Wärtsilä Corporation Financial statements bulletin 2015

Risks and business uncertainties

Slow decision-making in areas with limited or no economic growth represents the primary risk for demand development in the power generation markets. Delays in customers’ investments decisions can occur also in regions with geopolitical tension or significant currency fluctuations. Low oil prices continue to affect the national infrastructure developments in oil and gas producing economies, especially in the Middle East and Russia. Although oil importing countries benefit from low oil prices, short-term price swings do not trigger investment decisions as power plant investment decisions are based on long-term fuel price forecasts. In the industrial segment, investment decisions are impacted by commodity price and demand developments. Competition from engine manufacturers continues to create price pressure.

The business environment for the shipping and shipbuilding industry remains challenging. The weak short-term global economic outlook, overcapacity, and low demand for cargo tonnage are the main obstacles for recovery in the conventional shipping markets. Low oil prices, an oversupply of oil and gas, and reduced capital expenditure from oil companies continue to limit 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, the slow economic growth and political instability in specific regions are the main risks for demand development. The challenging conditions in specific 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 sizeable 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 annual report contains a more detailed description of Wärtsilä’s risks and risk management.

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