Sovcomflot Group — Key risks

Type of risk Risk factors Risk mitigation measures

Economic risks

Changes in freight and hire rates on the international freight market Draft and approve the Development Strategy of the Group and regularly update the document in connection with changes in market conditions and the external environment; identify the optimal ratio of revenues from long-term and spot contracts
Seasonal and regional changes in the supply of and demand for tonnage Monitor global freight markets to make timely decisions on the optimal distribution of the fleet
Strong competition from other carriers Leverage the Group’s accumulated experience in the operation of different types of vessels, taking into account customer requirements
Arrival of new cargo transportation, loading, storage and warehousing technologies and resulting changes in technological requirements in the field of maritime transport Build and commission specialised state-of-the-art vessels; promptly sell obsolete fleet
Quantitative and qualitative changes in global fleet composition Diversify the Group’s activities and break into new, promising segments

Environmental risks

Accidents having negative environmental impacts Identify significant environmental aspects of the Group’s activities, plan and implement required environmental measures, monitor and analyse their sufficiency
Impact on the atmosphere of polluting emissions, and on the oceans from the dumping of wastewater and different types of garbage Implement integrated management and control systems based on international safety and quality standards

Regulatory and legal risks

Changes in international legislation and shipping industry regulations, customs and tax laws, licensing, environmental protection, etc. Monitor changes in shipping industry regulations, be proactive in response to such changes, and maintain a constructive dialogue with regulatory authorities
The introduction of stringent requirements on vessels by leading classification societies, as well as international oil and trading companies Draft and implement best-practice design and technological solutions that meet current and potential future requirements
Seizure of the vessels of Group companies, in respect of which maritime liens or maritime claims may arise Monitor the likelihood of claims and other legal encumbrances in respect of the Group’s vessels; proactively respond to potential actions in this area
Inadequate insurance coverage of the Group’s vessels Insure the Group fleet with leading international and Russian companies

Operational risks

Mechanical faults and damage to vessels; maritime casualties Improve technical management systems and procedures, implement an across-the-board critical analysis of the reasons for breakages and emergencies, increase the professional level of fleet personnel and onshore support
Delays and defaults on obligations by main counterparties Conclude contracts with reputable and highly reliable counterparties
Suspension of activities owing to labour disputes Promptly consider the legal interests of Group employees and introduce a culture which promotes the joint resolution of issues as they arise
Dependence of the Group on hiring and retaining qualified personnel Improve HR policies, create a high-performing team united by common goals and valid material and moral incentives

Country risks

Adverse changes in the political and economic situation in countries and regions where the Group operates Draft anti-crisis action plans if adverse scenarios arise
Negative impact of restrictions imposed against Russia by a number of Western countries Diversify the customer base, project portfolio and areas of activities, and sources of Group financing
Pirate attacks on the Group’s vessels Organise security for the Group’s vessels in dangerous regions, ramp up cooperation with respective international and national authorities, introduce and adjust the rules to be applied by vessels during crises

Financial risks

Changes in foreign currency exchange rates, which have an adverse impact on the Group’s expenses and income Use foreign exchange hedging instruments
Increased interest payments on current loan obligations Use interest-rate risk hedging instruments, diversify sources of borrowing
Exceeding of an acceptable debt burden on the Group’s balance sheet Improve the procedures for ensuring the optimal structure of assets and liabilities, in conjunction with an operational analysis of changes in the financial environment