Risk Management

Expolanka has implemented a risk governance framework that is proportionate to the size and complexity of the organisation, as well as its risk profile. This framework places emphasis on oversight responsibilities for risk management and ensures that accountability for managing risk is integrated into our management structures.

To accommodate varying levels of risk among its legal entities, Expolanka adopts a differentiated governance approach. Companies with high-risk profiles are subject
to enhanced governance measures to better manage their risks.

Expolanka is deeply dedicated to preserving and enhancing a workplace culture that encourages employees to adhere to the highest standards of conduct, while also striving to continuously improve risk awareness and integrate it into the Company’s culture.

The Group's Code of Conduct outlines the values that employees are expected to exhibit, and serves as the foundation for all behaviors and actions. Management actively promotes the Code of Conduct throughout the organisation, and all staff are required to abide by the Code’s values and principles.

Expolanka's risk management framework encompasses a range of elements, including systems, structures, policies, processes, and people, all of which are designed to identify, monitor, report on, and control or mitigate both internal and external sources of material risks.

The Company has adopted a three-lines-of-defence model, which emphasises the segregation between Business (first line), Oversight functions (second line), and the independent audit function (third line). This model is intended to:

• Assign ownership and responsibility for managing risks to Business Units as the first line of defence, including maintaining effective internal controls.
• Establish the Audit Committee and Risk Committee act as the second line of defence, providing independent and objective review, oversight, monitoring, and reporting on the Group's material risks.
• Provide independent and objective risk-based assurance through independent audits as the third line of defence, assessing the compliance with and effectiveness of Expolanka's risk management systems and processes.

The adoption of the three lines of defence model distributes responsibilities throughout the organisation, ensuring that each group understands the scope of their responsibilities and how their role contributes to the Company's internal control and risk management system. This approach is intended to establish a robust, cohesive, and group-wide risk culture founded on principles of ownership and accountability.

The Risk Management Framework operates in parallel with the corporate governance structure of the Group and is closely tied to other functions such as Internal Audit, Compliance, Health, Safety, Environment, and Security (HSES). It is also seamlessly integrated across all businesses to identify risks and opportunities.

Risk management is an integral part of all business processes, including strategy development, business planning, capital allocation, investment decisions, internal control, and day-to-day operations. We have defined internal processes to ensure that risk management is seamlessly integrated into our operations. While our diverse business sectors operate with high levels of autonomy, our Group governance structures play a vital role in harmonising policies, sharing best practices, guiding strategic direction, managing risks, and optimising resource allocation across the Group.

Expolanka considers strengthening its risk management processes a core priority. This is essential to maintain our medium-low risk profile in the face of constantly changing economic, social, and regulatory environments. To fulfill this commitment, the Group is actively working on improving our existing practices and adopting a cohesive risk management approach, as outlined below.

To ensure effective management of significant risks, we rely on both internal and external data and make proactive interventions as needed. We establish cross-functional working groups and seek advice from experts when necessary. Senior Management regularly monitors the main strategic risks identified by the Group, including any mitigating actions. If necessary, these risks are escalated to the Executive and Board for consideration.

The Risk Committee plays a crucial role in assisting the Audit Committee in fulfilling its Corporate Governance responsibilities related to risk management and internal controls. Its primary responsibility is to monitor the Group’s risk profile. The Risk Committee meets at least four times per year and provides quarterly updates to the Audit Committee on its activities. Additionally, as an integral part of the operational ecosystem, the Risk Committee engages with Senior Management, Functional Heads, and other stakeholders to ensure that operational and functional risk aspects are discussed and appropriately escalated for direction.

The Operational Risk Committee and the IT Governance and Cyber Security Committee, which are subcommittees of the Risk Committee, are responsible for conducting in-depth reviews of critical areas of risk. The Risk Committee reviews the key matters discussed in the subcommittees and provides direction as appropriate.

Compliance with all applicable laws and regulations is of utmost importance to the Group. To ensure compliance, we have implemented a Compliance Management System (CMS) that periodically reports and monitors the statutory and regulatory compliance status across the Group. The Risk Committee oversees the status of compliance and the effectiveness of the CMS.

We have established a clearly defined and documented authority matrix that governs the business across the Group. This matrix is periodically reviewed and updated to reflect changing risks and operational requirements, ensuring continuous improvement. The authority matrix establishes a robust framework of authority and accountability within the Group, including segregation of duties that facilitates effective and quality decision-making at the appropriate levels within the Group’s hierarchy.

Insurance as a Risk Management tool

Expolanka uses insurance as a tool for risk management. We have customised insurance policies that transfer the risks associated with our operations, including cargo and liability, property, and people. We continuously assess insurable risks and take steps to reduce them as part of our loss-prevention strategy. Our insurance policies help minimise the potential for business interruption and ensure that we can deliver to our customers.

Business Continuity and Crisis Management

We have a global risk management process that includes procedures for business continuity and crisis management. These procedures establish the necessary requirements for local management teams to ensure they can respond effectively to disruptive events and continue their business operations at an acceptable level. Our continuous efforts to improve these procedures enable a quick return to normal activities and minimise any significant damage to the business.

The Risk Committee and Audit Committee regularly review significant risks and provide additional perspectives on existing and emerging risks. We maintain an ongoing dialogue between the Board, Audit Committee, and management to ensure the Group's effectiveness in managing risks.

The key risks that could significantly jeopardise the Group's business model, future performance, solvency, liquidity, and reputation are referred to as principal risks. These risks have been identified through a comprehensive risk assessment process, and the table below presents an overview of the perceived principal risks, the controls in place to manage and reduce residual risk levels, and any changes in the profile of each risk during the year. It is important to note that the list of principal risks is not exhaustive and not prioritised in any specific order. Identifying these risks helps the Group's management to focus on the critical risks that may impede the achievement of its goals and objectives.

The Group considers and reviews these risks at various stages of its business process, and appropriate risk responses and strategies are implemented to reduce them to an acceptable level. However, the effectiveness of these mitigation strategies can change over time, and some risks may remain beyond the direct control of management.

Based on the current assessments, no new risks with a potentially critical impact on the Group's performance have been identified. Although there has been no significant change in the principal risks over the last year, the Group operates in a dynamic environment, where risks continue to evolve, and it continues to develop measures to mitigate them.

As part of the risk assessment process, emerging risks are considered and identified through horizon scanning, regular communication with the business, and staying up to date with market and industry developments. The Group's management and key stakeholders assess and monitor these emerging risks as part of their ongoing risk management process to determine their potential impact on the business and take necessary measures. While these risks are not considered significant at present and are therefore not listed as one of the Group’s principal risks, they are closely monitored in case they develop into more significant risks in the future.

• Geopolitical unrest impacts supply chain logistics in the form of economic sanctions and export controls and will remain as a key driver in supply chain decisions.
• Energy Crisis is one of the top global risks and surge in energy prices has had a massive impact on companies across multiple sectors.
• The pace of global shipping activity lost steam during the year in review as economic turmoil and regional conflict resulted in slowdown of global trade roiled by soaring inflation.
• With the global inflation rates rising, consumer spending has slowed down which remains a concern for global economy.
• The increasing interest rates, rising instability in the banking sector and tightened access to credit has significant implications for supply chains.
• The demand side outlook continues to weaken on war risk, skyrocketing energy costs, political instability, and general inflation, all of which could impact consumer spending and thus trade volumes.

There was a deceleration in global markets during the year due to ongoing disruptions. The surge in demand caused by the pandemic has subsided, and as a result, there has been a gradual easing of capacity pressures during the year, leading to lower freight rates.

Our Risk Management Approach is aligned with the overall business strategy. The group remained resilient during this year given the challenging economic backdrop. Focus was on the fundamentals to ensure that the performance of the group remains consistent in the long term, deliver sustainable earnings and creating value to stakeholders.

Despite the challenges, Expolanka continued to concentrate on expanding customer reach, building partner networks, and improving competencies by remaining consistent and accurate it its long-term multi-pronged strategy of growing volumes, building capacity and enabling operational efficiencies.

Effectively managing both current and potential risks is essential for our business to thrive in the long run and to attain our strategic goals. Despite facing challenges, the Group managed to enhance its business and maintain steady results by utilising its scalable business model, optimising procurement strategies, and capitalising on the business opportunities arising from the pandemic-induced disruptions in global supply chains. The Group's ongoing expansion into new geographies, products, and customer segments has decreased its exposure to concentration risk and positioned it to weather global economic downturns more effectively. With its attractive end markets and efficiency initiatives, the Group is highly optimistic about its future growth prospects.