#1WELCOME TO WÄRTSILÄ CHINA 1 © Wärtsilä 7 June 2013 WÄRTSILÄ#2Wärtsilä China today 2 © Wärtsilä 20+ years history in China Strong manufacturing footprint through JVs, fully owned companies and 2-stroke engine licensing THEALF THIALF MAERSK LINE In marine market, some leading Chinese ship owners and shipyards are not only Wärtsilä customers, but also JV partners Wärtsilä Services provides service and maintenance for its customers in China through eight locations 7 June 2013 WÄRTSILÄ#3Major milestones of Wärtsilä in China 1978 Signing of licensee agreement between Sulzer with CSSC 1986 Establishing Wärtsilä Diesel (China) Ltd., Hong Kong as Joint Venture with Kemklen Hong Kong 1991 Wärtsilä Diesel (China) 1994 Establishing Shanghai Representative Office, Beijing Representative Office, Wärtsilä Diesel Panyu Service Station (Joint Venture) 1995 1982 Developing agent Ltd., Hong Kong relationship with became a wholly Kemklen Industrial owned company under Service Station Suppliers Ltd., Hong Wärtsilä Diesel Finland 1996 First Investment in Taicang Electric Power Co., Ltd. (partial ownership) 1997 Merging with New Setting up Hong Kong Sulzer Diesel Hong Kong Ltd. 1998 Establishing Dalian Representative Office 1999 Upgrading Shanghai Representative Office. to Wärtsilä NSD Engine (Shanghai) Ltd. with business scope of trading and servicing Setting up Waigaoqiao Workshop in Shanghai Kong 3 © Wärtsilä 7 June 2013 Oy, Helsinki WÄRTSILÄ#4Major milestones of Wärtsilä in China 2002 Integration of John Crane-Lips 2005 Wärtsilä acquired Deutz medium and high speed. engine marine service business and started to handle the business from April. Inauguration of Wärtsilä 2010 Wärtsilä China operation in Engineering Center 2007 Shanghai following global acquisition in April 2002 Propulsion (Wuxi) Co. Ltd. (wholly owned) in June set up Inauguration of 2012 Wärtsilä (Suzhou) Marine Equipment Co., Ltd became a wholly-owned Wärtsilä company through the global acquisition of Hamworthy 2011 2004 Wärtsilä-CME Zhenjiang Propeller Co. Ltd. founded in June. In the JV Wärtsilä has 55% and CME has 45% ownership 2006 Inauguration of Wärtsilä Qiyao Diesel (Shanghai) (a 50/50 JV with CSIC SMDERI to manufacture marine auxiliary engines) in June 2006 Tangzhen Service Station in March 2008 The top management of Wärtsilä Ship Power moved to China 2009 Inauguration of CPP production at Wärtsilä-CME Zhenjiang Propeller Co., Ltd. in June Inauguration of Qingdao Qiyao Wärtsilä MHI Linshan Marine Diesel Co Ltd (QMD) in April. (CSIC 50%, Wärtsilä 27% and Mitsubishi 23%) Inauguration of Wärtsilä Ship Design (Shanghai) Co. in June Zhoushan Services Station set up in Sept Signing of Strategic Cooperation Framework Agreement with CSSC in Nov 4 © Wärtsilä 7 June 2013 WÄRTSILÄ#5Wärtsilä footprint in China WCN Shanhaiguan Shipyard Service Station WCN, Beijing Rep. Office Wärtsilä Ventures 2-Stroke Engine Licensees Joint Ventures Hefei Rong'an Power Machinery Co Ltd Yichang Marine Diesel Engine Co Ltd Wärtsilä (Suzhou) Ltd. Formal name is Hamworthy (Suzhou) Ltd. Sewage Water Treatment Plant, Inert Gas System, Control Panel CSSC Guangzhou Marine Diesel Engine Co Ltd -WCN, Dalian Rep. Office Dalian Marine Diesel Works Qingdao Qiyao Wärtsilä MHI Linshan Marine Diesel Co Ltd Low-speed engines Wärtsilä CME Zhenjiang Propeller Co Ltd FPPS, CPPS, shaft lines, blades and hubs Zhenjiang CME Co Ltd Cosco-Shipyard Total Automation Co Ltd CSSC-MES Diesel Co Ltd Wärtsilä Services (Shanghai) Co Ltd. Wärtsilä Ship Design (Shanghai) Co Ltd Wärtsilä HRDD Services Station Wärtsilä Zhoushan IMC-YY Services Station Hudong Heavy Machinery Co Ltd Wärtsilä Qiyao Diesel Shanghai Co Ltd Wärtsilä Auxpac 20 and 26 gensets Wärtsilä Propulsion (Wuxi) Co Ltd TTS, LCTs, seals & bearings and components Wärtsilä Services (Shanghai) Co Ltd, Nansha Office WCN Longxue Shipbuilding Service Station WCN Yiulian (Shekou) Dockyards Service Station Wärtsilä China Ltd. (H.K) Yuchai Marine Power Co Ltd 4 JVs, 2 fully-owned factories, 8 licensees for 2-stroke, and 8 service centers 2000+ employees 5 © Wärtsilä 7 June 2013 ARTIKA CME WÄRTSILÄ#6Wärtsilä Services in China 6 © Wärtsilä 7 June 2013 We provide total and 24/7 services WÄRTSILÄ Engine Services WÄRTSILÄ Propulsion System WÄRTSILÄ Automation Shanhaiguan Dalian WÄRTSILÄ Boiler HRDD WÄRTSILÄ In-situ Machining Shanghai WÄRTSILÄ Training WÄRTSILÄ Reconditioning Guangzhou Longxue Yiulian Hong Kong 50 largest Repair Yards in China that dock foreign ships Wärtsilä presence Zhoushan Taipei Kaohsiung WÄRTSILÄ#7Major Wärtsilä Services workshops in China WARTSILA WÄRTSILA . Shanghai Established: 1999 • Location: Tangzhen Shanghai Main activities: Reconditioning External Field Services In-situ and Afloat repair Automation Commissioning and Start-ups Guangzhou • Established: 1994 ⚫ Location: Nansha, Guangzhou . . • • Field service covering southern China ⚫ Specialized in servicing Woodward governors and ABB/Napier Turbo Chargers ⚫ Workshop reconditioning of entire gensets Hong Kong Established: 1991 • Located in Hong Kong • United Dockyards (HUD) Supporting visiting vessels, Hong Kong ship owners and ship management companies 7 © Wärtsilä 7 June 2013 WÄRTSILÄ#8Service cooperation with Chinese shipyards SHG H HRDD HUARUN DADONG DOCKYARD CO., LTD. 上海華潤大東船務工程有限公司 Shanhaiguan 2008 Zhoushan 2011 Shanghai 2010 IMC-YY Shenzhen 2011 CSSC Guangzhou 2010 INE C In order to serve customers better, Wärtsilä China entered a cooperation with major shipyards in China. A team of Wärtsilä experts is permanently stationed there and jointly provide a full range of field services. 8 © Wärtsilä 7 June 2013 WÄRTSILÄ#9Wärtsilä China manufacturing facilities WÄRTSILA We provide market leading products 9 © Wärtsilä 7 June 2013 WÄRTSILÄ#10Delivery Centre – Thrusters, Seals, Bearings / Wuxi WARTSILA Wärtsilä Propulsion (Wuxi) Co., Ltd Inauguration phase 2 November 2007 Employees: 161 (April 2013) 10 © Wärtsilä 7 June 2013 WÄRTSILÄ 800#11Delivery Centre - CPP & FPP / Zhenjiang Wärtsilä CME Zhenjiang Propeller Co., Ltd Founded in 2004 and new CPP factory inauguration in June 2011 Employees: 407 (April 2013) Joint Venture (Wärtsilä 55%, CSSC145%) 11 © Wärtsilä 7 June 2013 Note: CSSC1=China State Shipbuilding Corporation WÄRTSILÄ#12Delivery Centre - Auxpac 20 & 26 / Shanghai Co SOSC/S1 WARTSILA QIYAO Wärtsilä Qiyao Diesel Company Ltd. (Shanghai) (Shang Inaugurated in 2006 Employees: 141 (April 2013) Joint Venture (Wärtsilä 50%, CSIC 50% WARTSILA Note: CSIC China Shipbuilding Industry Corporation 12 © Wärtsilä 7 June 2013 WÄRTSILÄ#13Delivery Centre - 2-stroke engines / Qingdao 2-stroke engine 1314 ஆயாளர் QMD doers One million horsepower produced Qingdao Qiyao Wärtsilä MHI Linshan Marine Diesel Co., Ltd Inauguration April 2009 Employees: 490 (April 2013) Joint Venture (Wärtsilä 34%, CSIC 150%, MHI² 16%) Note: 1 CSIC = China Shipbuilding Industry Corporation, 2 Mitsubishi Heavy Industries 13 © Wärtsilä 7 June 2013 WÄRTSILÄ#14Delivery Centre- Environment & Safety Product/Suzhou • Inauguration in 1998 (former Hamworthy Suzhou) . • Employee: 103 (April 2013) Products: sewage water treatment plants, inert gas systems, control panels 14 © Wärtsilä 7 June 2013 Hamworthy WÄRTSILA WÄRTSILÄ#15Sourcing in China Supporting Wärtsilä's growth strategy in Chinal Supports both local needs in China (cost and short lead times) and export to Europe (cost) Increasing part of our purchase volume will be sourced in China. Significant part of our strategic sourcing organisation located in China -one critical factor for success Other critical factors for success: local engineering, focus on quality, multi functional task, local production 15 © Wärtsilä 7 June 2013 WÄRTSILÄ#16New JV for Wärtsilä medium speed engines in China Wärtsilä -Yuchai Engine Ltd. Co. Location: Zhuhai, China Products: W 20, W26, W32 Operations planned to start in 2014 16 © Wärtsilä 7 June 2013 WÄRTSILÄ#17Key success factors for doing business in China Strong brand with leading technologies Product portfolio meeting growing market demands and regulatory changes Forging strategic local partnerships with strong market players. Localization of manufacturing / supply chain / innovation capability Extensive market coverage through own. sales and service network Strong local business creation capability High customer satisfaction rate ■ Local talent and organizational development 17 © Wärtsilä 7 June 2013 WÄRTSILÄ#18Top 10 countries % of 2012 net sales Norway 5% United Kingdom China South Korea 3% USA 3% Dominican 7% 5% Republic The Netherlands 8% 5% 4% Brazil 18 © Wärtsilä 7 June 2013 Corporate Presentation 3% 3% Singapore Indonesia WÄRTSILÄ#19Marine market trends and drivers in China Chinese shipbuilding is moving from low-cost merchant ships towards more complex high value vessels Shipbuilding overcapacity will drive consolidation with government plans to support top shipyards Growing intra-Asian trade and drive towards securing raw material imports and energy supply will enable growth of Chinese ship owners " Improved local footprint and leading system integration capabilities enables Wärtsilä to be the most valued partner to our customers 19 © Wärtsilä 7 June 2013 223#20100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1971 1972 1973 1974 1975 1976- 1977 1978 Source: Wärtsilä's Marine Market Database (MMDB) 20 © Wärtsilä 7 June 2013 1979 1980 1981 1982 1983 China has a good market share in merchant vessels... 1984 ■China Japan ■ Korea Merchant vessels: contracting volumes (DWT), share by region 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 Other Asia ■Europe Rest of the World. 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006- 2007 2008 2009 2010 2011 2012 WÄRTSILÄ#2121 © Wärtsilä 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1991 1992 1993- 1994- ■China 1995- 1996 1997- 1998- Offshore vessels: contracting volumes (GT), share by region ...but now moving towards more complex & high value ships 1999 2000 2001 2002 2003- 2004 2005 Japan Korea Other Asia Europe Rest of the World Special includes: cruise, ferries (ropax and pax only), dredgers, and tugs Source: Wärtsilä's Marine Market Database (MMDB) 7 June 2013 2006 2007 2008- 2009 2010 2011 2012 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1991 1992 1993 1994 1995 1996 1997 - 1998 1999 2000 2001- Special* vessels: contracting volume (GT), share by region 2002 2003 2004 ■China Japan Korea Other Asia Europe Rest of the World 2005 2006 2007 2008 2009 2010 2011 2012 WÄRTSILÄ#22# of vessels China is quickly moving towards more complex and high value ships both for energy security and shipbuilding competitiveness 35,00 30,00 China LNG Imports 25,00 20,00 15,00 10,00 5,00 0,00 2005 2006 2007 2008 2009 2010 2011 2012 China LNG Imports Million Cu. M. • China has a strong strategic ambition to secure it's energy import There has been tremendous growth in LNG imports to China but LNG still represents only about 4% of the energy mix in China vs. a global average of 24% This will in turn increase opportunity for more and more LNG carriers owned and built in China 300 250 200 150 100 50 50 Offshore Deliveries in China 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 PSV AHTS Others 22 © Wärtsilä 7 June 2013 2012 • Shipbuilding in the offshore segment is witnessing huge growth in China Many international ship-owners are still wary of Chinese shipyards capability to build such complex vessels • Wärtsilä can form strategic partnerships with internal owners as well as local shipyards to provide complete solution to such vessels while the yards build the vessels "around" it WÄRTSILÄ#23Main state-owned shipyards - CSSC, CSIC & COSCO 23 © Wärtsilä 7 June 2013 COSCO Dalian COSCO Nantong + COSCO Qidong CSIC Bohai CSIC Shanhaiguan CSIC Dalian Shipbuild. CSIC Beihai CSIC Xingang CSSC Jiangnan Wärtsilä Premises Wärtsilä Services centres CSIC Shipyards CSSC Shipyards COSCO Shipyards COSCO Guangzhou CSSC Changxing CSSC Waigaoqiao CSSC Hudong Zhonghua CSSC Chengxi CSIC Wuchang CSIC Chuangdong State Owned Shipyards CSSC Huangpu CSSC GSI CSSC Longxue CSSC Wenchong WÄRTSILÄ#2424 Some of the main private / JV shipyards in China © Wärtsilä 7 June 2013 Yantai CIMC Raffles Shipyard New Times & New Century S/Ys NACKS Rongsheng SHI Sino-Pacific Offshore Qidong Xin Ya Ouhua Shipyard Jinhai Heavy Jiangsu Yangzhijiang Jiangsu Eastern Fujian Mawei Shipyard Yiu Lian Wärtsilä Premises Wärtsilä Services centres CSIC Shipyards CSSC Shipyards COSCO Shipyards Private / JV Shipyards Private/JV Shipyards WÄRTSILÄ#25Opportunities for power industry in China Ambitious national target being set to slash the carbon emission level in 2020 to 40% -45% of 2005 level Policy maker is shifting to support low carbon economy with clean energy from Gas, Nuclear, Wind, and Solar Power generating capacity to grow to ~ 1,500 GW by 2020 with gas to reach ~ 100 GW, or 6% of total capacity Wind power has been developed at brisk pace with total installed capacity of 45 GW in 2010, and expected to exceed 5% of grid load in 5 years 25 © Wärtsilä 7 June 2013 WÄRTSILÄ#26Wärtsilä Power Plants history in China 1990's to early 2000 when availability of electricity from grid could not meet increasing demand, Wärtsilä focuses on captive power plants for industrial parks. 2000 2005 China ramped up the construction of large coal fired power plants. Wärtsilä targets the market for black start units for large power stations. - 2006 2009 China mining and construction companies started to expand overseas. Wärtsilä supplies power plants to Chinese EPC contractors for overseas projects in remote areas. 2010 - Present China is putting focus on renewable energy, smart grid concept. and power system energy efficiency, providing opportunities for Wärtsilä's solutions 26 © Wärtsilä 7 June 2013 WÄRTSILÄ#27Potential NGDE projects in China by 2020 KRB By 2015 Complete the main CHP/CCHP equipments development through demonstration projects •To have independent local CHP/CCHP equipment manufacturing capability equal to 60% of localized equipments 5 GW Installed Localization will reach 60% 10 GW installed Localization will reach 90% By 2020 • CHP/CCHP widely used in Chinese cities ⚫50 GW installed (3.5% total installed capacity) SOURCE NDRC 9-10-2011 internal bulletin 27 © Wärtsilä 7 June 2013 WÄRTSILÄ#28The competition is tough but outside engines it is more fragmented SIEMENS ABB KONGSBERG ** *CONVER THE POWER CONVERT MANI Rolls-Royce E&A MITSUBISHI HEAVY INDUSTRIES, LTD. R Rolls-Royce HYUNDAI Mak 2-stroke I:IMSEN Hyundai Innovative Marine & Stationary Engine MAN NIGATA YANMAR DAIHATSU 潍柴动力 WEICHAI POWER 4-stroke medium speed CSSC MARIC R Rolls-Royce HAVYARD CSSC SDARI BESTWAY Skipsteknisk ULSTEIN Sea of Solutions • Major Shipyards DELTAMARINE 28 © Wärtsilä June 7, 2013 Ship Design R Rolls-Royce TWIN DISC Propulsion REINTJES WÄRTSILÄ SHIP POWER Environmental solutions MAN SCHOTTEL 75 CSIC Scana BRUNVOR C 重度省軸箱有限責任公司 CHONGQING GEARBOX CO.,LTD N NAKASHIMA We Go Beyond RENK BORG PROPULSION Kawasaki ABB Bushmaster Gas Systems CRYO STAR babcock LGE energy excelerate LGM R TGE Marine Gas Engineering GLORYHOLDER Flow Systems DESMI TAIKO >SEAPLUS FRAMO ALLWEILER MarFlex A Tyco international Company SHINKO IND.LTD. Hiroshima Japan •Local pumps makers EGCS BWMS IGS OU PONT COUPLE SYSTEMS CLEAN MARINE RWO OceanDoctor DECHCROSS HYUNDAI HEAVY INDUSTRIES CO., LTD. KANGRIM GEA KashiwaCo.,Ltd. Marine ecospec GREEN TECH MARINE Dream & Tomorrow PANASIA MAHLE clarke marine www.worldpanasia.com AURA MARINE OceanSaver Industry Optimarin SEVERN TRENT DE NORA GASCON COLDHARBOUR MP WAT SILA#29The very competitive market demands multiple offerings in terms of products, solutions, pricing and services to differentiate Established Global Engine Brand Strong focus on Gas Extensive Marine portfolio including Environmental Products System Integration including Ship Design and E&A Wärtsilä MAN Caterpillar Rolls- Royce Himsen Local (Hyundai) Chinese brands Japanese Import Worldwide Service network Extensive manufacturing footprint in China ✓ ✓ ✓ Top-side/Cargo handling equipments (Oil/LPG/LNG) Partnerships with local Chinese companies customers(e.g. JV) Currency advantage of imported products (at present) 29 © Wärtsilä 7 June 2013#3030 Growth drivers in China World second largest economy and biggest trading nation Sustained GDP growth expected to continue. ■ 2015 and beyond: starting to rival US in economic scale ■■One fifth of world population with rapidly rising middle class population and urbanization. Domestic consumption provides a huge market for the world. ■ Target to remain one of the largest shipbuilding countries ■ Shifting policy to clean energy and low carbon economy © Wärtsilä 7 June 2013 WÄRTSILÄ#31Wärtsilä China Future Strategy ■ Launch key initiatives (e.g. 4-stroke engine JV) to support. long term growth Strengthen high level customer contacts and external relationships (government, JV partners, etc) to ensure business success. Simplify operating model with entrepreneurial driven organization to be more agile and react faster ■ Create a strong China organization by introducing best practices, professionalism and high performance culture Attract develop and retain the best talents to create highly motivated workforce 31 © Wärtsilä 7 June 2013 WÄRTSILÄ#32Wärtsilä can offer integrated solution & support local Chinese yards in technically complex vessels to address ship-owner's concerns Propulsion Gearbox Auxiliary gensets WÄRTSILÄ 32 © Wärtsilä 7 June 2013 LNG Boil off gas compressors Reliquefaction plant (Ethane & LPG) LNG fuel system Energy recovering system Main engines Cargo pumps Cargo handling system EVERGAS#33WARTSILA.COM WÄRTSILÄ