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Annual Report 2016

Risks and business uncertainties

In the power generation markets, slow decision-making in areas with limited or no economic growth represents the primary risk for demand development. Delays in customer investment decisions can occur also in regions with geopolitical tension or significant currency fluctuations. Low oil prices continue to affect the national infrastructure development in oil and gas producing economies, especially in the Middle East and Russia. In oil importing countries with a gas infrastructure, gas fired power plants generally become more attractive when oil prices decline due to linkages and indexation between oil and gas prices. The challenging competitive environment continues to create pressure on prices.

In the marine markets, the weak short-term global economic outlook, overcapacity, and the low demand for cargo tonnage limit recovery in the conventional shipping segment. Low oil prices, an oversupply of oil and gas, and reduced capital expenditure from oil companies continue to limit offshore investments. The decline in newbuilding prices may push yards to pressure suppliers on prices. The risk of cancellations exists, however negotiations to extend existing delivery contracts appears to be a larger risk for shipyard order books.

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 2015 contains a more detailed description of Wärtsilä’s risks and risk management.

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