With around 65% 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 2020 is the following.
- A change of +/-10% would result in a -/+4.7% change in net sales
- A change of +/-10% would result in a -/+5.3% 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 increase operating costs, especially in the shipping markets. However, they also stimulate investments in exploration and production for 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 and 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 in Wärtsilä's business.
The components used in Wärtsilä’s manufacturing are highly value added, limiting the impact of changes in raw material prices. Furthermore, key components are sourced with long-term contracts, decreasing raw material price volatility.
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 30–70%. 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 2020, a one percentage point parallel decrease/increase of the yield curve would have resulted in a EUR 26 million (28) 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 4 million (1) change in the following year’s interest expenses from the debt portfolio, including derivatives.
More information can be found on our Risk management pages.