths include the competitive edge - LNG carriers Cruise ships Wrtsils low-speed main engines are manufactured under
of its products and the comprehensive coverage of its offering: - Containerships Passenger ferries licence, primarily in Asia. The largest competitors are engines
- Bulk carriers Government and naval designed by MAN Diesel and Mitsubishi Heavy Industries. Wrt-
Medium-speed diesel and Seals - General cargo Special vessels sil has set up a joint venture with Mitsubishi Heavy Industries
gas engines Bearings and the Chinese shipyard company CSIC to manufacture low-
Markets and demand drivers
Low-speed engines Automation systems speed engines in China. Wrtsils aim is to improve the competi-
Demand for new vessels has clearly exceeded supply in
Propulsors, propulsion packages Solutions tiveness of its low-speed engines and further expand its pres-
recent years and consequently the shipbuilding industry has
ence in Asia.
been booming for some time. The key factors driving the global
In its product strategy Wrtsils priority is to act as a single The market for auxiliary marine engines is fragmented and
shipbuilding industry, and therefore demand for Wrtsil Ship
supplier to its customers as the Ship Power Supplier. This competition on prices is intensive. In response to the increase
Power products, are global trade and thereby also freight
concept offers shipyards added value by enabling them to in competition Wrtsil has established a joint venture company
rates, as well as development of the Chinese and other Asian
concentrate on their core expertise while also reducing the risk of in China concentrating on auxiliary engines. In this segment
economies.
equipment interface problems. For the end user the shipowner Wrtsils competitors are MAN and its licensed manufacturers,
The need for energy has increased in recent years, which has
the single supplier concept means benets in terms of opera- HiMSEN engines produced by Hyundai Heavy Industries, and
raised the price of oil, intensifying the exploration and develop-
tion and maintenance. high-speed engines.
ment of new oil and natural gas reserves. Demand has also been
Customer structure extremely buoyant in the past few years for offshore vessels and
The Ship Power businesss customers are shipyards and ship- LNG carriers, an area of particular strength for Wrtsil products
owners. Wrtsil must meet the needs and demands of both and reected in growth in Wrtsils order book. Read more about the Ship Power business in the Sustainability section.
Own production Medium-speed main engines Production of licensees Low-speed main engines Own production Auxiliary engines
Competitor 1
13% ( 14 )
Competitor 2 Competitor 1
23% ( 23 ) 81% ( 79 )
Total market volume 9,200 MW ( 9,600 ) Total market volume 26,600 MW ( 21,900 ) Total market volume 7,600 MW ( 6,700 )
Wrtsils own calculation is based on: Lloyds Register Fairplay, Clarksons Research Studies and BRL Shipping Consultants. Market shares based on installed power, numbers in brackets are from Q3/06.
The total market is based on the volume of the past 12 months Jan. 1 Dec. 31, 2006. Numbers in brackets reflect the volume of the past 12 months at the end of the previous quarter.
12 BUSINESS REVIEW / SERVICES WRTSIL ANNUAL REPORT 2006
Services:
Service support
even in the
thickest jungle
WE ARE DOERS BUSINESS REVIEW / SERVICES 13
Wrtsil offers innovative solutions that support its custom- Wrtsil divides its services into seven categories: Engine base 154,228 MW
ers throughout the lifetime of their installations. Wrtsil provides
services and maintenance solutions for both ship machinery and Wrtsils Services
power plants. Wrtsil Services has approximately 8,500 profes- Engine services Power plants Marine
21.8% 78.2%
sionals worldwide maintaining an installed base of 150,000 MW. Automation services
Wrtsil is seeking growth in its Services business in two Reconditioning services
ways: by introducing innovative services and capabilities that Propulsion services
support its customers business, and by expanding its geographi- Training services
cal presence. Growth in Services is achieved through a combina- Ship services
tion of organic growth, partnerships and acquisitions. Operation and Management services
Unique global network provides exibility Engine base 154,228 MW
Wrtsil is present in 130 locations in roughly 70 countries.
This global network, wholly owned by Wrtsil, enables the
4-stroke 2-stroke
company to provide its customers with true exibility in servicing Automation Services support 55.3% 44.7%
along with optimal risk management. The network allows Wrt- total solutions provider strategy
sil to offer and execute complete turnkey projects while keeping Acquiring, integrating and developing automation compa-
control over these projects and catering to the varying needs of nies has been a step in Wrtsils strategy to become a total
its customers. solutions provider as services broaden the scope of supply to
Wrtsil has no direct competitors that offer a similar portfolio customers and help Wrtsil gain better control of its value chain
of services from a single source. Each service category therefore from design to lifecycle support. In addition to this Wrtsil has
has its own identied set of competitors. Excluding the service gained a solid customer base and contacts to projects espe- Wrtsil Training Services
networks of other engine manufacturers, there are few global cially in the North Sea and oil and gas business. Wrtsils auto- As a supplier of complete power plants and ship power instal-
players in the service market; competition is largely local. mation services portfolio includes everything from instrumenta- lations, Wrtsil has recognized the need for training not only
tion to turnkey engineering packages or conversions. Present in on engines, but also auxiliary equipment, systems and person-
A broad range of services to support customers
China, France, The Netherlands, Norway, United Arab Emirates, nel development. This has marked a natural progression for the
Wrtsil Services covers both the Ship Power and the Power
United Kingdom, USA and Singapore, Wrtsil Automation Ser- Wrtsil Land & Sea Academy to be able to supply a complete
Plants businesses in their entirety. Although the predominant
vices takes care of all the control and instrumentation systems range of services that satisfy the International Maritime and other
service market is Wrtsils own installed base, the company is
of control rooms, switchboards, ship and machinery automation statutory regulations. Wrtsil Land & Sea Academy has training
increasingly expanding its offering to include non-engine services
and controls, alarm and monitoring systems, bridge systems and centres in the USA, Finland, the Philippines and India.
and solutions on a larger scale, as well as customers with other
power management regardless of manufacturer.
engine brands and power solutions. Increasing growth in O&M
Wrtsil is the only service provider able to offer such a large Reconditioning maximizes Wrtsil has a strong position in the market for Operations
range of services to its industry. The range draws together the equipment service life and Management ( O&M ) in its Power Plants business, where
technical expertise of the entire organization to meet both local Wrtsil provides reconditioning for major components of approximately 40% of new equipment sales include a service
and global requirements. 2-stroke engines and certain 4-stroke components. Recondition- agreement. Wrtsil power plant customers are interested in
ing enables customers to achieve the maximum service life for problem-free, reliable and high-quality power generation and
their components while meeting present and future regulations maintenance to support their own business. There are over
requirements. With facilities in Canada, China, Italy, the Nether- 135 installations worldwide run by Wrtsil service personnel.
lands and Singapore, Wrtsil Reconditioning Services provides For marine customers Wrtsils global service network
reconditioned engine components for all low- and medium- provides the same quality of service wherever the ship is sailing.
speed engine brands. O&M services in the marine market are relatively unexploited.
Wrtsil is targeting increasing growth in this sector by devel-
oping new concepts and maintenance solutions to meet the
Read more about the Services business in the Sustainability section. requirements of this market.
14 BUSINESS REVIEW / POWER PLANTS WRTSIL ANNUAL REPORT 2006
Power Plants:
Wrtsil is at home
even on the most
distant isles
WE ARE DOERS BUSINESS REVIEW / POWER PLANTS 15
Wrtsil is a leading supplier of power plants for the decentral- ramp-up to full load, and the capability to operate at varying loads. The companys competitors in biofuel plants are local boiler
ized power generation market. Wrtsil offers power plants for Further strengths of these power plants are their competitive plant manufacturers specic to each market. Wrtsil power
baseload operation, industrial self-generation, and grid stability capacity costs and fast service. The importance of stability and plants that run on liquid biofuels have gained a stronger position in
and peaking purposes. peaking services is growing in western countries as daily uctua- the market.
The strengths of Wrtsil power plants are their exible tions in electricity consumption continue to increase all the time. Coal-red plants are a competitive technology in markets
design, high efciency and low emission levels. Wrtsil offers Wrtsil has excellent possibilities to achieve a signicant position where coal is locally available and where environmental regula-
both equipment and turnkey deliveries worldwide in accordance as a supplier of these services. tions permit its use as a fuel.
with customer needs. The product offering also includes nanc-
Power generation for industry Geographical demand and growth
ing arrangements and operations and maintenance services. The
The third main segment of Wrtsils Power Plants business Demand for power plants is strong and Wrtsil engines, owing
Wrtsil Power Plants business is strong in all its primary market
is industry, for which Wrtsil offers self-generation power plant to their high efciency, are competitive. Demand is spread evenly
segments.
solutions. A reliable energy supply and low costs are essential for around the world, which reduces the risks associated with single
The main products of the Power Plants business are gas-, oil-
industrial companies to keep their own manufacturing competi- markets and geographical concentration. The high price of oil
and biofuel-red power plants. Alongside these Wrtsil offers
tive. These power plants run on gas, heavy fuel oil and biofuels, has had a positive impact on demand for power plants in certain
gas engines for compressor stations and solutions for oil pumping
depending on fuel availability. The advantages of Wrtsils prod- markets. Countries in Africa and the Middle East, as well as other
needs.
ucts, such as low energy costs, reliability and 24/7 service, are oil-producing countries and Pakistan for example, are investing
Baseload generation notable strengths for this customer group. heavily in new infrastructure. Demand has also been high for gas
Wrtsil baseload power plants are supplied to developing power plants, notably in Japan. Liquid-biofuelled power plants
Competitive situation and market position
markets, islands and remote areas. With electricity consump- offer continuous new opportunities for Wrtsil in both Europe and
The power plant market is highly fragmented and this is also
tion growing rapidly in these regions, generation capacity is being the developing world. Wrtsil sees growth potential in the stabil-
reected in its competitive structure. Wrtsils largest competitors
continuously increased. ity services market in North America and other western coun-
in its traditional HFO power plant segment are other engine suppli-
Wrtsils customers in its baseload segment are independent tries. Russia offers enormous market potential in the oil and gas
ers, some of whom also compete with Wrtsil in its Ship Power
power producers and electricity utilities. Their priorities are low life- industry. Recent signs point to considerable growth in demand for
business. Wrtsil commands a leading position in the category of
time costs along with reliability, quality and exibility of fuel choice. energy generation and the need to renew outdated power plant
HFO power plants it offers.
In baseload power generation, traditionally prominent have capacity.
In gas power plants, the competitors are suppliers of both gas
been power plants running on heavy fuel oil but in recent years
engines and gas turbines. Wrtsil is well positioned to increase
demand has also been growing for gas- and biofuel-red power
its market share further by gaining share from other technologies. Read more about the Power Plants business in the Sustainability section.
plants. Wrtsils operations and maintenance services give the
company an added competitive advantage.
Manufacturing
Flexible manufacturing in all market conditions
Flexible manufacturing model Engine manufacturing in Europe Investments in propulsion manufacturing in Asia
Wrtsils engine manufacturing model focuses primarily and growing in Asia Propulsion equipment manufacturing takes place in Europe
on engine assembly and test-running. Wrtsil also machines Manufacturing of medium-speed main engines is concen- and Asia. Wrtsil has two propeller factories in China and is
certain major components such as engine blocks, cylinder trated in two delivery centres: Vaasa, Finland, and Trieste, Italy. currently investing in additional capacity at both sites to meet
heads, conrods, propellers and propeller shafts. This model Both centres are designed to produce several engine types. increasing demand for both xed pitch propellers and thrusters.
ensures exibility in terms of both multi-engine and propulsion Low-speed main engines are very large and are therefore built
Future developments and investments
delivery and volumes. The manufacturing centres can easily close to the shipyard because long-distance transportation of
in engine manufacturing
adapt to uctuations in demand for different products and also the engines is not feasible. For this reason they are manufactured
In 2006 Wrtsil announced investment programmes at
in volume. under licence by several licensees spread around the world. In
both the Vaasa and Trieste delivery centres. Their main aim is
order to meet the increasing demand in Asia and growing ship-
Broad supplier network in Europe to increase efciency by changing production from assembly
building market in China, Wrtsil, CSIC and Mitsubishi Heavy
and Asia supports exibility cells to a more line-based process, to achieve higher volumes
Industries have established a joint venture to manufacture low-
Flexibility in production volumes is supported by a broad and more exible manufacturing tools. Additional capacity is
speed engines in China. Manufacturing will start at the beginning
supplier network. Component manufacturing and supply are expected to be available from mid-2007.
of 2008.
handled by suppliers primarily in Europe but also in Asia. Most
Wrtsil has also established a joint venture in China for the
of the component groups have several suppliers and Wrtsil
manufacture of auxiliary generating sets. This factory will run at
is increasingly seeking to broaden its supplier network in Asia.
full capacity in 2007. Initially, the factory will focus on manufac-
Wrtsils key strategic focus areas in this respect are supplier
turing the Wrtsil Auxpac 20 generating sets. Manufacturing of
relations, securing quality and deliveries, and cost.
the Wrtsil Auxpac 26 will start in 2007.
WE ARE DOERS BUSINESS REVIEW / RISK MANAGEMENT 17
segment. On the Power Plants side, the main competitors are the makes warranty provisions to cover any warranty costs that may Commodity risk price
same companies mentioned above as well as other technologies. arise after product delivery. Product liability insurance covers
Wrtsils market position improved, especially in the gas power unexpected damage.
Oil
The direct effect of oil price changes on production in Wrt-
plant sector. During the review period competitiveness was still
Indemnity risk sil is quite limited. The indirect effects of oil price volatility on
affected by component availability and pressure on prices.
Risks that Wrtsil is unable to inuence through its own customers are outweighed in importance by the long economic
In the Services business Wrtsil has no direct competitors
efforts are transferred where possible to insurance companies. life of the investments and the availability of alternative fuels.
that offer a similar portfolio of services from a single source. Each
Wrtsil uses appropriate insurance policies to cover indem-
service category therefore has its own identied set of competi- Metals
nity risks related to its personnel, assets, business interruption,
tors. Excluding the service networks of other engine manufactur- The Propulsion Business hedges its exposures to different
and third-party and product liability. Wrtsil has established its
ers, there are few global players in the service market; competi- metal prices. These risks are small from the Groups perspective.
own reinsurance company, Vulcan Insurance PCC Ltd, as a risk
tion is largely local. Metal prices have an indirect effect on engine component costs.
management tool for this purpose.
This exposure is not hedged but annual agreements are in place
Supplier and subcontractor risk
Environmental and social risks to balance the short-term uctuations.
The biggest challenges faced in 2006 concerned the capac-
Environmental and social risks are monitored in the same way
ity and delivery times of suppliers and subcontractors, coupled Electricity
as other business risks, the main tool being Wrtsils manage-
with pressure on component prices. The Supply Management Electricity prices have no substantial impact on Wrtsils
ment system OpExS (Operational Excellence System). Combined
function, which was reorganized during last year, has developed productions costs.
with active dialogue with stakeholders, the OpExS tools which
its activities by creating closer collaboration with its main suppli-
include environmental and occupational health & safety systems,
ers, by emphasizing long-term delivery agreements and also Financial risks
personnel training and development of personnel competences
by increasing the number of suppliers of certain critical compo- The nancial risks are presented on page 64 in the notes to
help the company to identify and reduce the risks related to its
nents. A Supplier Management System was implemented in the nancial statements, note 34.
operations, supply chain and products. Wrtsils Real Estate
2006. The purpose of the system is to control and manage data
unit maintains a real estate register that is used as a basis for
related to selection, assessment and performance of suppliers.
assessing the environmental risks related to the companys
Product and product liability risk properties.
Launching new products always involves risk. Wrtsil seeks
Political and legislative risks
to control this risk by designing and manufacturing products with
Political developments and changes in legislation can have a
all due care and by simulating its products through testing their
signicant impact on Wrtsils business. Wrtsil actively moni-
reliability using design methods such as FMEA. Furthermore a
tors political and legal developments in its markets, and engages
risk elimination tool under implementation is capable of support-
in dialogue with various ofcial bodies in projects of importance
ing any risk management process and contributes with clear
to Wrtsils operations. Much of this engagement takes place
prioritization, responsibility, follow-up and a reporting structure.
through interest groups and trade organizations. The company
Tight delivery schedules create further challenges to ensure
monitors legislative changes at both corporate and subsidiary
the quality of the companys component suppliers. The company
levels.
WE ARE DOERS BUSINESS REVIEW / CORPORATE GOVERNANCE 19
Remuneration Committee
The Board elects a chairman and deputy chairman from In addition to matters requiring its decision, the Board is also The Audit Committee
among its members. The Board steers and supervises the given updates at its meetings on the Groups operations, nan- The Board of Directors appoints an Audit Committee to assist
companys operations, and decides on policies, goals and strate- cial position and risks. it in the execution of its task of supervising the companys nan-
gies of major importance. The Board also conducts a self-assessment of its perform- cial management.
The principles applied by the Board in its regular work are set ance once a year. The purpose of this assessment is to establish The Board appoints from among its members at least
out in the Rules of Procedure approved by the Board. The Board how the Board has executed its tasks during the year and to act three members to the Committee who are independent of the
has also approved the rules of procedure applied by the Boards as a basis when assessing how the Board functions. company, and who have sufcient experience of accounting
committees setting out the main tasks of the committees and The Board of Directors convenes 710 times a year follow- procedures and the preparation of nancial statements.
their working principles. ing a predetermined schedule. In addition to these meetings the The Audit Committee considers Wrtsils annual and interim
The Board considers all the matters stipulated to be the Board convenes as necessary. nancial statements, the accounting principles and the compa-
responsibility of a board of directors by legislation, other provi- nys nancial reporting in general. The Committee assesses the
The year 2006
sions and the companys Articles of Association. The most companys compliance with the relevant legal and other provi-
During 2006 the chairman of the Board was Antti Lager-
important of these are: sions, the adequacy of nancial supervision and risk manage-
roos and the deputy chairman was Gran J. Ehrnrooth. The
the annual and interim nancial statements, ment in the company, and the effectiveness of its internal audit
Boards other members were Heikki Allonen, Risto Hautamki,
the matters to be put before General Meetings of function. The Audit Committee may also, via the Board of Direc-
Jaakko Iloniemi, Bertel Langenskild and Matti Vuoria. All seven
shareholders, tors, submit recommendations to the General Meeting on matters
members of the Board were independent of the company and six
the appointment of the President and CEO, related to the appointment of the companys auditors.
of the members were independent of signicant shareholders.
the appointment of the Executive Vice President The chairman convenes the Committee at regular intervals
In 2006 the Board of Directors convened 10 times. The aver-
and the CEOs deputy, and and reports to the Board on the Committees meeting.
age attendance of Board members at these meetings was 93%.
the organization of nancial supervision In 2006 the Audit Committee was chaired by Antti Lagerroos
Information on the members of the Board of Directors and
in the company. and its other members were Heikki Allonen, Risto Hautamki and
their business interests is given on page 24.
The Board is also responsible for considering any matters that Matti Vuoria. All the members of the Audit Committee are inde-
are so far-reaching with respect to the area of the Groups opera- The Boards committees pendent of the company and three are independent of signicant
tions that they cannot be considered to fall within the scope of the The Board of Directors annually appoints an Audit Commit- shareholders. The Audit Committee met four times in 2006.
Groups day-to-day administration. Examples of these matters are: tee, a Nomination Committee and a Compensation Committee
and any other committees it considers necessary, at its consti-
The Nomination Committee
approval of the Groups strategic plan and long-term goals,
The Board of Directors appoints a Nomination Committee
approval of the Groups annual business plan and budget, tutive meeting following the Annual General Meeting. The Board
to assist it in its work. The Board appoints at least three of its
decisions concerning investments, acquisitions or divest- appoints the members of these committees and their chair-
members to sit on the Committee.
ments that are signicant or that deviate from the Groups men. The Board also has the right to remove a member from a
The Nomination Committee prepares, as necessary, the nomi-
strategy, committee. The members of each committee are appointed for
nation of the President and CEO, the Executive Vice President
decisions to raise loans and the granting of security or simi- the same term of ofce as the Board itself. The purpose of the
and the CEOs deputy. The Committee communicates, as neces-
lar collateral commitments when their size is signicant, Boards committees is to prepare matters to be put before the
sary, with major shareholders in matters concerning the appoint-
risk management principles, Board for its decision. The committees have no decision-making
ment of the Board of Directors.
the Groups organizational structure, authority of their own.
The Chairman of the Nomination Committee convenes the
appointment of the companys Board of Management and
The year 2006 Committee as required. He also reports the Committees propos-
approval of their remuneration and pension benets,
In 2006 the Board appointed an Audit Committee, a Nomina- als to the Board of Directors and when necessary, reports on the
monitoring and assessing the performance of the President
tion Committee and a Compensation Committee. The Board has Committees meetings to the Board.
and CEO,
approved the written rules of procedure of these committees, the In 2006 the Nomination Committee was chaired by Antti
approval of the companys management principles and
most important points of which are described in the next chapter. Lagerroos and its other members were Gran J. Ehrnrooth and
steering systems,
Matti Vuoria. All the members of the Nomination Committee are
appointment of the Board of Directors committees,
the granting of donations to good causes.
WE ARE DOERS BUSINESS REVIEW / CORPORATE GOVERNANCE 21
independent of the company and of signicant shareholders. of Directors, which also approves their remuneration and other Managing Directors of the subsidiaries
The Nomination Committee met three times in 2006. terms of employment. The Managing Directors of the Groups subsidiaries are
The Board of Management is chaired by the President and responsible for ensuring that the local service, sales and manu-
The Compensation Committee
CEO. It considers strategic issues related to the Group and its facturing resources are correctly dimensioned to meet the needs
The Board appoints a Nomination and Compensation
businesses, as well as investments, product policy, the Groups of the businesses; that the subsidiarys personnel development
Committee to assist it in its work. The Board appoints at least
structure and corporate steering systems, and it supervises the needs are met; that the subsidiarys operations full the require-
three of its members to sit on the Committee.
companys operations. ments stipulated in the Groups quality system; that these opera-
The Committee prepares proposals to be put before the
The heads of the businesses on the Board of Management tions comply with the respective countrys legal requirements
Board of Directors concerning the incentive schemes and
are each responsible for the sales volumes and protability of and with good business practice; and that communication in the
compensation that apply to the President and CEO and the
their respective global businesses, employing the services of the subsidiary is conducted according to the targets of the Group.
companys other senior executives. The chairman of the Commit-
Groups worldwide subsidiaries. Information on the members of
tee convenes the Committee as required. He also reports the
the Board of Management, their areas of responsibility and hold- Remuneration
Committees proposals to the Board of Directors and, when
ings are given on page 25. Fees paid to the Board of Directors
necessary, reports on the Committees meetings to the Board.
In 2006 the Nomination and Compensation Committee was The year 2006 The Annual General Meeting decides annually on the fees to
chaired by Antti Lagerroos and its other members were Heikki In 2006 the Board of Management met 14 times. The princi- be paid to the members of the Board of Directors for one term of
Allonen and Jaakko Iloniemi. All the members of the Nomination pal issues addressed by the Board of Management were related ofce at a time.
Committee are independent of the company and two are inde- to market development, company growth and protability, busi- The year 2006
pendent of signicant shareholders. ness operations possibilities and strategy as well as issues relat- In 2006 the members of the Board of Directors were paid the
The Compensation Committee met once during 2006. ing to development of competitiveness. The further development following fees:
of production volumes and key supplier relationships in an envi- the chairman 60,000 euros
The President and CEO and
ronment of growing demand, as well as increasing production the deputy chairman 45,000 euros
the Executive Vice President
exibility were also vital concerns addressed by the Board of each member 30,000 euros
The Board of Directors appoints a President for the Group
Management. Other important matters considered by the Board
who is also its chief executive ofcer. The President and CEO is
of Management included the quantitative and qualitative devel- The Board members were also paid fees for attending meet-
in charge of the day-to-day management of the company and
opment of the companys personnel and management resources ings as follows: the chairman 800 euros per meeting and the
its administration in accordance with the companys Articles of
world-wide and developing internal global processes and work- other members 400 euros per meeting. 40% of the annual fees
Association, the Finnish Companies Act and the instructions of
ing practices. are paid in the form of Wrtsil shares. The fee for attendance at
the Board of Directors. He is assisted in this work by the Board
of Management. The President and CEO of the company is The Corporate Management meetings is paid in cash.
Mr Ole Johansson. The companys Corporate Management includes, in addition The seven members of Wrtsils Board of Directors, none
The Board of Directors appoints, if necessary, one or several to the members of the Board of Management, the directors in of whom are employees of the company, were paid altogether
executive vice presidents. The companys executive vice presi- charge of corporate functions. 301,000 euros in cash for the nancial period ended 31 Decem-
dent is its chief nancial ofcer Raimo Lind. Mr Lind is also the Information on the members of Corporate Management and ber 2006. The Boards members are not covered by the compa-
deputy to President and CEO Ole Johansson. their areas of responsibility is given on page 26. nys stock option scheme or bonus scheme.
Fees paid in Wrtsil B shares in 2006 Board of Directors share ownership Board of Management share and option ownership
in Wrtsil 31 December 2006 in Wrtsil 31 December 2006
Board of Directors No. of shares
Chairman Board of Directors Series A Series B Board of Series A Series B Option Option
Antti Lagerroos 773 Antti Lagerroos - 13,550 Management 2001 2002
Deputy Chairman Change in 2006 +773 Ole Johansson 2,550 21,700 - 50,000
Gran J. Ehrnrooth 580 Gran J. Ehrnrooth 4,222 9,100 Change in 2006 -84,000
Heikki Allonen 386 Change in 2006 +580 Raimo Lind 795 1,545 - 8,000
Risto Hautamki 386 Heikki Allonen - 1,899 Change in 2006 -20,000 -7,000
Jaakko Iloniemi 386 Change in 2006 +386 Tage Blomberg 2,025 - - -
Bertel Langenskild 386 Risto Hautamki - 5,000 Change in 2006 -10,000
Matti Vuoria 386 Change in 2006 +600 Jaakko Eskola* - 200 - -
Jaakko Iloniemi - 4,295 Change in 2006
Change in 2006 +386 Lars Hellberg - - - -
Bertel Langenskild - 4,121 Change in 2006 -12,000
Change in 2006 +386 Kari Hietanen - 72 - 7,000
Matti Vuoria - 953 Change in 2006 -12,000 -8,000
Change in 2006 +386 Christoph Vitzthum* 150 300 - -
Change in 2006
* Joined the Board of Management during 2006.
Salaries and bonuses paid to the President and Management incentive schemes The Groups white- and blue-collar employees are covered
CEO and the Board of Management Decisions on incentive schemes applied to the President and by various bonus or prot-based incentive schemes. These are
The remuneration paid to the President and CEO and other CEO and members of the Board of Management are made by the applied in each country according to that countrys legislation or
members of the Board of Management, and the principles under- Board of Directors, which also decides on any long-term incen- agreements concerning prot-sharing schemes. All in all, some
lying it, are determined by the Board of Directors. The remunera- tive schemes for senior management unless the law requires 60% of the companys employees are covered by the Groups
tion paid to the President and CEO and the other members of the decisions on such schemes to be made by a General Meeting of bonus scheme and various other prot-based incentive schemes.
Board of Management consists of a monthly salary and a bonus. shareholders. Decisions on bonus schemes for other directors
The Board of Directors determines the terms for the bonus and managers are made by the Board of Management. Control systems
payment. The bonus payments for the President and CEO and The company has two stock option schemes for senior Responsibility for the management of the company and its
the Board of Management are paid according to the achievement managers. The 2001 options covered 78 key personnel and proper organization lies with the Board of Directors. In practice it
of the companys prot targets. the 2002 options 39 key personnel. More information on these is the President and CEOs task to ensure the proper organization
Information on the President and CEOs remuneration in 2006, schemes is provided on pages 30 and 52 of the Financial Review. of the companys internal supervision, risk management, internal
including benets in kind and bonuses, is presented in the Finan- The Group also operates a bonus scheme which is imple- audit and accounting supervision mechanisms, assisted by the
cial Review on page 62. The President and CEO is eligible to mented globally in all businesses. The bonus is based on the Board of Management. The instructions and guidelines apply to
take retirement on reaching the age of sixty and his retirement Groups protability and agreed personal targets. Approxi- the entire Group or to individual businesses.
pension is 60% of his statutory earnings. Compensation paid to mately 1,300 directors and managers are covered by this bonus The companys nancial progress is reviewed monthly through
the President and CEO if he is dismissed by the company corre- scheme. a Group-wide reporting system. This includes an income state-
sponds to 12 months salary in addition to a six-month period of The Board of Directors has decided on a long-term bonus ment, balance sheet information, key indicators, and events of
notice salary. The retirement age of the members of the Board of scheme for senior management tied to the stock development of importance to the companys operations.
Management is sixty. the companys B share. The bonus scheme applies to approxi-
mately 40 directors.
WE ARE DOERS BUSINESS REVIEW / CORPORATE GOVERNANCE 23
Risk management companys own non-public insider register. When signicant unrelated to auditing duties paid to the auditors totalled EUR 1.2
The purpose of risk management is to ensure that the compa- projects are at the preparation stage the company also draws up million. These latter fees concerned acquisitions and consultation
nys business objectives are reached and that the company insider registers for the projects concerned. Insiders are given on taxation matters.
remains a going concern. The risk management function analy- written notication of their status as insiders as well as instruc-
Communications
ses the risks faced by the companys various businesses and tions on the obligations that apply to insiders.
The principal information on Wrtsils administration and
units. It also denes the risk management principles applied The companys insiders are not permitted to trade in the
management is published on the companys website. All stock
throughout the Group and it develops risk management meth- companys shares for 14 ( recommendation 30 ) days prior to
exchange releases and press releases as well as signicant
ods and insurance schemes. Areas of responsibility have been publication of the interim reports or annual nancial statements
presentation materials used by senior executives are likewise
dened in the organization to cover different risks. bulletin.
published on the companys website as soon as these are made
The companys insider register is maintained by the parent
The internal audit public.
companys legal affairs department, which is responsible for
The Groups internal audit is handled by the companys
keeping the information updated. Information on the interests
Internal Audit unit, which reports to the President and CEO.
and holdings of the companys permanent insiders and related
The purpose of the Internal Audit is to analyse the companys
parties is available from the SIRE system of the Finnish Central
operations and processes, and the effectiveness and quality of
Securities Depository Ltd, Urho Kekkosenkatu 5 C, FI-00100
its supervision mechanisms. The internal auditor also partici-
Helsinki, Finland, tel. +358 800 180 500. The same information is
pates, if necessary, in audits undertaken in conjunction with
also posted on Wrtsils website.
acquisitions and he carries out special tasks assigned by the
Management. The internal audit function covers all the compa- The external audit
nys organizational levels and subsidiaries. An internal audit is The company has at least one and at most three public
undertaken in the main subsidiaries at 1 3 year intervals. accountants authorized by the Central Chamber of Commerce,
The internal auditor prepares an annual plan under which he at least one being an auditing rm. The auditors are elected by
independently audits different parts of the company but he is the Annual General Meeting to audit the accounts for the on-
also empowered to carry out special audits. The annual plan is going nancial year and their duties cease at the close of the
approved by the Audit Committee, to which the Internal Audit subsequent Annual General Meeting. The auditors are responsi-
also reports at regular intervals. If required, the auditors also have ble for auditing the consolidated and parent companys nancial
the possibility to take direct contact with the Audit Committee or statements and accounting records and the administration of the
members of the Board of Directors. parent company.
On closing of the annual accounts, the external auditors
Insider management
submit the statutory auditors report to the companys share-
Wrtsil applies the legal provisions applying to the manage-
holders and they also regularly report their ndings to the Board
ment of insiders as well as the Guidelines for Insiders approved
of Directors Audit Committee. An auditor, in addition to fullling
by the Helsinki Stock Exchange for public listed companies and
general competency requirements, must also comply with certain
the stipulations and guidelines of the Finnish Financial Supervi-
legal impartiality requirements guaranteeing the execution of an
sion Authority.
independent and reliable audit.
Wrtsils permanent insiders comprise the statutory insiders,
In 2006 the AGM appointed the rm of public accountants
i.e. the Board of Directors, the President and CEO, the Executive
KPMG Oy Ab as Wrtsil Corporations auditors.
Vice President and the Principal Auditor, as well as the members
Auditing fees paid to all the auditors of the Groups compa-
of the Board of Management.
nies during 2006 amounted to EUR 1.8 million. Consultancy fees
Certain members of the Corporate Management and other
employees, as required by their duties, also belong to the
24 BUSINESS REVIEW / BOARD OF DIRECTORS WRTSIL ANNUAL REPORT 2006
Board of Directors
Mr Antti Lagerroos Mr Heikki Allonen Primary working experience: Finlands Ambassador to the
Independent of the company and signicant shareholders. Independent of the company, dependent on a signicant USA 1977 83; Union Bank of Finland, Board Member 1983 90;
Chairman of the Board of Wrtsil Corporation. Born 1945, shareholder. Member of the Board of Wrtsil Corporation Finnish Business and Policy-Forum EVA, Managing Director
LL.Lic, President & CEO and Member of the Board of Finnlines since 2004. Born 1954, MSc ( Eng. ). President & CEO of Fiskars 1990 2000.
Plc. Member of the Board of Wrtsil Corporation since 2002. Corporation.
Mr Bertel Langenskild
Primary working experience: University of Turku, Lecturer Primary working experience: Lohja Corporation, Rudus,
Independent of the company and signicant shareholders.
in Process, Criminal and Public law 1971 78; Vaasa School of Project Engineer 1979 80; Saudi Building Material Co., Presi-
Member of the Board of Wrtsil Corporation since 2002. Born
Economics, acting Professor of Fiscal Law 1973 79; Hollming dent 1980 82; Lohja Corporation, Concrete Industries, several
1950, MSc ( Eng. ). President of Metso Paper, Inc. as of 4/2007.
Oy, President of Legal Affairs and Finance 1979 81; Salora Oy, management positions 1982 89; Lohja Corporation, Vice Presi-
Primary working experience: Tampella Power Kvaerner
Chairman & CEO 1981 84; Salora-Luxor Division, President dent, Corporate Development 1989 90; Wrtsil Corporation,
Pulping, Power Division, President 1994 2000; Fiskars Corpo-
1984 86; Nokia Corporation, Member of the Operating Board Senior Vice President for project to merge Lohja and Wrtsil
ration, President 2001 03; Metso Minerals, Inc., President,
1984 86; Nokia Corporation, Member of Board of Directors 1990 92; Metra Corporation, Senior Vice President, Corporate
2003 06; Metso Paper, Inc., Fiber Business Line, President
1986 90; Nokia Mobile Phones, Executive President 1989 90. Planning 1992 2000; SRV Group Plc, President 2001 03.
8/2006 3/2007.
Other positions of trust: Ilmarinen Mutual Pension Insurance Other positions of trust: Rautaruukki Corporation, Member of
Other positions of trust: Member of the Board of Luvata
Company, Member of the Supervisory Board; Confederation of the Supervisory Board.
International Oy.
Finnish Industries EK, Member of the Board; Finnish Shipowners
Association, Member of the Board since 1990 & Chairman of the Mr Risto Hautamki
Independent of the company and signicant shareholders.
Mr Matti Vuoria
Board 1991 95 and 2000 01; Schiffshypothekenbank zu Lbeck Independent of the company and signicant shareholders.
AG ( Deutsche Bank ), Member of Advisory Board ( Germany ). Member of the Board of Wrtsil Corporation since 2003. Born
Member of the Board of Wrtsil Corporation since 2005. Born
1945, MSc ( Eng. ). President of Metso Paper Inc.
1951, BA, Master of Laws. President & CEO of Varma Mutual
Mr Gran J. Ehrnrooth Primary working experience: Valmet Corporation, managerial,
Pension Insurance Company.
Independent of the company and signicant shareholders. sales and project engineering positions 1970 88; Valmet Paper
Deputy Chairman of the Board of Wrtsil Corporation. Born Primary working experience: Secretary General, Ministry of
Machinery Inc., Executive Vice President and Chief Operating
1934, MSc ( Econ. ). Member of the Board of Wrtsil Corporation Trade and Industry 1992 98; Full-time Chairman of the Board of
Ofcer 1989 90; Valmet Paper Machinery Inc., President & CEO
since 1992. Directors, Fortum Corporation 1998 2003.
1990 94; Tamfelt Corporation, President & CEO 1995 2005.
Primary working experience: President of Fiskars Corpo- Other positions of trust: Sampo plc, Deputy Chairman of the
ration 1969 83; Chairman of the Board of Fiskars Corporation Mr Jaakko Iloniemi Board; Danisco A/S and Stora Enso Oyj, Member of the Boards;
1984 2006. Independent of the company and signicant shareholders. Winwind Oy, Chairman of the Board; The Federation of Financial
Member of the Board of Wrtsil Corporation since 1994. Services, Member of the Board and the Finnish Pension Alliance
Born 1932, MSc ( Pol. Sc. ). TELA, Chairman of the Board.
WE ARE DOERS BUSINESS REVIEW / BOARD OF MANAGEMENT 25
Board of
Management
Mr Ole Johansson Mr Tage Blomberg programmes, Vice President, Industrial Operations, Vice President
President & CEO since 2000. Born 1951, BSc ( Econ. ). Group Vice President, Services since 1999. Born 1949, of Global Business & Volume Optimization and General Manager
Primary working experience: Wrtsil Group 1975 79 and BSc ( Eng. ). Joined the company in 1975. in Volvo Car Operations BV 1979 2001; Saab Automotive AB,
rejoined in 1981; Wrtsil Diesel Inc, Vice President 1984 86; Primary working experience: Wrtsil Oy, Research Engineer Executive Director for the Customer Satisfaction and Quality
Wrtsil Diesel Group, Vice President & Controller 1986 94; 1975 82; Wrtsil Power Inc., Sales Manager 1982 84; Wrtsil division and a Member of the Board of Management 2001 2004.
Metra Corporation, Senior Vice President & CFO 1994 96; Diesel, Project Manager 1984 89; Wrtsil Diesel Oy, Vice Presi-
Mr Kari Hietanen
Metra Corporation, Executive Vice President & CFO 199698; dent 1989 96; Wrtsil NSD Corporation, Marine, Senior Vice
Group Vice President, Legal Affairs and HR. Company
Wrtsil NSD Corporation, President & CEO 1998 2000. President 1996 99.
Secretary. Born 1963, LLM. Joined the company in 1989.
Positions of trust: Board Chairman, Technology Industries
Mr Jaakko Eskola Primary working experience: Metra Corporation and
of Finland; Board Vice Chairman, Outokumpu Oyj; Board Vice
Group Vice President, Ship Power since 2006. Born 1958, Wrtsil Diesel Group, Legal Counsel 198994; Wrtsil Diesel
Chairman, Varma Mutual Pension Insurance Company; Board
MSc ( Eng. ). Joined the company in 1998. Group, General Counsel 199499; Wrtsil Power Divisions,
Vice Chairman, Confederation of Finnish Industries EK.
Primary working experience: VTT, Technical Research Centre Group General Counsel 20002001; Wrtsil Corporation,
Mr Raimo Lind of Finland, Researcher 1983 84; Industrialisation Fund of Finland, Vice President and Group General Counsel 2002.
Executive Vice President and Deputy to the President Corporate Analyst 1984 85; Kansallis Banking Group, various
Mr Christoph Vitzthum
since 2005. Group Vice President, CFO since 1998. Born 1953, managerial positions in international project nance 1985 97;
Group Vice President, Power Plants since 2006. Born 1969,
MSc ( Econ ). Employed by the company 1976 89 and rejoined PCA Corporate Finance, Executive Director 1997 98; Wrtsil
MSc ( Econ. ). Joined the company in 1995.
in 1998. Development & Financial Services Oy, President 1998-2005;
Primary working experience: Metra Finance, Foreign
Primary working experience: Wrtsil Group, positions with- Wrtsil Corporation, Power Plants, Vice President,
Exchange Dealer 1995 97; Wrtsil NSD Corporation, Power
in control and nance and in development and internationalization Sales & Marketing 200506.
Plants, Business Controller 1997 99; Wrtsil Corporation,
197680; Wrtsil Diesel Group, Vice President & Controller Positions of trust: Finpro ry, Member of the Supervisory Board.
Ship Power, Vice President, Finance & Control 19992002;
1980 84; Wrtsil Singapore, Managing Director & Area Director
Mr Lars Hellberg Wrtsil Propulsion, President 2002 06.
1984 88; Wrtsil Service Division, Deputy Vice President 1988
89; Scantrailer Ajoneuvoteollisuus Oy, President 1990 1992; Group Vice President, Engine Division since 2004. Born 1959,
Tamrock Oy, CFO 199293; Tamrock Service Business, Vice Pres- B.Sc. ( Eng. ). Joined the company in 2004.
ident 199496; Tamrock Coal Business, Vice President 1996 97. Primary working experience: Volvo Cars AB, Research
Positions of trust: Member of the Board, Sato Oyj. Engine Engineer and Project Director in vehicle development
26 BUSINESS REVIEW / CORPORATE MANAGEMENT AND BUSINESS BOARDS WRTSIL ANNUAL REPORT 2006
Corporate Management
Corporate Management comprises the Board of Management Ms Maj-Len Ek Ms Eeva Kainulainen
along with the following directors responsible for various Vice President, Group Control. Born 1948, BSc ( Econ. ). Vice President, Corporate Communications & IR.
corporate functions: Born 1948, MSc ( Soc.Sc. ).
Mr Roger Holm
Mr Yngve Brgrd Chief Information Ofcer ( CIO ). Born 1972, MSc ( Econ. ). Mr Mikael Simelius,
Vice President, Corporate Supply Management. Vice President, Marketing Communications and Branding.
Born 1958, BSc ( Eng. ). Mr Per Hansson Born 1964. MSc ( Econ. ).
Vice President, Corporate Planning. Born 1967, MSc ( Eng. ).
Ms Pivi Castrn Mr Anders Sderholm
Vice President, Human Resources. Born 1958, MSc ( Soc. Sc. ). Mr Heikki Horstia Vice President, Corporate Internal Audit.
Vice President, Group Treasury. Born 1950, BSc ( Econ. ). Born 1943, BSc ( Econ. ), Authorized Public Accountant.
Business Boards
Ship Power Mr Christer Kantola Mr Rakesh Sarin
Vice President, Service Sales. Born 1952, BSc ( Mech. ). Vice President, Sales & Marketing. Born 1955, BSc ( Chemical Eng. ).
Mr Jaakko Eskola
Group Vice President, Ship Power. Born 1958, MSc ( Eng. ). Mr Donal Lynch Mr Vesa Riihimki
Vice President, Parts. Born 1956, Business Management Diploma Vice President, Power Plant Technology. Born 1966, MSc ( Eng. ).
Mr Lars Anderson
( Operations/General ).
Vice President, 2-stroke engines. Born 1968, BSc ( Mech. Eng. ).
Engine Division
Mr Stefan Nysj
Mr Fred van Beers Mr Lars Hellberg
Vice President, Customer Assistance. Born 1970, BSc ( Mech. ).
Vice President, Seals & Bearings. Born 1962, Bachelors degree, Group Vice President, Engine Division. Born 1959, BSc ( Eng. ).
Merchant Engineer & Bachelor degree BtB Marketing. Ms Eva-Stina Rnnholm
Vice President, Finance & Control. Born 1967, MSc ( Econ. ). Mr Stefan Damlin
Mr Carl-Henrik Bjrk Vice President, Finance Control. Born 1968, MSc ( Econ. ).
Vice President, Marketing & Sales. Born 1947, Marine Engineer. Mr Rolf Vestergren
Vice President, Technical Service. Born 1948, BSc ( Eng. ). Mr Frans Don
Mr Timo Koponen Vice President, Business Ofce. Born 1952, BSc ( Eng. ).
Vice President, Finance & Control. Born 1969, MSc ( Econ. ).
Power Plants Mr Klaus Heim
Mr Magnus Miemois Mr Christoph Vitzthum Vice President, Global Research & Development.
Vice President, Solutions. Born 1970, MSc ( Eng. ). Group Vice President, Power Plants. Born 1969, MSc ( Econ. ). Born 1962, MSc ( Eng. ).
Mr Jari Salo Mr Banmali Agrawala Mr Juha Kytl
Vice President, Propulsors. Born 1963, MSc ( Eng. ). Vice President, Biomass Power Plants. Born 1963, Vice President, Delivery Centre Vaasa, President of Wrtsil Finland
Mr Henrik Wilhelms BE ( Mech. Eng. ). Oy. Born 1964, MSc ( Eng. ).
Vice President, 4-stroke engines. Born 1965, BSc ( Mech. Eng. ). Mr Nauman Ahmad Mr Erik Pettersson
Vice President, Development & Financial Services. Born 1970, Vice President, Delivery Development Centre. Born 1953,
Services BSc ( Computer Science ), BA ( Econ. ). BSc ( Eng. ).
Mr Tage Blomberg
Mr Tore Bjrkman Mr Sergio Razeto
Group Vice President, Service. Born 1949, BSc ( Eng. ).
Vice President, Sales Management. Born 1957, Vice President, Delivery Centre Trieste. President of Wrtsil
Mr Pekka Ahlqvist BSc ( Mech. Eng. ). Italia S.p.A. Born 1950, MSc ( Eng. ).
Vice President, Automation. Born 1946, MSc ( Eng. ). MBA.
Mr Osmo Hrknen Mr Martin Wernli
Mr Pierpaolo Barbone Vice President, Delivery Management. Born 1949, MSc ( CE ). Vice President, Delivery Centre Low Speed. President of Wrtsil
Vice President, Field Service. Born 1957, MSc ( Min. Eng. ). Switzerland Ltd. Born 1960, JD Attorney at Law.
Mr Caj Malmsten
Mr Stefan Fant Vice President, Finance & Business Control. Born 1972, MSc ( Econ. ).
Vice President, Operations & Maintenance. Born 1955, BSc ( Mech. ).
WE ARE DOERS FINANCIAL REVIEW / CONTENTS 27
Contents
Financial review 2006
28 Five Years in Figures
30 Calculation of Financial Ratios
31 Review by the Board of Directors 2006
40 Consolidated Financial Statements
40 Income Statement
41 Balance Sheet
42 Cash Flow Statement
43 Statement of Changes in Shareholders Equity
44 Accounting Principles for the Consolidated Accounts
48 Notes to the Consolidated Financial Statements
65 Parent Company Financial Statements
65 Income Statement
65 Balance Sheet
67 Cash Flow Statement
68 Accounting Principles for the Parent Company
69 Notes to the Parent Company Financial Statements
73 Proposal of the Board
74 Auditors Report
75 Quarterly Figures 2005 2006
76 Shares and Shareholders
81 Wrtsil on the Capital Markets 2006
Financial ratios
Earnings per share ( EPS ) EUR 3.72 1.80 1.42 1.75 - 0.44 1.37
Diluted EPS EUR 3.71 1.78 1.42
Dividend per share1 EUR 1.75 3.00 0.90 0.90 1.17 1.17
Dividend per earnings1 % 47.0 166.7 64.1 51.4 n/a 85.4
Interest coverage2 13.1 8.3 17.2 20.1 4.4 7.8
Return on investment ( ROI ) % 31.8 18.0 18.0 20.4 0.1 14.9
Return on equity ( ROE ) % 29.5 16.3 15.0 19.7 - 4.5 12.4
Solvency ratio 1 2 % 47.0 46.6 40.8 40.3 35.0 36.9
Solvency ratio 2 2 % 47.0 46.6 40.8 40.3 36.2 38.0
Gearing 1 2 0.07 0.24 0.17 0.18 0.48 0.50
Gearing 2 2 0.07 0.24 0.17 0.18 0.43 0.46
Equity per share EUR 12.74 12.25 9.65 9.22 8.69 10.37
1Proposal of the Board of Directors. Financial ratios calculated from total amount of dividend.
2 Pleaserefer to the Calculation of Financial Ratios on page 30.
3 Accounting principles for R&D expenses changed in 2004.
30 FINANCIAL REVIEW / CALCULATION OF FINANCIAL RATIOS WRTSIL ANNUAL REPORT 2006
Interest coverage
Prot before extraordinary items + depreciation + interest and other nancial expenses
Interest and other nancial expenses
Solvency ratio
Shareholders equity + minority interests x 100
Balance sheet total advances received
Gearing
Interest-bearing liabilities cash and bank balances
Shareholders equity + minority interests
Payout ratio
Dividend per share x 100
Earnings per share (EPS)
Price/earnings (P/E)
Adjusted share price at the end of the nancial year
Earnings per share (EPS)
Net sales
Development of net sales
MEUR 2006 2005 Change %
Ship Power 984.7 710.3 38.6 MEUR
Power Plants 934.2 710.3 31.5 3,500
Services 1,266.5 1,093.1 15.9
3,000
Imatra Steel 119,01
Other operations and 2,500
intra-group sales 4.3 6.2 2,000
Group 3,189.6 2,638.8 20.9 1,500
1 Four months. 1,000
500
0
02 03 04 05 06
Power Businesses Imatra Steel
32 FINANCIAL REVIEW / REVIEW BY THE BOARD OF DIRECTORS 2006 WRTSIL ANNUAL REPORT 2006
In December Wrtsil acquired the German ship design The year 2006 indicating the challenges faced by liners with increased costs
company group SCHIFFKO. The acquisition supports Wrtsils and stagnating freight rates. In the big cruise vessel segment
strategic focus to grow as a system integrator and provider of
Operating environment and markets the number of vessels remained more or less the same, while in
total solutions to the shipping and shipbuilding market. Ship Power passenger vessels and ferries ordering volumes halved.
The year 2006 turned out to be the best of all during the China continued to grow in the shipbuilding market. In terms
Production close to the main markets in Asia
current shipbuilding boom and probably the best in the history of of deadweight tons Korea maintained its dominating coun-
The new factory for Wrtsil Auxpac marine generating sets
modern shipbuilding. Orders for 2,677 vessels were registered in try position with a share of 38% although China approached
in China was inaugurated at the end of June by Wrtsil Qiyao
2006, which exceeds the earlier record in 2005 by 10%. Also in closer than ever with 35%. In numbers of vessels China was
Diesel Company Ltd (Shanghai), the joint venture between
terms of deadweight tons the year exceeded the previous record clearly the biggest with 34% followed by Korea 25% and Europe
Wrtsil Corporation and the Shanghai Marine Diesel Engine
from 2003 by 22%. 17%. Korea is strongest in the tanker and container sectors and
Research Institute. The joint venture is a step in Wrtsils strat-
All energy-related segments have been the main drivers almost entirely serves export customers, whereas Japanese
egy to be close to customers in Asia and increase its global
behind the highly active shipbuilding market. In very large tank- yards predominantly serve domestic customers, the main sectors
market share in auxiliary engines.
ers, VLCCs and Suezmax class vessels, for example, the order being dry cargo and gas vessels. China is active in all segments,
At the end of September Wrtsil, China Shipbuilding Indus-
volumes were more than three times higher than in the previ- except for the most sophisticated vessel types, and its customer
try Corporation (CSIC) and Mitsubishi Heavy Industries (MHI)
ous year. In chemical and gas tankers and bulk carriers the level base is mainly abroad. There has been relatively little competition
announced the establishment of a joint venture to manufacture
remained the same. Demand for containerships slowed down, between the countries for the same customers due to the strong
large, low-speed marine engines in China. The joint venture is
another step in Wrtsils strategy to better penetrate the Asian
shipbuilding market and to strengthen its market position in low-
Operating income
speed engines.
EBIT% ROI%
In China the joint-venture Wrtsil-CME, which started its MEUR 2006 2005 2006 2005 2006 2005
operations in 2004, is investing in additional capacity to meet Power Businesses 261.6 202.5 8.2 8.0
increased demand for xed pitch propellers. Imatra Steel 21.81 18.3
Group 261.6 224.3 8.2 8.5 31.8 18.0
Focusing on core business 1 Four months.
The agreement signed in July by Wrtsil, SKF and Rauta-
ruukki to sell the operating companies owned by Oy Ovako Ab
was closed during the fourth quarter of 2006. Ovako was sold
to a company owned by the shareholders of Hombergh Holdings Result Earnings /share, dividend /share
BV, WP de Pundert Ventures BV and Pampus Industrie Beteili- MEUR % EUR
gungen GmbH & Co. KG. The divestment concludes Wrtsils
500 50 4.00
plan to focus on its core businesses.
400 40 3.00
Financial targets 300 30
2.00
The Groups average annual growth target for net sales is
200 20
67%. The annual growth target for the Ship Power and Power 1.00
100 10
Plants businesses is 4% and for the Services business 1015%.
0 0 0.00
Wrtsils operating income (EBIT) target is 8% of net sales over
the cycle. The solvency target is 3540%. -100 -1.00
1
02 03 04 05 06 02 03 04 05 06
Operating prot Operational EBIT Earnings /share Dividend Extra dividend
Result before taxes ROI% 1 2006 Proposal by the board
WE ARE DOERS FINANCIAL REVIEW / REVIEW BY THE BOARD OF DIRECTORS 2006 33
demand for new ships and new-build prices have remained million (1,545.3), 46.9% higher than one year earlier. The full-year decreased primarily due to changes in the market value of deriv-
strong. order intake for the Power Plants business grew by 18.7% and atives and currency differences. Financial items include dividends
was EUR 1,027.3 million (865.2). totalling EUR 8.5 million (7.2), the largest of which were dividends
Power Plants
Wrtsils total order book at the end of 2006 once again paid by Assa Abloy AB (publ) and Sampo Oyj.
All power plant segments relevant to Wrtsil baseload
reached an all-time high, EUR 4,438.9 million (2,905.7), up 52.8% Income before taxes was EUR 446.8 million (212.4). The
production, industrial self-generation and grid stability were
on the previous year. Approximately 50% of the order book is result includes a capital gain of EUR 123.9 million from the sale
active in 2006. Demand was evenly spread globally, which
due for delivery in 2007. of 10 million Assa Abloy B shares and a capital gain of EUR 49.3
reduced the risks associated with single markets and geographi-
million from the sale of Ovako. The result also includes Wrtsils
cal concentration. Strong growth in net sales
share of Ovakos prot after taxes EUR 18.1 million. The gure
The high prices of oil, gas and metals had a positive impact Wrtsils comparable consolidated net sales rose to EUR
in the comparison period includes Imatra Steels pretax prot
on demand for power plants in certain markets. Countries in 3,189.6 million (2,520.3), an increase of 26.6% compared to
of EUR 21.4 million and Wrtsils share of Ovakos prot after
Africa and the Middle East, as well as other oil-producing coun- 2005. Ship Powers net sales accounted for roughly 30% of total
taxes EUR 10.4 million.
tries are investing heavily in new infrastructure. Demand has also net sales, Services sales represented 40% and Power Plants
Taxes amounted to EUR -93.9 million (-44.0), of which EUR
been high for gas power plants, notably in Japan. Liquid-biofu- share of total net sales was around 30%.
-32.2 million related to the sale of Assa Abloy shares. Taxes
elled power plants are continuously offering new opportunities
Result improved, protability developed according include deferred tax assets totalling EUR +25.5 million related to
for Wrtsil in both Europe and the developing world.
to plan previously recognized restructuring expenses.
Order book again at all-time high The comparable operating income improved to EUR 261.6 Net income was EUR 352.9 million (168.4).
A record number of new orders were received during the year. million (202.5). The protability (EBIT) was 8.2% (8.0). Earnings per share improved to EUR 3.72 (1.80) out of which
The order intake totalled EUR 4,621.1 million (3,491.1) represent- Financial items amounted to EUR -7.1 million (-23.4). Net EUR 1.49 refers to capital gains. Return on investment (ROI)
ing growth of 32.4%. Most new orders were registered in the interest totalled EUR -12.8 million (-11.9). Other nancial was 31.8% (18.0) and return on shareholders equity (ROE) was
Ship Power business, where the order intake was EUR 2,270.5 expenses were EUR -2.7 million (-18.7). Other nancial expenses 29.5% (16.3).
Financial position strong Holdings The largest personnel increases through acquisitions related
Wrtsils cash ow from operating activities was EUR 302.4 Wrtsil owns 7,270,350 B shares in Assa Abloy, or 2.0% to Total Automation Ltd with a personnel increase of 571 people,
million (76.0). The nancial position was strong. In addition to (4.7) of the total. This holding was booked in the balance sheet AKPAS in Norway with 135 people, and Diesel Technology Solu-
good cash ow from operating activities advanced payments at its market value at the end of the reporting period, EUR 119.8 tions BV (DTS) in the Netherlands with 75 people.
increased during the review period. Due to the increase in busi- million. The auxiliary engine factory jointly owned by Wrtsil and
ness volumes both receivables and inventories have increased. During the nancial period Oy Ovako Ab sold its operating Shanghai Marine Diesel Engine Research Institute employed
Cash and cash equivalents at the end of the year amounted to companies, of which Wrtsils share was 26.5%. The total price 52 people at the year end. The service company Wrtsil BLRT
EUR 179.4 million (119.6). Net interest-bearing loan capital was of the business was approximately EUR 660 million, compris- Services Klaipeda established in Lithuania by the joint venture
EUR 54.7 million (255.9). The solvency ratio was 47.0% (46.6) ing a cash payment at closing of approximately EUR 535 million, between Wrtsil and BLRT Grupp employed 71 people at the
and gearing was 0.07 (0.24). a deferred cash payment of EUR 15 million to be paid in July end of the year.
2008 and an interest-bearing vendor note of EUR 110 million to
Capital expenditure Sustainable development
be paid within 36 years from closing. As a result of the transac-
Gross capital expenditure for the reporting period totalled Wrtsil has prepared the Sustainability Report to meet the
tion and the subsequent liquidation of Oy Ovako Ab, Wrtsil has
EUR 193.2 million (231.1), which comprised EUR 86.4 million 2002 GRI Guidelines. It represents a balanced and reasonable
recorded a tax-free capital gain of EUR 49.3 million.
(152.2) in investments in acquisitions and EUR 106.8 million presentation of our organizations economic, environmental and
(79.0) in production and information technology investments. Personnel social performance. The Sustainability Report is assured.
Depreciation amounted to EUR -71.6 million (-71.6). Wrtsil Group had 13,264 (12,049) employees on average
Changes in management
The largest single investment was the acquisition of the busi- during the year and 14,346 (12,008) at the year end. The person-
Jaakko Eskola (48) MSc (Eng.) was appointed Group Vice
nesses of Total Automation Ltd. The acquisition price was EUR nel increased both through recruitments and by acquisitions in
President, Ship Power and a member of the Board of Manage-
59.4 million. total by over 2,300 people. The largest personnel increases took
ment with effect from 1 April 2006.
During 2006 investments in Trieste and Vaasa amounted to place in the Services business. The largest increases were in
Mikael Mkinen, Executive Vice President and head of the
EUR 12.5 million and Wrtsil had commitments related to the Europe and Asia. The number of employees in Finland increased
Ship Power Business, left Wrtsil to join another company on 1
investment programmes amounting to EUR 14.3 million. by 332 persons during the year.
April 2006.
Christoph Vitzthum (37) MSc (Econ.) was appointed Group The Meeting authorized the Board for one year to repurchase Extraordinary general meeting
Vice President, Power Plants and a member of the Board of and dispose of the companys own Series A and B shares in The extraordinary general meeting on 24 November 2006
Management with effect from 1 April 2006. proportion to the total number of shares in each series provided approved the Board of Directors proposal to pay an extra divi-
The former head of the Power Plants business, Pekka Ahlqvist that the total nominal value of the shares so purchased, and dend of 1.50 euros on each Series A and B share for the nancial
MSc (Eng.) MBA, reached 60 years of age in spring 2006 and the votes carried by these shares, shall not exceed ten per cent period ended 31 December 2005.
was then entitled to retire under the terms of his employment (10%) of the companys total share capital and voting rights. This
Share capital and shares
contract. He will continue to be employed by the company with authorization was not exercised during the nancial period.
A total of 1,447,236 Wrtsil B shares were subscribed during
responsibility for strategic management of Wrtsils automation
Board of Directors the period under the 2001 and 2002 option schemes. This
activities.
The Board of Directors elected Antti Lagerroos as its chair- increased the share capital by EUR 5,065,326.00 following which
Matti Kleimola, Prof. CTO, Group Vice President, Technol-
man and Gran J. Ehrnrooth as the deputy chairman. The Board the share capital amounts to EUR 334,440,232.00.
ogy and Environment, retired on 1 May 2006 having reached the
decided to establish an Audit Committee, a Nomination Commit-
retirement age stipulated in his employment contract. Profes-
tee and a Compensation Committee. The Board appointed from Business review
sor Kleimola will continue to act as an advisor to the Board of
among its members the following members to the Committees: Wrtsil Ship Power
Management in matters related to Wrtsils eld of technology.
seven. The following were elected to the Board: Heikki Allo- 0.20 20.0
nen, Gran J. Ehrnrooth, Risto Hautamki, Jaakko Iloniemi, Antti 0.10 10.0
Lagerroos, Bertel Langenskild and Matti Vuoria.
0 0
The AGM appointed the rm of authorized public accountants 02 03 04 05 06 02 03 04 05 06
KPMG Oy Ab as the companys auditors. Gearing 1 Solvency ratio 1
Gearing 2 Solvency ratio 2
36 FINANCIAL REVIEW / REVIEW BY THE BOARD OF DIRECTORS 2006 WRTSIL ANNUAL REPORT 2006
The nal order book at the end of the year was at an all-time the automation and power system company AKPAS in Norway segments active during the year and for which Wrtsils prod-
high, EUR 3,019.7 (1,658,5) million, growth of 82.1%. in March 2006. The acquisition on the one hand enlarged Wrt- uct portfolio is well suited. In low-speed engines the total market
Net sales of the Ship Power business rose to EUR 984.7 sils product portfolio and on the other increased the compa- was 26,600 MW (21,900) at the end of the previous quarter, out
million (710,3), corresponding to growth of 38.6% on the previ- nys system integration capabilities in electric propulsion, power of which Wrtsils share was 16% (17). Wrtsils low-speed
ous year. Growth accelerated towards the end of the year and distribution and automation, especially in the oil and gas and engines are manufactured by licensees primarily in Asia close
the fourth quarter represented over 40% of the years net sales. offshore sectors. to the customers. The establishment of a joint venture company
In terms of engine output Wrtsil delivered medium-speed Cruise and passenger vessels remained one of Wrtsils for manufacturing low-speed engines in China and the recent
engines totalling 2,397 MW (1,760) to the marine market. Deliv- key segments also during 2006. Wrtsil recorded several size- acquisition of the ship company Schiffko are strategic measures
eries of licensee-built Wtsil low-speed engines amounted to able orders from shipyards in Finland, Italy, France and Germany. Wrtsil has taken to improve its market share in the low-speed
3,120 MW (3,577) in 2006. Wrtsil was awarded a contract to deliver the main engines and business. The total market for auxiliary engines was 7,600 MW
transverse tunnel thrusters for the worlds biggest cruise vessel, to (6,700) and Wrtsils share fell slightly from 7% to 6% due to
A successful year for Ship Power in several areas
be built at Aker Yards in Finland for Royal Caribbean Cruise Ltd. capacity constraints.
Wrtsil gained further success with its dual-fuel concept
In its propeller business Wrtsil booked a historic order for In propulsor equipment Wrtsil maintained its strong foot-
in LNG carriers in 2006 and the concept became a major solu-
altogether 50 xed pitch propellers for two Chinese customers. hold. Controllable pitch propellers remained the strongest
tion for powering these vessels. At the year end Wrtsil had
The propellers are to be manufactured in Zhenjiang, China. segment for Wrtsil with a market share of 36% (35). In xed
a total of 188 W50 dual-fuel engines on order for seven ship-
pitch propellers Wrtsil has traditionally been stronger in big
yards and for 47 LNG vessels. In the offshore segment Wrtsil Market share
units and, owing to the constraints in capacity, the companys
received an order from MPF Corporation Ltd for a Multi Purpose The total market for medium-speed main engines in 2006
market share has decreased to 11% (18). At the moment Wrt-
Floater mobile drilling unit whereby Wrtsil will deliver an inte- was 9,200 MW (9,600). Wrtsil Ship Power increased its market
sil is further increasing its xed pitch propeller capacity in China
grated onboard power plant along with power distribution, auto- share in this sector to 51% (50% at the end of the previous quar-
to meet demand. In steerable thrusters likewise, demand has
mation and propulsion systems. The order is a good example of ter). The other main players in this area recorded shares of 23%
been very high. In this segment Wrtsils share has remained
the enhanced capabilities Ship Power has gained by acquiring and 13%. The high market share is a reection of the market
unchanged 11% (11).
Wrtsil Services Propeller Services, Operation & Management Services, Recondi- customers have had with previous Wrtsil installations. Wrt-
tioning Services, Training Service and Ship Services. sil also sold more than 150 MW of gas-red plants to Japanese
Strong growth continued
Wrtsils training unit, the Wrtsil Land & Sea Academy, customers in 2006, which makes the company the market leader
Net sales of the Services business rose to EUR 1,266.5 million
opened a new training centre in Turku, Finland, and a new mari- in large gas engines in Japan.
(1,093.1), up 15.9% on the previous year, of which 9.3% was
time training centre in Khopoli, India. The Academy also has Oil-red power plants continue to offer possibilities in the
organic growth.
training centres in Italy, the Netherlands, Sweden, the USA, and areas of industrial self-generation and exible baseload power
The acquisition of Total Automation Ltd was part of the
the Philippines. These centres provide training courses and generation. The largest orders in 2006 came from Brazil, Saudi
companys strategy to strengthen its position as a Total Serv-
personnel development services for Wrtsils marine and power Arabia, Italy, Cyprus and Uganda. Wrtsil has a strong foothold
ice supplier. It also complements earlier automation acquisitions.
plant customers. in the biofuel market and received orders totalling more than 160
Total Automation has a strong foothold in the offshore and LNG
MW for liquid-biofuel-red power plants to be delivered to Italy,
sectors. The ship repair company set up in Lithuania jointly with Wrtsil Power Plants
which further demonstrates the versatility and fuel exibility of
the Estonian BLRT Grupp serves the Baltic market. The acquisi-
High demand boosted net sales the Wrtsil Power Plant product.
tion in July of INTEC Injectortechnic GmbH, provides installation
The total power plant order intake for 2006 amounted to As a result of the good order intake during 2006 the order
and service of injection components for marine diesel engines.
EUR 1,027.3 (865.2) million, representing growth of 18.7% on book for the Power Plants business is EUR 1,061.4 (943.9)
The acquisition of the Swedish company Stockholm Fartygsrep-
the corresponding period in 2005. Markets remained active in million, which is 12.4% higher than at the end of the reporting
arationer AB positions Wrtsil to further expand its Services
all major segments and in all fuel types. The share of gas-red period one year earlier.
operations on the eastern coast of Sweden.
power plants rose to 52% of the total order intake. Gas-red Net sales for Power Plants developed favourably during 2006
With its recent acquisitions, the company has turned its one-
power plants were sold as exible baseload installations, for grid and totalled EUR 934.2 (710.3) million, representing growth of
stop-shop vision into a reality: through Wrtsil, customers now
stability and as solutions for industrial self-generation purposes. 31.5%. Geographically, sales were distributed evenly with the
have a unique opportunity to get the largest scope of services
The largest single orders came from Azerbaijan, the United largest growth coming from successful deliveries of power plants
from a single source all over the world. To help customers select
States, Tanzania, Nigeria and Turkey. Many of these orders are in Brazil and Azerbaijan. 1,944 MW was delivered during 2006,
services more easily, Wrtsil Services has re-structured its offer-
repeat orders, testament to the good experience Wrtsils which comprised 746 MW for gas and 1,198 MW for oil.
ing into seven categories: Engine services, Automation Services,
16,000
14,000
Power Plants 29% (27) Ship Power 31% (27) Engine Division 16% (15) Ship Power 18% (17)
12,000
10,000
Power Plants 6% (7)
8,000
Services 61% (61)
6,000
Services 40% (42) 4,000
2,000
0
02 03 04 05 06
Power Businesses Imatra Steel
Personnel average In Finland
38 FINANCIAL REVIEW / REVIEW BY THE BOARD OF DIRECTORS 2006 WRTSIL ANNUAL REPORT 2006
Market size and market shares and full capacity will be reached in the fourth quarter of 2007. The acquisition of Diesel Technology Solutions BV (DTS) in
In 2006 the total global market for oil and gas power plants in The planned production model raises efciency and ensures 2006 has increased Wrtsils component machining capacity.
Wrtsils power range was roughly 14,750 MW (10,300). In these exibility in terms of both multi-engine delivery and volumes, Wrtsil has continued to develop capacity for critical compo-
markets Wrtsil focuses on heavy fuel oil, gas and liquid biofuel throughout the supply chain. nents to be able to meet growing demand in the years ahead.
power plants. Wrtsil Qiyao Diesel Co Ltd (Shanghai), the joint venture Investments have been implemented by many of the companys
According to statistics compiled by Diesel and Gas Turbine company between Wrtsil Corporation and the Shanghai Marine suppliers and the main part of the investment will be operational
magazine, Wrtsils market share of heavy fuel oil plants Diesel Engine Research Institute (SMDERI) for manufacturing during 2007. Wrtsil is increasingly looking at broadening its
between June 2005 and May 2006 was 34% (44%). During the Wrtsil Auxpac marine generating sets in China, was started supplier network in Asia and India.
review period a large number of smaller heavy fuel oil power in mid-2006. The new assembly factory manufactures Wrt- In output terms a total of 4,256 (3,445) MW of four-stroke
plants were ordered. These power plants are not within Wrt- sil Auxpac 20 and from the end of 2007 also Auxpac 26 diesel engines manufactured by Wrtsils own factories was delivered
sils power range. In the light fuel oil segment relevant to Wrt- generating sets for the growing shipbuilding market in China. It to customers during the year.
sil, Wrtsils market share increased to 23% (9) thanks to high also exports these products to other countries through Wrtsils
Other equipment
demand for Wrtsils power plants fuelled by liquid biofuels. global sales network.
In propulsion equipment Wrtsil launched investment
The market for gas power plants, including both reciprocat- Wrtsil, China Shipbuilding Industry Corporation (CSIC) and
programmes to enlarge the Chinese transverse thruster factory
ing engines and gas turbines, increased from roughly 7,574 MW Mitsubishi Heavy Industries (MHI) have decided to establish a
to cover also the steerable thruster product range. At the same
to 10,371 MW during the same period. Wrtsils share in this joint venture factory to produce low-speed engines in China in
time the company is increasing capacity for larger thrusters in
segment was 8.1% (7.8). order to meet the increasing demand in Asia and the growing
the Drunen factory in the Netherlands. Furthermore, Wrtsil
shipbuilding market in China. The QMD factory will produce large
Manufacturing is adding capacity for xed pitch propellers in its joint-venture
marine engines for Chinese shipyards. It will develop, manufac-
factory in Zhenjiang, China.
Engines ture and sell a new generation of energy-saving and environmen-
To meet the increased demand in seals and bearings Wrt-
In 2006 Wrtsil announced investment programmes to tally-sound low-speed two-stroke marine engines under licence
sil is building a new factory for seals, line shaft bearings and
increase production capacity for four-stroke engines in Vaasa, from Wrtsil and MHI. The factory will be built in the Qingdao
sterntubes in Wuxi, China. The factory will further strengthen
Finland and Trieste, Italy to meet the growing market demand. area, where CSIC is setting up a marine industry cluster. Produc-
Wrtsils position in seal and bearing products on the Chinese
The investment projects are proceeding according to plan; tion is expected to start in 2008.
market.
capacity increases will start during the second quarter of 2007
Megawatts delivered
R&D expenditure Megawatts delivered
2006 2005 Change %
MEUR % MW Power Plant engines 1,944 1,607 21.0
100 5.0 8,000
Ship Power, own engines 2,397 1,760 36.2
7,000
Wrtsil total 4,341 3,367 28.9
80 4.0 By licensees 3,120 3,577 -12.8
6,000
BioPower, thermal energy 167 117 42.7
60 3.0 5,000
Engine delivery total 7,628 7,061 8.0
4,000
40 2.0 3,000
2,000
20 1.0
1,000
0 0 0
02 03 04 05 06 02 03 04 05 06
R&D expenditure % of net sales Ship Power Power Plants
Licence-built BioPower, thermal energy
WE ARE DOERS FINANCIAL REVIEW / REVIEW BY THE BOARD OF DIRECTORS 2006 39
The capacity enlargements of the investment projects will name of the company will be Wrtsil Hyundai Engine Company sure on both freight rates and new-build prices. At the macro-
enter operation by mid-2007. Ltd. economic level the fundamentals have not changed and the
above factors suggest a decrease in activity levels in the long
Research and development Boards proposal to the AGM 2007
term. However, at this stage no signs of deceleration exist and
Wrtsils research and development focuses on developing The Board of Directors proposes to the Annual General Meet-
Wrtsil foresees strong demand continuing for at least the rst
and applying technology with the aim of reducing environmental ing on 14 March 2007 that a dividend of 1.75 euros per share be
part of 2007.
impacts, improving efciency and reducing the fuel consumption paid for the nancial year 2006.
The main drivers for continued growth in the power plant
of the engines. In its propulsion business Wrtsil is continuously
Risks and business uncertainties market remain world economic growth as well as the need to
focusing on technologies for increasing propulsion efciency and
The very high level of demand has led to short supply of some increase efciency and versatility in power generation due to
on environmentally friendly sealing solutions fror the containment
key components. Examples of bottlenecks are castings and forg- high fuel prices. Other drivers for the power plant market were
of oil.
ings where global demand exceeds supply. Wrtsil has worked environmental concerns and fuel availability issues. Power Plants
In 2006 Wrtsil and MAN Diesel agreed to propose a large-
hard to overcome the situation and several measures have been sees growth potential in the grid stability services market in North
scale Cooperative Research Project HERCULES in continu-
taken to ensure the availability of these key components. Invest- America as well as other developed countries. Russia offers
ation of an ongoing joint research project funded by the Euro-
ments have been implemented by many of the companys suppli- signicant market potential in the oil and gas industry where
pean Union. The target in HERCULES is to improve the fuel
ers and the main part of the investments will be operational recent signs point to considerable growth in demand for energy
efciency of marine diesel propulsion systems to more than 60%.
during 2007. More information about Wrtsils operational risks generation and the need to renew outdated power plant capac-
An additional concurrent aim is towards ultra-low exhaust emis-
can be found in the annual report and about the nancial risks in ity. Japan continues to remain an active gas power plant market.
sions from marine engines by 2015. The HERCULES Project
the notes to the nancial statements. Flexible baseload power as well as industrial self-generation are
is planned to run over a four-year period and is expected to be
forecast to remain active market segments throughout the Middle
fully agreed in 2007. It will be subsequently proposed for funding Market outlook 2007
East and Central and South America. A continued high order
within the Framework Program 7 (FP7, Theme Transport) of the The shipping and shipbuilding industries continue to grow
intake is expected in all segments during the rst part of 2007.
European Commission. extremely strongly. The pace of new orders accelerated towards
Services continues to grow through new products, acquisi-
In the eld of fuel cell development the European Union the end of the year. After the fourth consecutive boom year, ship-
tions and as a result of the high utilization of the engine base.
has chosen a research consortium coordinated by Wrtsil to yard order books now represent roughly 30% of the existing
Wrtsil stands well prepared for changes in the market
develop the use of methanol-consuming fuel cells to provide vessel eet. The increase in deliveries will speed up the growth
having restructured its business, penetrated new market
electrical power to marine vessels. The main purpose of the of the sailing eet over the next few years at an annual rate of
segments and achieved growth in its Services business.
METHAPU project is to develop and validate renewable-fuel- 6 7%. In the immediate years to come the world economy and
based technology on board a cargo vessel involved in interna- sea trade are expected to grow at an annual rate of 5%. Freight Wrtsils prospects in 2007
tional trade. rates have maintained their level and there have been no signi- Demand in the ship power and energy markets looks likely to
In 2006 the 14RT-ex96C engine, the most powerful diesel cant decreases in any of the segments. Thanks to strong earn- remain active for Wrtsil for at least the rst half of 2007. Based
engine ever built, was delivered to the customer. The engine has ings shipowners have been able to continue to invest in new on the strong order book, Wrtsils net sales are expected to
an output of 108,920 bhp. ships. grow this year by around 15%. Protability will exceed 9%. Wrt-
In 2006 Wrtsils research and development expenses High energy prices have accelerated investments in the sil sees further possibilities for growth in 2008.
totalled EUR 84.8 (71.0) million, or 2.7% of net sales. energy-related industries. Offshore investments for both vessels
and various production platforms are estimated to continue 5 February 2007
Events after the end of the period
despite somewhat reduced oil prices. In the offshore vessel
Wrtsil and Hyundai Heavy Industries Co. Ltd (HHI) signed
segment average earnings are clearly above the long-term Wrtsil Corporation
an agreement on 23 January 2007 to set up a 50/50-owned joint
trends. Board of Directors
venture in Korea to manufacture dual-fuel engines for LNG (lique-
In 2007 shipyards will increase their capacity and at the same
ed natural gas) carriers. The total investment in the company
time more new ships are entering the market. This is raising pres-
will be EUR 58 million, Wrtsils share being EUR 29 million. The
40 CONSOLIDATED FINANCIAL STATEMENTS WRTSIL ANNUAL REPORT 2006
Attributable to:
Equity holders of the parent company 10 351.2 167.0
Minority interest 1.7 1.4
352.9 168.4
Consolidated Balance Sheet, Assets Consolidated Balance Sheet, Shareholders equity and liabilities
MEUR Note 31 Dec. 2006 % 31 Dec. 2005 % MEUR Note 31 Dec. 2006 % 31 Dec. 2005 %
Shareholders equity on 1 January 2005 323.9 27.3 -1.0 542.5 892.7 7.8 900.5
Additional information on share capital is presented in Note 22 and for fair value and other reserves in Note 24. Other changes in 2006 include minority investments in operating activities in China.
44 ACCOUNTING PRINCIPLES FOR THE CONSOLIDATED ACCOUNTS WRTSIL ANNUAL REPORT 2006
Acquired or established subsidiaries and associated compa- nancial statements include the Groups share of its joint to date for long-term construction contracts, whereas for long-
nies are included in the consolidated nancial statements from ventures assets, liabilities, income and expenses. term operating and maintenance agreements it is calculated on
the day the company was acquired or established until owner- the basis of the proportion of the contracted services performed.
Foreign subsidiaries
ship of the company legally terminates. When the nal outcome of a long-term project cannot be reliably
In the consolidated nancial statements, the income statements
Acquired companies are accounted for using the purchase determined, the costs arising from the project are expensed in
and cash ows of foreign subsidiaries are translated into euros at
method of accounting according to which the acquired compa- the same reporting period in which they occur, but revenue from
the quarterly average exchange rates. Balance sheets are trans-
nys identiable assets, liabilities and contingent liabilities are the project is recorded only to the extent that the company will
lated into euros at the exchange rates prevailing at the balance
measured at fair value on the date of acquisition. The difference receive an amount corresponding to actual costs. Losses due to
sheet date and translation differences are recognized in equity.
between the purchase price and the companys net identiable projects are expensed immediately.
Translation differences arising before 1 January 2004, the date
assets, liabilities and contingent liabilities is reported as good-
on which the Group adopted IFRS, were entered at the transfer Research and development costs
will. In accordance with the exemptions under IFRS 1, acquisi-
date under retained earnings, as permitted by the exemption Research and development costs are expensed in the report-
tions prior to the transition date of 1 January 2004 have not been
granted by IFRS 1 (First-Time Adoption), and have not been ing period during which they occur except for development
restated but previous values are taken as deemed cost. The
subsequently recorded in the income statement on the sale of costs, which are capitalized when it is probable that the devel-
goodwill values reported in the 31 December 2003 consolidated
the subsidiary. After the transfer date, translation differences aris- opment project will generate future economic benets for the
nancial statements prepared in accordance with FAS have been
ing in the preparation of the nancial statements are shown as a Group, and when the criteria of IAS 38 (Intangible assets), includ-
taken as deemed cost, except where the companys assessment
separate item under shareholders equity. ing commercial and technological feasibility, have been met.
of the recoverable amount resulted in a write-down. Prior to the
These projects involve the development of new or signicantly
transition date goodwill was amortized over its expected useful Transactions in foreign currencies
improved products or production processes. Capitalized devel-
life, up to a maximum of 20 years. Goodwill is not amortized Transactions denominated in a foreign currency are trans-
opment costs are amortized and the cost of buildings, machinery
under IFRS but tested for impairment at least annually. lated into euros using the exchange rate prevailing at the dates
and facilities for development depreciated on a systematic basis
All intra-group transactions, dividend distributions, receiva- of the transactions. Receivables and liabilities are translated
over their expected useful lives. Grants received are reported as
bles and liabilities and unrealized margins are eliminated in the into euros at the exchange rate prevailing at the balance sheet
a reduction in costs for the period in question.
consolidated nancial statements. In the income statement, date. Exchange rate gains and losses related to non-nancial
minority interests have been separated from the income for the receivables and liabilities are reported on the applicable line in Pension benets
reporting period. In the Groups balance sheet minority interests the income statement and are included in operating income. Group companies in different countries have various pension
are shown as a separate item under equity. Exchange rate differences related to nancial receivables and plans in accordance with local conditions and practices. These
nancial liabilities are reported as nancial items in the income pension plans are classied either as dened contribution or
Measurement of fair value of assets acquired in
statement. dened benet plans.
business combinations
The contributions to dened contribution plans are charged
In major business combinations, the Group has employed an Net sales and revenue recognition
to the income statement in the year to which they relate. The
external advisor when measuring the fair values of the tangible and Sales are presented net of indirect sales taxes and discounts.
present value of the obligation arising from dened benet plans
intangible assets acquired. In the case of tangible assets, compari- Sales are recognized when the signicant risks and rewards
is determined using the projected unit credit method and the
sons have been made with the market prices of corresponding connected with ownership have been transferred to the buyer.
plan assets are measured at fair value at the measurement date.
assets, and the decrease in value resulting from the assets age, This usually means that revenue recognition occurs when a prod-
The Groups obligation with respect to a plan is calculated by
degree of wear and other similar factors has been estimated. uct or service is delivered to the customer in accordance with the
identifying the extent to which the cumulative unrecognized actu-
Measurement of the fair value of intangible assets is based on esti- terms of delivery.
arial gain or loss exceeds by more than 10 per cent the greater
mates of cash ows related to these assets. Revenue from long-term contracts and long-term operating
of the present value of the dened benet obligation and the fair
and maintenance agreements is recognized in accordance with
Joint ventures value of the plan assets. The excess is recognized in the income
the percentage of completion method when the outcome of the
Joint ventures are companies in which the Group shares statement over the expected average remaining working lives
contract can be estimated reliably. The percentage of completion
control with another party. The Groups holdings in joint ventures of employees participating the plan. On the IFRS transfer date,
is based on the ratio of costs incurred to total estimated costs
are consolidated proportionately line by line. The consolidated 1 January 2004, all cumulative actuarial gains and losses were
46 ACCOUNTING PRINCIPLES FOR THE CONSOLIDATED ACCOUNTS WRTSIL ANNUAL REPORT 2006
recognized in shareholders equity in the opening IFRS balance Investment properties valuation allowance for impairment on these receivables. Receiv-
sheet, as permitted by the rst-time adoption exemption in IFRS Properties which are not used in the Groups operating activi- ables are valued individually. Credit losses are expensed in the
1. Dened benet plans are calculated by qualied actuaries. ties, or which are held to earn rental income or for capital appre- income statement.
ciation or both, are classied as investment properties. Invest- Investments held to maturity are valued at cost. Investments
Share-based payments
ment properties are treated as long-term investments and are held to maturity are assets with xed or determinable payments,
Under IFRS 2 the fair value of employee options is reported
valued at cost less accumulated depreciation and impairments. that mature on a xed date, and which the Group intends and is
as an expense and an increase in shareholders equity. This does
able to hold until maturity.
not apply to any existing option plans of the Group, as these Leases Loans receivable as well as nancial liabilities are recognized
were granted before IFRS 2 came into force. Lease agreements where all material rewards and risks of
at the settlement date and measured at amortized cost using the
ownership have been transferred to the Group are classied as
Goodwill and other intangible assets effective interest rate method. Transaction costs are included in
nance leases. Assets acquired under nance lease are recognized
The difference between the purchase price and the fair value the initially recognized amount.
as xed assets at the lower of the fair value of the leased asset or
of a companys net assets and contingent liabilities at the date Derivatives are initially reported at cost in the balance sheet
the estimated present value of the underlying lease payments. The
of acquisition is reported as goodwill. Under IFRS goodwill is not and are thereafter valued at their fair value at each balance sheet
corresponding rental obligation, net of nance charge, is included
amortized but tested for impairment at least annually, and more date.
in interest-bearing liabilities with the interest element of the nance
often if there are indications of impairment. Certain derivatives are eligible for hedge accounting in accord-
charge being recognized in the income statement over the lease
Other intangible assets include patents, licences, capital- ance with IAS 39. Changes in the fair value of derivative contracts
period. Assets acquired under a nance lease are depreciated over
ized development costs, software and other intellectual property that have been signed to hedge future cash ows (cash ow
their estimated useful lives in accordance with the same principles
rights. These are valued at cost except for intangible assets iden- hedge) are reported under shareholders equity (difference in
that apply to other similar xed assets.
tied in connection with acquisitions, which are valued at the fair spot prices), provided that they meet the requirements for hedge
Lease agreements where the risks and benets of ownership
value at the acquisition date. Intangible assets are amortized on accounting. Any accrued prot or loss in the hedge reserve under
have not been transferred to the Group are classied as oper-
a straight-line basis over their estimated useful lives. Intangible shareholders equity is reported as an adjustment to selling
ating leases. Operating lease payments are reported as rental
assets, for which the time limit for the right of use is agreed, are proceeds or transaction costs in the same period as any transac-
expenses.
amortized over the life of the contract. tions relating to the hedged obligations or estimates.
The general guidelines for scheduled amortization are: Inventory valuation The Group documents the relationship between each hedg-
Development costs 5 10 years Inventories are carried at the lower of cost or net realizable ing instrument and the hedged asset upon entering into a hedg-
Software 3 7 years value. Cost includes allocated purchasing and manufacturing ing arrangement, along with the risk management objective and
Other intangible assets 5 20 years overhead costs in addition to direct manufacturing costs. Inven- the strategy applied. Through this process the hedging instru-
tory valuation is primarily based on the weighted average cost. ment is linked to the relevant assets and liabilities, projected busi-
Property, plant and equipment and depreciation
ness transactions or binding contracts. The Group also docu-
Fixed assets acquired by the Group are recorded in the Financial assets and nancial liabilities ments its ongoing assessment of the effectiveness of the hedge
balance sheet at cost less accumulated depreciation and impair- Financial assets are classied into the following categories:
as regards the relationship between a change in the derivatives
ment losses. The book values of certain land areas and buildings nancial assets designated at fair value through prot or loss,
fair value and a change in the value of the hedged cash ows or
include revaluation of EUR 3.8 million recorded prior to the transi- investments held to maturity, loans and other receivables, and
transactions.
tion date of 1 January 2004 and included within the deemed cost nancial assets available for sale. Financial assets are classied
Equity in foreign subsidiaries situated outside the euro zone is
of land and buildings in accordance with the exemption under on the basis of their purpose upon initial recognition.
hedged against exchange rate uctuations mainly through foreign
IFRS 1. The xed assets of acquired subsidiaries are valued at Cash and cash equivalents comprise cash in hand, deposits
currency borrowings and foreign exchange derivatives using the
their fair value at the acquisition date. Depreciation is based on held at call with banks and similar investments. Other liquid funds
equity hedging method to reduce the effect of exchange rates
the following estimated useful lives: comprise short-term highly liquid investments which are subject
on the Groups equity. When a foreign subsidiary is sold, these
Buildings 10 40 years to only minor uctuations in value.
translation differences are included in the gain or loss on disposal
Machinery and equipment 5 20 years Trade receivables are recognized at their anticipated realiza-
reported in the income statement.
Other tangible assets 3 10 years ble value, which is the original invoiced amount less an estimated
WE ARE DOERS ACCOUNTING PRINCIPLES FOR THE CONSOLIDATED ACCOUNTS 47
For derivatives that do not satisfy the conditions for hedge estimate can be made of the amount of the obligation. Provisions sensitivity to the risks associated with its use of nancial instru-
accounting in accordance with IAS 39, changes in fair value are can arise, for example, from warranties, environmental risks, ments. The minimum requirements are notes on credit, liquidity
reported directly in the income statement. litigation, forecast losses on projects, onerous contracts and and market risk. The standard also includes the requirement to
The fair value of interest rate swaps is calculated by discount- restructuring costs. provide a sensitivity analysis on market risk. The Group considers
ing the underlying future cash ows. Currency forwards are valued Estimated future warranty costs relating to products supplied that adoption of IFRS 7 will mainly affect the notes in the Groups
at existing forward rates at the balance sheet date. Currency are recorded as provisions. The amount of future warranty costs future nancial statements.
options are valued at their market value at the balance sheet date. is based on accumulated experience. Amendment to IAS 1: IAS 1 Presentation of Financial State-
Investments in other companies are classied as available-for- Provisions for restructuring costs are made once the person- ments Capital Disclosures (effective for periods beginning on
sale investments and are recognized at fair value. Listed shares nel concerned have been informed of the terms or a restructuring or after 1 January 2007). Following this amendment, IAS 1 will
are valued at their market value. Unlisted shares for which the fair plan has been established. The plan must indicate which activi- require information to be disclosed on the entitys capital and
value cannot be reliably measured are valued at cost less impair- ties and personnel will be affected and the timing and cost of how it is managed during the accounting period. The Group
ment. Changes in fair value are reported directly in sharehold- implementation. considers that adoption of the new IAS 1 provisions will mainly
ers equity until the shares are disposed of, at which point the affect the notes in the Groups future nancial statements.
Income taxes
accumulated fair value changes are released from equity to the IFRIC 8: Scope of IFRS 2 (effective for periods beginning on
The income statement includes taxes on the Groups consoli-
income statement. If the fair value of shares becomes perma- or after 1 May 2006). IFRIC 8 applies to arrangements where an
dated taxable income for the reporting period in accordance with
nently impaired or there is objective evidence that it is impaired, entity makes share-based payments and the identiable consid-
local tax regulations, tax adjustments for previous reporting peri-
impairment is recognized in the income statement. eration given appears to be less than the fair value of the equity
ods and changes in deferred taxes. Deferred tax liabilities and
Gains and losses on disposal and impairments of shares that instruments granted. In this situation the entity must assess
assets are calculated on all temporary differences arising from
are attributable to operating activities are included in operating whether or not such payments are covered by the scope of
the difference between the tax basis of assets and liabilities and
income, while gains and losses on disposal and impairments of IFRS 2. The Group considers that this interpretation will have no
the carrying values using the enacted tax rates at the balance
other shares are included in nancial income and expenses. impact on future nancial statements.
sheet date. The balance sheet includes deferred tax liabilities in
IFRC 9 Reassessment of Embedded Derivatives (effective
Impairments their entirety and deferred tax assets at their estimated probable
for periods beginning on or after 1 June 2006). IFRIC 9 requires
The carrying amounts of assets are reviewed at each balance amount.
an entity to assess whether a contract contains any embedded
sheet date to determine whether there is any indication of impair-
Dividends derivatives that should be separated from the host contract and
ment. The assets are divided into the smallest possible cash-
The dividend proposed by the Board of Directors is not accounted for as stand-alone derivatives when the entity rst
generating units that are effectively independent of any other
deducted from distributable equity until approved by the compa- becomes a party to the contract. Subsequent reassessment is
assets of the Group. An impairment loss is recognized when-
nys annual general meeting. prohibited unless there is a change in the terms of the contract
ever the carrying value of the assets or cash-generating unit
that signicantly modies the cash ows that otherwise would
exceeds their value in use. An assets value in use is the higher of Adoption of new and updated IFRS standards
be required under the contract. The Group currently considers
its net realizable value or the recoverable amount from the asset. The standards, their interpretations and amendments described
that this interpretation will not affect its nancial statements as
The recoverable amount is based on discounted future cash below have been released but are not yet in force and the Group
no Group company has amended the terms of any contract in the
ows. Previously reported impairment losses of tangible assets will not adopt them until the mandatory adoption date. In 2007 the
manner described in the interpretation.
are reversed if the assumptions for calculating the recoverable Group will adopt the following new and updated standards and
IFRIC 10 Interim Financial Reporting and Impairment (effec-
amount have changed. interpretations issued by the IASB in 2005 and 2006:
tive for periods beginning on or after 1 November 2006). IFRIC 10
IFRS 7 Financial Instruments: Disclosures (effective for peri-
Provisions prohibits an entity from reversing an impairment loss recognized
ods beginning on or after 1 January 2007). IFRS requires more
Provisions are recognized in the balance sheet when the in a previous interim period in respect of goodwill or an invest-
detailed information in the notes to the nancial statements on
Group has a present legal or constructive obligation as a result ment in either an equity instrument or a nancial asset carried
the signicance of nancial instruments for an entitys nan-
of a past event, and it is probable that an outow of economic at cost. The Group considers that this new interpretation will not
cial position and performance. The standard requires the disclo-
benets will be required to settle the obligation, and a reliable affect its future nancial statements.
sure of qualitative and quantitative information on the entitys
48 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS WRTSIL ANNUAL REPORT 2006
In the geographical segments net sales is split by the customers destination and assets and investments by origin.
WE ARE DOERS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 49
2. Acquisitions and disposals The assets, liabiliities and contingent liabilities of this company are Specication of acquired assets
measured at their fair value at the time of acquisition. Intangible ass- Book Fair
Acquisitions 2006 value value
ets include trademarks and customer relations, the value of which is
based on the discounted cash ow over the following 5-year period. Intangible assets 0.3 7.1
Overall impact on performance Two partly owned subsidiaries of the Singaporean subgroup were sold Tangible assets 12.6 12.7
On full-year
after the acquisition. These companies have been valued at the time of Inventories 5.4 5.5
Booked in income pro forma
MEUR statement 2006 performance acquisition at a disposal price of EUR 1.1 million. Receivables 15.8 15.8
Net sales 79.5 3,222.1 Cash and cash equivalents 6.6 6.6
Operating income 8.0 264.6 Other acquisitions Liabilities -26.8 -26.8
Wrtsil Automation Norway A/S (formerly Aker Kvaerner Power and Deferred tax liability -3.4 -7.0
In full-year pro forma performance the estimated impact of acquisi- Automation Systems AS) was acquired in February from the Norwe- Total 10.5 17.9
tions on the consolidated nancial statements is presented as if all the gian Aker Kvaerner. The company supplies propulsion and automation
acquisitons were made on 1 January 2006. systems for oil, gas and marine applications and for industrial purpos- The assets, liabiliities and contingent liabilities of the companies are
es. The acquisition supports Wrtsils growth strategy and broadens measured at fair value at the time of acquisition. Intangible assets in-
Total Automation Group its product range. The companys sales between March and Decem- clude development projects, customer relations and licence agree-
The business operations and subsidiaries of Total Automation Ltd ber totalled EUR 39 million. ments, the value of which is based on discounted cash ow over a
were acquired at the end of June. Holding a strong position in the Diesel Technology Solutions BV, a Dutch company, was acquired in useful life of 510 years. The goodwill calculated on these acquisitions
offshore and gas production sector, Total Automation specializes in February, increasing the Groups manufacturing capacity. The compa- is based mainly on the expertise of the companies employees and on
marine repair and maintenance services. The goodwill recognized by ny mainly operates as a supplier to the Groups other manufacturing synergies that will materialize as the Group gains both additional capa-
Wrtsil is based on the expertise of the companys personnel and its units. city and a broader product range.
corporate image, the value of which cannot be determined separate- The German company INTEC Injectortechnic GmbH was acquired
ly, as well as on other synergic effects expected to materialize when at the beginning of July, giving the Group additional expertise in fuel Acquisitions 2005
the companys automation services are fully integrated with Wrtsils injection technology and related services.
DEUTZ AG
Services business. The Groups Swedish subsidiary acquired the business operations
At the end of March Wrtsil acquired the service actitivities for DEUTZ
Total Automations sales between June and December amounted to of Stockholms Fartygsreparationer AB in October. This acquisition
marine engines from DEUTZ AG. In the period AprilDecember, the net
EUR 28 million. provides a platform for future expansion on Swedens east coast.
sales of the DEUTZ activities were EUR 35 million.
SCHIFFKO, a German ship design group, was acquired in Decem-
Acquisition price MEUR ber. SCHIFFKO specializes in the planning and design of marine Acquisition price MEUR
Consideration paid in cash 59.4 vessels. The acquisition supports the Groups strategic focus to grow Consideration paid in cash 114.6
Acquisition costs 0.8 as a system integrator and provider of total solutions to the shipping Acquisition costs 1.1
60.3 and shipbuilding market. 115.7
Acquired assets to fair value -22.9 Acquired assets to fair value -113.1
Goodwill 37.4 Acquisition price of above acquisitions MEUR
Goodwill 2.6
Consideration paid in cash 35.0
Specication of acquired assets Acquisition costs 0.7 Specication of acquired assets Fair
Book Fair value
value value
35.7
Acquired assets to fair value -17.9 Customer relations 85.2
Intangible assets 1.8 3.4
Goodwill 17.9 Trademark 6.4
Tangible assets 6.4 5.6
Technology 13.3
Holdings in Group and associated companies 1.0 1.4
Machinery and equipment 0.5
Inventories 9.0 10.0
Inventories 8.0
Receivables 10.8 10.8
Pension obligations -0.4
Cash and cash equivalents 4.2 4.2
Total 113.1
Liabilities -11.3 -11.3
Deferred tax liabilities -1.0
Total 21.7 22.9
50 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS WRTSIL ANNUAL REPORT 2006
Gerhardt Holding Co. Inc Imatra Steel Oy 3. Long-term construction contracts and long-term
At the beginning of December Wrtsil acquired the service activities On 22 April 2005 Rautaruukki Corporation. AB SKF in Sweden and operating and maintenance agreements
of Gerhardt Holding. The December net sales for Gerhardt activities Wrtsil Corporation signed the merger of the long steel businesses
were EUR 2 million. Net sales include EUR 202.6 million (312.3) of income recognized
into a jointly owned new company named Oy Ovako Ab. Wrtsils
based on the stage of completion of long-term construction contracts.
former subsidiary, Imatra Steel Oy, became a part of the new
Acquisition price MEUR The cumulative revenue recognized from long-term construction
company.
Consideration paid in cash 9.8 contracts in progress amounted to EUR 571.7 million (579.5), with a
Restructuring gave EUR 5.3 million goodwill in the associated
Other direct acquisition costs 0.8 result of EUR 4.8 million (3.8). The total amount of advances received
company.
10.7 is EUR 489.7 million (299.8). Trade receivables from the revenue
Acquired assets to fair value -10.7 recognition netted with the advances received are EUR 8.9 million
Value transferred MEUR
Goodwill 0.0 (77.3).
Equity at 30 April 2005 in Imatra Steel Group 71.6
Specication of acquired assets Fair Conversion of loan to equity 23.2 Long-term construction contracts
value Total 94.8 MEUR 2006 2005
Trademark 0.6 Net sales in the income statement 202.6 312.3
Machinery & equipment 2.6 Specication of transferred net assets Book
Inventories 4.7 value Long-term construction projects in progress
Receivables 3.8 Goodwill 1.0 MEUR 2006 2005
Liabilities -0.9 Intangible assets 1.5 Cumulative net sales 571.1 579.5
Total 10.7 Property, plant and equipment 74.7 Cumulative result 4.8 3.8
Investments available for sale 0.3 Advances received at 31 December 489.7 299.8
Navalips S.A. Deferred tax receivables 0.9 Trade receivables from the revenue recognition
At the beginning of December Wrtsil acquired the remaining 50% of Inventories 66.2 netted with the advances received at 31 December 8.9 77.3
its former associated company Navalips. This has been consolidated Interest-bearing receivables 1.0
as a subsidiary from the beginning of December. Trade receivables 52.8 Long-term operating and maintenance agreements
Other receivables 4.9 MEUR 2006 2005
Acquisition price MEUR Cash and cash equivalents 9.3 Net sales in the income statement 157.8 133.8
Consideration paid in cash 0.2 Non-current interest-bearing debt -29.7
Acquired assets to fair value -1.1 Deferred tax liabilities -11.5
Goodwill -1.0 Provisions -2.6
Current interest-bearing debt -44.1
Negative goodwill has been booked in the income statement. Trade payables -32.0
Other current liabilities -21.1
Specication of acquired assets Fair Total 71.6
value
Intangible assets 0.0
Property, plant and equipment 3.0
Inventories 1.0
Receivables 1.7
Cash and cash equivalents 0.5
Interest-bearing debt -0.9
Non-interest-bearing debt -3.2
Total 2.2
of which 50% acquired 1.1
Disposals 2005
WE ARE DOERS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 51
Book value at 31 December 2006 14.6 77.8 153.9 31.7 22.1 14.9 315.0
Investment properties include land areas not used by the Group. Their estimated market value is around EUR 2530 million.
During the period, investment properties were sold totalling EUR 9.3 million (19.3) generating a prot of EUR 5.8 million (8.7).
Construction
Buildings Machinery in progress Other
Land and and and & advances tangible Investment Total
MEUR water structures equipment paid assets properties 2005
Acquisition cost at 1 January 2005 24.8 213.2 649.1 11.5 66.0 14.2 978.8
Changes in exchange rates 0.1 2.4 7.8 0.3 1.9 12.6
Acquisitions 1.9 0.4 3.6 0.1 6.0
Sold companies -3.6 -12.4 -53.6 -4.4 -0.7 -74.7
Additions 8.3 35.0 12.7 6.2 62.1
Disposals -6.1 -52.7 -202.9 -0.2 -2.0 -2.2 -266.1
Intra-balance sheet transfer 0.6 -4.3 3.7 -7.3 1.4 5.2 -0.6
Acquisition cost at 31 December 2005 17.7 154.8 442.8 12.7 72.9 17.2 718.1
Book value at 31 December 2005 17.7 69.0 131.3 11.9 25.8 17.2 272.9
17. Inventories
MEUR 2006 2005
Materials and consumables 416.1 318.6
Work in progress 316.2 237.1
Finished goods 74.2 56.1
Advances paid 30.9 26.8
Total 837.5 638.6
Net deferred tax liabilities/assets -1.1 14.4 7.1 -0.7 -6.9 12.7
WE ARE DOERS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 57
Dened benet obligations at 1 January 292.7 268.8 Actual return on plan assets 7.3 24.2
Exchange rate differences -4.5 -0.3 Historical information
Current service costs 8.7 7.7
Present value of the dened benet obligation 307.4 292.7
Interest cost 8.0 11.4
Fair value of plan assets -294.8 -291.9
Benets paid -10.6 -11.1
Decit in the plan 12.5 0.8
Changes in actuarial (gain) losses 10.2 16.0
Impact of acquired and disposed companies Actuarial assumptions 2006 Europe Other
and other changes 2.7 0.2
Discount rate (%) 3.0 5.1 2.0 10.0
Dened benet obligations at 31 December 307.4 292.7 Expected return on plan assets (%) 4.0 6.9 2.5 10.0
Future salary increases (%) 1.2 4.0 1.0 10.0
Movement in plan assets
Actuarial assumptions 2005 Europe Other
Fair value of plan assets at 1 January 291.9 250.7 Discount rate (%) 3.5 6.0 2.0 13.0
Exchange rate differences -4.7 -0.2 Expected return on plan assets (%) 4.0 6.5 2.5 9.0
Contribution paid to the fund 9.6 11.1 Future salary increases (%) 1.5 4.0 1.0 10.0
Benets paid by the plan -10.2 -10.6
Expected return on plan assets 8.4 12.9
Actuarial gains (losses) -0.7 28.2
Impact of acquired and disposed companies
and other changes 0.4 0.0
Fair value of plan assets at 31 December 294.8 291.9
Unrecognised assets -15.5 -15.4
Recognised fair value of plan assets
at 31 December 279.3 276.6
58 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS WRTSIL ANNUAL REPORT 2006
Option rights for management Under the terms and conditions of Wrtsils 2001 and 2002 option Management holdings
Following the decision of the AGM on 20 March 2001 a total of schemes, should the company increase its share capital with a bonus The members of the Board of Directors, the CEO, the CEOs depu-
1,500,000 options were issued to key persons in the Wrtsil Group. issue before the subscription of shares, the share subscription ratio ty and the corporations under their control own altogether 251,406
entitling them to subscribe for Wrtsil B shares. The share subscrip- shall be amended so that the ratio to the share capital of shares to be Wrtsil Corporation shares, which represent 0.3% of the stock and
tion period began on 1 April 2003 and ends on 31 March 2007. subscribed for by virtue of the options remains unchanged. Accord- 0.3% of the voting rights.
Any extra dividends distributed after 25 May 2001 and before the ingly, the share subscription price as determined under the terms Under the 2002 option scheme issue the CEO and his deputy hold
subscription of shares will be deducted from the subscription price. and conditions of the option schemes will be divided by 1.5 and two altogether 58,000 option rights, entitling them to subscribe for at
The share option scheme covers 78 individuals. Trading in the 2001 (2) options shall entitle their holder to subscribe for three (3) Wrtsil most 87,000 shares, or 0.09% of the current total number shares and
options began on the Helsinki Stock Exchange on 7 March 2005. Corporation B shares. The effect of the extra dividend on the share 0.03% of the voting rights.
The AGM on 12 March 2002 approved a new option scheme for subscription price of the 2001 options is EUR 14.60 and on the share
key persons in Wrtsil Group. The number of options is 800,000 subscription price of the 2002 options EUR 7.40.
and they may be exercised to subscribe for Wrtsil B shares. The Under IFRS 2 the fair value of employee options is to be reported
subscription of shares began on 1 April 2004 and ends on 31 March as an expense and an increase in shareholders equity. This does not
2008. Any extra dividends distributed after 17 May 2002 and before apply to any existing option programmes of the Group, as these were
subscription of shares will be deducted from the subscription price. exercisable when IFRS 2 came into force.
Trading in the 2002 options began on the Helsinki Stock Exchange
on 1 April 2004.
WE ARE DOERS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 59
25. Provisions
2006
Warranty Foreseeable Other Total
MEUR Litigation liabilities losses Restructuring provisions 2006
Provisions at 1 January 2006 5.3 67.0 16.1 16.7 16.2 121.2
Changes in exchange rates -0.6 -0.1 -0.1 -0.8
Additions 1.3 62.3 19.9 14.6 98.2
Used provisions -1.9 -44.2 -19.2 -7.5 -6.4 -79.3
Released provisions -1.1 -0.8 -1.0 -2.9
Provisions at 31 December 2006 4.7 84.6 15.5 8.3 23.3 136.5
Non-current 19.5
Current 117.0
2005
Warranty Foreseeable Other Total
MEUR Litigation liabilities losses Restructuring provisions 2005
Provisions at 1 January 2005 9.7 70.5 22.0 41.0 6.5 149.8
Changes in exchange rates 0.4 0.1 0.4
Additions 2.4 39.9 7.8 9.3 59.3
Used provisions -2.3 -43.8 -8.1 -24.0 -1.7 -79.9
Released provisions -4.5 -5.7 -0.2 1.8 -8.6
Provisions at 31 December 2005 5.3 67.0 16.1 16.7 16.2 121.2
Non-current 17.0
Current 104.1
The Group is a defendant in a number of lawsuits that arise out of, or are incidental to, the ordinary course of its business. These lawsuits
concern issues such as product liability, labour relations, property damage and personal injury. It is the Groups policy to provide for amounts
related to these legal matters if liability is ascertainable with reasonable certainty.
60 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS WRTSIL ANNUAL REPORT 2006
Current
Current portion of long-term loans from nancial institutions 12.6 12.6 5.9 5.9
Current portion of long-term loans from pension institutions 17.4 17.4 25.8 26.1
Finance lease liabilities 1.8 1.8 1.4 1.4
Current portion of other long-term interest-bearing loans 3.0 3.0 0.7 0.6
Loans from nancial institutions, short-term 29.6 29.6 138.0 138.0
Other liabilities 1.3 1.3 2.6 2.6
Total 65.8 65.8 174.2 174.6
27. Other liabilities 29. Collateral, contingent liabilities and other commitments
MEUR 2006 2005 2006 2005
Balance Balance
Project costs 265.9 207.6 MEUR sheet debt Collateral sheet debt Collateral
Personnel costs 94.7 77.6 Mortgages given as collateral
Interest and other nancial items 13.4 24.2 for liabilities and commitments
Other accruals 92.3 76.0 Loans from credit institutions 3.3 4.4 2.9 4.0
Other liabilities 37.5 26.8 Pension loans 3.6 6.0 0.7 1.0
Total 503.8 412.2 Off-balance-sheet commitments 10.0 10.0
Total 6.9 20.4 3.6 15.0
Non-current 1.1 1.5
Current 502.7 410.7 Chattel mortgages given as collateral
for liabilities and commitments
28. Financial instruments Loans from credit institutions 2.9 2.9 3.8 3.8
The Group applies hedge accounting to signicant foreign currency Off-balance-sheet commitments 5.9 18.2 6.2 19.3
forward contracts. Total 8.8 21.1 10.0 23.1
The holdings of the President and CEO, and the members of the Board
of Directors and Board of Management at the year end were as follows:
Options 65,000 329,000
Shares 72,477 72,080
Company name and location Share % Company name and location Share %
Wrtsil Technology Oy Ab Finland 100.0 Wrtsil Canada Inc. Canada 100.0
Wrtsil Finland Oy Finland 100.0 Wrtsil de Mexico SA Mexico 100.0
Wrtsil Operations & Management Ltd Oy Finland 100.0 Wrtsil Caribbean, Inc. Puerto Rico 100.0
Wrtsil Biopower Oy Finland 100.0 Wrtsil Dominicana, Inc. Dominican Republic 100.0
Wrtsil Nederland B.V. The Netherlands 100.0 Wrtsil Lanka Sri Lanka 100.0
Wrtsil Nederland Kruiningen B.V. The Netherlands 100.0 Wrtsil Guatemala S.A. Guatemala 100.0
Wrtsil Automation Nederland B.V. The Netherlands 100.0 Wartsila Operations, Inc. USA 100.0
DTS-Zwolle B.V. The Netherlands 100.0 Wrtsil Latin America Ltd. Bermuda 100.0
Wrtsil Italia S.p.A. Italy 100.0 Wrtsil Chile Ltda. Chile 100.0
Wrtsil Switzerland Ltd. Switzerland 100.0 Wrtsil Ecuador S.A. Ecuador 100.0
Wrtsil France S.A.S. France 100.0 Wrtsil do Brasil Ltda. Brazil 100.0
Wrtsil Lips Defence S.A. France 100.0 Wrtsil Colombia S.A. Colombia 100.0
Whessoe S.A. France 100.0 Wrtsil Peru S.A. Peru 100.0
Wrtsil Propulsion Netherlands B.V. The Netherlands 100.0 Wrtsil Argentina S.A. Argentina 100.0
Wrtsil Propulsion Singapore Pte Ltd Singapore 100.0 Wrtsil Venezuela, C.A. Venezuela 100.0
Wrtsil-CME Zhenjiang Propeller Co. Ltd China 55.0 Wrtsil Development & Financial Services Oy Finland 100.0
Wrtsil Propulsion (Wuxi) Co. Ltd. China 100.0 Wrtsil Singapore Pte Ltd. Singapore 100.0
Wrtsil Propulsion Spain S.A. Spain 100.0 Total Automation Pte Ltd. Singapore 100.0
Wrtsil Danmark A/S Denmark 100.0 Wrtsil China Ltd. Hong Kong 100.0
Wrtsil Sweden AB Sweden 100.0 Wrtsil Engine (Shanghai) Co Ltd China 100.0
Wrtsil Norway A/S Norway 100.0 Wrtsil Shanghai Services Ltd. China 100.0
Wrtsil Propulsion Norway A/S Norway 100.0 Wrtsil Korea Ltd. South Korea 100.0
Wrtsil Automation Norway A/S Norway 100.0 Wrtsil Taiwan Ltd. Taiwan 96.7
Wrtsil Ibrica S.A. Spain 100.0 Wrtsil Philippines Inc. Philippines 100.0
Wrtsil Portugal Lda. Portugal 100.0 PT. Wrtsil Indonesia Indonesia 100.0
Wrtsil Deutschland GmbH Germany 100.0 Wrtsil Australia Pty Ltd. Australia 100.0
Wrtsil Intec GmbH Germany 100.0 Wrtsil India Ltd. India 89.6
SCHIFFKO GmbH Germany 100.0 Wrtsil Pakistan (Pvt.) Ltd. Pakistan 100.0
Wrtsil BLRT Estonia O Estonia 51.7 Wrtsil Bangladesh Ltd. Bangladesh 100.0
Wrtsil BLRT Services Klaipeda UAB Lithuania 51.0 Wrtsil Power Contracting Saudi Arabia Ltd. Saudi Arabia 60.0
Deep Sea Seals Ltd Great Britain 100.0 Wrtsil Gulf FZE United Arab Emirates 100.0
Wrtsil UK Ltd. Great Britain 100.0 Ciserv UAE LLC United Arab Emirates 51.0
Whessoe Total Automation Ltd. Great Britain 100.0 Wrtsil South Africa (Pty) Ltd. South Africa 100.0
Wrtsil Ireland Ltd. Ireland 100.0 Wrtsil Eastern Africa Ltd Kenya 100.0
Wrtsil Polska Sp.z.o.o. Poland 100.0 Wrtsil West Africa S.A. Senegal 100.0
Wrtsil Greece S.A. Greece 100.0 Wrtsil Japan Company Ltd Japan 100.0
Wrtsil-Enpa A.S. Turkey 51.0 Japan Marine Technologies Ltd Japan 99.7
Wrtsil Arab Mediterranean Power Ltd Egypt 100.0 Chuwac Engineering Pte Ltd Singapore 99.7
Wrtsil Lips Inc. USA 100.0 Wrtsil CIS Ltd. Russia 100.0
Wrtsil North America, Inc. USA 100.0 Wrtsil Services St. Petersburg Russia 100.0
Wrtsil Automation North America Inc. USA 100.0 Vulcan Insurance Ltd. Great Britain 100.0
Wrtsil Development & Financial Services Inc. USA 100.0 A complete list of shares and securities in accordance with the Finnish Companies Act is included in the ofcial nancial
statements of the parent company.
64 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS WRTSIL ANNUAL REPORT 2006
34. Financial risks Currency distribution 2006 Liquidity and renancing risk
Operating
Wrtsil ensures sufcient liquidity at all times by efcient cash
General Net sales cost
management and by keeping large enough committed and uncommit-
Wrtsil has a centralized Group Treasury with two main objectives. It Euro zone 64% 65% ted credit lines available.
arranges adequate funding for the Groups underlying operations on USD 15% 10% The existing funding programmes include:
competitive terms. The Treasury also identies and evaluates the nan- NOK 3% 4% Committed Revolving Credit Facilities totalling EUR 385 million.
cial risks within the Group and implements the hedges for the Group CHF 2% 3% Finnish Commercial Paper programmes totalling EUR 600 million.
companies. Other EU 3% 4% The average maturity of the long-term loans is 46 months and the
The objective is to hedge against unfavourable changes in the nan- SGD 2% 2% average maturity of the conrmed credit lines is 36 months.
cial markets and to minimize the impact of foreign exchange, interest Other 11% 11% Wrtsil Groups liquidity is good. Wrtsil had cash reserves total-
rate, credit and liquidity risks on the Groups cash reserves, prots and 100% 100% ling EUR 179.4 million at the year end as well as EUR 385 million in
shareholders equity.
non-utilized committed credit facilities and substantial Commercial
The Financial Risk Policy is approved by the Board of Directors. The
Paper programmes. Wrtsil minimizes its renancing risk by having a
Treasury employs only such instruments whose market value and risk
balanced and sufciently long loan portfolio.
prole can be reliably monitored.
Interest and other nancial expenses -43.7 -40.3 Issuance of share capital 19.0 22.1
Dividends received from operating activities 154.9 0.1 Loans receivable, increase (-) / decrease (+) -281.8 -50.7
Interest and other nancial income from operating activities 61.6 35.6 Current loans, increase (+) / decrease (-) 182.2 86.5
Income taxes -7.5 -23.7 New long-term loans 9.7 49.0
165.4 -28.3 Amortization and other changes to long-term loans -33.0 -58.3
Group contributions 3.3 57.3
Cash ow from operating activities (A) 112.5 -65.8 Paid dividends -283.2 -83.3
Cash ow from nancing activities (C) -383.7 22.6
Change in liquid funds (A+B+C), increase (+) / decrease (-) 40.2 -54.8
8. Fixed assets
Intangible assets
Other
Intangible long-term Construction Total Total
MEUR rights expenditure in progress 2006 2005
Acquisition cost at 1 January 0.9 66.2 7.9 74.5 64.2
Additions 5.2 6.2 11.4 10.3
Intra-balance sheet transfer 7.9 -7.9
Acquisition cost at 31 December 0.9 79.3 6.2 85.9 74.5
Tangible assets
Buildings Machinery Other
Land and and and Construction tangible Total Total
MEUR water structures equipment in progress assets 2006 2005
Acquisition cost at 1 January 9.9 12.2 11.5 2.3 1.6 37,4 50.7
Additions 0.4 0.0 2.1 2.6 2.6
Disposals -1.7 -1,7 -15.9
Intra-balance sheet transfer 0.2 2.1 -2.3
Acquisition cost at 31 December 8.4 14.7 11.6 2.1 1.6 38.3 37.4
Book value at 31 December 2006 8.4 3.6 0.9 2.1 0.7 15.7
Book value at 31 December 2005 9.9 1.2 1.8 2.3 0.7 16.0
Long-term debt with maturity prole Nominal amounts of rents according to leasing contracts
MEUR Bank loans Pension loans Total Payable within one year 1.9 2.9
Payable after one year 6.6 4.7
2007 7.1 16.4 23.5
Total 8.4 7.6
2008 7.1 8.4 15.5
2009 42.8 4.2 47.0
2010 63.8 63.8 18. Inner circle loans and other commitments
2011 48.1 48.1 There are no loans from senior management and the members of the Board of Directors.
Total 31 December 2006 169.0 29.0 198.0 No pledges or other commitments were given on behalf of senior management or shareholders.
Total 31 December 2005 169.0 53.7 222.7
The Board of Directors proposes to the Annual General Meeting that the companys distributable
earnings be disposed of in the following way:
EUR
A dividend of 1.75 euros per share be paid, making a total of 167,220,116.00
To be retained in shareholders equity 418,554,456.84
Totalling 585,774,572.84
No signicant changes have taken place in the companys nancial position since the end of the
nancial year. The companys liquidity is good and in the opinion of the Board of Directors the
proposed dividend will not put the companys solvency at risk.
Auditors Report
To the shareholders of Wrtsil Corporation Parent companys nancial statements, report of
We have audited the accounting records, the nancial state- the Board of Directors and administration
ments, the report of the Board of Directors and the administration In our opinion the parent companys nancial statements have
of Wrtsil Corporation for the period January 1, 2006 Decem- been prepared in accordance with the Finnish Accounting Act
ber 31, 2006. The Board of Directors and the President and CEO and other applicable Finnish rules and regulations. The parent
have prepared the consolidated nancial statements, prepared in companys nancial statements give a true and fair view of the
accordance with International Financial Reporting Standards as parent companys result of operations and of the nancial posi-
adopted by the EU, containing the consolidated balance sheet, tion as dened in the Finnish Accounting Act.
income statement, cash ow statement, statement on the chan- In our opinion the report of the Board of Directors has been
ges in equity and notes to the nancial statements, as well as the prepared in accordance with the Finnish Accounting Act and
report of the Board of Directors and the parent companys nan- other applicable Finnish rules and regulations. The report of the
cial statements, prepared in accordance with prevailing regula- Board of Directors is consistent with the consolidated nancial
tions in Finland, containing the parent companys balance sheet, statements and the parent companys nancial statements and
income statement, cash ow statement and notes to the nan- gives a true and fair view, as dened in the Finnish Accounting
cial statements. Based on our audit, we express an opinion on Act, of the result of operations and of the nancial position.
the consolidated nancial statements, as well as on the parent
Opinion
companys nancial statements, the report of the Board of Direc-
The consolidated nancial statements and the parent
tors and the administration.
companys nancial statements can be adopted and the
We conducted our audit in accordance with Finnish Standards
members of the Board of Directors and the President and CEO
on Auditing. Those standards require that we perform the audit to
of the parent company can be discharged from liability for the
obtain reasonable assurance about whether the nancial state-
period audited by us. The proposal by the Board of Directors
ments and the report of the Board of Directors are free of mate-
regarding the disposal of distributable funds is in compliance
rial misstatement. An audit includes examining on a test basis
with the Companies Act.
evidence supporting the amounts and disclosures in the report
and in the nancial statements, assessing the accounting princi-
Helsinki, 9 February 2007
ples used and signicant estimates made by the management, as
well as evaluating the overall nancial statement presentation. The
KPMG OY AB
purpose of our audit of the administration is to examine whether
Mauri Palvi
the Board of Directors and the President and CEO of the parent
Authorized Public Accountant
company have complied with the rules of the Companies Act.
Net sales 985.9 766.8 845.0 591.9 773.5 607.8 686.8 570.7
Power Businesses 985.9 766.8 845.0 591.9 773.5 607.8 655.2 483.8
Imatra Steel 31.7 87.3
Operating result 99.2 56.3 70.2 35.9 86.1 43.5 48.4 46.4
Power Businesses 99.2 56.3 70.2 35.9 86.1 43.5 43.6 29.3
Imatra Steel 4.8 17.1
Financial income and expenses -7.6 1.4 1.7 -2.6 -4.0 -9.9 -5.0 -4.5
Net income from assets available for sale 123.9 0.5
Share of prot from associates 49.7 3.7 8.3 6.7 0.9 2.9 6.8 0.4
Prot before taxes 141.3 61.4 204.1 40.0 83.0 36.9 50.2 42.2
Power Businesses and Holdings 141.3 61.4 204.1 40.0 83.0 36.9 45.3 25.7
Imatra Steel 5.0 16.5
Earnings per share, EUR 1.13 0.44 1.60 0.55 0.75 0.32 0.40 0.33
Order intake 1,317.6 1,090.0 1,190.1 1,023.4 1,100.5 870.8 1,519.8 678.0
Order book, total 4,438.9 4,108.2 3,772.1 3,415.4 2,905.7 2,544.7 2,267.9 2,066.9
Personnel, at the end of period 14,346 13,986 12,918 12,605 12,008 11,589 11,378 12,322
76 SHARES AND SHAREHOLDERS WRTSIL ANNUAL REPORT 2006
Ownership structure according to shares 31 December 2006 Ownership structure according to votes 31 December 2006
Outside Finland or nominee- Private corporations Outside Finland or nominee- Private corporations
registered 29.3% (24.1) 19.7% (20.5) registered 10.0% (7.7) 31.3% (33.5)
Dilutive effect of the option schemes Number of shares Share capital Votes
Series B % EUR % Price, EUR Subscription period
Option scheme (2001) 191,226 0.2 669,291 0.06 14.60 1 April 2003-31 March 20071
Option scheme (2002) 255,639 0.3 892,636 0.08 7.40 1 April 2003-31 March 20081
Total 446,265 0.5 1,561,927 0.14
Number of Wrtsil shares 96,000,617 and number of votes 308,216,900, if subscription rights are exercised.
1Subscription period annually between 2 Jan.-30 Nov.
Share information
Series A Series B
Share codes
Helsinki Exchange WRTAV WRTBV
Reuters WRTAV.HE WRTBV.HE
Bloomberg WRTAV.FHl WRTBV.FH
Votes/share 10 1
Number of shares 23,579,587 71,974,765
The adjacent tables are based on the book-entry accounts at 31 December 2006.
80 SHARES AND SHAREHOLDERS WRTSIL ANNUAL REPORT 2006
1Proposal of the Board of Directors. 2 Financial ratios calculated from total amount of dividend.
WE ARE DOERS WRTSIL ON THE CAPITAL MARKETS 2006 81
Sustainability
Every third ship
sailing the oceans
runs on Wrtsil power
Sustainable development requires continuous investment in
technology development and the search for new solutions.
For Wrtsil, the principal aspect of sustainable development
is ensuring that the companys products are environmentally
sound. Key features of these products are their reliability, long
lifetime, high efciency and low emission levels.
84 SUSTAINABILITY / WRTSIL AND SUSTAINABILITY WRTSIL ANNUAL REPORT 2006
Social responsibility employee. Work groups for developing the management system
Social performance involves following good practices and are appointed at the corporate level and in most Wrtsil
Wrtsil Policy for Quality,
procedures in stakeholder relations. This requires continuous Health & Safety and the Environment subsidiaries.
co-operation with suppliers, partners and local organizations. Our power solutions and services meet or exceed Management systems
The Code of Conduct sets the boundaries for Wrtsils business customers and other stakeholders expectations being:
Environment Quality
operations and their development in line with the Groups strat- reliable and safe ISO 14001 ISO 9001
egy. Other important aspects of good social performance are efcient and environmentally sound Proportion of Wrtsil 62% 82%
creating a safe working environment and operating procedures, compliant with the applicable legal companies with certication
ensuring the well-being of the companys employees and the requirements and regulations.
We continually improve our performance and reduce adverse A further 23 companies have OHSAS 18001 certication.
development of personal skills and competencies. These aspects
environmental impact, through objectives set by management,
maintain the ability of the employees to do their work, as well Product liability
to satisfy our customers and other stakeholders.
as raise efciency and improve Wrtsils position as a desira- Wrtsil endeavours to develop environmentally sound, relia-
Our business premises provide a safe and healthy
ble employer. Product safety means responsibility towards the ble and safe products. Wrtsil supports its customers through-
working environment for our employees and partners.
companys customers and its own personnel. Alongside compli- out the entire service lives of Wrtsil products by developing
Our skilled organization acts as a responsible global citizen.
ance with safety requirements, essential aspects of product environmentally sound solutions, and also offering these solu-
safety also include product support and training. Promoting good tions for use with products that are already in operation. Engine
social performance requires seamless collaboration throughout and component reconditioning lengthens the service life of prod-
the Group network. Wrtsils Board of Management approved ucts, while modernizing engines can improve the performance
the combined policy in January 2007. of power plants to the level where they meet both existing and
Voluntary commitments
future requirements.
In addition to complying with the corporate principles the
subsidiary Wrtsil Finland Oy applies an agreement signed in
1998 whereby Finnish industry voluntarily endeavours to use
energy more efciently. Wrtsil North America Inc. has joined
Code of Conduct in brief
the Customs Trade Partnership Against Terrorism ( C-TPAT )
agreement signed in 2003. 1. Compliance with the law 5. The environment
In all its countries of operation Wrtsil complies with In its R&D, manufacturing and other activities Wrtsil aims
Wrtsils management system the laws and statutes of the country in question, and to produce environmentally sound products and services.
Wrtsils management system aims to generate added value the requirements of good corporate citizenship. In manufacturing, new technology is used that supports
for Wrtsils various stakeholders, achieve the companys stra- sustainable development.
2. Openness
tegic objectives, manage operating risks, and enhance Wrtsils The company promotes openness and transparency 6. Occupational health and safety
performance through the continuous improvement process. The in its operations and aims for continuous and open dialogue Wrtsil strives to offer its employees an interesting working
system includes a range of tools, such as systems for managing with its stakeholders. environment applying high standards of occupational
quality, the companys environmental responsibilities, and occu- health and safety.
3. Respect for human rights
pational health and safety. Management reviews are conducted
Wrtsils principles include respect for international 7. Suppliers
at various levels of the organization to monitor the effectiveness human rights treaties and the promotion of equal rights. Wrtsil expects its suppliers to comply with the same
of the system, the achievement of targets and the development Wrtsil respects the right of its employees to freedom high standards regarding legal, ethical, environmental and
of key performance indicators. of association and does not accept forced labour or personnel management issues as Wrtsil itself applies.
Wrtsils Board of Management is responsible for dening child labour. The company also helps its suppliers in this task.
the companys main strategies, principles and policies and for 4. Conicts of interest 8. Implementation
the management system itself. The Board of Management regu- Wrtsil expects loyalty from its employees. Wrtsil does not Wrtsil works actively to ensure that its code of conduct is fully
larly monitors the effectiveness and performance of the manage- accept the giving or receiving of bribes. implemented. The company employs a number of methods to
ment system. Responsibilities are distributed to the line organi- assess its implementation.
zation at all levels of the company and the management system
The full Code of Conduct can be found on the companys internet website at www.wartsila.com.
denes a specic sphere of responsibility for each Wrtsil
86 SUSTAINABILITY / WRTSIL AND SUSTAINABILITY WRTSIL ANNUAL REPORT 2006
Wrtsils engines are designed to meet the requirements of Supply chain management Stakeholder relations
the European Commissions Machinery Directive, the SOLAS Wrtsils supplier requirements address both general aspects Wrtsils aims to engage in open and constructive dialogue
Convention, and other relevant safety directives, while Wrtsils and issues relating to quality, specic products, environmental with its various stakeholders. Wrtsil actively maintains relations
propulsion systems are designed to comply with SOLAS and the management, occupational health and safety and social respon- with its stakeholders, developing its activities, products and serv-
safety requirements of other relevant classication bodies. Boiler sibility. Wrtsil regularly controls that suppliers comply with ices based on the feedback it receives from them. At the corpo-
plants are designed to full the requirements of the Machinery these requirements using performance indicators and audits. rate level the company has dened its most important stakehold-
Directive and other pertinent directives such as the PED, ASME Suppliers must demonstrate compliance with these requirements ers to be its customers, owners, suppliers, employees and soci-
and CE safety requirements, in line with national requirements. in order to receive approved supplier status. The main priorities ety. Wrtsils subsidiaries dene their own primary stakeholders
New types of engines and boiler plants must also meet interna- in Wrtsils supplier evaluations are supplier selection, conform- which, in addition to the above, include local residents close to
tional safety requirements. Type approval is acquired from clas- ance with requirements and performance reviews. production plants, as well as universities and public authorities.
sication societies before new products are launched. Wrtsils Priorities vary from one company to another. Wrtsil is continu-
products are delivered with appropriate user guides that include ously enhancing its reporting performance both on its own initia-
basic information about the products and full instructions for tive and in response to feedback from its stakeholders.
their use.
Process Ofce
Head of Process Ofce
Main expectations of Wrtsils stakeholders and Wrtsils goals
WE ARE DOERS SUSTAINABILITY / WRTSIL AND SUSTAINABILITY 87
Public sector Community support Taxes and social costs by market area
Wrtsil pays various social dues and taxes to the govern- At the national level, Wrtsil provides nancial support for a
MEUR
ments of different countries. Income taxes and social dues in the number of national, cultural and social activities. The Board of
nancial period 2006 were EUR 212.5 million. The social costs Directors has supported activities focused on children and young 250
for employees contribute to the funding of pensions, unemploy- people, national defence, disabled war veterans, and medical 200
ment and other social benets that provide security and improve and technical research. Wrtsils Board of Directors contributed
150
the quality of life for the companys employees and their families. altogether EUR 70,000 to these activities in 2006.
Wrtsil companies also receive subsidies from the public 100
Donations to good causes by the Board of Directors
sector. The value of the subsidies received in 2006 was EUR 6.9
TEUR 2006 2005 2004 2003 50
million and they were mainly related to R&D projects.
Total 70 70 77 55 0
Creditors 02 03 04 05 06
At the local level, Wrtsil has provided nancial support to
In 2006 Wrtsils net nancial items totalled EUR 7.1 million. Europe Asia The Americas
cultural, educational, sports and other activities as shown in the
At the end of the year Wrtsils net debt amounted to EUR 54.7 Africa Other
table below.
million, the solvency ratio was 47% and gearing was 0.07.
Donations to local organizations1
Shareholders
TEUR 2006 2005 2004 2003
Dividends totalling EUR 167.2 million were paid to the compa- Subsidies received from the public sector 1
Total 614.1 343.5 385.0 306.8
nys shareholders. Wrtsils dividend policy is to pay a dividend TEUR
1 The 2002 2003 figures include the data from 10 major Wrtsil companies
equivalent to 50% of its operational earnings per share. In recent
and the 2004 2006 figures from 12 major Wrtsil companies. 7,000
years the company has distributed an extra dividend which is
6,000
partly based on the sale of certain non-core business interests.
Wrtsil in sustainable development indexes 5,000
The dividends paid per share are presented in notes to the nan-
Wrtsil has been admitted to the Kempen/SNS Smaller 4,000
cial statements. Wrtsil paid a total dividend of EUR 3.72 euros
Europe SRI index and the Ethibel Investment Register and the 3,000
per share and its market capitalization at the end of 2006 was
Ethibel Pioneer Sustainability Index. 2,000
EUR 3,898 million.
1,000
0
02 03 04 05 06
1 The 2002 2003 figures include the data from 10 major Wrtsil companies
and the 2004 2006 figures from 12 major Wrtsil companies.
Cost of all goods, materials and services purchased Salaries & wages by market area Net sales/employee
MEUR MEUR TEUR
0 0 0
02 03 04 05 06 02 03 04 05 06 02 03 04 05 06
Europe Asia The Americas
Africa Other
90 SUSTAINABILITY / PRODUCTS, R&D AND THE ENVIRONMENT WRTSIL ANNUAL REPORT 2006
Products, research & Technology plays a central role in efforts to reduce climate
change and prevent pollution. Wrtsil gives heavy priority to
Organization ) and the World Bank. Other important environmen-
tal restrictions on Wrtsils products are the US EPA and the
developing and applying technology with the aim of reducing the German TA-Luft regulations often applied to gas engine plants
development and environmental impacts of its products. For the company to meet
its customers needs, be prepared for future requirements and
and the emission limits on diesel engines set by India and Japan.
Wrtsils products comply with the requirements of these
the environment remain a frontrunner in the industry, Wrtsils product develop-
ment must be continuously innovative, determined and willing to
institutions.
Reducing greenhouse gases will have a signicant impact
explore new technologies. on the power generation business. Wrtsil supplies decen-
Wrtsils product development endeavours to increase the tralized solutions for power generation that provide high ef-
service life of the products, improve their reliability and make ciency with relatively low carbon dioxide emissions. The modu-
them more environmentally sound. Investing in product develop- larity of Wrtsils solutions enables customers to optimize the
ment benets Wrtsils customers as well as the environment, plant size, while Wrtsils multifuel solutions help them switch
both in the short-term and over a longer time span. Growth in exibly to cleaner fuels whenever necessary. Another method of
the worlds energy needs combined with increasingly stringent reducing greenhouse gases is to build more combined heat and
environmental requirements creates a challenging operating power ( CHP ) plants as their big advantage is efcient energy
climate for companies in Wrtsils line of business. Wrtsil consumption.
has responded to these challenges by improving the energy Wrtsil actively monitors legislative initiatives and changes
efciency of its products while simultaneously reducing their in environmental legislation to ensure the companys ability to
emissions. respond appropriately to the operating conditions of the future.
Wrtsils R&D takes into account the requirements of the chang-
The drivers of sustainable development
ing operating environment and develops products that give the
From the viewpoint of sustainable development, the main
company a competitive edge.
themes for developing the business environment are new legis-
lation, the availability and price of natural resources especially Fossil fuels and climate changes
fossil fuels climate change, and a general change in attitude. There will be little signicant change in the usage of fossil
Solutions to the challenges of sustainable development for their fuels during the coming two decades. However, declining
part are largely inuenced by technological development and the reserves, the lack of sufcient production and rening capacity
ability to apply new technology. and growing demand have all been pushing up the price of oil in
recent years, spurring increasing interest in alternative fuels.
International legislation and initiatives
In Wrtsils business, environmental pollution is regulated at
the international level mainly by the IMO ( International Maritime
Prices of fuel oils
US$/tonnes
350
300
250
200
150
100
50
0
02 03 04 05 06
HFO-ARA HFO-F-MED LFO-ARA
Source: Reuters
WE ARE DOERS SUSTAINABILITY / PRODUCTS, R&D AND THE ENVIRONMENT 91
The use of natural gas is growing owing to improved supplies Product development is based on effective work process reduce specic fuel consumption, carbon dioxide emissions and
and its environmental advantages. In the past, natural gas has management to ensure that the set targets are reached. These engine lifecycle costs. Successive objectives for improvements
been used by onshore power plants, but today marine vessels boundary conditions form the hub of the process around which to be available onboard ships are set for 2010 and 2020.
are making increasing use of liqueed natural gas ( LNG ) for fuel. a reliable and cost-effective product is developed. The perform- The Hercules project, funded by the EU Commission, is a part
International climate agreements, likewise, are boosting the use ance of the products and their features are veried through simu- of the EUs Sixth Framework Programme. A consortium consist-
of natural gas signicantly. When using natural gas carbon diox- lations and tests. Wrtsil actively develops the compatibility ing of 39 partners from 10 countries is responsible for the reali-
ide emissions are 25% lower than in the case of oil and 40% of its products and common technology platforms, as well as zation of the project. As a result of the Hercules activities both
lower than for coal. An even more effective way to reduce carbon designing products that are easy to manufacture. A substan- the Extreme Value Engine ( EVE ) and the testing environment in
dioxide emissions is to adopt renewable energy sources such as tial proportion of the companys investments in product devel- the Internal Combustion Engine Laboratory of Helsinki Univer-
biofuels. opment is targeted at reducing environmental impacts. Total sity of Technology have been entirely renewed. Another impor-
R&D expenses are shown in the Financial Review section of this tant achievement is the completion of a new test facility based
R&D principles and most important
report. on a high-temperature spray combustion chamber for testing
R&D programmes
The most important R&D priorities for Wrtsil in recent years large-bore diesel engines. Using these advanced testing facili-
Wrtsil applies new technologies that cross traditional scien-
have included the application of common-rail technology to its ties, Wrtsil has succeeded in creating an excellent platform
tic disciplines and conventional industrial boundaries to solve
engines, reducing emissions, improving efciency and broaden- for further enhancement of its engines aiming at next-generation
product development tasks, thus producing added value for
ing the range of suitable fuels. The use of multifuel engines give products featuring high efciency and low emission levels.
its customers. Wrtsils R&D organization creates the basic
customers more exibility in selecting fuels and in reducing the The Hercules programme ends in September 2007. The main
elements that make a product both desirable and competitive.
environmental impacts of their operations, offering environmen- parties in the present programme, Wrtsil and MAN Diesel, are
Wrtsils R&D activities focus on products and applications that
tally sound solutions with low running costs far into the future. preparing a follow-up project to be executed within the EUs
are reliable, self-diagnostic, cost-efcient to operate and produce
Major R&D programmes during 2006 related to the Hercules Seventh Framework Programme. The main focus of this follow-
minimal environmental impacts throughout their lifecycles. The
project, the Advanced Diesel Generating Set project, and the up project will be to further improve total engine efciency and to
company takes a proactive approach to managing its intellectual
development of fuel cells. Wrtsil also co-operates with a reduce exhaust gas emissions down to ultra-low levels.
and industrial rights through incentive schemes for its employees
number of leading European universities conducting research
that encourage innovation and initiative. A paramount priority in Advanced diesel generating set ( GENSET )
into engine technologies.
Wrtsils R&D activities is to develop and safeguard the compa- The main aim of this project, which is funded by Tekes, the
nys critical areas of expertise. Wrtsils research organization The Hercules project Finnish Funding Agency for Technology and Innovation, is to
has long-term co-operation agreements with research institutes, Wrtsil is a participant in the Hercules project, the aim of develop a compact and highly competitive diesel generating set
engineering consultants, licensees and other corporate partners which is to develop new technology to reduce gaseous and by exploiting the benets offered by permanent magnets and
in elds that are of crucial importance to the well-being of society particulate emissions from marine engines. A second objective axial ux technology. The plan is also to make an inventory of the
and conservation of the environment. is to increase engine efciency and reliability, which in turn will knowhow available at a number of Finnish research institutions in
order to create concepts for future fuel injection systems, valve will evaluate various pre-commercial applications. Commercial- A wide-reaching environmental study concerning wastewa-
actuating systems and turbocharging systems. Prototype design ization of fuel cell units for onshore and offshore power plant ters has been started by various research institutes and maritime
was completed during 2006. Several engine components and applications will start at the beginning of the next decade. In authorities. The report proposes the development of waste treat-
concepts were tested in support of the design work. It is planned 2007 Wrtsil is participating in three major EU-funded develop- ment systems to prevent them from imposing negative impacts
to commence validation of the prototype advanced diesel gener- ment projects in which three fuel cell units developed by Wrtsil on the ecosystem. The results of the report will also be released
ating set in spring 2007 at the Waskiluoto Validation Centre in will be built and tested. to members of the International Maritime Organization ( IMO ) in
Vaasa, Finland. order to establish the wastewater criteria necessary to the design
Reducing sulphur oxide emissions from marine engines
of an exhaust gas scrubber.
Development of fuel cell technology Currently, the only way of reducing the sulphur dioxide emis-
Wrtsil is using this project to gather unique knowhow on
A fuel cell is a clean, efcient and reliable method of produc- sions from existing diesel engines is to use a lower-sulphur fuel
exhaust gas scrubbers in ships for both new equipment and
ing energy, making it a highly attractive option for commercial or a secondary cleaning method. Marine diesel engines normally
retrotting. The results of the project will be employed exten-
power production. Wrtsil is committed to supplying its custom- run on heavy diesel oil ( HFO ), which typically has a sulphur
sively in a number of different applications.
ers with efcient and environmentally sustainable power genera- content in the range of 1.5 3.5%. Low-sulphur fuel ( below
tion solutions. Developing the energy generation technologies of 1.5% ) can be used assuming this is available and bunker- Collaboration with stakeholders
the future, such as fuel cells, is a key element in Wrtsils strat- ing costs are not excessively high. For this reason a secondary Wrtsil has long collaborated with different stakeholders.
egy for sustainable development. system might be a suitable solution for reducing sulphur dioxide Co-operation with customers and suppliers creates added value
Wrtsil has been developing fuel cell technology for decen- emissions. for the entire supply chain as well as for the end-customer. Iden-
tralized power generation and marine applications since 2000. Wrtsil started a two-year project in 2006 with the purpose tifying and achieving common goals succeeds best through co-
The companys fuel cell development team is focusing on devel- of testing an exhaust gas scrubbing device to remove sulphur operation with the whole supply chain. A good example is the
oping, designing and manufacturing a solid oxide fuel cell oxides ( SOx ) from the exhaust gases of marine diesel engines Enviropax project, in which the parties involved jointly developed
( SOFC ) system. In this work Wrtsil is taking advantage of its and oil-red boilers when using typical grades of HFO. a concept for a vessel that can improve the overall efciency of
extensive knowhow in combined heat and power generation, The aim of the project is to study the practical viability of such ships by up to 10% compared to conventional solutions.
and the companys in-depth knowledge of its marine customers scrubbing devices in real applications and to identify any techni- Wrtsil is collaborating with Mitsubishi Heavy Industry in the
needs. cal difculties arising from their use. The project involves study- elds of product development, manufacturing and distribution.
Part of the R&D programme covers the development of the ing the effect of the scrubbers structure on its performance, life- Wrtsil is also developing two new engine types in co-operation
WFC20 alpha prototype, a 20 kW SOFC unit. Wrtsil plans to time and operational economy, as well as the effect of the scrub- with Hyundai Heavy Industries. At the end of 2006 Wrtsil
introduce its rst commercial demonstration units in the 50 kW ber on engine performance, along with the scrubbers installation started co-operation with Becker Marine Systems aimed at
range within the next couple of years, after which the company requirements, wastewater criteria, ecological impacts, and any further development of marine propeller-rudder systems.
incidence of acid rain and white smoke.
WE ARE DOERS SUSTAINABILITY / PRODUCTS, R&D AND THE ENVIRONMENT 93
Customers options Typical composition of the exhaust emissions Power-to-weight ratio of Wrtsils medium-speed
of a large diesel and gas engine engines for 6-cylinder in-line engines
Planned or optimized maintenance and correct operation, Vasa 14T, 14TK, 24TS Vasa 22
personnel training, overhauling and recycling components WV32, W32 W20 W46
Efcient and planned operation of power plant, personnel training, recycling catalysts
Development of the shaft efciency Engines connected to CBM
Proper operation and maintenance, optimizing process parameters of Wrtsils best engines
% No. of engines
Planned and optimized maintenance and correct operation,
personnel training, using environmentally benign fuels 50 500
48 400
Using environmentally favourable lubricating oils,
using environmentally favourable seals
46 300
44 200
Planned and optimized maintenance and correct operation,
personnel training, recycling 42 100
The environmental aspects of Wrtsils products are mainly related to their use. The most signicant environmental aspects concern
Optimizing process parameters engines. In order to produce mechanical and thermal energy engines use fuel and lubricants, which results in various kinds of exhaust
emissions and waste. Engine running also results in waste heat from the exhaust gases and cooling water. The main environmental
aspects and impacts of Wrtsils products and applications, as well as Wrtsils solutions to these, are explained in the table opposite
Correct operation
and on Wrtsils Sustainability internet pages www.wartsila.com/sustainability.
96 SUSTAINABILITY / PRODUCTS, R&D AND THE ENVIRONMENT / SHIP POWER WRTSIL ANNUAL REPORT 2006
The RoPax ferry machinery features a typical twin-shaft Solutions for efciency improvement
arrangement used widely in this vessel type. The machinery Concept Major benets Presented in Update ( December 2006 )
consists of four Wrtsil 6L50DF propulsion engines and two report
6R32DF auxiliary engines. Enviropax Lower lifecycle costs 2004 & 2005 No such concepts sold.
The storage of fuel in existing LNG-fuelled vessels is not Increased cargo space
very efcient due to their cylindrical-shaped tanks. In this new Extremely low smoke and NOx emissions
concept an alternative tank arrangement was investigated and an LNG Carrier machinery Higher efciency compared to 2004 & 2005 Applying its innovative dual-fuel technology,
IHI-SPB type storage tank used in LNG carriers was found appli- the steam turbine Wrtsil enables a reduction in CO2 emissions
Lower exhaust emissions of 41,000 tonnes per year from ships com-
cable. This provides an easier tank construction and a geometri-
Optimized vessel design with increased pared to building these ships with traditional
cally freely selectable shape, which will result in saved space and cargo capacity and operating speed machinery solutions. Wrtsil has orders for
also a smaller rst cost. DF engines to 52 LNG carriers. The rst two
One goal of this concept study was to establish the cost vessels entered commercial operation in the
last quarter of 2006.
impact of DF machinery compared to a conventional HFO
arrangement. Additional equipment is needed when using LNG, Waste Heat Recovery Lower fuel costs 2005 39 engines of type RT-ex96C had entered
Reducing emissions into operation by the end of 2006, increasing
but conversely a large amount HFO-related machinery can be
fuel economy by 11%. Other solutions will
eliminated. The DF version costs roughly the same as the HFO- follow. Theoretical investigations have been
machinery version in series-produced new-builds. started to increase the WHR rate.
Owing to the elimination of the HFO components, the electri- Delta Tuning Lower fuel consumption 2005 Delta Tuning is highly accepted in the market.
cal power consumption is lower for DF machinery, which results It is estimated that more than 50% of the
in a reduced total energy demand. The low temperature of LNG RT-ex engines are sold with Delta Tuning.
The choice between standard and Delta tuning
can also be utilized for vessel air conditioning, which further
allows optimization of the fuel consumption
reduces the energy consumption. A fuel consumption calculation and consequently CO2 emissions according to
for a typical operating prole between Finland and Sweden indi- the specic ship operating conditions.
cates over 5% savings measured in used fuel energies. LNG Cruise Ferry Eliminated SOx emissions and 2005 Development of LNG-fuelled vessel concepts
reduced NOx and CO2 emissions is continuing. No LNG-fuelled ferries sold with
Cost-effective operation in various Wrtsils concept so far.
operation modes
120
100
80
60
40
20
0
HFO engines HFO engines DF engines: DF engines:
+ SCR MDO LNG
CO2 NOx SOx
98 SUSTAINABILITY / PRODUCTS, R&D AND THE ENVIRONMENT / SHIP POWER WRTSIL ANNUAL REPORT 2006
The calculated reductions for exhaust emissions with DF Case: Hybrid propulsion systems for yachts Hybrid propulsion systems have been applied to fast yachts
machinery are 31% for CO2, 89% for NOx and 99.8% for SOx For large yachts and ferries, there is a need for propulsion for some time now. The basis for these applications has been the
when compared to standard HFO machinery without SCR systems adapted to unique varied mission proles and varying operating prole:
( Selective Catalytic Reduction ). Using SCR, NOx emissions sailing speeds. The higher the ship speed, the larger the power a transatlantique / long-range condition with only propellers at
with HFO machinery can be reduced, but CO2 and SOx will still density on the propeller. An increase in power density means a approximately 15 18 knots
remain unchanged. more complicated design. For propellers there is an upper limit cruising at 22 knots ( top speed with propellers only )
When taking into account both capital and operating costs, in power density given the possibility of thrust breakdown. This high-speed condition /30+ knot with jet and propellers
the DF machinery shows an annual saving of almost 1 million limit stands at about 1.8 MW/m2, which implies that for large ship
The propeller loadings stay moderate, while use of the
euros at current fuel prices, compared to corresponding HFO speeds using propellers only, the propeller may be too big and
booster jet gives the top speed which is only occasionally
machinery. too heavy to be accommodated under the vessel. The situation
used. The hybrid solution is 25% more costly than a conven-
is exactly opposite for waterjets; the higher the ship speed, the
Efciency of propulsion systems tional system, but it offers greater exibility and lower opera-
higher the maximum power density ( a power density of 5 MW /m2
The propulsive efciency of a propeller is affected both by tional cost. By having a booster waterjet system the propeller
is possible, which leads to a compact system ). This favourable
the open-water efciency of the propeller and by the interaction size can be kept low and lightly loaded. Also the propeller offers
characteristic of the waterjet offers its fullest benet at large
between the hull and the propeller. Overall propulsion efciency, good performance and efciency at lower ship speeds. As such
ship speeds. At low ship speeds the waterjet power is limited
therefore, can be enhanced by improving the efciency of the the hybrid propulsion system has been applied to large yachts,
by cavitation. A further challenge for yachts is how to optimize
propeller, the hull, or both. enabling efcient operation at low ship speed and the possibility
the propeller noise around 20 knots without using large propeller
of high ship speed operation with a still limited size of propellers
Solutions for improved propulsion system efciency diameters which are difcult to match with the hull geometry.
taking advantage of the characteristics of the waterjet. This leads
Wrtsil is actively promoting products which in them- For current yachts the normal propulsion machinery is two
to the overall conclusion that a combined system offers superior
selves improve the propulsive efciency. These are the Ef- propellers driven by diesels. High levels of efciency can be
propulsive efciency. The overall gain compared to a propulsor
ciency Rudder, the HR nozzle, the E hub Controllable Pitch reached with relatively large propellers and high propulsive ef-
concept with two propellers is at least 5%.
Propeller introduced in 2005, and various control systems, with- ciency throughout the speed range, ensuring full availability.
out of course forgetting propeller design tailored to match each Propulsion efciency is a slightly different matter where a Case: The fast yacht Ecstasea
application. waterjet is concerned. For low ship speeds and given jet dimen- An existing solution of a hybrid propulsion system for a naval
sions the ratio of inlet speed to outlet speed decreases, which application is the fast yacht Ecstasea. This vessel is required
results in a low overall efciency. At high ship speeds, however, to combine a high-speed capability with efciency at low ship
efciency is much higher. speed. The ship is designed by Feadship and has a length
of 86m. It combines a LJ210E ( 23.000 kW ) waterjet with two
controllable pitch propellers of 4,640 kW each.
WE ARE DOERS SUSTAINABILITY / PRODUCTS, R&D AND THE ENVIRONMENT / SHIP POWER 99
The waterjet propulsor remains well protected in the hull and Solutions for improving propulsion efficiency
does not increase the ships draught. The controllable pitch Product Major benets Presented in Update
propellers are four-bladed designs with a propeller diameter of report
2.6 m and a hub with a diameter of 800 mm. A special blade Efciency Rudder Optimum performance for both steering 2004 & 2005 Performance improvements have been
design is applied to secure a high inception speed. The Wrtsil and fuel consumption demonstrated by various projects. Manufacture
Lips LJ210E waterjet has a 2.8 m diameter six-bladed impeller Reduction of power required to obtain of the cost-optimized rudder is under consider-
and intake duct diameter of 2.1m. a certain ship speed ation. Lowering the investment cost would
support the wider application of the rudder.
Reducing emissions
HR nozzle Larger thrust and increased bollard pull 2004 & 2005 Full-scale performance data have been ana-
Emissions to the air lysed based on several applications of the HR
Most harbours in the world are located close to densely popu- nozzle. Comparison with detailed ow calcula-
lated areas and for this reason the demand for no visible smoke tions have been carried out to validate the pre-
diction made. Current experience conrms
under any circumstances has become increasingly important in fuel savings compared to the conventional
recent years. Common-rail injection technology now makes it nozzle types.
possible to provide smokeless engines. Wrtsil has the widest E-hub Minimum hub size can be selected 2004 & 2005 The hub has been introduced on the market.
range of products available with common-rail technology for Improved efciency of ice-strengthened Several model tests are available that conrm
heavy fuel operation. controllable pitch propellers proper performance. First full-scale service
The focus on reducing NOx emissions continues to be of experience is obtained and favourable.
importance within the marine business. Also existing Wrtsil Tip rake ( specially Improved propeller efciency 2005 Several applications have been designed
and Sulzer engines can be modied with NOx reduction tech- developed blade Reduced vibration and noise and applied as practical cases. Studies
tip geometry ) indicate the favourable characteristics of
nologies ( common-rail injection, WETPAC H, WETPAC DWI and the approach. Practical experience is good.
SCR ).
Wrtsil has produced a new series of the non-polluting Emission reduction technologies
sterntube shaft seal called the AC Enviroseal. The rst of these, Area of Technology Principle Benet Engines Output
EcoSafe, have been tted to two new twin-shafted vessels for concern ( MW )
Seatruck Ferries: Clipper Point and Clipper Race. These ferries Smoke Wrtsil The injection pressure is kept high and stable throughout Smokeless 72 673
will operate a fast, freight-only service on the Irish Sea between common-rail the load range. Optimal engine operation is achieved at all operation
Heysham and Warren Point. The seals were selected for their engines speeds and loads.
environmental performance and long service life. The seals are Wrtsil Precise control of the injection, high injection pressures at Smokeless 332 12.730
part of a Wrtsil Package that includes main, auxiliary and RT-ex engines low engine speeds and the sequential shut-off of the injec- operation
tors combine to give steady running at low running speeds, Reduced
emergency engines, controllable pitch propellers, transverse
down to 10 12% of nominal speed. operating costs
thrusters and gearboxes.
NOx WETPAC H Pressurized water is added to the intake air after the turbo- Reduction 48 137
( Humidication ) charger compressor. The water evaporates instantly and typically 40%
Compliance with regulations
enters the cylinders as steam, reducing the combustion
NOx emissions temperature and thus NOx formation.
The minimum environmental requirement set by Wrtsil for WETPAC DWI A DWI valve, through which the water and fuel is injected Reduction 61 585
its Wrtsil brand marine engines is compliance with the NOx ( Direct Water into the cylinder. typically 50%
Injection )
emissions limits stipulated in MARPOL 73/78 Annex VI.
SCR A reducing agent, such as an aqueous solution of urea, is Reduction 94 487
Sulphur content in fuel ( Selective injected into the exhaust gas. The urea in the exhaust gas 85 95%
A range of new regulations related to the sulphur content in Catalytic decays into ammonia, which is then put through a catalys-
fuel is currently at the implementation phase. Reduction ) ing process that converts the NOx into harmless nitrogen
and water.
The special IMO and EU requirements for SECA areas
( Sulphur Emissions Control Area ) on the 1.5% maximum sulphur
in marine fuel content entered into force in the Baltic Sea in May
2006 and will be implemented in the North Sea and English
Channel in the autumn 2007.
WE ARE DOERS SUSTAINABILITY / PRODUCTS, R&D AND THE ENVIRONMENT / SHIP POWER 101
In 2006 the fuel sulphur content was restricted to 1.5% for all over from one fuel to another, in some cases to a distillate fuel. Smoke
passenger ships operating in regular service to or from EU ports Wrtsil has issued guidelines and can offer technology for Alaska enforces regulations governing the permitted smoke
and within EU territorial seas. design and modication of the fuel system onboard to comply. levels from ships. Wrtsil has demonstrated its compliance with
From 2010 the sulphur content of all marine fuels used in However, the Wrtsil engine itself ( old and new ) can cope with these regulations in a number of projects.
EU ports and inland vessels by all ships will be restricted to any fuel sulphur content.
maximum 0.1%. For new-builds expected to operate purely within fuel sulphur Read more about the Ship Power business in
the Business Review section of this report.
The California Air Resource Board ( CARB ) has issued restricted areas, fuel and lubricating oil lling, storage, transfer,
reduced sulphur in fuel regulations applying to auxiliary engines separation, and supply systems can in principle be arranged as
( including diesel-electric ) on ocean-going vessels operating on a traditional HFO ship. However, to enhance the exibility and
within 24 nautical miles of the California coastline. The maximum second-hand value of the ship, consideration could be given to
sulphur in the fuel content is 0.5% from January 2007 and 0.1% designing these systems also for alternating operation inside and
from January 2010. outside the SECA areas.
Additionally several voluntary regimes have been established Onboard exhaust gas cleaning of SOx by using a scrubber
alongside the mandatory regulations. For example in Sweden system is an alternative to the use of high-cost, low-sulphur fuel
new sulphur-related fairway dues have been differentiated with qualities. Wrtsil has initiated a project aiming at developing and
the following limits: testing marine scrubber technology. The project will investigate
0.2 and 0.5% for passenger vessels the effect of scrubber design on performance, lifetime and econ-
0.2, 0.5 and 1.0% for other vessels. omy, installation requirements, discharge water criteria, ecolog-
Due to the new regulations, the shipping community is faced ical impact, risk of acid rain droplets, and white smoke, etc.
with new challenges on a large scale, especially those ships that Through this project Wrtsil is developing unique knowledge
will operate both inside and outside restricted areas, switching and expertise about scrubbing technology for both new buildings
and retrot installations.
Sulphur emission controlled areas Updates on marine sulphur in fuel regulations and future plans
Operations & Maintenance Agreement Some Wrtsil Services solutions Pulse Lubricating System Retrot
When operated and maintained properly, power plants The cost of cylinder lubricating oil is becoming an increas-
Condition-Based Maintenance ( CBM )
achieve high levels of reliability and energy efciency, long serv- ingly critical issue for vessel operators, as market prices for lubri-
Condition-Based Maintenance ( CBM ) is based on a unique
ice life and low emissions. Under an O&M agreement, Wrtsil is cating oil constantly rise and availability may weaken. Wrtsil
combination of local inspections and remote monitoring of the
responsible for ensuring that the installation meets set perform- has developed the electronically-controlled retrot pulse lubricat-
mechanical condition and operating data. The system makes
ance and protability targets and lifetime criteria, freeing owners ing system ( PLS ) to reduce cylinder oil feed rates. The system
predictive maintenance possible, which minimizes interruptions
to concentrate on their core business. Training of customers staff reduces cylinder oil consumption without compromising piston
to operation, increases safety and optimizes plant performance.
is provided in specic products and plant types as required. running reliability.
At present ( December 2006 ) 104 marine and power plant instal-
The guide feed rate for Wrtsil RTA and RT-ex engines
Training Agreement lations, with altogether 428 engines, are connected to this expert
retrotted with the PLS system is 0.8 g/kWh of cylinder lubricat-
To help customers maintain their installations at optimum reporting service.
ing oil.
performance levels, Wrtsil offers its customers training in oper- Units linked to the CBM system are not serviced at regu-
The PLS lubricating system reduces the cylinder oil feed rate
ation and maintenance in specic product types. Statistics show lar intervals; instead, service is based on real need. Experts
compared with the existing system by improving oil distribution
that this sort of training can signicantly reduce the incidence of compare and assess reports and remotely measured data from
to the piston rings. It also makes possible a completely exible
operation-related problems. the installation and recommend specic service action based on
and precisely timed oil delivery.
The Wrtsil Land & Sea Academys Learn@Sea and Learn@ this information.
Plant programmes focus on specic issues for the marine and Service experience
Retrotted new technology
power plant business segments respectively. Other training pack- Service experience has been gained with the retrot pulse
Developments in technology make it possible to apply new
ages cover Human Capital Development & Management ( CHDM ) lubricating system both on the Wrtsil RTX-3 laboratory engine
technical advances to old equipment. Upgrades are made to
and Competence & Career Management ( C&CM ). and on shipboard test engines. The rst production engine fully
improve the economic and environmental performance and the
Wrtsil Land & Sea Academy also provides general seafaring tted with Retrot PLS successfully passed its shop test in May
safety and reliability of systems.
training relating to the ships engine room and other ship handling 2006 and since then the system has been approved and installed
Examples of technology applications include a pulse lubri-
and design needs. The curriculum includes basic courses in sea on several engines.
cating technology for 2-stroke engines, launched in Septem-
safety and load handling, search and rescue courses, and navi- The rst Retrot PLS test started on the RTX-3 research
ber 2006, and a fuel system conversion, from oil to gas. Demand
gation and management courses ( resources, environment and engine in June 2003. Shipboard testing began with a Wrtsil
for these conversions has increased signicantly in response to
safety ). In addition to the basic courses, the Academy holds RTA58T in September 2004 and later on an RT-ex96C engine.
changes in fuel availability and prices and to ever stricter emis-
follow-up and refresher courses and courses tailored to individual The system has accumulated more than 14,000 running hours in
sion requirements.
needs. It is also possible to take accredited training programmes shipboard testing. The PLS performed outstandingly throughout
at the Academy to obtain IMO/STCW-95 certication.
40
20
0
Scheduled CBM
maintenance
EIAPP certication of updated engines this test period, with a feed rate constantly at or below the guide Low-Pressure Natural Gas Conversion ( SG )
rate of 0.8 g/kWh. Converting Wrtsil Vasa 32, Wrtsil Vasa 32LN and Wrtsil
Engine builder 32 engines to the Wrtsil 34SG specication obtains the bene-
Gas conversion
ts of low-pressure natural gas in a spark-ignited otto cycle. The
Supplying IMO
When an installation is designed, capital investment focuses
converted engine offers the same benets as factory-built 34SG
coded parts on anticipated energy trends and existing environmental regu-
engines: high efciency, low NOx emissions, lean-burn and the
lations. Over the lifetime of the installation, which is usually
most advanced technology.
more than 25 years, fuel prices vary and environmental require-
Wrtsil ments become stricter. These factors often affect the protabil- Dual-Fuel Conversion ( DF )
ity of the investment and may result in a different load prole, or Wrtsil 25, Wrtsil Vasa 32, Wrtsil 32 LN and Wrtsil 46
IMO code in the need to invest in emission control technology or change engines can now be converted into dual-fuel ( DF ) engines and
Upgrading the engine inspection to another fuel. An engine conversion is a simple way to restore can then operate on low-pressure natural gas in an otto cycle
by surveyor
protability and comply with environmental requirements. or with other fuels, such as LFO or HFO, in a diesel cycle. Natu-
ral gas operation is becoming a more attractive proposition all
Gas-Diesel Conversion ( GD )
around the world, and for many installations the only restriction
A gas-diesel engine functions by injecting high-pressure natu-
on converting to gas is the limited availability of gas. Gas distri-
Approved measuring ral gas into the diesel cycle, which means that only the engine
Inspection bution channels are expanding, however, and the use of natural
procedure and equipment. by surveyor injection equipment and control systems need to be modied.
Delivery of documentation. gas in many industries, including power generation, is expected
Ignition is with LFO pilot fuel and it is always possible to switch
to increase rapidly.
fuel, giving maximum fuel exibility. GD conversion is available
Engine builder for Wrtsil Vasa 32, Wrtsil Vasa 32LN, Wrtsil 38A and
Wrtsil 46 engines.
Technical File & applying for the EIAPP certicate
Classication society
( Flag State
Marine Authority ) Wrtsil has converted the old Wrtsil 16V46 engine at the Denizli Cimento
power plant in Denizli, Turkey, into a 16V50DF dual-fuel engine. The conver-
Approve Technical File sion to gas has been successful and both fuel costs and emission levels
have fallen. The power plant has been approved by Turkeys environmental
authorities and now operates awlessly, generating more environmentally
Issue the Certicate sound electricity.
Accumulator system
Pulse lubricating system
WE ARE DOERS SUSTAINABILITY / PRODUCTS, R&D AND THE ENVIRONMENT / SERVICES 105
Gas scrubbing Install an exhaust gas Can be used everywhere ROI depends on price difference
cleaning system on board Easy operation between HFO and HFO with low
Works with high %S sulphur
Blending on board Blend fuel prior to use in Flexible High operating cost
engines or boilers to match Low investment Blending stability
area requirements Verication by class
Running 1.5%S Changeover to 1.5%S fuel Flexible High operating cost
or MDO in SECA areas Small investment Fuel changeover
Fuel availability
BN management
Balance emission Balance emission between Convenient High operating cost
equipment so that the ship Lower operating cost Real-time sulphur
is globally compliant than MDO monitoring
Running MDO Run full-time in MDO Convenient High operating cost
No changeover Tank size
106 SUSTAINABILITY / PRODUCTS, R&D AND THE ENVIRONMENT / POWER PLANTS WRTSIL ANNUAL REPORT 2006
Power Plant Solutions The main products of Wrtsils Power Plants business are
gas-engine plants running on natural gas, and diesel engine
Operational exibility in the case of Wrtsil power plants
means the ability of the plant to adapt to the needs of the elec-
Wrtsils power plant solutions are based on diesel, gas plants running on heavy fuel oil. Alternative fuels include bio-oils tricity grid and thus act as a stabilizing factor in the grid.
or dual-fuel engines that are designed to run on various and crude oils. Of Wrtsils total power plant orders, the propor- Rapid start-up, good load characteristics, and high efciency
tion of power plants running on light fuel oil and bio-oils has been also at partial loads are strengths needed by units responsible
types of oil and gas. Wrtsil Biopower offers boiler
increasing in recent years. for keeping grid frequency and voltage stable while electricity
plants designed primarily to burn solid biomass fuels.
consumption varies continuously.
Wrtsils power plants business is focused on three Flexibility
market segments that serve specic customer groups
Flexibility is one of the principal features of Wrtsil power Bio-oils
plants. Flexibility is the result of several different factors, such as Bio-oil is expected to be an increasingly important source of
and regions, as shown in the diagram opposite.
scope of delivery, fuel exibility and operational exibility. energy in the future. Energy policy in many countries calls for
Wrtsils global service network offers complete
The scope of delivery of a project is determined by each an increase in the proportion of biofuels as a source of primary
customer support covering the entire lifecycle of the customers needs, varying from a simple engine to the supply of energy, for example by increasing their use in transportation.
plant for all of the power generation solutions it delivers. a complete turnkey power plant that could also include a tailored Similarly, the use of biofuels in energy production is growing in
This is achieved through versatile and sophisticated operation and maintenance service. Each power plant is highly many countries.
service products and agreements, including full plant modular in design, which offers excellent latitude for expansion Bio-oils offer a number of advantages such as low CO2 emis-
operation and maintenance. or modication in the future should needs change. sions and independence from the price uctuations and varying
Fuel exibility translates into lower risks for the customer with availability associated with fossil fuels. Their use in power gener-
wider scope to optimize energy production costs and emission ation, assuming this applies the principles of sustainable devel-
levels. The triple fuel solution based on the Wrtsil 50DF opment, can also increase the well-being of local communities.
engine ensures high efciency when using gas, light fuel oil or The impact of biofuels on greenhouse gases is not always
heavy fuel oil, with the possibility to switch fuels without any insignicant, especially when taking into consideration the
interruption to electricity production. The plant is less dependent impacts from producing and rening them. Wrtsil bio-oil plants
on fuel supply and uctuations in fuel costs, which improves its are usually based on low-grade bio-oils. These are also normally
overall economy and the reliability of electricity production. the lowest in cost and therefore the most economic choice for
power plant owners. Bio-oil power plants also have low emis- are considerably lower than for traditional solutions. Cube plants
Wrtsils power plant segments
sion levels of traditional emission components. Only a marginal are primarily suitable for electricity generation but can also be
amount of sulphur dioxide arises owing to the low sulphur equipped with engine and ue gas heat recovery equipment for Baseload Power generation Grid stability
content of the fuel. Particulate emissions depend on the ash use as a CHP plant. Developing for industry Areas without
content of the fuel; using low-ash bio-oil it is possible to meet countries Oil and gas hydropower
Combined heat and power production
the strict European limits without the need for secondary control Islands, Mining
In combined heat and power ( CHP ) generation, also called
methods. NOx emissions are normally treated in biofuel plants remote locations Textile
cogeneration, the residual heat from the engine cooling water
using SCR ( Selective Catalytic Reduction ) equipment. Cement
and ue gas is used to produce thermal energy in the form of
Municipalities
Efciency and cost-competitiveness steam or hot water. This thermal energy is typically used in a
GasCube and OilCube plants represent a new design of district heating network, an industrial process or a chiller. CHP
power plant that is especially compact and cost-effective. Their typically achieves 7590% overall efciency, thereby signicantly
high efciency is based primarily on a Wrtsil 20V34SG gas reducing emission levels per unit of energy.
engine or 20V32 diesel engine. As a compact, ready-to-use
Reducing emissions primary methods, which in practice means optimizing the engine,
product, a Cube power plant is best suited to smaller turnkey
One of the principal aims of Wrtsils Power Plants business while at the same time guiding the customer in choosing the right
contracts.
is to maintain a high level of expertise in cleaning methods and quality of fuel.
Cube plants have an extremely high degree of prefabrica-
to keep in its product range a variety of tested emissions reduc- In certain applications wet primary methods achieve the best
tion, modularity and standard components, which considera-
tion technologies for different market needs. Methods of reduc- overall result because the reduction efciencies achieved with
bly reduces the amount of installation work at site and thus plant
ing emissions fall into two main categories: primary and second- dry methods are limited. In its power plants business Wrtsil
costs. The concept also improves installation quality and reduces
ary. Primary methods help prevent emissions from arising in the considers the most potential wet reduction technologies to be
environmental impacts due to the smaller amount of on-site
rst place, whereas secondary methods reduce the amount of controlled humidication of the combustion air and the use of
construction waste.
emissions that do arise. water-in-fuel emulsions.
The Cube plants are based on radiator cooling, which ensures
The use of primary methods is often recommended as these Secondary methods comprise various types of ue gas clean-
low water consumption. The plants net efciency is raised, in
are effective ways of eliminating the need for additional invest- ing methods. Their use and the need for them depend very much
addition to the high efciency of the engine itself, by the mini-
ments and possible additional environmental loads. In Wrtsil on the location of the plant and local fuel availability and fuel
mized energy need of the plant. Similarly, space requirements
power plants the rst priority in emissions reduction is to use dry prices. Wrtsil actively engages in development work with its
equipment suppliers, an important element of which is to raise
Orders for power plant engines by type of fuel Types of fuel used in Wrtsils engine-driven power plant
( June 2005 May 2006 )
* Including by-product gas from oil fields Biodiesel
( associated gas ) and methane from
coal fields ( coal bed gas ) HFO water emulsion
Palm oil
NG LFO/BIO
42% 9% High viscosity HFO
Orimulsion
HFO
49% Rape seed oil
Crude oil
Natural gas + special gases*
Heavy fuel oil ( HFO )
Diesel and light fuel oil ( LFO )
2004
1970 1980 1990 2000 2010
108 SUSTAINABILITY / PRODUCTS, R&D AND THE ENVIRONMENT / POWER PLANTS WRTSIL ANNUAL REPORT 2006
the efciency of the cleaning equipment in terms of both emis- FGD Flue gas emission control units delivered
sions reduction and cost. Flue Gas Desulphurization ( FGD ) is a method used when on order by December 2006
sulphur dioxide limits cannot be met owing to the sulphur Amount of engines Output ( MW )
Emission reduction technologies
content of the fuels. Typically, two types of FGD systems are SCR 155 988
SCR used in Wrtsil power plants: sodium hydroxide ( NaOH ) Oxidation catalyst 269 1,244
Almost the only method used to reduce nitrogen oxides in the and limestone ( CaCO3 ). Where ue gas desulphurization is ESP 10 160
FGD 59 683
exhaust gas is Selective Catalytic Reduction. The other meth- concerned, either the investment cost or operating costs gener-
ods available today are either not cost-competitive with SCR or ally have a signicant effect on the plants economy and for this
are not applicable to the engines in Wrtsils product family. reason it is always important rst to compare fuel qualities and
Wrtsils range of power plants includes SCR products for both costs. Plants with FGD systems are also challenging with respect
diesel- and gas-red plants. to water consumption, the handling and disposal of the end
The ULE ( Ultra Low Emissions ) solution, developed espe- product, and the dispersion and visibility of the ue smoke.
cially for gas power plants in the USA market, is tted with an
ESP
efcient oxidation catalyst that makes it possible to reach the
No competitive alternative to the electrostatic precipitator
extremely low emission levels required for large plants, espe-
( ESP ) has yet been found for reducing particulate emissions
cially in areas where air quality is compromised. The rst refer-
from an HFO-fuelled diesel engine. Burning HFO produces
ence site for the new ULE solution, which was updated in 2005,
sulphur oxides, particles and, contained within these, certain
is the 116 MW Western 102 plant in Nevada, where commission-
harmful components. Owing to these substances the methods
ing tests showed that the plants emission levels were well below
typically used in small diesel engines particle traps, reactors
the emissions guarantee values. Wrtsil has been contracted
based on particle oxidation, or a combination of the two are
to supply several other plants equipped with ULE-type treat-
not effective because they require extremely high-quality fuel to
ment systems in the near future including the Humboldt project
be effective. The disadvantages of alternative methods of reduc-
( 163 MW ) in California and the Plains End II plant ( 113 MW ) in
ing particle emissions, such as bag lters, are their intolerance
Colorado.
to high temperatures, large pressure losses or extremely high
investment costs.
A compact power plant designed for CHP generation The ULE solution for a gas engine power plant GasCube plant with Wrtsil 20V34SG engine
Chimney
SCR 2
control system Engine
Engine- Heat
CHP- generator recovery 1 Reducing agent 3 Reducing agent
module set boiler injection feeding unit
4 2 Reducing agent 4 Reducing agent
22,500 dosing unit storage tank
WE ARE DOERS SUSTAINABILITY / PRODUCTS, R&D AND THE ENVIRONMENT / POWER PLANTS 109
Although using good-quality fuels ( low-sulphur light fuel oil driven power plants to use this type of equipment for monitoring Legislative requirements
and bio-oil ) can in itself achieve substantially lower particulate NOx emissions. A core principle applied by Wrtsil for years in the devel-
emission levels compared with the use of heavy fuel oils, there Wrtsil has developed an innovative gaseous emissions opment of its power plants is to meet the guidelines of the
is still perceived to be a need for secondary particle reduction in monitoring system that is aimed at improving the reliability of World Bank. In recent years compliance with these guidelines
certain applications in the future. The next step following a feasi- emissions monitoring especially at HFO-fuelled diesel plants. has become increasingly widespread in power plant projects
bility study conducted in 2005 is to test oxidation and ltering Testing of the system started in the autumn of 2005. The rst around the world because more and more nancing institutions
equipment in biofuelled engines during 2006 and 2007. test period ( > 500 hours ), conducted in 2005, proceeded with- and export credit agencies have committed themselves through
out problems and a condition inspection performed later did not their environmental policies and general agreements to comply-
Oxidation catalysts
reveal anything critical except for slight fouling. Following optimi- ing with these guidelines. An example of this trend is the Equator
Wrtsil has given priority to making smaller oxidation cata-
zation the equipment passed its approval test in 2006 and is now Principles document of leading nancial institutions in which the
lysts more competitive by integrating them into the engines
available for commercial trials. signatory parties conrm their commitment to compliance with
exhaust gas system, thus eliminating the need for a separate
the World Bank Guidelines in their nancing activities.
reactor and its support structure. Minimizing water consumption and treating wastewater
Methane is not normally classied as a VOC ( volatile organic Water consumption is also an important environmental
compound ) and no air quality limits have been dened for it. Nor, consideration in energy production owing to the worlds limited
with few exceptions, have legal limits been set for methane levels reserves of freshwater. Minimizing water consumption and the
in power plant ue gases. However, methane is considered to production of wastewater is an important aspect in the design of
be a factor in global warming and therefore the need for meth- Wrtsil power plants. Compared to many other types of power World Bank Guidelines (1998) and typical emissions of
ane reduction could increase in the near future. Removing meth- plant, a closed-circuit radiator-cooled engine-driven power plant Wrtsil diesel power plants (shaded); good air quality,
ane from ue gases is a challenging task. The available methods is unrivalled in terms of low water consumption. Water consump- if not otherwise stated; emission unit mg/nm3 (dry, 15% O2)
were studied during 2005 and found to have very limited applica- tion is an important factor that should also be considered when
NO x/SO 2 Emissions with typical PM
tion. Certain novel techniques will be studied further with a view evaluating and choosing emissions reduction techniques.
available HFO qualities
to their development and Wrtsil will also allocate resources to Minimizing the impact of wastewater requires a combina- 2.000 100
certain alternatives at the early development stage. tion of two factors: minimizing the use of water, and treatment of
the wastewater produced. Wastewater treatment is an essential
Monitoring emissions
aspect of diesel power plants whereas the wastewater produced
There have been increasing signs in power plant markets of
by gas power plants largely corresponds in quality to domes-
a shift towards continuous emissions monitoring. In India, for
tic wastewater and is easily treated using existing small-scale HFO HFO
example, it is mandatory for large ( > 50 MW ) diesel-engine- 1.500 Emissions
methods. with
As a result of its development work, Wrtsil has introduced medium-
sulphur ESP or
a compact, reliable and automatic oily water treatment system HFO good
qualities quality
that is mounted on a single skid-mounted baseframe and can be HFO
New generation portable automatic
transported in a normal container. Alternatively, the system can
oily water treatment system 1.000 50
be a xed installation in a container, which is suitable for outdoor
installation. Both options are fast and easy to install at a power HFO HFO
plant.
<50 MW e
>50 MW e
It is likely that the norms governing the quality of wastewater
>50 MW e
<50 MW e
will become more stringent in the future, and therefore treatment
systems will be further developed. One project potentially feasi- 500
SCR
ble in the short term is a system able to treat both the oily waters LFO LFO
Degraded
and sanitary waste at a power plant. It is also expected that the
airshed
system will be able to reach considerably lower levels of certain LFO LFO
emission components, such as those that affect chemical oxygen
demand ( COD ), compared to existing equipment. 0
NO x emissions SO 2 emissions PM emissions
WE ARE DOERS SUSTAINABILITY / PRODUCTS, R&D AND THE ENVIRONMENT / POWER PLANTS 111
World Bank limits for NOX, SO2 and EU BREF BAT levels for diesel and gas engines1
particulate emissions in new power plants mg/nm3 ( dry, 15% O2 )
Wrtsil power plants are designed to enable the plants emis- NOx PM
sion levels to be lower than the World Bank limits using a suit- ( as NO2 ) ( dust ) 2 SO2 2 CO Hydrocarbons
able choice of fuel, assuming that the local ambient air quality Diesel engine No emission < 30 ( LFO/diesel ) No emission No emission No emission
level dened < 50 ( HFO ) level dened level dened 5 level dened 5
does not require stricter limits. Secondary and wet primary emis-
Gas engine 20 75 3 No emission No emission 30 100 4 < 23
sions reduction methods can be used either to permit the use level dened level dened Formaldehyde 6
of poorer-quality fuels, or to enable lower emission levels, or to
Comments:
reach better fuel economy. 1 Degree of Consensus: Full consensus between industry and Member States was not reached
The World Bank ( WB ) and International Finance Corpora- and hence split views in certain contexts are presented. In particular the deviations involved BAT
tion ( IFC ) are revising their guidelines and new guidelines are associated efciency, certain emission levels as well as the use of SCR for economic reasons.
2 The use of low-sulphur/low-ash fuel when available is regarded as the rst choice BAT.
expected to enter into force during 2007. Stricter emissions limits 3 Industry claimed that these ranges are not according to the BAT approach but reect a LAER
are likely to be imposed on power plants, which will require tho- level ( USA ) that does not take into account cost aspects. The industry opinion about the BAT
rough analysis of the engines and emissions treatment tech- emission levels is 90 190 mg/nm3 ( dry, 15% O2 ) and the local environment and air quality
nology used in these plants to ensure their compliance with the must also be considered when setting the limitations.
4 Similarly there is a difference in the BAT level for CO emissions. Industry proposes a value of
new guidelines. Wrtsil has already anticipated this trend in the
100 and 110 380 mg/nm3 ( dry, 15% O2 ) as the BAT level due to fuel related issues. ( dry, 15% O2 ).
development of its engines and treatment equipment. 5 Good maintenance of the engine is regarded as BAT with fuels containing sulphur for liquid-red engines.
6 NMVOC emission depends on the composition of the natural gas and hence the possible need
European Union stipulations for engine-driven power plants for its reduction is case-dependent. The BAT emission level is dened only for formaldehyde.
The general European guidelines governing the permitting
of engine-driven power plants in the EU were introduced during
2005 in the BREF document ( Reference Document on Best Avail-
able Techniques for Large Combustion Plants ). This document
sets recommended emission limit values for various types of
power plant based on BAT ( Best Available Technique ) thinking
in emissions control. BAT is based on the idea of using the best
technique available while bearing in mind cost feasibility. Wrtsil
considers the values to be sensible in principle but agrees with
the general opinion in industrial circles on the need to evaluate
Emission limits for gas engines
the use of SCR, for example.
in some European countries ( dry, 15 % O2)
Country-specic requirements Germany, TA-Luft 2002 Hungary, 1993 a Denmark, 1998 Turkey, 2004
Engine and power plant design takes account of emissions NOx emissions, ppm 91 91 100 91d
limits specic to individual countries. An example is the German CO emissions, ppm 90 195 150 195 d
TA-Luft atmospheric emissions regulations that have been HC emissions, ppm 17 for formaldehyde 105 as NMHC 1.050 as THC -
( as C1 ) b ( as C1 ) c
applied in particular to gas engines owing to their general appli-
PM emissions, mg/m3 e - - - 49 d
cability throughout Europe.
SO2 emissions, ppm - - - 8d
In the USA, the Environmental Protection Agency ( EPA ) is
Notes:
currently drawing up country-wide emission norms for both a Gas engines 140 kW
diesel and gas engines. The diesel engine norms were released b If the ethane content in natural gas exceeds 5%, the NMHC limit = 175
in July 2006 and the gas engine norms could come into effect c Efciency correction based on the reference efciency of 30%
80
60
40
20
0
A B C
BP5 plant
WE ARE DOERS SUSTAINABILITY / PRODUCTS, R&D AND THE ENVIRONMENT / BOILER PLANTS 113
Flue gas emissions of bioboilers the combustion air. The following are typical emission levels from The calculated water consumption varies in BP ( CHP ) appli-
The ue gas emissions from bioboilers consist mainly of NOx, boilers red using light fuel oil and gas: cations running on typical fuels between 15 g/MJfuel and 25 g/
SO2, CO, CO2 and particle emissions. Since the sulphur content CO < 20 mg/MJ, MJfuel provided there is no steam consumption in the process.
of a clean biofuel is low, and the plants CO2 emissions are NOx emissions < 60 mg/MJ, Correspondingly the calculated water consumption in BE plants
assumed to derive from the renewable carbon cycle, boiler plant SOx < 10 mg/MJ relates principally to ash treatment unless water is consumed
decisions concentrate on emissions of dust, NOx, and CO. The CxHx < 7 mg/MJ, elsewhere in the process. Consumption varies typically in the
most typical values of these emissions in the BE and BP plants Particle emissions < 10 mg/MJ. range 3 7 g/MJfuel depending on the ash content of the fuel. In
delivered are as follows: the BP CEX plant water consumption can also vary depending
Noise emissions
on how much of the process steam is fed back as condensate
NO2 5070...90120 1 mg/MJfuel Noise disturbs those in the neighbourhood, and increasing
to the power plant. In the BP C plant water consumption is also
CO 100150 mg/MJfuel attention is being paid to the problem of noise when designing
Particles 15, 50, 250, 500 2 mg/m3n, O2 = 6% affected by the method used to condensate water in addition to
structures. Noise emissions within the plant are for the most part
1
Value depends on the nitrogen content of the fuel the fuel and steam boiler processes.
2
below 85 dB( A ) at a distance of one metre from machinery, and
Value depends on local emissions regulations In BP and BE plants lubrication oil is used in the fuel handling
outside below 50 dB( A ) at a distance of 50 100 metres from the
systems and in the grates hydraulic system. Roughly 500 l/a of
Reducing nitrogen oxides in ue gases has been the subject wall of the plant. To meet the strictest noise emission require-
oil is needed. BP plants also consume roughly 500 l/a of lubrica-
of continuous product development. Phasing the injection of ments, tailored solutions can be implemented that meet lower
tion oil in the turbine.
combustion air into the boiler creates combustion conditions in noise level limits.
the combustion chamber that reduce the nitrogen compounds Compliance with legislation
Ash, water and lubricating oil
in the fuel to nitrogen molecules ( N2 ), which in turn reduces Wrtsils BioEnergy and BioPower plants are designed to
Ash is a typical by-product of BE and BP plants. The solid
NOx emission levels to around 60% compared to non-phased meet all local emission requirements. These are usually set for:
matter in biofuel includes 1 3% of inorganic substances.
combustion air injection. If this is still not enough, an emulsion of Non-combusted gases such as CO
The fuel also often contains sand and soil and consequently
ammonia and water, for example, can be fed into the combustion Nitrogen oxides
the amount of solid matter, ash, remaining after combustion can
chamber, which can further reduce emission levels to below 40% Sulphur oxides
actually total more than 5% of the dry solid matter in the fuel fed
of the original. The gure shows measurement results from three Particle emissions
into the boiler. Ash is mainly recovered in two separate systems.
BP5 plants. Noise emissions
Bottom ash is recovered after it has been extinguished ( wet )
Water separated by ue gas condenser
Air emissions from oil- and gas-red boilers under the grate. Fly ash is recovered dry either from the multicy-
Condensate from the steam boiler.
Air emissions from oil and gas boilers are reduced using ef- clone or the electrostatic precipitator, depending on the cleaning
cient combustion technology ( a modern burner with an appro- method, and it can be kept separate from the grate ash.
priate boiler structure ) and with precise, advanced regulation of
Power plant type Steam values El. power Thermal power Other data
bar( a ) / C MWe MWth
BP 2 DH 35 / 480 2.1 8.0 90/50 C DH water
BP 2 CEX 35 / 480 1.6 2.5 max. 11 t/h 2 bar (a) process steam
BP 2 C 35 / 480 2.7 - condensate cooling with 25/35C circuit water
BP 3 DH 35 / 480 2.7 11.0 90/50 C DH water
BP 3 CEX 35 / 480 2.1 3.4 max. 15 t/h 2 bar (a) process steam
BP 3 C 35 / 480 3.5 - condensate cooling with 25/35C circuit water
BP 5 DH 50 / 480 3.7 13.0 90/50 C DH water
BP 5 CEX 50 / 480 4.0 5.3 max. 17 t/h 2 bar (a) process steam
BP 5 C 50 / 480 5.4 - condensate cooling with 25/35C circuit water
BP 7 DH 62 / 480 5.1 17.7 90/50 C DH water
BP 7 CEX 62 / 480 5.3 7.3 max. 24 t/h 2 bar (a) process steam
BP 7 C 62 / 480 7.4 - condensate cooling with 25/35 C circuit water
114 SUSTAINABILITY / ENVIRONMENTAL PERFORMANCE WRTSIL ANNUAL REPORT 2006
Annual energy consumption Annual electricity consumption Electricity balance 2006, GWh
TJ GWh
1,000 50 60 60
Generated electricity 11 ( 12 )
40 40
500 25
20 20
0 0 0 0
02 03 04 05 06 02 03 04 05 06
Purchased electricity Generated electricity
Natural gas Electricity Heating
Energy index ( 2002 = 100 )
LFO HFO ( low ash ) HFO ( high ash )
Orimulsion Other fuels
Energy index ( 2002 = 100 )
WE ARE DOERS SUSTAINABILITY / ENVIRONMENTAL PERFORMANCE 115
Water sions consist of nitrogen oxides, sulphur dioxide, carbon diox- The following main environmental disturbances occurred at
The water consumed by Wrtsil can be divided into two ides and particles, as well as small amounts of other emission Wrtsils business locations in 2006:
categories: domestic use and cooling use. Domestic water is components. The painting of engines and other Wrtsil prod- 1 wastewater leak
used mainly for sanitary purposes and by industrial equipment ucts generates VOC ( volatile organic compounds ) emissions. 5 fuel leaks
such as machine tools and washing machines. Some factories 2 lubrication leaks
Monitoring environmental impacts
also use domestic water to produce moulds. 2 oily water leaks
Within Wrtsil, environmental impacts caused by operational
Heat emissions into water systems arise from engine cooling 2 chemical leaks
activities are monitored as follows:
and process cooling water. Wrtsil companies use water from 1 unnecessary re alarm
Participation in the monitoring of air quality
the local watercourse for their engine and process cooling needs. 1 emissions of dust
with other local stakeholders
In such cases, the cooling water system is kept separate so that 1 incorrect waste classication
Measurement of air emissions
only heat is released into the natural water system. Wastewater 1 disturbance in system regulating exhaust gas channel
Charting of noise levels
is sewered and piped to the local wastewater treatment plant. If 1 insufcient performance of wastewater treatment system
Periodical efuent analysis
efuent is not suitable for sewage treatment, it is taken away for 1 emission of ash caused by standby heat system
Soil analysis
appropriate treatment, for example to a special treatment plant
Dispersion analyses and bio-indicator surveys. All the above disturbances were investigated and appropriate
for hazardous wastes.
corrective action was taken in each case.
Compliance
Emissions to the air The main reason for complaints made by occupants of neigh-
The operations of Wrtsils manufacturing companies require
The primary source of manufacturing noise is engine test runs bouring sites was noise. All complaints were investigated and
a valid environmental permit. Wrtsil companies have the
and ventilation machinery on factory roofs. This noise is mostly appropriate corrective action was taken wherever necessary.
required environmental permits, the terms of which are generally
low frequency and is therefore not easily detected by the human
met. Incidents of non-compliance are described below. Cases of non-compliance
ear. Wrtsil has specically addressed the issue of noise protec-
There were no cases of non-compliance at Wrtsil operating
tion using technical means and we have succeeded in lowering Environmental disturbances and complaints
locations during the period.
noise levels considerably. However, noise abatement is a con- The number of disturbances, complaints and incidents of non-
tinuous need and requires regular monitoring. compliance are presented in the gure. Reported disturbances Non-compliance cases presented in
Air emissions are mainly caused by test runs and the painting cover incidents in which the Wrtsil company concerned has previous reports
of completed engines or other Wrtsil products. Test run emis- usually been obliged to report the disturbance to the authorities. Wrtsil Finland Oy has received a new environmental permit.
116 SUSTAINABILITY / ENVIRONMENTAL PERFORMANCE WRTSIL ANNUAL REPORT 2006
Waste management Environmental costs conjunction with every acquisition or sale of real estate. Wrtsil
Manufacturing activities cause various wastes. These are has recognized certain cases where potential environmental
Environmental capital expenditure and the operating costs
divided into two main categories: hazardous and non-hazard- liabilities may exist but these are not expected to have a signi-
related to environmental protection are difcult to separate from
ous. Hazardous wastes include cutting uids, various types of cant nancial impact on Wrtsil.
normal operating costs in our operating environment. It is equally
waste oil, paints and solvents, oily wastes and solid wastes, etc. Environmental capital expenditures
difcult to dene capital expenditure as an exclusively environ-
Hazardous wastes are taken to a hazardous waste disposal facil- and operating expenses
mental investment or as a machine or equipment investment in
ity for appropriate treatment. MEUR 2006 2005 2004 2003 2002
the production process.
All Wrtsil companies sort their waste according to local Environmental capital 1.8 2.5 2.8 2.1 1.8
Concerning Wrtsils operations, we have dened expen-
municipal regulations. However, generally speaking the main expenditures
ditures as environmental expenditures if they are related to soil,
sorting categories are: waste to be incinerated, crude waste for Environmental operating 3.5 3.0 2.8 4.9 4.0
water and air pollution control, waste management, environmen- expenditures
landlls, clean cardboard, and waste paper. Waste wood, scrap
tal management or noise control.
metal and metal swarf are collected separately. Only coarse
waste and in some cases waste wood are removed for landll Wrtsil real estate and
disposal. Other wastes are used either as raw materials or for energy. environmental responsibilities
Waste management in Wrtsil has four aims: The real estate that Wrtsil owns or leases is mainly located
To reduce the amount of the waste generated in in urban areas. The company is not aware of any properties that
Wrtsil processes are situated in areas where biodiversity could be endangered.
To use the waste as a material Environmental risks and liabilities are identied and reviewed
To use the waste as energy as a part of overall risk management. In Wrtsils operations,
To dispose of the waste in an environmentally sound way. potential liabilities are primarily related to the companys real
estate. Environmental liabilities are systematically scrutinized in
600 60 200 40
400 40
100 20
200 20
0 0 0 0
02 03 04 05 06 02 03 04 05 06
NOx NOx index ( 2002 = 100 ) SO2 SO2 index ( 2002 = 100 )
20 80 80 80
15 60 60 60
10 40 40 40
5 20 20 20
0 0 0 0
02 03 04 05 06 02 03 04 05 06
Particulate Particulate index ( 2002 = 100 ) CO2 CO2 index ( 2002 = 100 )
35 40 120
30 35 105
25 30 90
25 75
20
20 60
15
15 45
10 10 30
5 5 15
0 0 0
02 03 04 05 06 02 03 04 05 06
Disturbances Complaints Non-compliance Waste for landlls Waste for recycling Waste for incineration
Hazardous waste for landlls Hazardous waste for recycling
Hazardous waste for incineration Waste index ( 2002 = 100 )
118 SUSTAINABILITY / PERSONNEL AND SOCIAL PERFORMANCE WRTSIL ANNUAL REPORT 2006
Personnel and social Wrtsils strategy denes the central objectives for social
performance in Wrtsils operations. Wrtsils intention is to
of manufacturing processes, and efcient information exchange
guided by long-term agreements.
act as a good corporate citizen, to offer interesting, motivating
performance and safe jobs to its employees, to develop its employees profes-
sional skills and to improve supply chain management.
Structural changes in the company during 2006
Acquisitions
Good corporate citizenship is accomplished through open Wrtsil acquired the Norwegian company Aker Kvaerner
communication and good relationships with local stakehold- Power and Automation Systems AS ( AKPAS ) from Aker Kvaer-
ers. Wrtsils operations and relations with its stakeholders are ner. AKPAS supplies power and automation systems for oil, gas,
based on the companys Code of Conduct, which each Wrtsil offshore and industrial applications. The acquisition added 135
employee is required to comply with. employees to Wrtsils total workforce.
Wrtsil strives to offer its employees an interesting and excit- Wrtsil acquired the entire business and all subsidiaries of
ing workplace where openness, respect, trust and equal opportu- Total Automation Ltd, a Singapore-based public marine automa-
nities prevail. The company seeks to create a learning framework tion company with operations in Singapore, Dubai, France, Great
that enables its employees to continuously develop their skills Britain and China. The acquisition added 571 employees to Wrt-
and competences both on the job and through separate in-house sils total workforce.
and external training programmes. Wrtsil acquired the production machinery and business
The company also endeavours to offer hazard-free work- of Diesel Technology Solutions BV ( DTS ), owned by Stibbe
places to its employees, contractors and others working in differ- Management BV, in Zwolle, the Netherlands. The acquisition
ent parts of the corporation by applying high standards of occu- added 75 employees to Wrtsils total workforce.
pational health and safety. Wrtsil acquired the German service company INTEC Injec-
The Group applies only such product development and manu- tortechnic GmbH. Based in Hamburg, this company specializes
facturing processes and quality assurance methods that mini- in the installation and servicing of fuel injection equipment for
mize health and safety risks related to the use of its products and marine engines. The acquisition added 17 employees to Wrt-
services. Suppliers are an important part of the total supply chain sils total workforce.
of the Group. Therefore Wrtsil gives considerable attention to Wrtsil acquired the entire business of the Swedish company
the long-term development of common processes with its suppli- Stockholm Fartygsreparationer AB, which provides a wide range
ers. This includes common design activities, joint development of ship repair services along the east coast of Sweden. Stock-
holm Fartygsreparationer ABs 10 employees joined Wrtsil.
Wrtsil acquired the German ship design company Internal changes Personnel in gures 2006
SCHIFFKO, taking on another 25 employees as a result. The Ciserv marine service and repair group was integrated Number of employees at 14,346
SCHIFFKO specializes in designing containerships and research within Wrtsils service business from 1 May 2006 and the entire 31 Dec. 2006
and offshore vessels. business was renamed Wrtsil Services. Number of nationalities 87
Change in number of employees +1,277
Joint ventures Personnel ( net employment creation )
Wrtsil and the Estonian BLRT Grupp established a second Wrtsils personnel mainly comprises full-time employees Average age of employees years 39.2
joint marine service company for the Baltic market. Wrtsil with permanent employment contracts. The number of temporary Total payroll costs MEUR 510,9
Aggregate coverage of different % 53
holds 51% in the new company and BLRT Grupp 49%. Called and part-time employees is relatively low. In addition to direct
bonus schemes
Wrtsil MLRT Services Klaipeda UAB, the new company serv- employment, Wrtsil also uses subcontractors in its factories Development discussions % 60
ices and repairs ships, ship engines, gears, propellers and other and units, accounting for altogether 1,260 man-years of work in held annually
ship machinery. Wrtsil BLRT Services Klaipeda UAB operates 2006. The total headcount increased by 2,338 employees during
out of Klaipeda, Lithuania, where it has 70 employees. the year as a result of both acquisitions and recruitment. The In many European countries almost all Wrtsil employees
Wrtsil Qiyao Diesel Company Ltd ( Shanghai ), a factory largest increase in personnel took place in the Services busi- are covered by collective bargaining agreements. The number of
set up jointly by Wrtsil and the Chinese Shanghai Marine ness. Geographically, the number of employees grew most of all employees belonging to a trade union varies between 70% and
Diesel Engine Research Institute ( SMDERI ), was inaugurated in in Europe and Asia-Pacic countries. The increase in the units in 100%. These gures vary considerably in other countries outside
summer 2006. The factory produces diesel generating sets under Finland during the year was 332 employees. Europe and therefore any average gure for the Group as a whole
the Auxpac brand name for use as auxiliary engines in marine would not reect the real situation.
Change in number of employees per business
vessels.
Change Personnel management in 2006
Wrtsil, China Shipbuilding Industry Corporation ( CSIC )
Services 8,539 +1,339 The goal of Wrtsils human resources strategy is to support
and Mitsubishi Heavy Industries ( MHI ) set up a joint venture for
Ship Power 2,469 +499 implementation of the companys business targets by ensur-
manufacturing large low-speed engines in China. CSIC holds Power Plants 838 +77 ing that the businesses have the requisite skilled and motivated
50% in the new company, Wrtsil 27% and Mitsubishi 23%. Engine Division 2,187 +395
people at their disposal. Continuous development of skills,
Production is planned to start during the fourth quarter of 2008. Others 313 +28
performance management, feedback and motivating remunera-
The company will be called Qingdao Qiyao Wrtsil MHI Linshan
tion are central to Wrtsils human resources strategy and basic
Marine Diesel Co Ltd ( QMD ).
requirements of good business performance in a global operating
environment. Uniform business processes and corporate devel-
opment are further promoted by harmonizing and enhancing
Other 1% ( 1 ) Other 3% ( 4 )
Africa 2% ( 2 ) Africa 2% ( 2 )
The Americas 9% ( 10 ) Europe 59% ( 62 ) Finland 19% ( 21) Engine Division 16% (15 ) Ship Power 18% ( 17 )
The Americas 9% ( 10 )
Power Plants 6% ( 7 )
Other Asia 15% ( 11 ) Italy 9% ( 10 )
Asia 29% ( 26 ) Services 61% ( 61 )
China & Hong Kong 5% ( 4 ) The Netherlands 9% ( 9 )
India 7% ( 8 ) Norway 5% ( 4 )
Other EU 13% ( 14 ) France 4% ( 4 )
120 SUSTAINABILITY / PERSONNEL AND SOCIAL PERFORMANCE WRTSIL ANNUAL REPORT 2006
personnel management processes across national and organiza- At the end of the year the company also launched a new motivation and commitment to the company, fair treatment, and
tion boundaries. programme to recruit young business professionals for Wrtsil. pride in the companys products and expertise.
Developing a single organizational culture, and a uniform A dozen or so young people will start this 18-month programme Areas for further development are better organization of work
internal and external corporate image, is an ongoing process in in March 2007, during which they will work in four business units, responsibilities, more clearly dened roles and tasks, and daily
Wrtsil. Major actions have included strengthening customer- each for roughly 3 6 months at a time. co-operation and communication. The next employee satisfac-
centricity and enhancing the Services business to meet the busi- tion survey will be conducted in March 2007.
Clear targets, performance assessment and feedback for all
ness needs of the companys customers more effectively.
Each Wrtsil employee is required to know and understand Challenges for personnel management and priorities in 2007
Continuous development of personal skills Wrtsils business strategy and its goals, the targets set for their The companys personnel management processes will be
During 2006 Wrtsil gave particularly emphasis to effec- own unit, and the main target areas related to their own work. further developed in the light of the trends evident during 2006.
tive induction programmes for new employees and to adopting The annual development discussion is of central importance to One of the main priorities will be to develop professionals skills.
new and more extensive personnel development and learning performance management within Wrtsil. The discussions are Measures will also be continued with a view to equipping future
schemes. Learning at work, mentoring, and schemes designed used to agree on personal targets, to assess their implementa- senior managers with the skills necessary for developing and
to enable knowledge and skills transfer from experienced to tion, and to plan and agree on any development action neces- leading their business and for managing their team members and
younger employees, are further additions to the professional and sary. Wrtsils aim is to engage in development discussions with organizations. Business growth requires having the right human
general training programmes produced by Wrtsils global train- all its employees. A tool for documenting development discus- resources Wrtsil wants to be seen as a strong potential
ing network. Wrtsil also developed and harmonized its training sions was introduced during 2006 and this will be further devel- employer among jobseekers and at the same time to offer oppor-
schemes for supervisors and managers in all geographical areas oped during 2007. tunities for personal development to those already working for
during the year. the company.
Personnel satisfaction developed positively
Wrtsil encourages its employees to develop a varied work-
Wrtsil conducted a Group-wide employee satisfaction Training
ing career through international job rotation, and the company
survey in January 2006. Employee satisfaction has improved The aim of Wrtsils training schemes and personal develop-
also provides opportunities for them to do this. Employees own
in all the areas measured by the survey, and the percentage of ment is to develop, maintain and update the skills and compe-
career aims and aspirations are discussed in annual development
respondents was also clearly higher than for the previous survey. tences needed to reach the companys strategic objectives. Criti-
discussions. The company reviews its successor plans for key
Particularly encouraging were clear improvements in the areas for cal success factors for Wrtsil are having the correct compe-
positions yearly and charts its management development needs
development highlighted by the previous survey greater clarity tences at the right time and the ability to adjust to continuous
to ensure the continued availability of the right resources for
of strategy and goals, and better internal communication. Other change in the business environment. Employees are given train-
these key positions in the future.
Wrtsil strengths indicated by the survey were strong personnel ing all the time at all organizational levels: from induction training
Training days
Full-time/part-time employees Permanent/temporary employees
Days /employee 2006 2005 2004 2003
% %
Managers 3.3 3.0 2.5 3.2
100 100 Technical employees 4.5 3.5 3.5 3.5
Administrative employees 2.8 3.0 2.4 2.2
80 80
Blue-collar employees 2.4 2.3 3.3 2.6
60 60
96.1 96.6 97.1 97.4 97.4 96.6 94.7 94.9 94.2 92.5
40 40
20 20
0 0
02 03 04 05 06 02 03 04 05 06
Full-time employees Permanent contracts
Part-time employees Temporary contracts
WE ARE DOERS SUSTAINABILITY / PERSONNEL AND SOCIAL PERFORMANCE 121
for new employees, to training for the companys top executives. have an OHS committee with representatives from all personnel the award was granted to two gas engine teams; the rst of
Wrtsil employees attend on average 3.3 training days a year. groups. these develop an adaptive load-balancing system for large gas
The number of training days, altogether 42,509, indicates the In addition to Wrtsils procedures for consulting and inform- engines, and the second a control and regulation system for gas
broad scope of this function. Wrtsils training organization ing employees at the local level, the European Works Council engines.
continuously holds internal courses for personnel. Most of these (EWC) handles issues that affect the Group as a whole. The EWC
Occupational health and safety
are tailored to the specic needs of departments. and its working committee play an active role in considering and
Wrtsils occupational health and safety principles are
Wrtsils management training path offers supervisors and pursuing corporate level issues.
dened in the companys policy and directive on occupational
senior managers training at all levels of the organization. The Dialogue at the individual level is conducted through devel-
health and safety (OHS ). Wrtsils subsidiaries must have a
training programmes also emphasize the importance of the opment discussions, which are held annually. The subjects dealt
management system in use that conforms to the OHS policy and
companys values in everyday management. Wrtsil additionally with in these discussions range from the Groups and business
directive. The main aspects in the management system relate to
uses the training programmes and facilities offered by universi- units targets, to the individuals job description, competence
compliance with legislation, identifying and minimizing occupa-
ties and various professional training institutions. It also supports development, career alternatives, personal targets and feed-
tional health and safety risks, personnel training, providing writ-
studies by individuals aiming to gain a professional or academic back. Development discussions are by denition held with all
ten instructions, the use of protective equipment, and continuous
qualication. employees.
improvement of OHS performance.
Employees are able to have a direct impact on the compa-
Consulting and informing in Group companies The objective of Wrtsils occupational health and safety
nys operations and their development by making suggestions.
Wrtsils procedures for consulting and informing within the policy is to prevent and manage health and safety risks to
Each Wrtsil employee can offer suggestions for improve-
Group are arranged in each country according to local legislation. personnel and stakeholders. In addition to the management
ment in operations through either the continuous improvement
Wrtsils Code of Conduct calls for ongoing and open dialogue system, Wrtsil companies apply OHS programmes required
( CI ) process or by submitting private initiatives. CI proposals
between the companys management and employee representa- by local legislation, which are normally implemented in OHS
are discussed jointly and need a common decision to be put
tives through co-determination bodies, and employees are kept committees consisting of representatives of the companies
into effect. Private initiatives are evaluated by experts within the
informed of both the Groups situation and that of their particular management and personnel. Accidents are recorded and investi-
company and, if found to be feasible, are put into effect.
company. Company management and personnel engage in open gated in the manner required by local legislation. Altogether 65%
Wrtsil encourages its employees to be innovative by grant-
discussion also in those countries where there are no formal co- of Wrtsil companies have an occupational health and safety
ing an annual Technology Award, either to an individual or to a
determination bodies as such. Regular briengs for personnel are committee.
team, for the best technical innovation of the year. The award
an integral part of the operating procedures of Wrtsil compa- The indicators used to measure occupational health and
criteria are that the invention must be innovative, environmen-
nies. Employee participation in decision-making also extends safety performance include the number of accidents, the amount
tally sound, representative of leading technology, improve a
to occupational health and safety ( OHS ). Most Wrtsil units of absence due to sickness and the frequency of accidents.
product or process, and offer potential for cost savings. In 2006
There were no fatal injuries in Wrtsils units during the review Impact on communities The action plan for 2006 2007 includes painting, cleaning,
period. The guiding principle of Wrtsils Code of Conduct is to marketing voluntary work to new employees in the company,
promote openness and good interaction with its stakeholders and forging social responsibility co-operation agreements with
Human rights
locally. This applies as much to the families of personnel, our customers, suppliers and other companies.
Wrtsil supports and respects basic human values as
neighbours, educational institutions and the media as to local
outlined in the UNs Universal Declaration of Human Rights. Suppliers
authorities and ofcials. The methods used towards this end
Wrtsils employees represent 87 different nationalities, and Wrtsil has dened its processes for choosing suppliers,
include Open Door days, press briengs and different modes of
the company supports equal treatment of all its employees irre- determining their requirements and developing the supply rela-
communication for different target groups. Wrtsils activities for
spective of race, colour, nationality, gender, age or religion. The tionship. Wrtsil offers its suppliers a partnership that strength-
charitable purposes are described in the Economic Performance
companys employees are selected on their qualication and ens the competitiveness of both parties. A precondition of this
section of this report.
competence for each specic job. Programmes and instructions partnership is open and continuous dialogue. Partnership think-
related to promoting equal rights are applied in the subsidiaries. Case Brazil: activities that benet all employees ing is also applied in Wrtsils research and development activi-
Wrtsil supports the work-related rights dened by the Grupo Gros is a voluntary group of employees established ties, where the company often collaborates with universities and
International Labour Organization ( ILO ) and therefore works to in 2003 to support voluntary activities by employees of Wrtsil key suppliers.
ensure there is freedom of association and the right to collective Brazil. The groups committee was awarded funds from Wrtsils The company took a new system into use during 2006 for
bargaining in the company. In those countries where local legisla- 2006 budget for voluntary campaigns and work. The groups aim managing information related to supplier selection, evaluation
tion does not recognize these rights, Wrtsil endeavours to give is to promote awareness of social responsibility and commit- and performance. At the same time more than 100 purchas-
employees other channels for expressing their opinions. Wrtsil ment to this ethic among Wrtsils business partners, suppliers, ing organization employees were given training in supply chain
does not accept the use of forced labour or child labour in any customers, employees and their families. This is done by adver- management issues. Wrtsil regularly conducts supplier evalu-
form. tising the voluntary work and its schemes, the purpose of which ations. These are divided into three categories: pre-assessment,
Wrtsil is unaware of any cases of breach of human rights, is to promote training and to help charitable organizations in the auditing, and performance review. A pre-assessment is made of
discrimination, infringements of rights at work, or the use of work they do. potential new suppliers before the supplier relationship begins.
forced or child labour. To reach this goal, the groups work and the budgeted funds Audits are conducted on new suppliers and on suppliers whose
Since Wrtsil expects its partners and suppliers to act in were targeted at one small activity in which the employees felt performance does not meet Wrtsils requirements. Perform-
compliance with its Code of Conduct, similar measures will also they could be of benet, at the same time motivating them ance reviews are performed to solve a single deviation from
apply to them. The company sets common requirements for its further in voluntary work. The activity chosen was the Centro requirements. Altogether 23 supplier audits were performed last
suppliers and regularly monitors conformance with these require- Comunitrio Irmos Kennedy community centre in Vila Kennedy, year.
ments through numerous performance indicators and audits. All which is attended by 120 children. The Wrtsil funds were used In 2006 the Suppliers Days event was held in Helsinki. The
the companys main suppliers are required to comply with Wrt- to buy materials and to pay for outside employees to handle main theme of the meeting was a programme called Outstand-
sils requirements in order to gain Approved Supplier status. tasks that the voluntary employees could not undertake. ing Relations, the aim of which is to create long-term relations
between Wrtsil and its suppliers. The event was attended
WE ARE DOERS SUSTAINABILITY / PERSONNEL AND SOCIAL PERFORMANCE 123
by 150 suppliers from around the world. Supplier of the Year Competition regulations the Power Plants business held 13 customer events and semi-
awards were presented during the seminar to ABB Oy, Electrical Wrtsil has a compliance programme for managing risks nars with a total of more than 175 participants. Power Plants
Machines, JTK Power Oy, Geislinger GmbH, Auramarine Oy and relating to competition law, and the companys corporate also participated in 19 international conferences. Ship Power
M. Jrgensen GmbH & Co.KG. management is strongly committed to implementing this attended 35 international and national maritime exhibitions and
programme. Wrtsils various subsidiaries conducted reviews 20 conference. A total of 50 customer seminars were organized
Preventing corruption and bribery
of compliance with competition regulations when formulating the by the Ship Power business.
Wrtsils Code of Conduct expressly prohibits the company
programme and during the course of mergers and acquisitions. In 2004 Wrtsil introduced a Customer Relationship On-Line
and its employees from accepting or offering any kind of benet
No infringements of competition regulations were identied. The ( CROL ) system for measuring the companys sales, delivery and
considered to be a bribe. Only normal business gifts of nomi-
programme documentation includes a manual of competition service performance in individual projects. Part of the system
nal value may be given or accepted. The instructions make it
law, which provides information about competition regulations requires Wrtsil to make a self-assessment, the results of which
compulsory to comply with local anti-bribery provisions and
and instructions for the companys internal procedures. Wrtsil are compared with feedback from customers. This enables
internationally recognized anti-corruption and anti-bribery princi-
has also arranged training in competition law for key personnel. action to be taken to rectify any issues while projects are still in
ples, and to report any cases of bribery. The company has organ-
progress. The management of the business units regularly moni-
ized extensive training for its personnel, particularly the sales Product liability
tor customer satisfaction and decide on any development meas-
organization, on anti-corruption principles and on the instructions Wrtsils occupational health and safety policy denes
ures necessary.
contained in its Broker Directive. procedures for ensuring product safety. Further information
Wrtsil measures its performance using an online form in
The Vaasa appeal court in Finland upheld the Vaasa district about issues relating to product safety is given in the Wrtsil
which customers are asked to comment on statements related
courts ruling in the case of suspected bribery referred to in the and Sustainability section of this report.
to the quality of Wrtsil products and solutions, the organization
previous Sustainability Report. The Vaasa appeal court ruled that
Customer satisfaction and the professional competence of Wrtsil employees. The
the Wrtsil employee in question was innocent of all charges
Wrtsil continuously develops and deepens relations with assessment has a scale of 1 10, the highest grade being 10.
brought against him. The prosecutor in the case has lodged an
its customers. Wrtsil supports its customers in the design, Altogether 1,477 such questionnaires were received from
appeal with the Supreme Court.
start-up and operation of the equipment and systems it delivers, customers in 2006, compared to 1,167 in 2005.
Political lobbying as the requirements of each customer dictate. Dialogue with
Wrtsils policy is to engage in open dialogue and discussion customers is vital to developing operations, products and The average results for
with both local and international public authorities and ofcials. services. the customer satisfaction survey
An important area of co-operation in this forum is the reduction In its most important market areas Wrtsil arranges 2006 2005 2004
of emissions from energy production. Stakeholder co-operation Customer Days for existing and potential customers. These Ship Power 7.4 7.2 7.5
with public bodies is a part of Wrtsils business operations and days are used to review subjects of topical interest and to Services 7.6 7.7 7.8
Power Plants 7.9 8.1 8.0
not a political activity. discuss existing and future needs and challenges. In 2006
124 SUSTAINABILITY / SUMMARY OF KEY FIGURES WRTSIL ANNUAL REPORT 2006
1
The operational performance data in this report has been compiled from the economic, environmental and social records of
the Wrtsil companies. Whilst every effort has been made to ensure that the information is neither incomplete nor misleading,
it cannot be considered as reliable as the nancial information published in the Financial Review.
2
The 2002 gures include the second-phase companies, which are presented in the previous report.
3
The 2003 and 2004 gures include the third-phase companies, which are presented in the previous report.
The third reporting phase includes all Wrtsil companies except those mentioned in the Report Scope section.
4
The data for 2005 include all Wrtsil companies except those mentioned in the Sustainability Report 2005 Scope section.
5
The accounting principle for calculating research and development costs was changed in 2004.
6
The data for 2006 include all Wrtsil companies except those mentioned in the Report Scope section.
WE ARE DOERS SUSTAINABILITY / REPORT SCOPE 125
Report scope Wrtsils Power Businesses comprise the Groups Ship Power,
Power Plants and Services businesses and its Engine division.
The target is to include these companies in Wrtsils sustain-
able development reporting in 2006 and 2007. Wrtsils Sustain-
The rst three of these generate external net sales while the ability Report is part of its Annual Report and therefore Wrtsil
Wrtsils Sustainability Reporting 2006 is prepared according fourth is an internal function. publishes a Sustainability Report annually.
to the GRI (Global Reporting Initiative) Sustainability Reporting The economic performance data covers all Wrtsil companies.
Signicant changes in Group structure
Guidelines 2002. The data on environmental and social performance covers
The structural changes that apply to the Power Businesses
Wrtsil reports those core indicators which are of most rele- all Wrtsil companies except the following:
are described under Social Responsibility. They relate mainly to
vance to its operations, products and stakeholders. The product DTS-Zwolle B.V., Schiffko GmbH
development of the Ship Power and Services businesses.
performance section describes the environmental aspects and Whessoe S.A., Total Automation Ltd.
impacts of Wrtsils products, the measures taken by Wrtsil Wrtsil Automation Norway, Whessoe Total Automation Ltd.
to reduce these impacts, and the environmentally advanced solu- Wrtsil Propulsion ( Wuxi ) Co. Ltd.
tions that Wrtsil has developed. The Wrtsil and Sustainable Wrtsil-CME Zhenjiang Propeller Company Ltd.
Development section examines the companys economic, envi- Wrtsil Qiyao Diesel Company Ltd.
ronmental and social performance. The core indicators chosen Wrtsil BLRT Estonia, Wrtsil BLRT Services Klaipeda UAB.
are of importance at the corporate level.
Coverage of operational data
Coverage of the report
This report covers Wrtsils Power Businesses. At the Operational data % of Wrtsil companies % of personnel % of product manufacturing
company level the report includes the parent company and 2006 05 03 04 02 2006 05 03 04 02 2006 05 03 04 02
its subsidiaries as well as its manufacturing, service and sales Economic 100 100 100 100 100 100 100 100 100 100 100 100
units. The report excludes Wrtsils associated companies, joint Environmental 90 90 79 35 91 95 92 75 96 98 100 100
ventures and supply chain companies. Social 90 90 79 45 91 95 92 85 96 98 100 100
January March on Friday 4 May 2007 Wrtsils Annual and Interim Reports, release
The Annual General Meeting of Wrtsil Corpo- The Board of Directors will propose to the
January June on Friday 3 August 2007 and brochures can be ordered from
ration will take place on Wednesday, 14 March Annual General Meeting that a dividend of EUR
January September on Tuesday the Communications Department either
2007, beginning at 16 p.m., in the Congress 1.75 per share will be paid on the 2006 nan-
30 October 2007 by telephone +358 10 709 0000,
Wing of the Helsinki Fair Centre, address cial period. The dividend will be paid to share-
Interim Reports will be published in English, fax +358 10 709 5219,
Messuaukio 1, 00520 Helsinki, Finland. holders who are registered in the list of share-
Finnish and Swedish on Wrtsils internet site. e-mail: corpcom@wartsila.com or
holders maintained by Finnish Central Securi-
Right to attend via the internet at www.wartsila.com.
ties Depository Ltd on the record date, which Stock Exchange Releases
Shareholders registered no later than
is 19 March 2007. The dividend payment date Wrtsils Stock Exchange Releases are avail- Further information on Wrtsil Corporation
2 March 2007 in the Companys list of share-
proposed by the Board is 26 March 2007. able in English, Finnish and Swedish on Wrt- Ms Eeva Kainulainen
holders maintained by the Finnish Central
sils internet site. Vice President,
Securities Depository Ltd have the right to Financial information 2007 Corporate Communications & IR
attend the Annual General Meeting.
Tel. +358 10 709 5235
Annual Report 2006
Notication of attendance e-mail: eeva.kainulainen@wartsila.com
This Annual Report is also available in
Shareholders wishing to attend the Annual Finnish and Swedish and may be downloaded Ms Josphine Mickwitz
General Meeting are required to inform the at Wrtsils Internet site: www.wartsila.com. Investor Relations Manager
Company thereof not later than 4 p.m. on
Tel. +358 10 709 5216
9 March 2007 either by letter, by e-mail,
e-mail: josephine.mickwitz@wartsila.com
by fax, by telephone or on internet.
Registration:
Wrtsil Corporation
Share Register
editing: Andrew Gardiner, Impress Ltd. | Printing house: Frenckell, March 2007
P.O.Box 196
FI - 00531 Helsinki, Finland
telephone +358 10 709 5282,
between 10 a.m. and 2 p.m. on weekdays
fax +358 10 709 5283
e-mail: yk@wartsila.com
Internet: www.wartsila.com/agm_register