Relevant Company Departments acting as risk owners within their sphere of operation are involved in risk identification, assessment, and development of measures to mitigate specific risks.
Financial risk management in the Company is carried out in accordance with FPC Financial Risk Management Policy (the “Policy”) approved by the Board of Directors. In accordance with the Policy, the Company defines and identifies financial risks and determines the principles and processes to manage them.
On 14 December 2015, FPC’s Board of Directors approved FPC Risk Management Policy, which set out the goals, objectives and general approaches to the organisation of the Company’s risk management system and the principles of its structure and operation, determines the parties involved in risk management, their roles, responsibilities and cooperation within the risk management framework, as well as the infrastructure and stages of the risk management process.
The major risks map shows the main risks and measures implemented by FPC to reduce the likelihood of these risks being realised.
|Risk||Risk description||Measures to mitigate adverse consequences|
|1. Market risks|
|1.1 Traffic decline due to an increase in fares, decline in the population’s transport mobility and purchasing power||
Introduction of a long term subsidy system.
Reduction of VAT rate for long distance passenger services..
Improvement of the service quality to substantiate an increase in prices and reduce the loss of customers to air transport.
Application of dynamic pricing.
Price changes based on the elasticity of demand in terms of price and comfort.
Use of various marketing initiatives: special fares for domestic and international long distance trains.
|1.2 Decline in international traffic||
|1.3 A change of passenger preferences in favour of alternative modes of transport||
Implementation of a competitive strategy for passenger retention and attraction of new passengers from other modes of transport..
Wider application of the Revenue Management System
Optimisation of train schedule, including acceleration of trains.
|2. Regulatory risks|
|Fare growth in the regulated segment at a faster pace than projected in the Strategy, with no compensation from the state.||
||Reduction of the amount of unprofitable transport services in case of insufficient subsidies from the state.|
|3. Investment risks|
|3.1. Insufficient financing of the investment component when providing compensation for revenue shortfall caused by the government regulation of the prices of long distance fares.||
||Active cooperation with federal executive bodies, business and expert communities to justify the need for state support to finance rolling stock replacement in the regulated segment.|
|3.2. Failure to achieve the target performance of investment projects when implementing the investment programme||
||Using project management approaches at all stages of investment projects implementation.|
|4. Risks of costs growing faster than anticipated|
|Growth of suppliers’ prices and the cost of long distance passenger services outruns the growth of transportation fares||
Long term planning of supply requirements.
Signing mutually beneficial long term contracts with suppliers.
|5. Technical and process risks|
|5.1. Technical, economic and performance characteristics of the passenger rolling stock lagging behind international levels||
Development and implementation of FPC Long Term Innovative Development Strategy.
Building the infrastructure and identifying the sources for FPC’s innovative development.
Procurement of advanced rolling stock meeting international standards.
|5.2. Insufficient pace of innovation in the transportation process||
||Introduction of new technologies and enhancements to the existing software.|
|5.3. Safety breach||
Implementation of a traffic safety management system in FPC.
Analysis of traffic safety and equipment failures.
Technical inspections and traffic safety management audits.
Analysis of non destructive testing activities and development of measures for their improvement.
Introduction of security and communication monitoring systems in staff carriages of passenger trains.
Technical audits of repair shops of the branches’ business units.
|5.4. Fire safety||
Carrying out fire safety compliance audits on trains.
Upgrades of passenger carriages to ensure compliance with fire safety requirements.
Equipping FPC facilities with security and fire alarms and automatic fire extinguishing devices.
|5.5. Environmental safety||
Upgrades of the rolling stock and civil engineering structures of FPC branches’ business units.
Measures to save and protect water resources used for operational purposes.
|5.6. Infrastructure constraints||
||Long term planning of rail infrastructure development for passenger traffic in cooperation with Russian Railways.|
|5.7. Threat of terrorist attacks||
Implementing preventive measures in cooperation with the General Administration for Transport of the Ministry of Internal Affairs, the Federal Security Service, Russian Railways Security Department, and Russian Railways regional security centres.
Strengthening the access control and internal security regime at FPC facilities.
Fitting FPC transport infrastructure facilities with engineering and technical equipment ensuring transport security.
|6. Social risks|
|6.1. Public dissatisfaction with FPC’s activities||
||The introduction of government orders for long distance services and targeted subsidies to ensure wide geographical accessibility and financial affordability of transport services.|
|6.2. Emergence of tensions among the staff||
Retraining and transfer of laid off employees to vacant positions in FPC or the Holding.
Development of the internal labour market in FPC and the Holding.
Increasing the use (work load) of optimised assets through diversification of activities.
|7. Reputational risks|
|Damage to corporate reputation||
Communication campaign in socio political, business and specialised mass media and online, varying in intensity as required.
Promoting a positive external assessment of the Company by the expert community through participation in industry exhibitions and conferences and holding events to enhance the Company’s image.
Monitoring consumer loyalty to FPС’s activities (initiating and maintaining passenger feedback).
Monitoring negative reports about the Company in the media environment and ensuring prompt anti crisis response.
Monitoring competitors — key players in the transport services market in the air, road and rail sectors. Ensuring the Company’s comprehensive presence in the media environment. Generating a proprietary positive information flow.
|8. Occupational injuries|
Compliance with industrial, fire and environmental safety regulations.
Regular employee training and certification, in process control of industrial safety and preventive measures to ensure fire safety.
|9. Financial risks|
|9.1. Currency risk||
||Hedging of payments in foreign currency using derivative financial instruments; renegotiation of contracts denominated in foreign currency.|
|9.2. Interest rate risk||
Obtaining credit ratings from leading international rating agencies.
Maximum interest rates on loans are limited by the terms and conditions of long term contracts signed with creditor banks following public tenders. Revision of interest rates in accordance with the terms and conditions of loan agreements can be implemented only by mutual consent of the parties.
|9.3. Liquidity risk||
||Daily planning of payments, availability of long term credit facilities, placement of surplus funds on deposits with early withdrawal provisions.|
|9.4. Credit risk||
The use of standard terms of payment to minimise advance payments and pre payments for contractors’ services.
Requesting contractors in the risk group to provide bank guarantees to secure the fulfilment of their obligations.