Risks and risk management
Risk management system
SRV engages in systematic risk management in order to protect itself against factors that might adversely affect its business operations and to promote recognition of new opportunities. The company improves the profitability and stability of its operations by identifying strategic and operational risks and reacting to them in a timely manner. Risk management is part of SRV’s management system. It supports the company’s values, vision, strategy and the achievement of its earnings objectives.
The objective of risk management is to ensure that SRV’s controllable risks do not jeopardise operations. To this end, SRV has a systematic and comprehensive approach to identifying and assessing risks as well as to carrying out the necessary risk management measures and reporting on operations.
Overall responsibility for risk management rests with the company’s Board of Directors and the President & CEO. The Audit Committee goes quarterly through a report on the operational risks and how to prepare for them. The Board of Directors approves the risk management strategy and policy, and assesses the framework for risk management covering the entire company. Line management is in charge of carrying out day-to-day risk management as well as for its steering and supervision. The Group’s risk management function supports the application of risk management principles and develops Group-wide operating practices.
Risks, risk management and corporate governance (as stated in the Interim Report Q4/2016)
SRV will publish a separate Corporate Governance Statement in its 2016 Annual Report and on the company's website. Detailed information about the company's business risks and risk management will be provided in the 2016 Notes to the Financial Statements and 2016 Annual Report, and on the company's website.
The most significant risks currently concern the REDI project, the Russian economy, and the rouble exchange rate.
To date, SRV's operating currency in Russia has primarily been the euro. The company's rental operations have become increasingly rouble-based. In accordance with IAS 21, the operating currency of SRV's property-related subsidiaries and associated companies was therefore changed to the rouble in 2016. This accounting change will make SRV more susceptible to fluctuations in the rouble exchange rate. The companies affected by the change in operating currency include those that own the Okhta Mall and Pearl Plaza shopping centres. In its Russian business, fluctuations in the rouble exchange rate expose SRV to translation and transaction risks. A ten per cent weakening or strengthening of the rouble against the euro at the closing date would have had an impact of about EUR 13 million on the Group’s equity translation differences. SRV’s transaction risk largely comprises the foreign currency-denominated loans of associated companies that are partly owned by SRV. Changes in these would correspondingly have had an impact of about EUR 14 million on SRV’s earnings.
The Russian recession has lasted longer than expected, which has led to the continuation of temporary rent discounts for shopping centre tenants. It may therefore take longer than planned to reach the target for rental income.
REDI is a major project in relation to the size of the company and therefore includes risks associated with its implementation and financing.
The bond SRV issued in March 2016 has improved the company’s equity.