Risk management

VVO's risk management is based on risk management and financing policies, corporate governance and ethical guidelines as well as risk assessment included in the strategic and annual planning process. Key risks are identified, their probability and impact are assessed, and means of risk management are determined.

VVO-group plc's Board of Directors confirmed the financing policy updated during 2013 which defines financing targets, division of responsibilities, operating principles, financing risk management principles as well as monitoring and reporting principles. VVO Group financing aims at ensuring the adequacy of financing and maintaining liquid assets cost-effectively at all times, and at managing financing and credit risks.

The most notable risks associated with customer management relate to a potential drop in the financial occupancy rate and an increase in tenant turnover and in rent receivables. Factors affecting these risks include economic fluctuations and shifts in demand both nationally and locally. The financial utilisation rate of rental apartments, turnover, number of applicants and the amount of rent receivables and changes thereto are monitored by region on a monthly basis.

VVO develops its rental housing operations and the renovation activities for apartments and properties and strengthens customer management. These measures are used to increase the utilisation rate and to decrease rental apartment turnover.

Ensuring that the value of VVO’s housing stock continues to rise requires investments in growth centres and systematic renovations across all apartments and properties.

Financing risks due to money market uncertainty are mainly related to rising interest margins and market interest rates and to the availability of financing. The terms of loans offered for financing real estate investments have shortened.

Major fluctuations in market interest rates and margins may have a significant impact on the financial performance of VVO and prevent investments in new development and renovations. The interest rate risk associated with market-based loans is controlled by interest rate swaps and hedging. The interest rate of state-subsidised loans is tied to the Finnish consumer price index, which can cause considerable fluctuations in annual interest costs. Some annuity loans have an interest rate ceiling that reduces the interest rate risk resulting from inflation. Furthermore, risks relating to the availability of financing could affect the company's investing activities. Investments with long economic lives also require long-term financing, and the risk of refinancing increases with shorter maturities. The financing availability risk is managed by ensuring versatile sources for financing. VVO issued an EUR 100 million bond in May 2013.

The most notable risks associated with properties are liability risks such as water damage and fire. Liability risks are managed with the appropriate preventive safety measures and by insuring properties against damage. VVO Group regularly reviews its insurance policies as part of overall risk management. The most important insurance policies are property, liability, loss of profits, accident, travel and vehicle insurance.