The policy of OR PJSC in the area of risk management is the permanent control of all the business processes of activity of Obuv Rossii Group, the monitoring of arising risks and problems, their analysis and prevention in the future.
In addition, the marketing subdivision of Obuv Rossii Group permanently monitors and analyses the activity of its competitors and performs comparative analysis of their positions.
The financial subdivision analyses risks related to the financing of activity of Obuv Rossii Group. The objectives of work with financial risks are as follows: to minimize the possible liquidity gaps, to reduce the weighted average cost of financing the activity, and to optimize the financial flows inside the Group.
OR PJSC is a member of Obuv Rossii Group and is a holding company that consolidates the assets of operation companies of the Group. The main type of activity of Obuv Rossii Group is retail sale and wholesale of footwear. Thus, the activity of OR PJSC is exposed to risks that are specific to the whole Obuv Rossii Group. That’s why description of risks to which the activity of the Group, as a whole, and of OR PJSC, in particular, is exposed will be given below in this section.
The influence of the possible deterioration of the situation in the industry of OR PJSC on its activity and its performance of obligations related to securities is described. The most important, according to OR PJSC, possible changes in the industry (separately for the internal and external markets), as well as the supposed actions of OR PJSC in this case, are given:
The dynamics of income of OR PJSC and Obuv Rossii Group, that perform activity in the industry of retail sale of footwear to the population, is substantially determined by the level of customer demand, which makes the financial position of OR PJSC and Obuv Rossii Group, in particular, dependent on the level of income of the population. While the level of foreign policy and foreign-economic uncertainty remains quite high, we can see a revival of economic activity in Russia against the background of moderately tough money-and-credit policy in 2016 and 2017. Changes in the foreign-policy and foreign-economic situation can have a negative impact on the results of financialand-economic activity of Obuv Rossii Group, but the deterioration of the situation in the industry of the company will have no substantial impact on the performance of obligations related to the placed securities. In addition, in order to mitigate the impact of the foreign-economic uncertainty and dependence on the external markets, Obuv Rossii Group cooperates and plans to further cooperate with suppliers from Russia and from the countries that are not under economic sanctions (such as China), as well as has made a decision to expand its own production of footwear.The most important, according to OR PJSC, possible changes in the industry (separately on the internal and external markets):
OR PJSC performs its activity on the territory of the Russian Federation. That’s why the industry risks related to the activity of OR PJSC mainly arise in performing the activity on the internal market.
The following major risks of the activity of OR PJSC and of the Group, related to the possible deterioration of the situation in the industry (including the major possible changes) can be given:
Obuv Rossii Group cooperates with suppliers from China and Europe. The main risk on the external market is the increase of purchase prices by foreign suppliers. OR PJSC deems the impact of this risk on the activity results insignificant.
The supposed actions of OR PJSC in this case are as follows:
In order to reduce the unfavourable development of the situation in the industry, OR PJSC and Obuv Rossii Group performs and plans to further perform:
In case of substantial increase of prices for import supplies from abroad, OR PJSC and Obuv Rossii Group will have to look for new suppliers abroad or in the Russian Federation, or to increase the trade margin.
Risks related to the possible changes of prices for raw materials and services used by OR PJSC in its activity (separately on the internal and external markets) and their influence on the activity of OR PJSC and performance of obligations related to securities:
Obuv Rossii Group has long-term partnership relations with suppliers based on the conscientious performance of all contractual obligations. In case of deterioration of the macroeconomic situation to the critical level, a drop in the purchasing power of the population and reduction of prices for the products, there is a risk that the purchase prices will grow. However, according to OR PJSC, the total growth of purchase prices will not exert substantial influence on the activity of Obuv Rossii Group and on the performance of obligations related to securities by OR PJSC, since Obuv Rossii Group works in different price segments, and footwear is on the first place after food products in the list of basic consumer goods, that’s why the risk of a substantial drop in sales is unlikely.
Obuv Rossii Group cooperates with more than 40 suppliers from Russia, Europe and China. In case the foreign suppliers substantially increase their prices, Obuv Rossii Group will have to look for alternative suppliers abroad or in the Russian Federation or to increase retail prices. The above risks will exert no substantial impact on the activity of Obuv Rossii Group and on the performance of obligations related to securities by OR PJSC. Risks related to possible changes of prices for products and/or services of OR PJSC (separately on the internal and external markets) and their impact on the activity of OR PJSC and performance of obligations related to securities:
The risk of reduction of prices for services of OR PJSC can have an impact on the following financial indicators: profit, financial liquidity, as well as the business reputation of OR PJSC.
The level of prices for products of Obuv Rossii Group has a direct impact on financial results of activity and on the opportunity to generate free cash both of OR PJSC and Obuv Rossii Group as a whole. Store chains of Obuv Rossii Group are clearly targeted at certain audiences of customers and are within different price segments of the market: Westfalika — the mid-price segment, Peshekhod Footwear Factory — a footwear discounter. That is why a substantial reduction of the level of prices for products of Obuv Rossii Group in the medium term is not expected. Taking into account the above, changes of prices for products sold by Obuv Rossii Group will have no substantial impact on the activity of OR PJSC and on the performance of its obligations related to securities.
OR PJSC and Obuv Rossii Group do not perform the export of products on the external market, that’s why risks for the external market are not described.
Risks related to the political and economic situation in the country (countries) and region, in which OR PJSC is registered as a taxpayer and (or) performs main activity, provided that the main activity of OR PJSC in such country (region) brings 10 and more percent of income for the last completed reporting period before the date a prospectus of securities is approved:
OR PJSC is registered on the territory of the Russian Federation. Today the federal chain of footwear stores of Obuv Rossii Group includes over 452 stores in 100 cities in Russia. OR PJSC shares the view of most analysts who forecast that in the medium term the previous course of economic, political and other reforms implemented in the country will be continued.
The sovereign ratings of Russia were last changed in March 2017. The international rating agency of Standard & Poor’s confirmed the sovereign credit rating of Russia at the level of ВB+, with the forecast being “positive”. According to the agency, the positive forecast means that S&P can increase the credit rating of Russia, if the Russian economy goes on adapting to the relatively low oil prices, and the amount of the net public debt remains small. Negative changes in the economic and political situation in the regions, according to OR PJSC, can only be caused a serious economic downturn of the nationwide production in the Russian Federation, the likelihood of which is estimated to be insignificant. OR PJSC bears no specific risks related to the political and economic situation in the regions, in which OR PJSC is registered and performs its activity.
In the case of a negative impact of the changed situation in the country and region in which OR PJSC and Obuv Rossii Group perform their activity, OR PJSC plans to reduce the self-cost of realization, reduce the period of turnover of receivables and stock, and to increase the trade margin.
Risks related to possible military conflicts, the announcement of the state of emergency, and strikes in the country (countries) and region in which OR PJSC is registered as a taxpayer and (or) performs its main activity:
The social situation in the regions, in which OR PJSC is registered as a taxpayer and/or performs its main activity, is characterized as quiet, there are no pronounced ethnic conflicts or religious extremism, that’s why it is possible to perform business activity in the region with minimal social-and-political risks. In this context, the probability of military conflicts, the announcement of the state of emergency, and strikes on the territory of the company’s activity are estimated to be extremely insignificant.
Regions of activity of OR PJSC and Obuv Rossii Group have no geographic features that can create a higher hazard of natural disasters or to create the termination of transportation, that is why the corresponding risks are estimated as minimal. Overall, OR PJSC deems that in the medium term the possibility of a substantial negative impact of country and region risks on its activity and on the performance of its obligations is unlikely. The above risks are of nationwide character; their forecast, estimation and prevention are implemented by corresponding state organizations. However, Obuv Rossii Group, in its turn, is ready to take actions to develop and implement certain anti-crisis measures aimed at the mobilization of business and minimization of the negative impact of the above country and region factors, if necessary.
If one of the several financial risks listed below arises, OR PJSC will take all possible measures to minimize the negative consequences. Parameters of the measures taken will depend on theчfeatures of the situation in every particular case. OR PJSC is not able to guarantee that the actions aimed at the overcoming of the arising negative changes can result in the improvement of the situation, since the described factors are beyond the control of OR PJSC.
The exposure of OR PJSC to the risks related to changes of interest rates, exchange rate of foreign currencies, in relation to the activity of OR PJSC or in relation to the hedging performed by OR PJSC in order to reduce unfavourable consequences of the impact of the above risks:
Negative changes of the money-and-credit policy in the country, of the currency rate, and the increase of interest rates for the money raised, as well as the significant escalation of inflation can result in the growth of expenses of OR PJSC and Obuv Rossii Group as a whole, and, consequently, have a negative impact on the financial results of their activity. OR PJSC does not perform the hedging of risks.
Exposure of the financial status of OR PJSC, its liquidity, sources of finance, results of activity and such to changes of the currency rate (currency risks):
OR PJSC and Obuv Rossii Group are exposed to the impact of financial risks related to the fluctuation of the exchange rate of foreign currencies, due to the cooperation with foreign suppliers. The further behaviour of the ruble rate will depend on the two main factors: the policy of the Central Bank of the Russian Federation and the dynamics of world prices for oil. OR PJSC can respond to the negative fluctuation of the Russian ruble exchange rate towards foreign currencies by means of changing its principles of work with suppliers and a closer cooperation with the Russian partners.
In order to minimize this risk, the management of Obuv Rossii Group performs the effective management of the structure of the raised money. It should be taken into account that some part of the interest rate change risk cannot be fully neutralized, as the above risks are largely beyond the control of activity of OR PJSC and depend on the general economic situation in the country.
Supposed actions of OR PJSC in the case of a negative impact of fluctuation of the currency and interest rates on the activity of OR PJSC.
The management of Obuv Rossii Group takes all the necessary actions to reduce the impact of fluctuation of the currency and interest rates, for example it performs the required management of the structure of the money raised and implements a policy aimed at the reduction of obligations expressed in foreign currencies, maintaining the high level of ruble obligations at the same time.
In the case of a sharp increase of interest rates for the borrowed money, it is planned to reconsider the structure of distribution of the obtained money with account of the priority financing of areas with the higher return on equity. That is why the growth of interest rates shall not substantially influence the paying capacity of Obuv Rossii Group in the short term.
Supposed actions of OR PJSC in the case of a negative impact of fluctuation of currency exchange rates on the activity of OR PJSC:
In the case of negative changes of the currency exchange rate for OR PJSC, OR PJSC plans to optimize the expense portion of the activity, as well as to reconsider the structure of financing. OR PJSC believes that the taking of a number of actions in response to the deterioration of the situation on the currency market and the capital market, i.e. the reconsideration of plans of raising funds and investment expenses, will exert a positive impact on the preservation of profitability and financial status of OR PJSC. It should be taken into consideration that the above risks are, to a greater extent, beyond the control of activity of OR PJSC and depend on the general economic situation in the country.
Possible impact of inflation on the payments on securities, critical values of inflation (according to OR PJSC), as well as supposed actions of OR PJSC to reduce the above risk:
According to the forecast by the Government of the RF, the inflation rates will be stable in the immediate future. In 2013, the inflation rate was 6.5%, in 2014 it was 11.4%, in 2015 it was 12.9%, in 2016 it was 5.4%, in 2017 it is forecast to be about 4-5%. OR PJSC believes that the inflation rate will further be forecastable and controllable. At the current moment, the inflation rates are not substantial for the activity of OR PJSC and Obuv Rossii Group. High inflation rates can have a negative impact on the paying capacity of OR PJSC. A substantial excess of real inflation indicators over the forecasts by the government of the RF will result in the growth of expenditures of OR PJSC and Obuv Rossii Group for the performance of its main economic activity and, consequently, can result in the decrease of profitability indicators.
According to OR PJSC and Obuv Rossii Group, the range of the inflation rate within which it can have difficulties in performing its obligations is higher than the inflation value forecasted by the Ministry of Finance of the RF for 2017 and is within 20-25%. If the inflation value exceeds the above critical values, OR PJSC will reconsider its investment policy and to reduce the durations of loans, take measures to increase the trade price, and perform measures to reduce internal costs.
Indicators of financial statements of OR PJSC that are most likely to change under the influence of the above financial risks. Risks, likelihood of their occurrence, and the character of changes in financial statements:
The indicators of financial statements of OR PJSC and the Group that are most likely to change under the influence of the above financial risks are profit and revenue. The risks (inflation, growth of interest rates) that have an impact on the above indicators of financial statements of OR PJSC and the probability of their occurrence are estimated by OR PJSC as low. The changes in the statements are insignificant.
Legal risks are also determined by the drawbacks residing in the Russian legal system and the Russian legislation, which result in the atmosphere of uncertainty in the field of investments and commercial activity.
Russia continues to develop the legal base that is required to maintain the market economy.
OR PJSC does not export goods, works or services. On the whole, the risks related to the activity of OR PJSC are typical for most entities in entrepreneurial activity operating on the territory of the Russian Federation. Legal risks, first of all, include risks of collision (controversy) and ambiguity of interpretation of legal norms, as well as the introduction of legal restrictions in the area of activity of enterprises of Obuv Rossii Group.
Changes of currency regulation do not exert a substantial impact on the activity of OR PJSC.
Since the Government of the RF takes measures to reduce the taxation burden, the tax risks of OR PJSC shall be considered as minimal, within the activity of a conscientious taxpayer.
However, the activities of Obuv Rossii Group and OR PJSC can be negatively impacted by the following changes:
These substantial and other changes in the taxation legislation can result in the increase of tax payments and, consequently, in the decrease of net profit of Obuv Rossii Group. Russian legal entities effect substantial tax payments on a large number of taxes. These taxes, for instance, include:
All the above taxes can be changed, but even further reforms of the Tax Code of the RF can fail to result in the substantial reduction of the tax burden in Russian and the establishment of a more effective taxation system; on the contrary, new measures can be taken to maintain the collection of taxes. Thus Obuv Rossii Group and OR PJSC can be forced to pay much higher taxes, which can exert a substantial negative impact on the results of the operation activity of Obuv Rossii Group and OR PJSC. With that, general legal risks resulting from the general features of the Russian taxation legislation, such as the absence of sufficient specification and a single law enforcement practice, are typical of the activity of OR PJSC.
Risks related to changes of taxation legislation on the external market are estimated as minimal by OR PJSC. But in raising funds on the external markets, OR PJSC is subject to risks of changes of the taxation legislation of foreign countries. But currently the Russian Federation has a large number of agreements for the avoidance of double taxation, which makes it possible to minimize the negative impact of changes of foreign legislations. In any case, OR PJSC will take all the necessary measures to perform activity in full compliance with the novelties.
Since suppliers of Obuv Rossii Group include suppliers from Europe and China, there is a risk of related to changes of customs control and duties. If these rules are tightened, Obuv Rossii Group will take all the necessary measures to observe the new requirements.
The above risks are not present on the internal and external markets, since the main activity of OR PJSC is not subject to licensing. And OR PJSC does not use objects whose turnover is limited in its activity.
Risks related to changes of the court practice on the issues related to the activity of OR PJSC (including on the issues of licensing) that can have a negative impact on the results of its activity, as well as on the results of the ongoing court proceedings in which OR PJSC takes part:
The above risks are not present on the internal and external markets, since there is no settled court practice on the issues of activity of OR PJSC and OR PJSC does not take part in any ongoing court proceedings as a defendant or in any other court proceedings that are likely to have a negative impact on its financial-and-economic status.
Risk of OR PJSC losses resulting from the reduction of the number of clients (counterparties) due to the formation of a negative image of the financial stability, financial status of OR PJSC, the quality of its products (works, services) or the character of its activity as a whole:
Obuv Rossii Group is exposed to the risk of loss of good will due to the possible reduction of the quality of the realized goods, which has an indirect impact on the above risk of OR PJSC itself. For the preventive purposes, structural subdivisions were created and are successfully functioning, that are specializing in the control of the operation activity of the Group enterprises, purchases and suppliers, analysis of work with clients, and that reveal the weak points of the business processes requiring additional development and improvement for the subsequent increase of the customer satisfaction.
Risk of OR PJSC losses resulting from errors (drawbacks) made in the making of decisions that determine the strategy of activity and development of OR PJSC (strategic management) and expressed as a lack of account or insufficient account of possible hazards that can threaten the activity of OR PJSC, wrong or insufficiently substantiated determination of future directions of activity in which OR PJSC can have an advantage over its competitors, absence or insufficient provision of required resources (financial, material-and-technical, human) and organizational measures (managerial decisions) that are to provide the reaching of strategic objectives of activity of OR PJSC:
As a strategic risk, OR PJSC considers the risk of losses resulting from errors (drawbacks) made in the making of decisions that determine the strategy of activity and development and expressed in the insufficient account of possible drawbacks of activity of OR PJSC, wrong or insufficiently substantiated determination of future directions of activity, absence or insufficient provision of required resources and organizational measures that are to provide the reaching of strategic objectives of activity of OR PJSC.
The management of Obuv Rossii Group permanently monitors the reaching of main objectives and parameters of strategic development, controls the performing of main business objectives and the implementing of strategic initiatives, makes it possible to identify the factors of strategic risk inside and outside Obuv Rossii Group and to take prompt measures in order to mitigate their impact on the business.
Risks related to the activity of OR PJSC are typical of most entities of entrepreneurial activity working on the territory of the Russian Federation and can be considered as countrywide.
Since there are no court proceedings in which OR PJSC is a defendant, there are no such risks.
There is no such risk, since the main activity of OR PJSC is not subject to licensing, and OR PJSC does not use objects, whose turnover is limited, in its activity.
There is a risk related to the liability of OR PJSC for the obligations issued on behalf of the third parties as security, including those for the debts of subsidiary companies. The factors that can result in the non-performance or the improper performance of such secured obligations were not present at the moment such obligations were issued; according to OR PJSC, there are no such risks as of the current date. Obligations are performed by the third parties and subsidiary companies in a timely manner and to the full extent.
Risks related to the possibility to lose customers, which the turnover is at least 10 percent of the total revenue from the sale of products (works, services) of OR PJSC, are estimated by OR PJSC as insignificant. There are no other risks related to the activity of OR PJSC, according to OR PJSC.
Иные риски, связанные с деятельностью ПАО «ОР», по мнению ПАО «ОР», отсутствуют.
No information is provided, since OR PJSC is not a credit organization.
