SHIP POWER: RESILIENCE IN DEMANDING MARKETS

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SHIP POWER:RESILIENCE IN DEMANDING MARKETSJaakko Eskola, President, Ship Power &Senior Executive Vice President

24 March, 2015 Jaakko Eskola1

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The most complete marine offering on earth


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Efficiency Gas and dual-fuelsolutions

Environmentalsolutions

Strategic focus

To be recognised as the leading provider of innovative products and integrated solutions in the marine and offshore oil & gas industry.

Ship Power’s strategic goal


• Lifecycle solutions for ship owners and operators• Integrated solutions for the shipbuilding industry, owners and operators• The most competitive products and delivery process for the marine industryTH

ROUG

HO

FFER

ING

LEAD

ER IN

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Continued innovations


Propulsion Engines

BWMS

EGC

Pumps & Valves

Gas

E&A

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Market environment


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Ship Power operates in two industries

The marine industry• Merchant, Cruise & Ferry, Navy and

Special vessels

The Oil and Gas industry• Newbuild vessels and rigs for exploration

and production in offshore fields• Gas distribution chain equipment and

infrastructure (e.g. for liquefaction and regasification)


• Cautious outlook given increased uncertainty over developments in global economy and oil prices• Environmental regulations, increased safety requirements, fuel costs and efficiency requirements

continue to support investments

Developments in the global economy drive demand for: • Seaborne cargo transportation• Cruise and ferry services• Navy vessels

Global demand and price level for oil and gas are crucial for:• Investment into offshore oil and gas exploration

and production (including support vessels)• Investment into development of gas distribution

chains

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The marine industry: fundamentals in place despite a challenging 2014


Source: Clarkson Research Services, IMF 26.01.2015

-5%

0%

5%

10%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Seaborne trade growth GDP growth

Fundamentals supporting growth in seaborne trade:• Growth in oil products

trade to Asia and OECD countries

• Recovery in global container trade

• Continued consumer demand growth in developing economies

World seaborne trade and GDP development% Yr/Yr

Fleet growth bottoming out:• Slower pace of

deliveries• Removals rate

expected to stay high in the medium-term

Deliveries, removals, and fleet growth# vessels

0500

1 0001 5002 0002 5003 0003 500

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Deliveries Removals Net fleet growth

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Oil & Gas: supply grows, offshore remains important

Long-term oil production Long-term gas production


IEA estimates:• Investment of some $900 billion/year in upstream oil and gas development is needed by 2030 to meet projected demand• Gas production increases almost everywhere, and unconventional gas accounts for almost 60% of global supply growth

Source: Clarkson Research (Sep 2014). IEA World Economic Outlook 2014

Mbpd Bn cfd

86 90 94 98 02 06 10 14 18 22

1009080706050403020100

40%38%36%34%32%30%28%26%24%22%20%

Offshore Onshore % Offshore

450400350300250200150100

500

38%36%34%32%30%28%26%24%22%20%

86 90 94 98 02 06 10 14 18 22

Offshore Onshore % Offshore

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EPCI32%

Drilling20%

Topside and Processing Equipment

10%

Seismic7%

Offshore oil companies reduce investment in the near term

Exploration & Production Offshore CAPEX E&P CAPEX change 2014 vs 2015 100% = -38,2 billion USD

Source: Rystad Energy dated 13.03.2015. E&P data modeled at 60 USD/bbl 2015-2017


• 2015 total offshore E&P CAPEX foreseen to decline by 13% compared to 2014. EPCI, Drilling, and Well+ Maintenance Services segments expected to face the biggest decline

• Investments reduced across the board, with independents and small-cap companies decreasing the most• Wärtsilä supplies mainly two segments: Drilling and Transportation and Logistics

-

100

200

300

400

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

billion USDTransportation and Logistics

5%Subsea Equipment

7%

Other 4%

Well+MaintenanceServices

15%

EPCI Well+Maintenance ServicesTransportation and Logistics Seismic

DrillingSubsea Equipment

Topside and Processing Equipment Other

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Shipbuilding market


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Specialised segment activity still resilient


Source: Clarkson Research Services, excluding contracts reported out of period

Number of vessels contracted

0

10

20

30

40

50

60

70

80

01.1

202

.12

03.1

204

.12

05.1

206

.12

07.1

208

.12

09.1

210

.12

11.1

212

.12

01.1

302

.13

03.1

304

.13

05.1

306

.13

07.1

308

.13

09.1

310

.13

11.1

312

.13

01.1

402

.14

03.1

404

.14

05.1

406

.14

07.1

408

.14

09.1

410

.14

11.1

412

.14

01.1

502

.15

Offshore Cruise and Ferry Special vessels LNG carriers LPG carriers

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Shipbuilding volume China continues to dominate

Merchant + Specials order book, 4,083 vessels Offshore order book, 965 vessels

Source: Clarksons World Shipyard Monitor March 2015


Total order book: 5,048 vessels

46%

22%

19%

1%

10%

China Japan South KoreaBrazil Rest of world

44%

11%6%

5%

5%

5%

23%

China Brazil USNorway South Korea NetherlandsRoW

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Shipbuilding value A more diversified picture

Merchant + Specials order book,USD 204 billion

Offshore order bookUSD 101 billion

Source: Clarksons World Shipyard Monitor March 2015


Total order book value: USD 305 billion

33%

24%

20%

5%

3%3%

14%

South Korea Brazil China Norway

US Netherlands RoW

33%

31%

17%

2%

17%

China South Korea JapanBrazil Rest of world

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Overall cautious sentiment, segments uneven

14

Note: Other marine = MPP, general cargo, RoRo, vehicle carriers and miscellaneous.Source: Clarksons Marine and Offshore reports

3072

1931

Number of vessels contracted2014A Short term outlook Typical Wärtsilä product offering

0

500

1 000

1 500

2 000

2 500

3 000

3 500

2013A 2014A

Offshore

Gas carriers

Cruise & Ferry

Containerships

Tankers

Bulk carriers

Other marine

437

183

37

133

329

701

111

Main engines, auxiliary engines, E&A, propulsors, solutions, BWMS, waste water systems, pumps and valves, ship design, gas systems

Order potential challenging

Market normalising

Cruise majors expanding to Far East, LNG gaining traction

Positive outlook for large and med. sized containers

Active sector, expected to continue short-term

Limited activity; Baltic Dry Index at its lowest

RoRos positive

Main engines, auxiliary gensets, propulsors, gas systems, BWMS, pumps and valves

Main engines, auxiliary engines, E&A, gas systems, scrubbers, propulsors, BWMS, pumps and valves, waste water systems

Main engines, auxiliary engines, propulsors, BWMSship design, waste water systems, pumps and valves

Main engines, auxiliary engines, propulsors, BWMS, pumps and valves, inert gas systems, ship design

Main engines, auxiliary engines, propulsors, BWMS, pumps and valves

Main engines, auxiliary engines, propulsors, pumps and valves, E&A, BWMS, water systems

24 March, 2015Jaakko Eskola

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We believe that gas, efficiency and environmental solutions are the future


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0%

3%

6%

9%

12%

15%

18%

21%

24%

0

100

200

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500

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900

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

LNG supply (Bcm / y) LNG trade share of total gas consumption (%)

LNG poised for long term growth


Source: BP Energy Outlook 2035

Billion cubic meters / year % of total consumption

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Increasing number of LNG trading countries

Number of LNG importing and exporting countries, volume of LNG trade

Source: International Gas Union: World LNG Report 2014


Significant growth in number of importing countries increases demand for small and medium scale receiving terminals and gas carriers

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

700600

500400300

200100

0

30

25

20

15

10

0

MTPA No. of countries

Volume of LNG tradeNo. of LNG importing countries

Global regasification capacity No. of LNG exporting countries

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0

200

400

600

800

1 000

1 200

1 400

2000 2003 2004 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

LNG Carriers Other vessels

LNG as ship fuel gaining ground

LNG fuelled fleetNumber of vessels


Fleet growth based on current order book only

DNV estimate(excluding LNGC)

Clarkson estimate(including LNGC)

Source: DNV GL gas report Sept 2014. LNGC order book data and LNGC estimate: Clarkson Research Services 12.03.2015, LNG Trade and Transport study 2014

*LNGC: LNG Carriers

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Our offering to the gas value chain


• Fuel gas handling for OSVs

• On- & Offshore small scale liquefaction

• Antiflaring• VOC • Gas reformer• Oil separation

• Jetty and Floating regasification

• Bunkering and barges

• Receiving terminals

• Loading stations

• Fuel gas handling• LPG, LEG, Ethane

and LNG cargo handling

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Lower oil prices mean cheaper bunkers

* Bunker costs are paid by the chartererSource: Clarkson Research Services (basis 3500 TEU ship, speed 22.5k on consumption of 105 tpd).


0

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Jan.

93

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14

Bunker $/day Charter rate $/day

Daily rate and bunker costs*, 3,500 TEU containershipThousand USD

Jan 201580%

Jan 201292%

Jan 200651%Jan 1994

30%

...however bunker share of daily costs is still very high (now at 80%):1. Efficiency gains have big impact on bottom lines2. Slow steaming expected to remain in the picture

Bunker as a % of daily costs (Daily costs = Charter rate $/day + Bunkers $/day)

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Introduction of environmental legislation continues

Efficient environmental products key for customers to fully comply with IMO legislation• Finnlines selects Wärtsilä scrubber

systems for six of its vessels to reduce Baltic Sea environmental impact

• Royal Caribbean will retrofit nearly half of its fleet (19 ships), with advanced emissions purification systems

• Singapore based Pioneer Marine orders 44 Wärtsilä ballast water management systems to 22 of its bulk carriers

• HHI selects Wärtsilä exhaust gas cleaning systems for 10 new large gas carrier vessels

Source: Trade Winds, Sustainable Shipping, Bunkerworld, Dow Jones & Company Inc. March 2015

“US EPA steps up ECA sulphur enforcement efforts”

“Hong Kong; Shipmasters could face jail for breaching sulphur rules”

“U.K. port authorities plan to check fuel records of ships calling on British ports”

2008

2009

2010

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2012

2013

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2015

2016

2017

2018

2019

2020

Ballast Water Management awaits ratification

Review of introduction of 0.5% S global limit

2016 Tier III limit (North America ECA)

0,1%SEU in ports

Europe ECA1% SOx

North America ECA1% SOx All ECA

0,1% S

Global cap 0,5% S

Global cap 3,5%S

2025


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Our competitors


Note: Converteam is a part of GEAllweiler is a Colfax business unit

E&A Propulsion Gas systems

2-stroke

Flow systems

4-strokemedium speed

Ship design

Environ-mental solutions

Ship Power

EGCS

BWMS

http://www.converteam.com/

http://www.mhi.co.jp/en/index.html

http://www.scana.no/

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

http://www.tge-marine.com/index.php?article_id=1

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Strong market position in key offerings


Offering Our market position Wärtsilä key strengthsEngines:4-stroke

• Main engines: market leader • Auxiliary generating sets:

market challenger

• Fuel flexibility and efficiency• Environmental footprint

Propulsion • CPP, FPP & STT: among the top players

• TT: market challenger

• Well-engineered, efficient products• Operational efficiency for dynamic

positioning• Multi-segment presence

Electrical & Automation (excl. L-3 MSI)

• Established position in offshore, otherwise market challenger

• Low loss concept, efficiency and space savings

• Track record in demanding applications, performance and safety

Ship Design • Among the leading ship design houses

• Frontrunner in fuel flexible, energy efficient and LNG powered ship designs

• Experience: over 4,000 vessels built in offshore, specials and merchant segments

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Strong market position in key offerings


Offering Our market position Wärtsilä key strengthsOil & Gas systems

• Among the top players • Strong LNG and LPG process technology know-how

• Complete end-to-end gas cargo handling offering for a broad range of gas carriers

Pumps & Valves

• Among the top players • High efficiency with electric prime movers

• Sophisticated material choices, durability• Flexible design

Environmental Solutions

• Among the top players • Leader in technical performance and compliance

• Choice of technology for customers • Partnership approach throughout the

lifecycle• Full turnkey capability, also for retrofits

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Our broad portfolio gives us a resilient position

• First signs of recovery in the global economy, supports trade and shipping

• Lower oil prices: – Increases pressure in offshore markets– Presents opportunities in other marine

markets– Efficiency remains a priority

• Fundamentals in gas and other specialised segments remain positive

• Regulatory pressures still in play, will attract investments (also for retrofits)


SHIP POWER: RESILIENCE IN DEMANDING MARKETS

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