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Annual Report 2016

Risks and business uncertainties

In the power generation markets, slow 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 are affecting national infrastructure development in the oil and gas producing economies, especially in the Middle East and Russia. Price pressure remains a risk due to the challenging competitive environment.

In the marine markets, the weak short-term global economic outlook, overcapacity, and the low demand for cargo tonnage continue to delay recovery in the conventional shipping segment. Economic and political uncertainty, as well as emerging technologies and innovations, will continue to challenge current business models and trade patterns. Offshore investments will remain limited due to an oversupply of oil and gas and reduced capital expenditure from oil companies, despite the recent increase in oil prices. Offshore production continues to face increasing competition from low cost onshore and shale production. In addition, increasing energy efficiency and the introduction of other energy sources, is expected to challenge crude oil demand growth. The decline in newbuilding prices may push shipyards to pressure suppliers on prices. While the risk of cancellations exists, negotiations to extend existing delivery contracts appear to be a larger risk for shipyard order books.

In the Services business, 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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