Assessment of business risks and uncertainties

VR Group is in the middle of its biggest rolling stock investment programme. This requires more profitable business operations and a higher cash flow. VR Group has a largely fixed cost structure, which makes it difficult to introduce quick changes.

Weak economic growth and risks related to Russia will significantly affect business operations in 2015. Structural changes in Finnish industries and their impacts on production volumes, and the competition in Russian traffic that would result from any termination of the Finnish-Russian Railway Traffic Agreement are also major sources of uncertainty. At the same time, delays in the planned industrial investments in Finland (forest and mining sectors) or their cancellation will also affect our future prospects.

In logistics, the overall market situation has been extremely weak since December 2014 and the stagnation is expected to continue at least during the early part of the year. The substantial decrease in transport volumes affects most of VR Transpoint's customers. The downward trend is estimated to continue throughout the year 2015, and the transport of pellets and calcinate are expected to be hardest hit. This will lead to cost cutting and possibly also to temporary layoffs.

Opening commuter services to competition will change business operating models and lead to requirements for more efficient operations. Preparing for competition is a major part of our passenger services strategy.

More competition in track construction and maintenance and the fact that VR Track relies on one big customer for its business are the most important domestic risks in infrastructure engineering. Tougher competition affects contract pricing and there is a great deal of pressure to remain competitive. Lost infrastructure contracts have also led to operational adjustment measures.

Safety is at the core of VR's business. The aim of VR Group is to minimise accident risks in cooperation with the Finnish Transport Agency and customer companies and to actively create a preventive safety culture. There have not been any major rail accidents since the end of the 1990s.

The raising of the retirement age and the pension legislation necessitated by it have not yet been finalised and they may have a significant impact on the operations and finances of VR's pension fund.

Finance risks are limited at the moment, apart from the securities market risks relating to VR’s pension fund, which has major investment assets. The company has protected itself against normal accident risks with insurance cover.

In its risk management, VR Group divides risks in four categories: strategic risks, economic risks, operational risks and hazard risks. These are further divided into different types of risk. A plan of action has been prepared to prevent major risks from occurring and a person has been appointed to be responsible for each risk. The Group's Management Team receives a biannual and the Board of Directors and the audit committee a yearly risk management situation report in connection with strategy monitoring and operational planning.