Wärtsilä maintains a centralised Corporate Treasury with two primary objectives: first, to secure sufficient funding for the Group’s operations on competitive terms; and second, to identify, assess, and manage the Group’s financial risks, including implementing appropriate hedging for the Group companies.
The purpose is to mitigate adverse market movements and reduce the effects of foreign exchange, interest rate, credit, and liquidity risks to the Group. The Financial Risk Policy is approved by the Board of Directors. The Corporate Treasury employs only such instruments whose market value and risk profile it can reliably monitor.
Foreign exchange exposures are monitored on business level, while hedging is made on a subsidiary level against the Corporate Treasury, and then netted and covered externally on Group level by the Corporate Treasury. As principle, all material sales and purchase contracts with fixed foreign currency amounts, including both future cash flows and related accounts receivable and payable, are hedged. The estimated future commercial exposures (such as risks associated with offers) are evaluated by the Businesses, and the level of hedging is decided in accordance with the appilcable policies.
Hedge accounting in accordance with IFRS 9 is applied to most of the hedges of foreign exchange risk exposures. The hedges cover such time periods that both the sales prices and purchase costs can be adjusted to new relevant exchange rates. These periods vary among Group companies mainly from one month to two years. The Group also hedges its position of the statement of financial position, which includes cash balances, loans/deposits, as well as other receivables and payables denominated in foreign currencies.
As field service work is typically invoiced in local currencies, there is some foreign exchange change related volatility in the consolidated net sales. However, the effect on the profitability is limited as the related costs are in the same currency. Spare part sales are based on a euro price list and related purchases in non-euro currencies are hedged, so the effect from foreign currency rate changes on spare part sales is minimal. As project/hardware sales/purchases, as well as estimated currency exposures from long-term agreements, are hedged, the Group does not expect significant gains/losses from foreign exchange rate changes in 2025 related to its operations, excluding internal financing.
As Wärtsilä has subsidiaries and joint ventures outside the euro area, the Group's equity, goodwill and purchase price allocations are exposed to fluctuations in exchange rates.
As Wärtsilä's operations are global, they often involve currency risks.
Wärtsilä’s interest rate risk arises mainly from changes in the market value of its net debt portfolio (price risk), variations in interest rates upon refinancing or re‑fixing, and fluctuations in the interest income earned on cash and cash equivalents. The company manages this risk by constantly monitoring the market value of its financial instruments and by conducting sensitivity analyses.
Wärtsilä manages its interest rate risk by diversifying its exposure between fixed and floating rate loans, and by employing interest rate derivatives. The proportion of fixed‑rate debt, including derivatives, may range between 30% and 70% of the total debt portfolio. To hedge its loan portfolio, Wärtsilä may use a range of derivative instruments, such as interest rate swaps, futures, and options.
Wärtsilä ensures sufficient liquidity at all times by efficient cash management and by maintaining sufficient available committed and uncommitted credit lines. Refinancing risk is managed by having a balanced and sufficiently long loan portfolio.
The average repayment period for long-term loans is 34 months (30) and the average repayment period for confirmed credit limits is 30 months (32).
Wärtsilä does not have significant concentration of liquidity risk associated with the supplier finance arrangements provided by its longterm relationship banks. All are reputable and creditworthy banks that have operated and/or participated as investors to the supplier finance arrangements as their customary and continuous offering, and there is no reason to assume that the banks would become unwilling or unable to provide these arrangements in the future. In case of an unexpected withdrawal or reduction by a bank, Wärtsilä can opt to organise supplier finance arrangement to its suppliers through its other banks.
Committed Revolving Credit Facilities, as well as the parent company's long-term loans, include a financial covenant (solvency ratio). The solvency ratio is expected to remain clearly over the covenant level for the foreseeable
Responsibility for managing the credit risks associated with ordinary commercial activities lies with the Businesses and the Group companies. Major trade and project finance credit risks are mitigated when applicable by transferring risks to banks, insurance companies, and export credit organisations.
Credit risks associated with the placement of liquid funds and trading in financial instruments are mitigated by establishing explicit counterparty limits and engaging exclusively with highly reputable domestic and international banks and financial institutions. Derivative financial instruments are transacted solely with counterparties holding at least an A- credit rating, and all transactions entered into by Corporate Treasury are governed by ISDA Master Agreements. As a result, credit losses from these instruments are not expected.
When permitted by local laws and central bank regulations, the Group companies place and deposit as much of their liquid financial assets as possible with the centralised Corporate Treasury. The Group may place its funds in instruments that offer sufficient liquidity, such as current bank deposits or Finnish Commercial Papers, and maintains a minimum rating standard of single-A or other instruments, all approved by the Group’s CFO. The Corporate Treasury closely monitors these investments, and Wärtsilä does not expect any future defaults from them.
The expected credit losses associated with investments carried at amortised cost are assessed on a forward-looking basis based on investment maturity dates, and counterparty credit risk on a quarterly basis.
Wärtsilä’s policy is to secure a strong capital base, both to maintain the confidence of investors and creditors and for the future development of the business. The capital is defined as total equity, including non-controlling interests and net interest-bearing debt. The target for Wärtsilä is to maintain gearing below 0.50 and to pay a dividend of at least 50% of earnings over the cycle.