MTN Group Limited Integrated Report for the year ended 31 December 2015 - Our top risks and what we are doing about them

Our top risks and what we are doing about them

Using a combined assurance methodology ( 58), in 2015 we considered the following to be MTN’s most material risks based on each residual risk rating. This takes into account the probability of the occurrence of the risk, the impact of the risk should it materialise and the mitigation strategies in place. The fact that we disclose details of these top risks means that each is important to MTN and, even though rankings change during the year, each of these risks receives equal management attention. We also include opportunities associated with each risk. For our approach to risk management, see 57.

Risk ranking

Risk name, context and impact if not managed

Mitigation strategies

Link to strategy

MTN’s achievements in 2015

Opportunities

2015

2014

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 product offerings. 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, as well as innovation, are becoming more critical.

Implementing a digital strategy with broader service offerings.
Driving critical mass in our operations and leveraging on our extensive footprint in Africa. Replicating successful experiences in other markets and launching global commercial initiatives in data, digital and customer value management.
Ensuring we have the appropriate skills to deliver the right products and services at the right price.
Expanding our IT service catalogue.

Appointed a dedicated Group chief consumer officer and a Group chief digital officer, and honed our focus on customer experience initiatives.
The enterprise business unit launched a number of new services including: Pan-African “Internet of Things”; MTN Business Cloud; Azure ExpressRoute; Microsoft Office 365; Amazon Web Services; switching capability; and a new MTN business website.

Bridging the digital divide through innovative offerings including e-commerce services through our partnership with Rocket Internet, as well as MTN Mobile Money, mHealth and mInsurance.
Creating greater efficiencies that allow the Company to remain profitable.
Increased focus on the end-customer experience provides a competitive advantage.

Financial performance targets
Slowing global demand for commodities is putting pressure on economic growth in the emerging markets in which we operate.

A reduction in industry tariffs, regulator-imposed disconnections of subscribers and increased competition are impacting revenue growth significantly.

Our new revenue streams are at an early stage of development and we need to invest capital to build capacity, maintain and grow market share and position the Group for future growth.

Exposure to currencies other than our reporting currency (the rand) impacts our reported results, the cost of servicing foreign-denominated obligations and operational costs denominated in hard currencies.

We nurture our traditional revenue streams and identify and develop new revenue streams.
We are selling non-core assets (such as towers).
We have a local currency funding strategy.
We actively manage foreign-denominated assets and liabilities to minimise the impact of translation effects.

Achievements in this regard were overshadowed by the fine imposed by the Nigerian regulator.
Maintained revenue levels despite pressure on tariffs.
Invested in the development of new revenue streams.
Implemented a strong revenue assurance measurement and governance framework.
Realised a gain of R8 billion on the sale of towers in Nigeria.
Completed focused capex deployment in growth markets.
Realised some operational efficiencies and cost savings through outsourcing of non-core functions and review of sourcing models.
Managed the consequences of the Nigerian fine on providers of funding.
Contained forex losses despite a significantly stronger dollar.

Growth in data revenue and new revenue streams from digital businesses.
Driving cost efficiencies in existing core business and through the Group’s back office transformation project.
Refinement of capital allocation principles.
Selective share buy-backs when opportunities arise.
A positive impact of a weaker rand exchange rate on foreign-denominated earnings.

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

Systems in place to monitor and track new legislation and regulations as well as changes to current legislation and regulations.
Compliance management framework developed and rolled out to MTN’s operating companies.
Written statement of commitment to compliance.
A local board member is appointed to oversee compliance within each operating company.
A Compliance Management Checklist (CMC) is in place for the management of compliance with local laws and regulations.

Rolled out CMC to 19 operating companies, providing them with a tool to manage compliance.
Carried out training at all operating companies on compliance processes, policies and systems.

Strengthening and increasing capacity to manage regulatory changes and key stakeholders.
Increasing regulatory audits.
Obtaining third-party assurance on processes, systems and policies.
Increasing training of senior management and executives on regulatory compliance.

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 our EBITDA margin.

By outsourcing network operations MTN is able to leverage off the scale, expertise and tools of the managed services vendor. Moving to the next level of managed services, MS2.0 – where the focus is on customer experience – will ensure the best network experience.
Upgrading networks to LTE means that we provide the best mobile broadband service to our subscribers.
By sharing infrastructure through the establishment of tower companies, we reduce our rollout costs, as well as the ongoing costs of operating MTN’s passive infrastructure.
By installing energy-efficient solutions such as hybrid power, we ensure higher availability of our networks and reduce our diesel costs. This also reduces our reliance on national grid electricity.

Progressed with network managed services in
13 countries. These include South Africa, Nigeria, Ghana, Cameroon and Uganda. Three more networks will be transitioned in early 2016.
Launched LTE in Iran, Cameroon, Uganda, the Ivory Coast and Benin. Introduced 3G in Guinea-Bissau, Cameroon and Iran.
Rolled out LTE aggressively in South Africa.
Carried out quarterly network benchmarking drive tests on all networks.
Incurred capital expenditure of R29 billion.

Careful capital investment in key markets to maintain leading market share position.
Launching of LTE in main markets where MTN has a licence to enhance our mobile broadband offering.
Broadening network infrastructure sharing to include RAN, backbone transmission and data centres.
Use of energy-efficient infrastructure, which saves on diesel costs and ensures high network availability.
Revenue sharing with vendors, where the vendors provide all the capex, to roll out networks in remote rural regions gives us an opportunity to service lower-income segments of the market.

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 and the loss of customers, and in turn impacting revenue and margins.

Implementing an information security governance framework.
Increasing focus on reduction of cyber security risks.
Embedding information security requirements into key processes.
Raising awareness with staff and vendors.

Implemented a management system based on the worldwide ISO 27001 standard.
Conducted cyber security risk and vulnerability assessments, commissioned “white hat” hacking experts and assisted our vendors to close holes on key systems.
Included security compliance requirements into key vendor contracts.

Security of information policies and procedures give comfort to stakeholders and enhance our reputation.
Improved security places MTN as a preferred service provider for securityconscious investors, business partners and customers.
Reduction of electronic fraud and revenue leakage.

Stakeholder management
Lack of an effective strategy to engage stakeholders on their material concerns, resulting in the gradual loss of trust and confidence in MTN. In particular, key stakeholders such as governments, investors and staff feel they are not sufficiently engaged and informed about MTN’s governance and operational challenges.

Segmenting MTN’s stakeholders into 10 groups in order to focus on their material concerns through structured engagements; understand their impact on MTN’s reputation; and improve our reporting on stakeholder management.
Gradually introduced issue management councils which serve to co-ordinate issue mitigation activities across the operations and the Group.

The imposition of a significant fine by the Nigerian authorities highlighted the need for the Group to treat stakeholder management as a key business imperative.
Improved reporting on reputation-building activities, with the most engaged stakeholders in 2015 being governments, employees and the media.
Profiled MTN’s corporate citizenship activities and the work of MTN Foundations.
Developed situational analysis and integrated response (SAIR) capability with an online real-time market intelligence aggregator to track issues that have a potential to influence MTN’s reputation.
Heightened employee engagement through face-to-face interactions between leadership and staff on performance, values, organisational change and growth opportunities and threats.

The re-introduction of MTN’s regional structure will allow for tighter monitoring and management of material stakeholder issues through closer escalation points between the Group and MTN markets via the regional vice presidents structure.
The rollout of the new SAIR capability will add impetus to the segmented stakeholder management approach.
Intensify the activities of the Group and opco issue management councils to inform and drive MTN’s engagement with priority stakeholders, especially governments, regulators and the media.
Conduct a global MTN corporate reputation audit during the first half of 2016.

new in 2015

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

A shortage of foreign currency, stringent exchange laws and adverse regulations governing repatriation of earnings in a number of markets could limit MTN’s ability to repatriate earnings timeously. Volatility in the exchange rates of many of the countries in which we operate may have an adverse impact on net income. The limited availability of foreign currency in these countries may also result in local MTN operations being unable to obtain forex to pay suppliers/banks.

Maintain a liquidity buffer in the form of cash or committed facilities.
Encourage borrowing in local currency for opco funding requirements.
Active management of foreign currency exposures.

Concluded various new credit facilities at opco levels.
Extended Group facilities to manage refinancing risks.
Increased the intercompany loan between the MTN Group and MTN South Africa.
Hedged the Group’s currency exposure out of MTN Nigeria.
Successfully concluded local currency funding for various opcos thus reducing foreign currency exposure.

Increase and extend the headroom facilities and domestic medium-term note programme.
New strategy for repatriating cash from all operations.
Diversify sources of funding.
Reduce foreign currency debt exposure.
Apply active currency management strategy.

new in 2015