2.
Regulatory Risk
The Group operates in an industry that is subject to a broad range
of rules and regulations, put in place by various governing bodies and
regulatory frameworks within the countries. Adverse and unexpected
changes to government policies and regulations could disrupt the
Group’s business operations and impair its business returns and long-
term growth prospects. These rules & regulations may also limit our
flexibility to respond to market conditions, competition and new
technologies. To mitigate this risk, the Group emphasises on strict
compliance and has instituted dedicated personnel and resources to
constantly monitor all relevant developments and maintain regular
contact and courteous relationship with the governing authorities to
keep abreast of developments and to keep regulatory bodies informed
of the impact of proposed actions on the industry. Access to spectrum
is critical for the Group’s core business of providing mobile voice and
broadband services. Generally, this scarce resource is regulated by the
local government and requires licenses to operate, which is subject
to renewal, interpretation, modification or termination by the relevant
authorities. At the same time, new conditions and obligations may
be imposed upon renewal and such conditions and obligations may
be more onerous. Failure to retain existing spectrum or acquire new
spectrum on reasonable terms could have a material adverse effect on
our financial performance and growth plans.
3.
Strategic Risk
The evolution of the telco landscape has moved beyond traditional
telecommunications services. The emergence of non-traditional
‘Over-The-Top’ (OTT) service providers offering free VoIP calling and
messaging could impact Axiata’s core revenue base generated from
its voice and sms services. The change of customer behaviour from
basic mobile voice communication to a data based lifestyle, as well
as higher smartphone penetration amongst mobile users have driven
the Group to constantly explore and make appropriate investments to
upgrade its technology and modernise its network platform in order
to maintain the relevance of its products and services to reduce the
impact of substitution.
4.
Investment Risk
In line with the aspiration to become a New Generation Telco, the
Group continuously ventures into new growth areas to create
additional revenue streams such as participating in digital and OTT
initiatives and expanding into green field markets through strategic
investments. There is no assurance that the Group will be successful in
these ventures, which may require substantial capital, new expertise,
considerable process or system changes, as well as organisational,
cultural and mind-set changes. The Group recognises the repercussions
of incorrect investment decisions such as conflict of interest with main
stream business, inability to extract value from the investments, poor
selection of business partners amongst others. As such, the Group
maintains a robust due diligence process and constantly evaluates
the investment risks at hand. The Group has also established a M&A
Committee to mitigate the risk related to investment. Our M&A team is
cautious of the common pitfalls associated with new investments and
ensures the necessary controls are in place prior to the entry into the
transaction and together with a transition team that works to realise
the acquisition once the asset(s) is acquired. In addition, Management
is also cognisant of the risks associated with potential capital calls by
existing OpCos due to volatilities in the respective markets and global
economic downturn in general.
5.
Geo Political Risk
Some of the countries in which the Group operates in have experienced
or continue to experience political instability. In 2015, two of our OpCos
were caught in the middle of political crisis amid rallies. The continuation
or emergence of such political crisis may undermine market sentiment
and investor confidence towards the Group. To mitigate this risk,
the Group work closely with the respective OpCos Management,
leveraging on their local expertise, knowledge and ability, thus ensuring
our compliance towards the law and regulations and timely response in
the event of instability.
6.
Market Risk
Over the last year, economic conditions in key markets the Group
operates remain either unstable or challenging. These conditions has
resulted in lower levels of disposable income, hence impacting the
Group’s revenue as customers would opt for cheaper tariffs services.
In addition, our OpCos are persistently challenged by stiff price
competition, from both incumbents and smaller scale players, leading
to lower profitability and potential loss of market share. It is imperative
that the Group takes the necessary measures to drive efficiencies and
innovations through investments in new technologies, products and
services to meet evolving customer needs, increase the Group’s share
of customers’ wallet and strengthen customer loyalty.
7.
Financial Risk
2015 remains a volatile year with fluctuating currency exchange and
interest rates amid global economic slowdown. Due to our international
presence, the Group is exposed to these volatilities which could
adversely affect the Group’s financial performance. Local liquidity
constraints and high financing cost for medium and/or long-term
borrowing may result in funding constraints for some OpCos in some
of the markets. As it is not commercially viable to hedge all currency
and interest exposures, the Group has maximised borrowing in local
currency and established the Axiata Treasury Management Centre to
oversee and control the Group’s treasury and funding matters, hence
preserving the Group’s profitability and sustainability.
8.
People Risk
One of the key pillars of success is having the right talent and mindset
within the organisation. Hiring the right employee and loss of key talent
remain a challenge for the Group. Our Talent Management team is
on a constant lookout for suitable employees, whilst developing our
people through robust talent development programmes, attractive
performance based rewards and providing a safe and healthy work
environment.
axiata group berhad | annual report 2015
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