Risk management at SANIA Power s.r.o. covers the following main risk categories:

  • Market risk
  • Credit risk
  • Operational and IT risk
  • Liquidity risk
  • Legal risk
  • Compliance risk

In addition, risk management at SANIA Power includes minimising the Company's reputational and strategic risks by aligning trading and business conduct with its corporate values. All major risks are managed on a strong foundation of internal risk management manuals aligned with the general risk policy and specific policies.

1. MARKET RISK

Market risk is the risk of the value of open positions changing as a result of fluctuating market conditions. SANIA Power's market risk arises in both energy commodity and financial markets, with fluctuating energy prices, production and consumption balancing and foreign exchange rates constituting key risk factors. Due to the potential impact on the Company's earnings, SANIA Power continuously monitors and stress tests volatility and energy price developments.

Market risk is managed as set out in the Market Risk Policy and the Market Risk Manual. The Market Risk Policy defines the allowable products, regions, and energy commoditi

the specific mandates within the overall market risk appetite. The market risk appetite of SANIA Power s.r.o. sets out the overall risk limits defined as the allocated risk capital and the aggregation of the different mandates is kept within those limits, ensuring that the Company always monitors its risk profile at all times.

Open positions are only accepted if mandates have been established. All open trading positions are monitored by a second line of defence by the Risk Management team. All mandates across the business are reviewed regularly and updated to ensure that they continue to comply with the overall risk appetite and are in sync with changing market conditions.

As part of the monitoring process, SANIA Power operates several warning levels and stop-loss limits to ensure timely action if a mandate is violated. Structured product control, model validations and additional stress tests and risk measures, such as Value-at-Risk and Cash Flow-at-Risk, are used as an integral part of risk management for relevant products and activities. Foreign exchange risk, to which the daily commercial business is exposed, is mitigated and hedged on a daily basis using a Value-at-Risk approach. As foreign exchange risk is not a core business for SANIA Power, a hedging strategy anchored in the Treasury team is pursued to mitigate the foreign exchange risk. Hence, currency risk is an insignificant component of the overall risk appetite at our company.

2. CREDIT RISK

Credit risk is the risk of financial loss resulting from a counterparty failing to meet contractual obligations. SANIA Power s.r.o. manages credit risk through a clearly defined framework of policies and procedures approved by the Board of Directors and defined by the Risk Management team. The Company has taken out credit insurance on the main portfolio of counterparties. This reduces the risk of potentially uncovered credit exposure. Thorough Know Your Customer (KYC) and sanctions screening processes are performed according to the agreed policy. The financial strength and creditworthiness of counterparties not covered by credit insurance are assessed before the Company enters any contract and on an ongoing basis during the duration of individual contracts. If required, additional security is requested from counterparties, and credit lines are monitored daily. The KYC process is reviewed regularly, and sanctions screening is done on a continual basis.

3. OPERATIONAL AND IT RISK

SANIA Power is exposed to operational, and IT risks with possible impact on a license to operate, financial losses or near misses. Operational and IT risks can broadly be defined as risks of inadequate or failed internal processes, human errors, system failures or from external events. SANIA Power s.r.o. continues to mature and improve operational and IT risk management to make it an integral part of the Company's efforts to reduce the overall risk exposure. Cybersecurity training is mandatory for all employees, and IT risk controls are further strengthened as part of organisational compliance. A risk and Vulnerability assessment has been conducted to identify key risk mitigation initiatives under the Swiss Energy Agency preparedness requirements. Crisis Management and Business Continuity processes, procedures and tooling are updated and exercised on a monthly and biannual basis.

4. LIQUIDITY RISK

Liquidity risk is the risk of SANIA Power s.r.o. not being able to meet its liabilities towards counterparties. Our firm is considered to have low liquidity risk, given its solid capital structure and reliable partners. Cash flows from operations, cash reserves, and credit facilities are key aspects that, for several years, have ensured stable and adequate liquidity. SANIA Power measures its overall liquidity, consisting of free liquidity, including cash collateral, other deposits and forecasted cash flows, on a daily basis. In addition, different liquidity outcomes are simulated through various stress tests. The stress testing process analyses daily forecasted liquidity against a minimum liquidity level, enabling the Company to better manage liquidity reserves and withstand extreme market movements at all times.

5. LEGAL RISK

Contractual relationships with customers and business partners bear the potential for legal risks. SANIA Power's Legal team is focused on proactive legal work and contributes in a structured way to identifying, prioritising, and managing legal risks and opportunities in consultation with teams across the entire organisation. The Legal team engages in the ongoing business activities and decision-making processes at an early stage and takes part in the approval process for new products. By drafting and negotiating well-balanced contracts in accordance with the legal risk tolerance defined by the Board of Directors in line with local legislation and practice in the markets in which SANIA Power operates, the Company conducts risk assessment on an ongoing basis. As such, the overall level of claims and disputes can be held at a minimum. The legal counsels of SANIA Power work closely with professional external advisers when expert knowledge is required. The Company has legal insurance.

6. COMPLIANCE RISK

Compliance risk is the risk posed to SANIA Power's financial, organisational, operational, or reputational standing that could result from a failure to act in accordance with relevant laws, regulations and prescribed standards. High ethical standards and compliance with relevant laws and regulations are fundamental to SANIA Power. SANIA Power's Compliance Programme sets out the framework for operating the Company's activities in an ethical and compliant manner and ensures that compliance is embedded with all employees and throughout the organisation, creating a strong culture of compliance.

The Compliance Programme focuses on preventing, detecting, and handling non-compliant behaviour and is managed by the Compliance Officer, who regularly reports to Senior Leadership and the Risk Committee. SANIA Power Compliance Policy & Guidelines, as well as the Code of Conduct, is the foundation for the Compliance Programme as they lay out the requirements and expectations of the Company's employees, and it applies to all employees. Annual compliance risk assessments are another important part of the Compliance Programme. 2023 risk assessments were carried out for all trading activities, including algorithmic trading.

Training and education also play a vital role in the Compliance Programme, ensuring that SANIA Power's employees are regularly provided with up-to-date information and knowledge of compliance issues. Further, select employees also take part in face-to-face training sessions conducted by the Compliance team. These training sessions related to the market abuse prohibitions in the REMIT and other regulations. Monitoring and trade surveillance are also an important part of the Compliance Programme and ensure compliance with relevant regulations and allow SANIA Power to monitor that its activities are carried out in a compliant manner.

In 2023, the Company implemented a new trade surveillance system for select trading activities, allowing for a more automated and efficient trade surveillance process. Oversight with the Compliance Programme is ensured through the preparation of an Annual Compliance Report as well as regular reports to Senior Leadership and the Risk Committee. 2022 and the first half of 2023 have been unusual times for all of us. As an energy trading company, SANIA Power builds its business on an in-depth knowledge of the production and consumption of energy. We map out trading strategies based on complex analyses of all the factors that drive energy prices, but in the last years and months, it is safe to say that our analyses were put to the test.

Russia's invasion of Ukraine redefines global natural energy (gas) markets. Consequently, our traders and analysts had to adjust their pricing models to find out how these unprecedented events affected the energy markets. Navigating through these market changes while keeping our colleagues safe is also the main focus for SANIA Power in 2023. At the same time, we are proud to say that we are keeping earnings stable and continue to onboard new and bigger businesses. Overcoming tough trading conditions and unpredictable energy markets, SANIA Power presents a solid financial performance.

Driven by our scalable business model, we grew traded volumes, resulting increase in gross turnover while keeping costs stable. SANIA Power has the necessary organisational strength to support the growth of this magnitude. Like many other market participants, SANIA Power s.r.o. has to navigate through rapid changes in consumption patterns and purchase possibilities after the Covid situation and during the Russian war in Ukraine

while safeguarding our people and daily operations. And we are succeeding. We are growing our business, maintaining a stable cost level, and keeping up the pace, delivering earnings on a level with last year despite the serious impact of the Russian Invasion of Ukraine and Covid.