Risk Management System

Austrian Post operates a comprehensive risk management system integrating all business units and subsidiaries. This risk management system complies with the COSO standard “Enterprise Risk Management – Integrated Framework”. The objective of risk management is to identify risks at an early stage and to manage them by taking appropriate measures designed to minimise any potential deviation from the company’s business targets. Risks are identified, evaluated, monitored and documented in their overall context by a Groupwide risk management system in accordance with uniform principles. The Management Board defines the risk strategy and policy of the company and sets out a framework for the risk management system.

Austrian Post’s risk policy focuses on safe- guarding assets as well as a sustainable increase in shareholder value and is incorporated into the corporate and sustainability strategy. Austrian Post is exposed to numerous risks. These risks are accepted provided they are proportionate to the associated opportunities and fit within the framework of the legal and ethical principles of the company’s business activity.

  1. Identification and Evaluation
    Risks are defined as the potential deviation from planned medium-term corporate results. The risk manager analyses the risk situation of the respective business area on a biannual basis. For each identified risk an employee is assigned responsibility to evaluate, manage and monitor that risk. Within the context of analysis and evaluation, risks are depicted in scenarios and are subsequently quantified to the greatest possible extent with respect to the dimensions of potential consequences and probability of occurrence. Non-quantifiable risks are evaluated on the basis of pre-defined qualitative criteria. In addition, the central risk management team periodically examines the risk situation of individual business areas on the basis of proactive risk assessments and workshops. The results of the identification and evaluation process are documented in a specially designed risk management software.
  2. Aggregation and Reporting
    The central risk management team gathers information and reviews the identified and evaluated risks. The financial impacts of potential overlap are taken into account in the aggregation process. The overall risk position of the Austrian Post Group is determined by using statistical methods. Subsequently, the risks are analysed by the Risk Management Committee and are subject to a plausibility check. This Risk Management Committee consists of representatives of the controlling, legal, strategy and accounting departments as well as representatives of the operating units. The results are integrated in the half-year report of the central risk management team to the Management Board focusing on risks and their development. Risks which arise unexpectedly are immediately reported to the Management Board on an ad-hoc basis. The Supervisory Board and Audit Committee are also regularly informed about the risk situation.
  3. Gearing of Measures
    The control of risks is based on defining appropriate measures aimed at avoiding or reducing risks or otherwise transferring them to third parties. The business areas examine the potential measures on the basis of a cost-benefit analysis, and subsequently implement them. These measures are monitored and adjusted within the context of a biannual analysis undertaken by the risk managers. The Austrian Post Group operates internal insurance management to systematically deal with insurable risks. Its primary responsibility is to continuously optimise the insurance situation and processes relating to the handling and settling of claims.
  4. Monitoring and Control
    In conformity with the Austrian Corporate Governance Code, the reliability and performance of the risk management system are subject to annual evaluation by the auditor. Moreover, the concept, suitability and effectiveness of the risk management system were assessed by an external auditor. Internally, the risk management system is monitored and controlled via regular self-assessments.

1. E-Substitution of Traditional Letter Mail
Traditional letter mail is being increasingly replaced by electronic media. The trend towards the electronic substitution of letters and especially towards electronic delivery will continue in future. This development, which is being facilitated by legislation, could lead to a significant decline in mail volumes and may thus negatively impact earnings. A 1%-point revenue decrease in the letter mail segment implies a negative revenue effect of about EUR 6m per annum, which in turn reduces earnings in the short and medium term for the most part due to the fixed cost structure of the company’s operations. There is a possibility that a change in legal regulations with regard to the delivery of governmental mail would mean that some of these mail items will no longer be delivered by Austrian Post. Further acceleration in the substitution of letter mail by electronic media is expected as a result of the entry into force of the e-Government Act and further digitisation measures implemented by the federal government. Austrian Post counteracts the volume decline resulting from this substitution by developing new products and services. Diversification of business operations helps to minimise or spread risks in individual sectors.

2. Staff Costs and Structure of Employment Contracts
3. Parcel Market
4. Strategic Partnerships
5. Decline in Direct Mail Volumes

Further details about Top Risks faced by Austrian Post can be found in the current Annual Report.

Like any other company, Austrian Post is subject to a series of risks related to the particular sector and market environment in which it operates. These risks are minimised in an economic manner on the basis of state-of-the-art measures but cannot be completely eliminated.

1. Operating Risks

Market and Competitive Risks
The Austrian Post Group generates most of its revenue in Austria. If current economic growth forecasts have to be revised downwards, this would force a change in the planning assumptions upon which the company operates and thus would limit the reliability of its planning. In addition, the company generates a considerable share of its revenue from a small number of large customers. The going concern of these large customers is an important prerequisite in ensuring the stable development of the Austrian Post Group. Moreover, large customers are not contractually required to have their mail handled by the Austrian Post Group and could decide on a medium-term basis to transfer the delivery of at least part of their mail items to competitors on the postal services market, or within its own network. The parcel business, in which Austrian Post has a leading position on the Austrian market, is dependent on the economic development of its customers as well as on increased competition, which arises on the basis of the market penetration by alternative providers. The possibility of revenue decline therefore cannot be excluded. The company thus strives to bind customers with attractive service offers. All the above-mentioned market and competitive risks could lead to significant volume decreases and thus to a corresponding drop in earnings

Technical and Cyber Risks
To a significant degree, the Austrian Post Group is dependent upon the use of complex technical systems. Its postal services heavily rely on the support provided by data processing systems, modern communications media and other technical equipment. Against this backdrop, the Austrian Post Group has made extensive investments in recent years designed to modernise its distribution and delivery network. In this regard, the performance of the company is closely linked with the functioning of a small number of key sites. In the case of a temporary or permanent technical system failure, or should unauthorised data access or data manipulation occur, for instance as a result of cybercrime, this could potentially lead to disruptions in Austrian Post’s business operations, a loss of reputation and customer defections and cause additional expenses. Safety and security measures and guidelines aiming to reduce technical and cyber risks have been defined as a means of ensuring smooth business operations. The Austrian Post Group pursues an outsourcing strategy to fulfil its computing and data processing requirements. Austrian Post ensures the availability of outsourcing resources by concluding appropriate contractual agreements and through its targeted service level management. Contractual partners are required to show proof of relevant and valid certification.

Procurement Risks
Procurement risks of Austrian Post are mainly limited to fluctuations in energy prices. A rise in energy prices could have minor negative effects on the earnings situation of Austrian Post.

2. Financial Risks
3. Strategic Investments
4. External Risks

Further details about Other Risks faced by Austrian Post can be found in the current Annual Report.

The changes faced by Austrian Post can also lead to outperformance of pre-defined business targets. For this reason, risk management also focuses on identifying and managing new opportunities. The objective is to high-light opportunities and exploit the potential by implementing suitable measures. The identification, evaluation, management and reporting of opportunities takes place in line with the previously mentioned process.

The identification of opportunities is carried out by the planners in the business areas (on a bottom-up basis) within the context of medium-term planning. Opportunities are also verified and supplemented by the Risk Committee (on a top-down basis). For this reason, Austrian Post implements an ongoing evaluation of opportunities in order to be able to leverage the existing potential.
In the first strategic pillar – Defending market leadership in the core business – the expansion and adaptation of Austrian Post’s product portfolio in the Mail & Branch Network and Parcel & Logistics Divisions in accordance with customer requirements is considered to be an opportunity. Various value-added physical and electronic services are continuously expanding the range of services offered by Austrian Post. Opportunities pre-dominantly arise as a result of the growth of e-commerce. In this respect, Austrian Post stands out due to its new, quick and lean solutions for online orders, and covers all delivery speed requirements, including same day delivery. Austrian Post has clear competitive advantages with respect to its quality and cost structure and tries to increase its market share. Ongoing e-substitution has already been taken into account within Austrian Post’s planning, in which case the more moderate decline in mail volumes in Austria compared to original expectations is seen as an opportunity.
On the basis of the second strategic pillar – Profitable growth in defined markets – opportunities arise with respect to Austrian Post’s strategic international shareholdings in the growth markets of Southeast and Eastern Europe as well as the increase in the depth of value added in its domestic market of Austria. Competitive advantages arise from the existing infrastructure and extensive logistics knowhow. For example, opportunities for future growth exist in Austrian Post’s online activities, financial services or the promotion of international shipment volumes.
The third cornerstone of Austrian Post’s strategy – Enhancing efficiency and flexibilisation of the cost structure – can be promoted by the use of state-of-the-art sorting technologies in mail and parcel logistics. Furthermore, staff optimisation measures and procurement initiatives could provide added impetus and are considered to be opportunities. The bundling of logistics networks under single leadership also aims to enhance efficiency.
The fourth strategic thrust – Customer orientation and innovation – enables Austrian Post, for example, to exploit the potential derived from the expansion of its online and self-service offering as well as from new e-commerce business models.

The company continuously monitors the above described risks and opportunities. In response, appropriate measures are carried out and initiatives launched. From today’s perspective, none of these risks threaten the company as a going concern. The Mail & Branch Network segment is characterised by the electronic substitution of traditional letter mail. Volume, market share and average margins influence the Parcel & Logistics segment. Key factors impacting opportunities in the Corporate segment are cost optimisation and efficiency enhancement measures. Staff-related and IT risks affect all segments.