#11 © Wärtsilä WELCOME TO WÄRTSILÄ CHINA JAAKKO ESKOLA, GROUP VICE PRESIDENT, SHIP POWER JAMES HAN PRESIDENT OF WÄRTSILÄ CHINA LTD. WÄRTSILÄ#2Topics ■ Wärtsilä in brief ■ Chinese Economy Update ■ Wärtsilä in China Marine Market in China - Overview Chinese Power Industry in General Wärtsilä Services Business in China 2 O Wärtsilä China 24 February 2012 Corporate Presentation WÄRTSILÄ#3This is Wärtsilä BEALANS WERE 3 © Wärtsilä SHIP POWER POWER PLANTS SANG SERVICES WÄRTSILÄ#44 Net Sales and Profitability © Wärtsilä EUR 6.000 16% 14% 5 000 12,1% 11,4% 10,7% 11,1% 12% 4 000 10,1% 10% 3 000 2 000 1 000 8% 6% 4% 2% 0 0% 2007 2008 2009 2010 2011 Net sales - Operating profit, % WÄRTSILÄ#55 Chinese Economy Update . GDP has slowed to 8.9% during Q411 from 9.1% in Q311. • • CPI in Jan rose to 4.5%, higher than expected 4.2% due to Chinese New Year factor. This may deter policymaker from further loosening the monetary policy. Trade figures are weak in Jan. Imports sank 15.3% yoy in Jan, the worst since Nov. 2009, while exports fell 0.5% yoy. Imports slump during Jan is raising some concerns for domestic demand. Slight increase in business activities at the beginning of the year, as Jan PMI rose to 50.5 from 50.2 in Dec 2011. "There is downside pressure on our economy and elevated inflation at the same time" (quoted from Premier Wen, Jan.2, 2012). The country is facing problems of weakening external demand and rising costs for the companies. China will continue to fine tune the policy and further introduce measures to boost domestic consumption, and make sure the real economy gets sufficient investment for growth. Wärtsilä WÄRTSILÄ#6Wärtsilä 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 CSSC Guangzhou Marine Diesel Engine Co Ltd Wärtsilä employees approx. 2000 in China 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) Zhuhai Yuchai Marine Power Co Ltd 6 © Wärtsilä ARTSLA C WÄRTSILÄ#7Wärtsilä in China . . • Wärtsilä has been present in China for more than 20 years, through its fully owned subsidiary and long-term licensing agreements. Wärtsilä has established joint ventures for propeller and auxiliary generating set production with leading Chinese shipbuilding groups, and our thrusters are produced at our 100% owned company. We also have a joint venture with COSCO to offer automation services. Our low-speed or 2 stroke engines are produced in China by 8 licensees as well as a joint venture company. In the marine market, the leading Chinese ship owners and shipyards are Wärtsilä customers. Wärtsilä Services provides service and maintenance for its customers in China through eight locations. The largest one is located in Shanghai. • In the energy markets, Wärtsilä has delivered altogether 3,500 MW of power plants to China. 7 O Wärtsilä WÄRTSILÄ#8Wärtsilä China Manufacturing Facilities 8 © Wärtsilä WARTSILÄ WÄRTSILÄ#9- Delivery Centre – Thrusters, Seals, Bearings / Wuxi (China) 9 O Wärtsilä WARTSILA Established Oct 2004 and Inauguration phase 2 Nov 2007 100% owned by Wärtsilä Employees: 167 (Jan. 2012) WÄRTSILÄ#10Wärtsilä CME (Zhenjiang) - FPP & CPP (China) Established June 2004 and inauguration CPP factory June 2011 Joint Venture Wärtsilä 55% CSSC1 45% Employees: 462 (Jan 2012) Note: CSSC = China State Shipbuilding Corporation 10 Wärtsilä Corporate Presentation WARTSLA CMT#11Delivery Centre - Auxpac 20 & 26 Shanghai (China) LALGETMETR Wir Con Betts Corey 111 Spal IT Note: 1CSIC = China Shipbuilding Industry Corporation 11 © Wärtsilä Inauguration June 2006 Joint Venture Wärtsilä 50% CSIC1 50% Employees: 145 (Jan. 2012) WÄRTSILÄ#12Delivery Centre - 2-stroke engines / Qingdao (China) Inauguration April 2009 Joint Venture Wärtsilä 34% CSIC1 50% MHI² 16% Employees: 556 (Jan. 2012) Note: 1 CSIC = China Shipbuilding Industry Corporation, 2 Mitsubishi Heavy Industries 12 © Wärtsilä WÄRTSILÄ#13Marine Market in China - Overview Over 1000 Shipyards in China In 2011, total production volume was increased by 16.9% to 76.65 million DWT(comparing to 52.91million DWT from Korea). However, new order intake decreased by 51.9% to 36.22 million DWT. ■ In 2011, major state owned companies, such as CSSC and CSIC had about 37% (44% in 2010) market share (based on production volume) while Jiangsu province alone contributed around 35.4% of private S/Ys. Comparing with Korea and Japan, China's local marine equipment content is only about 50% while the rest will be relaying on either foreign technology and/or importation Aggressive expansion and upgrade in large containerships, special and offshore by some leading Chinese S/Ys will close the gap in 5-10 years ■ The consolidation of shipbuilding industry will continue. 13 © Wärtsilä WÄRTSILÄ#14100% 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) 14 © Wärtsilä China in merchant vessels Merchant vessels: contracting volumes (DWT), share by region 1979 1980- 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991- 1992- 1993- 1994 1995 1996- 1997- 1998- 1999- ■China ■Japan Korea Other Asia ■Europe ■Rest of the World 2000 2001 2002 2003 2004 2005 2006 2007- 2008 2009 2010 2011 WÄRTSILÄ#15100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1991 1992 1993 1994 1995 1996 1997 ... and in other vessel segments Offshore vessels: contracting volumes (GT), share by region Special* vessels: contracting volume (GT), share by region 1998 1999 2000 2001 ■China Japan Korea Other Asia Europe Rest of the World 2002 2003 2004 2005 2006 2007 2008 2009 2010- *Special includes: cruise, ferries (ropax and pax only), dredgers, and tugs Source: Wärtsilä's Marine Market Database (MMDB) 15 O Wärtsilä 2011 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 ■China Japan Korea Other Asia Europe Rest of the World WÄRTSILÄ#1616 Main Chinese Shipyards 船厂分布图 LOCATION OF MAJOR CHINESE SHIPYARDS 2009.7 © Wärtsilä 新疆维克尔自治区 云南 甘肃 陕西 内蒙古 贵州二 广西 山西 山东 江源 湖北 海南 江西 浙江 黑龙江 吉林 WÄRTSILÄ#17Main Shipowners in China 17 © Wärtsilä COSCO HQ CNOOC CNPE HOSCO Sinopec MOC PLA Navy COSCO Tianjin CENTRANS Tianjin CSG Passenger Ferry COSCO Dalian Sea Fortune Yantai Salvage Bureau Bohai Ferry • -SITC, COSCO Qingdao CSG HQ COSCO: China Ocean Shipping Corp. CNOOC: China National Offshore Oil Corp. MOC: The Ministry of Communication China CSG: China Shipping Group Sinotrans: China National Foreign Trade Tran. Corp. STS: Shanghai Time Shipping Nanjing Oil Tanker (NOT) Changzhijiang Shipping Co. CSCL COSCON Chipolbrok Sinochem Shanghai Salvage Bureau Shanghai Waterway Bureau STS COSCO Xiamen COSCO Guangzhou CSG Tramp Guangzhou Salvage Bureau Guangzhou Waterway Bureau WÄRTSILÄ#18Chinese Power Industry in General GERA ☐ China power generation is dominated by coal generation (78%). Hydro (16%), nuclear (2%). The gas generation is still at low level. The Government controls also the grid company which has been split into 2 Companies: China State Grid and China South Grid ■ There is a monopoly in power generation and transmission Electricity price is linked to the coal price ■ Gas generation is less than 3% of the total, due to the scarcity of gas. Although situation is gradually improving. ■ In 2020 gas generation will grow to 7% ■ Wind power has been developed at brisk pace with total installed capacity of 45 GW in 2010 ■ However 40% of the wind power is not connected to the grid due to the shortage of transmission capacity China has embraced the smart grid concept (mainly HVDC) 18 © Wärtsilä WÄRTSILÄ#19Wärtsilä Power Plants history in China 1990's to early 2000 when availability of electricity from grid could not meet increasing demand, Wärtsilä focused 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 19 © Wärtsilä WÄRTSILÄ#2020 Wärtsilä Services Business in China © Wärtsilä Spare Parts, Field Service and Special Projects . Marine Engine . . . Reconditioning Propulsion system Automation Dalian . Boiler Shanghai · In-situ machining . Training Zhoushan Guangzhou Hong Kong Repair Yard Wärtsilä WÄRTSILÄ#21Wärtsilä's ambitions in China Defend our strong position in China and aggressively pursue further growth ⚫ Clear leadership for certain vessel types • • Differentiated approach to customers Maximized synergies with Ship Design . • Continue expanding our local manufacturing footprint as well as engineering design capability Further strengthening of local organization 21 © Wärtsilä WÄRTSILÄ#22Uncertainty ahead? The fundamentals show risks and opportunities • . Risks of downturn in global economy are tangible, also for Chinese economy High oil prices represent a risk towards global economic growth, however they also stimulate investments in exploration and production for oil and gas Expansion of emerging economies (including China) continues to support growth of demand for transportation of raw materials and energy Highlights about the present • • Earnings are at very low levels Overcapacity continues to cast shadows in main merchant segments The future brings interesting challenges! · Ship owners base is shifting and increasingly Chinese Increasing interest in the market for gas applications, Chinese yards' interest in gas fuelled vessels increasing Increasing focus on energy efficiency and environmental performance 22 © Wärtsilä • Increased need for a total performance approach ship design capabilities are crucial! WÄRTSILÄ#23Q&A 23 23 WARTSILA O Wärtsilä China August 2011 WÄRTSILÄ