With around 44% of net sales denominated in euro and a euro based cost structure, Wärtsilä is not highly exposed to foreign exchange risk. The impact of euro exchange rate compared to other currencies 2022 is the following.
• A change of +/- 10% would result in a +/- 6.1% change in net sales
• A change of +/- 10% would result in a +/- 3.3% change in EBIT
Oil and gas price
The direct effect of oil and gas price changes on Wärtsilä’s operations is limited and mostly related to fuel costs for engine testing, R&D activities, and the heating of some premises.
Higher oil and gas prices represent a risk for global economic growth and increased operating costs, especially in the shipping markets. However, they also stimulate investments in the exploration and production of oil and gas, both on land and offshore. They also spark interest in our energy efficiency related offering, as well as increasing demand for alternative green fuels as they become more cost competitive against conventional fuels.
Furthermore, high oil and gas prices increase investments in gas carriers, gas-based power plants and, increasingly, also in gas-fuelled vessels, whereas low oil prices can delay investment decisions in oil producing countries and regions, as well as 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 to Wärtsilä’s business. In the marine markets, high gas prices or their volatility are not expected to reduce the appetite for LNG as a fuel in the long run. However, persistent high gas prices may encourage ship operators to switch from LNG to low-sulphur fuel, which most modern vessels can use in dual-fuel engines.
In the energy markets, gas price volatility and increasing prices have a negative impact on the competitiveness of thermal baseload gas plants and may lead to more running hours of coal and nuclear power plants. Higher fuel prices may have an impact on project viability and customer decision making. However, these are expected to have less of an impact on thermal balancing power plants with lower running hours.
Metal prices have an indirect effect on the component cost of Wärtsilä’s products. Some key components are sourced with longterm contracts, and raw material price volatility is, therefore, limited. The battery industry has been suffering from price increases, and the price of lithium has increased significantly during the past year. The market seems to have accepted a price reset which took place in the spring and the ordering activity picked up throughout the second half of the year.
Wärtsilä spreads its interest rate risk exposure by taking both fixed and floating rate loans. The share of fixed rate loans as a proportion of the total debt can vary between 30 and 70%. Wärtsilä hedges its loan portfolio by using derivative instruments such as interest rate swaps, futures and options.
At the end of 2022, a one percentage point parallel decrease/increase of the yield curve would have resulted in a EUR 10 million (17) increase/decrease in the value of the net debt portfolio, including derivatives. A one percentage point change in the interest level would cause a EUR 3 million (1) change in the following year’s interest expenses from the debt portfolio, including derivatives. In both analyses, the debt portfolio as of 31 December 2022 is used.
More information can be found on our Risk management pages.