Wärtsilä Corporation Interim Report Q2 2015

Risks and business uncertainties

In the power generation industry, uncertainty in the financial markets and the availability of financing impact the timing of larger projects in certain markets. Low oil prices are postponing investment decisions in oil and gas based economies. Delays in customer decision-making can also occur in regions affected by geopolitical tension or by significant currency fluctuations. Investment decisions in the industrial segment are impacted by the demand for commodities, such as minerals or cement. Competition is increasing since low demand in the marine industry is causing traditional engine manufacturers to enter the power plant markets.

The business environment for the shipping and shipbuilding industries remains challenging. The weak short-term global economic outlook, overcapacity, and low demand for cargo tonnage limit recovery in the conventional shipping markets. Low oil prices, an oversupply of oil and gas, and reduced capital expenditure from oil companies may further impact offshore investments. Reduced newbuild prices may push yards to squeeze suppliers on price. Vessel owners are negotiating extensions to existing delivery contracts, which represents a risk to shipyard order books. The risk of cancellations appears to be more limited.

In the Services business, slow economic growth and political instability in specific regions represent the main risks for demand development. The challenging conditions in several marine market segments are also seen as a potential risk.

The Group is a defendant in a number of legal cases that have arisen out of, or are incidental to, the ordinary course of its business. These lawsuits mainly concern issues such as contractual and other liability, labour relations, property damage, and regulatory matters. The Group receives from time to time claims of different amounts and with varying degrees of substantiation. There is currently one unusually sizable claim. It is the Group’s policy to provide for amounts related to the claims, as well as for litigation and arbitration matters, when an unfavourable outcome is probable and the amount of the loss can be reasonably estimated.

The 2014 annual report contains a more detailed description of Wärtsilä’s risks and risk management.

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