With around 60% 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 2021 is the following.
• A change of +/- 10% would result in a +/- 5.1% change in net sales
• A change of +/- 10% would result in a +/- 4.8% change in EBIT
The direct effect of oil price changes on Wärtsilä’s production is limited, with their impact being mainly demand related. Higher oil 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. Furthermore, high oil prices increase investments in gas carriers, gas-based power plants and, increasingly, also in gas-fuelled vessels. 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 may impact the competitiveness of thermal baseload gas plants, but is not expected to have a major impact on thermal balancing power.
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. Electricity prices have no substantial impact on Wärtsilä’s production costs. In the energy markets, high electricity prices support investments in new capacity by utility customers.
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%. The Board of Directors has given authorisation to temporarily increase the share of fixed loans up to 100%, and the authorisation is valid until January 2022. Wärtsilä hedges its loan portfolio by using derivative instruments such as interest rate swaps, futures and options.
At the end of 2021, a one percentage point parallel decrease/increase of the yield curve would have resulted in a EUR 17 million (26) 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 1 million (4) change in the following year’s interest expenses from the debt portfolio, including derivatives.
More information can be found on our Risk management pages.