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  • This is Wärtsilä OpenClose subpages
    • CEO review
    • Wärtsilä in brief OpenClose subpages
      • Corporate strategy
      • Our targets OpenClose subpages
        • Financial targets
        • Sustainability targets
      • The value of sustainable innovations
      • Sustainability highlights
    • Energy solutions OpenClose subpages
      • Operating environment
      • Strategy
      • Energy Solutions and sustainability
      • Energy Solutions' development in 2015
    • Marine Solutions OpenClose subpages
      • Operating environment
      • Strategy
      • Marine Solutions and sustainability
      • Marine Solutions' development in 2015
    • Services OpenClose subpages
      • Operating environment
      • Strategy
      • Services and sustainability
      • Services' development in 2015
    • Manufacturing review
    • Research and development
  • Sustainability OpenClose subpages
    • Wärtsilä's sustainability approach
    • Stakeholder relations
    • Sustainability management OpenClose subpages
      • Guiding principles OpenClose subpages
        • Code of Conduct
        • QEHS Policy
        • Employee practices
      • Management approach OpenClose subpages
        • People management
        • Environmental management
        • Occupational health and safety
        • Responsible business conduct
        • Product design principles
        • Supply chain management
    • Sustainability data OpenClose subpages
      • Economic OpenClose subpages
        • Economic performance
        • Market presence
      • Environment OpenClose subpages
        • Materials
        • Energy
        • Water
        • Emissions
        • Effluents and waste
        • Products and services
        • Expenditures
      • Social OpenClose subpages
        • Structural changes
        • Employment
        • Labour / management relations
        • Occupational health and safety
        • Training and education
        • Diversity and Equal opportunity
        • Product and Service Labelling
      • Compliance
    • Report profile OpenClose subpages
      • Materiality assessment
      • Reporting principles
      • Independent Assurance Report
    • GRI and UNGC index
  • Governance OpenClose subpages
    • Corporate governance OpenClose subpages
      • Annual General Meeting
    • Board of Directors OpenClose subpages
      • Operations of the Board of Directors
      • Responsibilities
      • Board committees
    • Board of Management OpenClose subpages
      • The President & CEO and the Deputy CEO
      • Operations of the Board of Management
    • Other management OpenClose subpages
      • Business management teams
      • Managing Directors of the subsidiaries
    • Internal control OpenClose subpages
      • Values and the control environment
      • Business processes
      • Guidelines and communication
      • Monitoring
    • Audit
    • Related party transactions
    • Insider management
    • Salary and remuneration report 2015
    • Risks and risk management OpenClose subpages
      • Strategic risks
      • Operational risks
      • Hazard risks
      • Financial risks
      • Risk profiles and responsibilities
  • Investors OpenClose subpages
    • Shares and shareholders OpenClose subpages
      • The Wärtsilä share on Nasdaq Helsinki
      • Shareholders
    • Wärtsilä on the capital markets
    • Analysts
    • Information for shareholders OpenClose subpages
      • Financial information 2016
    • Annual summary of stock exchange releases
  • Board of Directors' report OpenClose subpages
    • Highlights 2015
    • Strategy
    • The year 2015 OpenClose subpages
      • Market development
      • Order intake and order book
      • Net sales and profitability
      • Balance sheet, financing and cash flow
      • Capital expenditure
      • Strategic projects, acquisitions joint ventures and expansion of the network
      • Research and development, product launches
      • Personnel
      • Restructuring programmes
      • Changes in management
      • Sustainable development
      • Shares and shareholders
      • Decisions by the AGM
      • Risk and uncertainties
    • Market outlook
    • Prospects for 2016
    • Dividend proposal
  • Financials OpenClose subpages
    • Five years in figures
    • Calculations of financial ratios
    • Consolidated financial statements OpenClose subpages
      • Consolidated statement of income
      • Consolidated statement of comprehensive income
      • Consolidated statement of financial position
      • Consolidated statement of cash flows
      • Consolidated statement of changes in equity
      • Accounting principles for the consolidated financial statements
      • Notes to the consolidated financial statements OpenClose subpages
        • 1. Segment information
        • 2. Acquisitions
        • 3. Disposals
        • 4. Long-term construction contracts and operating and maintenance agreements
        • 5. Other operating income
        • 6. Material and services
        • 7. Employee benefit expenses
        • 8. Depreciation, amortisation and impairment
        • 9. Measures of profit and non-recurring items
        • 10. Financial income and expenses
        • 11. Income taxes
        • 12. Earnings per share
        • 13. Intangible assets
        • 14. Property, plant & equipment
        • 15. Investments in associates and joint ventures
        • 16. Available-for-sale financial assets
        • 17. Inventories
        • 18. Financial assets and liabilities by measurement category
        • 19. Other receivables
        • 20. Cash and cash equivalents
        • 21. Deferred taxes
        • 22. Pension obligations
        • 23. Equity
        • 24. Provisions
        • 25. Financial liabilities
        • 26. Other liabilities
        • 27. Derivative financial instruments
        • 28. Collateral, contingent liabilities and other commitments
        • 29. Related party disclosures
        • 30. Auditors' fees and services
        • 31. Exchange rates
        • 32. Subsidiaries
        • 33. Financial risks
    • Parent Company financial statements OpenClose subpages
      • Parent company income statement
      • Parent company balance sheet
      • Parent company cash flow statement
      • Accounting principles for the parent company
      • Notes to the parent company financial statements OpenClose subpages
        • 1. Other operating income
        • 2. Personnel expenses
        • 3. Depreciation and amortisation
        • 4. Financial income and expenses
        • 5. Extraordinary income and expenses
        • 6. Income taxes
        • 7. Fixed assets
        • 8. Non-current receivables
        • 9. Current receivables from Group companies
        • 10. Prepaid expenses and accrued income
        • 11. Shareholders' equity
        • 12. Liabilities
        • 13. Accrued expenses and deferred income
        • 14. Liabilities to Group companies
        • 15. Collateral, contingent liabilities and other commitments
        • 16. Related party loans and other commitments
        • 17. Auditor's fees and services
    • Proposal of the Board
    • Auditor´s report
    • Quarterly figures 2014-2015

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Annual Report 2013

q4 2013

q3 2013

q2 2013

q1 2013

Annual Report 2014

q4 2014

q3 2014

q2 2014

q1 2014

Annual Report 2015

q4 2015

q3 2015

q2 2015

q1 2015

q1 2016

q2 2016

q1 2016

q2 2016

q3 2016

q4 2016

Annual Report 2016

Operational risks

Operational risk management is part of the daily work of the Businesses. Opportunities and risks are identified, assessed, and managed on a daily basis and reported to, and managed by, the appropriate management level. The status of these opportunities and threats are reviewed on a periodic basis and appropriate further actions are taken.

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Manufacturing risk

Wärtsilä constantly analyses its manufacturing footprint and capacity costs, including costs related to the supply chain. Risk assessments have been made for all the main delivery centres, and significant safety and risk mitigation investments have been completed. Risks identification, assessment and mitigation actions are executed on a regular basis as part of operational management. Management systems for quality, environmental, occupational health and safety, and other systems are utilised to improve productivity, while safety and business continuity plans have been implemented for the key delivery centres.

Supplier and sub-contractor risk

Wärtsilä’s supply management is integrated within the business lines, the goal being to secure quality, lead times, and costs according to business specific requirements. In order to ensure coordinated interfaces and synergies for the cross-divisional supplier base, a category management structure has been put in place. Indirect Purchasing remains a centralised function responsible for managing strategic sourcing activities for indirect materials and services in all businesses and support functions.

The supply management units have a unified process for managing and controlling Wärtsilä’s supplier network and for verifying that the suppliers’ performance meets Wärtsilä’s expectations. Supplier performance is, therefore, continuously measured. A key activity in managing business continuity planning is the continuous assessment of business interruption risks, which is carried out in cooperation with the company’s suppliers. Several supplier risk audits have been completed jointly with the insurer as one means of mitigating risk. These audits are now one of the regular tasks for the supply category managers and the Risk Management function.

Wärtsilä has developed its supply related activities by creating close collaboration and long-term relationships with its main suppliers. This cooperation creates a common view towards values and goals, which in turn supports the management of Wärtsilä’s strategic risks. To further mitigate supplier and sub-contractor risks, a comprehensive follow-up of suppliers’ credit worthiness has been established. Supplier related risks for key components are mitigated by establishing dual or multi sourcing.

Lifecycle quality of products and product liability risk

Launching new products always involves risks. In the R&D process, several risk management techniques are applied, including the risk elimination tool FMEA (Failure Modes and Effects Analysis) and in-house validation testing. Wärtsilä seeks to control quality risks by monitoring the incoming quality from the supply chain, and by designing and manufacturing its products with all due care. Wärtsilä applies a GATE model in order to control the product development process. Initially, only a limited release of new products is allowed, and via the gate approach, full release authority is given to the sales organisations only after testing and further validation has been completed.

Wärtsilä seeks to control its manufacturing quality risks by applying several assurance and quality control principles. The level of quality assurance and control requirements are determined based on component criticality, and they are applied throughout the delivery chain. The 5S (sort, shine, set, standardise and sustain) philosophy is implemented in all production sites to increase quality and to support lean operations.

Both Services and the business lines are responsible for supporting customers in all warranty issues. This offers a feedback loop from the field to production and R&D, while taking care of customers’ installations throughout their lifecycle. The company makes warranty provisions to cover any costs that may arise after product delivery. The product liability insurance covers unexpected damages.

Wärtsilä seeks to continuously improve the quality of its products and services through the adoption of best industry practices and good governance. Management at all levels is responsible for the quality of output from their organisations, and is accountable for ensuring that appropriate review and feedback mechanisms are in place. The centralised Wärtsilä Quality function is responsible for coordinating quality activities across the businesses, and for ensuring that senior governance mechanisms are in place and effective.

Contractual risks

Wärtsilä’s non-service sales consist of projects and equipment supply deliveries of various sizes. The most substantial orders concern turnkey power plants. However, in relation to the total volume of business, the risks from individual projects do not reach significant levels. The lifecycle quality of the products and work, starting from the initial design, throughout all stages of the production process, to the eventual field service work, plus the use of standard sales contracts, including the establishment of a contract review process, together reduce the risk of product liability claims.

In the Services business, the contractual risk is related mainly to long-term agreements and service projects, such as engine upgrades, retrofits or modifications. These offerings represent approximately 25% of the total Services business, but the risks connected to individual contracts do not reach significant levels since the business between various customers and countries is broadly spread. In addition, both offerings follow a well-defined sales process, thereby bringing multiple control points to observe embedded risks and to plan their control, both in contractual measures as well as in execution.

Risk of non-compliance, corruption and fraud

Wärtsilä complies with the law and its own internal policies and procedures everywhere the company does business. Wärtsilä's Code of Conduct is the key guideline for all employees globally. Wärtsilä is committed to high ethical standards and integrity in its Businesses, and to preventing corruption and violations of the principles set forth in the Code of Conduct, as well as in Wärtsilä's Anti-Corruption and Compliance Reporting policies. Compliance processes are embedded in all of the Businesses, and the responsibility for compliance and awareness of ethics and integrity is that of all Wärtsilä employees. Wärtsilä is fully committed to compliance with the anti-corruption laws and statutes. Wärtsilä's Anti-Corruption Policy absolutely forbids any kind of corruption and bribery, and the top management of the company has a zero-tolerance policy regarding corruption and fraud.

The Compliance function promotes Group wide compliance and continuously strives to raise awareness of the risk of corruption and bribery and other misconduct. It is primarily responsible for creating and enforcing Group level policies and procedures, training programmes, internal compliance investigations, managing the consequences of misconduct, and reporting. The continuous development of Wärtsilä's compliance programme and nurturing the company’s commendable ethical culture are pivotal tasks for the Compliance function. Moreover, Compliance supports and cooperates with the Businesses and other corporate functions in their risk management efforts.

While Wärtsilä is aware of the risk of being subject to fraud by external business parties, and that the risk of corruption and fraud is heightened in many markets where the company operates, Wärtsilä maintains its highly ethical practices at all times. Full compliance with its stringent anti-corruption regime, including policies to prevent the corruption and bribery risk of third parties, is demanded by Wärtsilä.

Commodity price risk

Oil

The direct effect of oil price changes on Wärtsilä's production is limited, with their impact being mainly demand related. Higher oil prices represent a risk for global economic growth and increase operating costs, especially in the shipping markets. However, they also stimulate investments in exploration and production for oil and gas, both on land and offshore. Furthermore, high oil prices increase investments in gas carriers, gas based power plants and, increasingly, also in gas fuelled vessels. Low oil prices can delay investment decisions in oil producing countries and regions and in the offshore industry. Wärtsilä is a global company involved in different shipping and power plant segments where oil price changes can have an opposing impact on demand drivers. This position is further diversified by the increasing importance of natural gas in Wärtsilä's business.

Metals

Metal prices have an indirect effect on the component costs of our products. Furthermore, some key components are sourced with long-term contracts, and thus raw material price volatility is limited.

Electricity

Electricity prices have no substantial impact on Wärtsilä’s production costs. In the Energy Solutions business, high electricity prices support investments in new capacity from utility customers. Lower grid electricity prices do not favour investments by industrial customers in their own generating capacity.

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