Wallenbergs prove worthy ally for Wartsila

Bjorn Rosengren no longer feels as vulnerable as he did 15 months ago. The boss of Wartsila, a leader in land and sea power systems, has gained an important ally since rival Rolls-Royce came knocking on his door to suggest a takeover.

Since the UK aero engine-maker made its unsolicited approach last year, Sweden's powerful Wallenberg family has become Wartsila's biggest shareholder with 17 per cent. "They have said they are not interested in selling," Mr Rosengren says. "They think we are well positioned so they think we don't need to be eaten up by one of the giants."

The Wallenberg family is one of Europe's most powerful corporate dynasties. With such backing Mr Rosengren confidently dismisses those who suggest that Rolls-Royce could one day return for another attempt to bolster its own struggling marine engine business. "The risk that we could be bought is much less than it was a year ago," he says.

Wartsila has come a long way since starting life in 1834 as a sawmill close to the Finnish border with Russia. One in three of the world's ships runs with Wartsila technology, and the group commands 10 per cent of the global market for liquid and gas fuelled power stations of less than 500MW. Last year it generated €4.8bn in sales, with just over a third in marine, 22 per cent in power plants and the balance from service and maintenance.

But times have been tough. It took five years for Wartsila's marine engine business to rebuild sales after the ship building industry collapsed along with the global economy in 2009. Now a plunging oil price is hitting the offshore marine business, which has tumbled from 45 per cent of the ship power division's sales to just 28 per cent. To compound matters, the sluggish global economy has hit demand for power stations, with 2014 sales falling to their lowest in seven years.

Soon after Rolls-Royce was sent packing, Mr Rosengren launched a restructuring, cutting 1,000 jobs - roughly 5 per cent of the global workforce - and €60m in costs. This has helped reassure many investors that Wartsila can weather even this latest storm. Over the past six months the shares have risen by a third to their highest in a decade.

There are no more plans to cut jobs, but this will be another testing year. Mr Rosengren's aim now is to push operating margins from 11.9 per cent to 12.5 per cent in 2015 on the back of zero to 10 per cent organic sales growth. He says conditions are ripe for Wartsila's products.

Tougher environmental regulations are forcing ship owners to reduce sulphur emissions from traditional heavy fuel. "What makes us so special . . . is that our engines can run on gas or dual fuel," he says. He admits there are big hurdles to overcome before his vision of a global gas-powered fleet can be realised, not least a dearth of gas refuelling stations. Yet he insists: "As more ships come with gas engines, the more fuelling stations there will be."

The power generation business is also challenging, but Wartsila's smaller gas engine-based systems are popular in emerging markets, and can be used to back up growing but volatile renewable power generation.

Finally, he hopes the digital revolution will help transform the service business, enabling Wartsila to gather real-time data from its engines wherever they are in the world. Control centres are monitoring performance, wear and tear and, through network-linked goggles, helping those on board to carry out repairs. "Maintenance is expensive. If you can delay it by a week, a month . . . you save a lot of money," Mr Rosengren says.

Not everyone is convinced that Wartsila will be able to deliver as quickly as Mr Rosengren hopes.

Max Yates, an analyst at Credit Suisse, says the power plant business could be held back by a weak global economy and lower oil revenues in important middle eastern markets. In the marine business, the lack of gas refuelling stations, low oil prices and overcapacity in merchant shipping mean that short-term growth could be difficult.

"They are doing all the right things," says Mr Yates. "They are just exposed to some long cycle end markets."

Mr Rosengren says even "small steps" will take Wartsila in the right direction. Should he decide to take bigger ones - perhaps even a transformative acquisition - he has his core shareholder to turn to. "We have a strong owner behind us who would probably support us if strategically it makes sense."

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