Integrated report for the year ended 31 December 2016

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Heading Mitigating our top risks

Here we provide details of our top risks in 2016, the mitigation strategies we implemented and how well they worked, as well as the link of each risk to our strategy and the associated opportunities.

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                                    Risk ranking
Risk name and impact if not managed     Mitigation strategies       Link to strategy       MTN’s achievements in 2016       Opportunities in 2017     2016 2015  

Adverse regulatory changes or non-compliance with laws and regulations

We have business ventures in a large number of jurisdictions and therefore must comply with an extensive range of laws and regulations. Increased regulatory or legal changes/requirements may negatively impact our business model, and affect revenue and profits.

    
  • Strengthening of compliance and regulatory functions and governance structures.
  • Enhancing skills in the compliance and regulatory environment.
  • Enhancing non-compliance monitoring and reporting via a Red Flag Database.
  • Close monitoring of subscriber registration processes.
  • Assigning greater audit focus/coverage to compliance and regulatory processes.
            
  • Strengthened compliance and regulatory functions through appointments of regional compliance officers, opco compliance officers and an executive for regulatory affairs.
  • Established Group compliance committee to focus on compliance, regulatory and risk-related matters.
  • Established central policy repository.
  • Implemented compliance software toolkit enabling opcos to define and maintain their compliance universe.
  • Conducted third-party assurance on anti-bribery and corruption policies and processes.
      
  • Consolidation of MTN’s compliance framework.
  • Intensify compliance and regulatory training.
  • Increase audit activity.

 

     1 3  

Network performance

We depend on the uninterrupted operation of our networks to provide our services. From time to time customers experience data quality issues because of network constraints. Lack of timeous, effective and efficient capital investments to cater for greater subscriber numbers and traffic could lead to a loss of customers, and in turn a loss in revenue and a reduction in EBITDA margin.

    
  • Implementation of network modernisation programme.
  • Improvement of disaster recovery plan guidelines to enhance resilience of our networks.
  • Focus on spectrum acquisition, efficiency and utilisation.
            
  • Spent R35,3 billion on network rollout, systems and improvements across our markets.
  • Connected 928 sites to fibre.
  • Distributed enhanced DRP guidelines to all opcos.
  • Secured spectrum in Nigeria, Ghana and Cyprus to cater for increased data traffic.
      
  • Network standardisation drive.
  • Concerted drive to connect a large percentage of sites to fibre to cater for data growth and to ensure end-to-end quality of service.
  • Implement smart capex planning techniques to ensure optimal investment where required to maximise ROI, quality of service and customer experience.
  • Achieve standardisation of quality KPIs across MTN by introducing standardised drive testing and benchmarking procedures and rolling out a customer experience management tool.
  • Track DRP actions and improvements as per new DRP guidelines for all opcos.
     2 1  

Financial performance
Economic performance of the emerging markets in which we operate has been impacted by a fall in demand for and prices of commodities, and a slowdown in economic growth. This has adversely impacted the value of the currencies of these markets.

Revenue growth is significantly hampered by a reduction in industry tariffs, regulator-imposed disconnections of subscribers and increased competition.

As our performance is closely watched by stakeholders, any lower-than-expected performance may impact our brand and reputation.

    
  • Closely monitor industry and market segment trends.
  • Implementing governance to ongoing cost-saving initiatives.
  • Focus on growth in data revenue and new revenue streams from digital businesses.
  • Focus on developing digital and EBU segmented reporting to provide view on new revenue streams.
  • Rollout of zero-based budgeting.
  • Renegotiate with vendors to convert forex-denominated contracts to local currency.
            
  • Rolled out comprehensive cost transformation project across head office, Nigeria, South Africa, Ghana and Uganda.
  • Rolled out zero-based budgeting across head office, South Africa, Nigeria, Ghana and Uganda.
  • Group procurement renegotiated some contracts from dollars to local currency.
  • Project IGNITE in South Africa and Nigeria.
      
  • IGNITE has several levers – including cost optimisation. Programme run by dedicated Group transformation officer. Though current focus on Nigeria and South Africa, roll out to tier 2 countries and head office to follow.
  • Greater focus on data revenue growth.
  • Roll out of a (new) standard budget tool across all opcos.
     3 4  

Liquidity and hard currency availability
Currency fluctuations in emerging markets has in many instances been volatile. This, together with poor economic performance, has impacted on the availability of hard currency in these markets.

Adverse changes in interest rates could result in higher costs of funding and reduced returns.

Inability to repatriate earnings due to various reasons such as shortage of foreign currency, stringent exchange laws and regulations governing repatriation of earnings may have impact on our capital-intensive programmes.

    
  • Conversion of contracts from foreign currency to local currency where possible.
  • Maintain sufficient headroom facilities to manage liquidity.
  • Repatriation of funds from Iran is ongoing.
            
  • Secured US$1 billion in bonds.
  • Improved debt maturity profile.
  • Concluded significant rand banking facilities.
  • Secured local currency funding in a number of opcos, including Ivory Coast and Cameroon.
  • Updated and increased our domestic medium-term note programme.
  • Repatriated R6,3 billion from MTN Irancell as payment of the loan advanced for the licence fee in 2005 (24).
      
  • Explore opportunities to contract in local currency.
     4 7  

Compromised information security
Lack of an effective Group-wide information security programme may compromise our information as a result of an increase in cyber attacks worldwide. This could lead to reputational damage, disruption of services and the loss of customers, in turn impacting revenue and EBITDA margins.

    
  • Establish a significantly enhanced information security function to proactively manage cyber security and privacy risks.
  • Develop and implement a comprehensive Group-wide information security plan.
  • Enhance security-monitoring and incident-response capabilities.
            
  • Established an enhanced Group information security function.
  • Approved revised information security approach and structure.
  • Deployed security information and event management system within key opcos.
  • Deployed vulnerability assessment across key opcos.
  • Increased engagement with key vendors regarding security requirements.
  • Executed security awareness campaigns across key opcos.

 

      
  • Capacitation of key positions in approved structure.
  • Deployment of Group-wide monitoring platform for key perimeter systems.
  • Deployment of Group-wide vulnerability assessment platform.
  • Enhance Group-wide DDOS protection systems.
  • Active participation in industry working groups.
     5 5  

Strategic execution risk
Successful achievement of MTN’s strategy is underpinned by efficient execution of strategic initiatives and programmes. Delays in implementation may result in not realising the benefits from the programmes in a timely manner. The numerous changes made within the Group, along with a large number of programmes being executed simultaneously significantly impacts the level of this risk.

    
  • Re-evaluation and consolidation of all the strategic programmes/initiatives to drive maximum benefits.
  • IGNITE programme to monitor benefits from strategic programmes.
            
  • Institutionalised tighter discipline around critical projects.
  • Enhanced Group capex management to focus on network projects.
  • Tightly monitored network improvement project for MTN South Africa and MTN Nigeria.

 

      
  • Establish programme implementation reviews as part of the Group operations committee.
  • Embed lessons learnt.
  • Training to strengthen and standardise MTN’s project management culture.
     6 new  

Create and maintain a competitive advantage
The telecommunications and IT industry is characterised by rapid technological changes. Our commercial success depends on providing services at competitive prices as well as differentiating our offerings. Severe pressure on margins from existing and new revenue streams negatively impacts the return on capital invested.

Lack of agility to respond to changing market conditions may affect our market share and revenue streams, as well as profits.

MTN is moving into a new phase of its journey where commercial and operational excellence and innovation are becoming more critical.

    
  • Launch of global value propositions integrating voice, data, SMS, mobile financial services and digital offerings.
  • Leverage on business intelligence and customer value management to improve customer insight and drive customer value.
  • Focus on smartphone penetration as key driver of data monetisation and adoption of apps.
  • Leverage on cloud and technology to improve efficiency and agility.
  • Leverage technology to deliver digital experience innovations to our customers in a differentiated way.
  • Use of customer feedback.
            
  • Launched products to drive global value proposition (including MTN Go, MTN HelloWorld roaming).
  • Appointed global brand agency.
  • Grew subscribers on MTNPlay app and gaming.
  • Recorded 15 operations as active with Mobile Money.
  • Increased smartphone penetration to 36%.
  • Ensured implementation of business intelligence transformation process.
  • Improved network quality and capacity.
      
  • Increase base for data penetration and digital services adoption.
  • Enhance business intelligence and customer value management to protect and extract value from existing customer base.
  • Continue to improve network quality and capacity.
     7 2  

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