Risk management

INTECO’s risk management framework relies on ongoing efforts to identify risks and improve control and management methods. Designed to respond to external challenges, the framework meets shareholder requirements and principles set out in Russian and international risk management standards.

The risk management system helps:

1. achieve the Company’s strategic targets;
2. effectively manage operations and performance;
3. comply with laws and internal regulations and procedures;
4. timely identify and analyse risks, and develop measures to mitigate them.

Besides organising the operation of the risk management framework, the Internal Control Department ensures the development and revision of local risk management regulations, provides methodological support in risk identification and assessment to other units, and issues recommendations to members of governing bodies and heads of business units.

The Company has a Risk Management and Internal Control Policy in place. It sets out the methodological approach and procedures for analysing, assessing and managing INTECO’s risks. To implement it, we have mapped our business processes and designed an implementation roadmap.

Underway is a major project to design a risk management framework with a focus on development project risks. In 2021, we introduced a Regulation on Managing Risks for Development Projects, which helps promptly identify and assess relevant risks and come up with mitigation and control initiatives.

It applies to all development projects implemented by INTECO and its subsidiaries. The Internal Control Department established a single risk management procedure for development projects. It includes uniform standards, a clear and transparent approach to identifying, analysing, assessing, monitoring and controlling risks for development projects, as well as measures to mitigate them.

The Company is going to continue its major project to design a risk management framework with a focus on development project risks into 2022.

Risk materialised in 2021 and 2022

The COVID-19 pandemic had the most significant effect on the Company in 2021. Many of the office employees worked remotely, while the Company switched to a flexible work schedule. This, however, had no impact on productivity, and the Group avoided any disruptions in its operations.

Despite a sharp increase in prices for materials, equipment and labour in 2021, we were able to neutralise the risks of project suspension. This was possible thanks to the prompt review of contracts with general contractors, which helped complete the construction and installation within the target time frame. Only for one project, the commissioning date shifted to 2022, with the rest completed on schedule.

Sadovye Kvartaly

Among the risks that materialised in the reporting year was INTECO’s withdrawal from the promising Tankovy project. However, it had little impact on the Company, as the project was replaced with new ones.

In early 2022, the Russian economy encountered new challenges and the highest inflation growth over six years, which could not but affect the Company’s business. Prices for construction materials increased considerably. On top of that, the Bank of Russia tightened its monetary policy by gradually increasing the key rate. Currently, INTECO is reviewing the financial and economic parameters of its projects, tapping resources and tightening control over general contractors and suppliers.

These and other new challenges are having a major impact on the Russian economy and the Company’s operations. The Internal Control Department continues to improve the Company’s risk management framework, taking into account the sanctions pressure on the economy and the industry. The risk identification and monitoring system set up in 2021 helps respond to changes in the external and internal environment in an efficient and timely manner, assess risks adequately, and come up with optimal mitigation measures.

Description	Mitigation	Effect on the Company’s operations in 2021
Project risks
We are implementing our projects in conditions of uncertainty, with the timing of construction and installation highly dependent on administrative barriers and the general economic environment, particularly the inflation rate. Administrative barriers, work delays by contractors, and other reasons may result in increased construction costs and shifts in the project deadlines.	Risks are assessed both at the pre-investment stage and throughout the project life cycle. The Company conducts project risk monitoring and controls mitigation activities on a monthly basis. We monitor actual costs and project timelines.	Thanks to effective preventive efforts, the materialised risks failed to have a significant impact on the Company’s operations, with the exception of moving the commissioning of one project to 2022.
Inflation and currency risk
A higher inflation rate and growth in prices for construction materials and equipment used in the Company’s projects. Tightening of the monetary policy by the Bank of Russia. Rising interest rates on loans.	The Company monitors prices for construction materials and equipment and signs fixed price contracts with suppliers. In addition, project financial models are subject to adjustment. In addition, project financial models are subject to adjustment.	The growth in the construction cost is balanced by rising real estate prices, while the terms of existing contracts with key counterparties and their prompt revision on acceptable conditions helped avoid the negative consequences of these risks for the Company.
Failure by counterparties to fulfil their obligations
Delays in performing contractual obligations by counterparties slow down project execution and may entail additional penalties.	We ensure compliance with contractual obligations using a strict procedure for selecting general contractors, robust processes of checking the financial health and business reputation of key contractors, both before and after the contracts are awarded, as well as through continuous production and financial planning and factual analysis, constant monitoring of the key contractual dates, creation and revision of roadmaps, and monitoring of regular reports. There are also processes in place for cooperation between the Company’s units during the performance of contractual obligations. If a contract is breached, we take prompt steps to seek remedy.	In 2021, delays in performing contractual obligations by counterparties became more frequent. For one project, the commissioning date shifted to 2022, with the remaining projects being implemented on schedule.
Geopolitical and sanctions risks
Changes in the economic and political environment in Russia and their impact on the Company’s operations. Geopolitical conflicts and international tensions resulting in sanctions imposed on Russia. Inclusion in the sanctions list.	The Company adapts to the changing environment by continuously monitoring the economic and international situation. This helps quickly mitigate potential consequences in the event of increased geopolitical tensions and sanctions pressure.	These risks failed to negatively affect the Company’s operations in 2021.
Risk of changes in consumer preferences and market trends
An unexpected change in consumer preferences may have a negative impact on the Company’s business due to the industry’s long production cycle.	This effect is mitigated by means of regular monitoring of changes in demand and product adaptation to market trends and consumer preferences. To this end, we conduct research by engaging internal and external experts.	These risks failed to negatively affect the Company’s operations in 2021.
Cyber security risks
The impact of failures in the information system on the Company’s day-to-day activities. Unauthorised access and data leaks. Data corruption and destruction, malware distribution, and personal data leaks.	The Company has implemented a set of measures to prevent and reduce the probability of cyber threats and preclude personal data leaks.	These risks failed to negatively affect the Company’s operations in 2021.
Occupational health and safety (OHS) risks
INTECO is part of the construction industry, where workplace accidents affecting the lives and health of employees may cause significant financial and reputational damage.	The Company ensures compliance with the applicable health and safety regulations.	These risks failed to negatively affect the Company’s operations in 2021.
Risk of changes in legislation
The industry is strictly regulated, and any non-compliance with the rules may adversely affect the Company’s operating and financial performance. Legislative restrictions and requirements for developers, tougher regulation of the industry and an increased complexity of obtaining permits may impair the Company’s overall performance.	To mitigate and proactively respond to risks, we constantly monitor legislation for any changes that may affect the Company’s business.	These risks failed to negatively affect the Company’s operations in 2021.
Social risks
Managing HR and safety, community engagement, and interaction with customers. The impact of the Company’s operations on the environment, health, human rights and privacy.	The Company has created comfortable working conditions, pays decent salaries and has a bonus system in place. We provide social support to employees and comply with the necessary safety requirements. The Company is committed to high standards of a residential environment ensuring comfortable and quality living space for its customers.	These risks failed to negatively affect the Company’s operations in 2021.