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GOVERNANCE
Axiata Group Berhad | Annual Report 2016
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APPENDIX 1 - Key Risks Faced by the Group
1.
Financial Risk
2016 was a volatile year for certain emerging markets currencies such
as the Indonesian Rupiah and Malaysian Ringgit against US dollar. As a
global player with presence across 10 countries, the Group is exposed
to these volatilities which could adversely affect the Group’s cash
flow and financial performance. The Group has borrowings in foreign
currencies and is cognisant of the foreign exchange and interest
rates exposures. To mitigate this risk, Axiata Treasury Management
Centre has been tasked to oversee and control the Group’s treasury
and funding matters, develop hedging strategies which are governed
strictly by the treasury policies, taking into consideration current and
future outlook of the relevant economies and foreign exchange markets
with the ultimate objective of preserving the Group’s profitability and
sustainability.
2.
Market Risk
The Group’s key markets are predominantly emerging markets which
are generally characterised as being economically less developed. These
countries are also more prone to economic uncertainties and sensitive
towards any changes in developed countries. The unexpected vote for
Brexit in United Kingdom, the new American President and its policies,
and the volatile price of oil have had an impact on the global economy.
These developments have affected investor sentiment, lowered
economic growth and hence resulting in lower levels of disposable
income among customers. In addition, our OpCos are challenged by
stiff price competition, from both incumbents, new players and smaller
scale players, leading to lower profitability and a damaging price war
in certain markets. It is imperative that the Group takes the necessary
measures to drive efficiencies and innovations through investments in
new technologies, establish strategic ties with ‘Over-the-Top’ (OTT) or
other digital product developers in order to create products and services
that meets evolving customer needs, increase the Group’s share of
customers’ wallet and rebuild customer loyalty.
3.
Regulatory Risk
The telecoms sector where the Group operates is subjected to a broad
range of rules and regulations, put in place by various regulatory bodies.
Hightaxrates,significantspectrumfees, levies,ValueAddedTaxes(VAT),
call drop penalties, etc, are common challenges faced by the Group.
In some countries, the Group is faced with prolonged tax litigations
while others are challenged with a systematic increase in taxes and
more favourable treatment accorded to the domestic operators. Such
policies and regulations could disrupt the Group’s business operations
and impair its business returns and long-term growth prospects. These
rules and regulations may also limit our flexibility to respond to market
conditions, competition and new technologies. In responding to such
a challenging environment, the Group advocates strict compliance,
transparency and putting our case before the relevant authorities.
We have instituted dedicated personnel and resources to constantly
monitor all relevant developments and maintain regular contact and a
courteous relationship with the governing authorities. The Group has
also been at the forefront in engaging regulatory officials, participating
in government consultations, and sharing knowledge and best practices
in the development of healthy regimes for the telecoms sector.
Spectrum, a scare resource, remains critical for the Group’s core
business of providing mobile voice and broadband services and is often
seen as means of raising funds by the local government as evident
in previous spectrum auctions within the Asian region. The Group
saw two spectrum renewal exercises in 2016 which, through prudent
planning, we were able to obtain sufficient spectrum capacity within
the confined budget approved by the Board.
4.
Cyber Risk
The increase connectedness of many everyday goods and services via
the Internet (digitisation) has meant that telecom operators are facing
greater challenges of security breaches from such connections. Such
breaches may result in the loss or compromise of sensitive information
or interruption to services. The Group considers this as a heightened
risk, following the increase in malicious and high profile attacks against
major corporations around the world. As the Group relies heavily on
information technology, the Group has to protect the privacy of our
customers as well as company confidential information stored within
our network and systems infrastructure. A successful cyber-attack will
undermine customers’ confidence in the Group and may materially
impact our businesses and tarnish theGroup’s reputation. Such breaches
are also costly to rectify and could result in criminal or civil action in
addition to regulatory penalties. Mindful of the risk and repercussions,
the Group has established a Cyber Security Steering Committee, which
focuses on the accelerated implementation of security initiatives.
The committee has been at the forefront of safeguarding the Group
by ensuring strict compliance with security policies, procedures, and
putting in place technologies and tools to minimise the risk of security
breaches. Other technical action have also been instituted to monitor
and detect security breaches.
5.
Operational Risk
The Group relies on third party vendors in many aspects of our business.
Their non-performance will have an impact on the Group’s operations.
The telecoms industry is dominated by a handful of vendors which
means any failure or refusal by these key vendor to meet their agreed
obligations may significantly affect our core business and operations.
One of Axiata Procurement Centre’s key role is to be on the lookout for
ways to manage these risks, monitor the performance of the vendors
and develop new relationships to reduce such dependencies.
The telecoms network within our OpCos are subjected to risks of
failures, some within our control while others are not. Repeated
failures or service outages could disrupt services, resulting in revenue
losses, damage to reputation and eventually customer churn. In some
countries, the OpCo could be fined with stiff penalties for poor quality
of services or drop calls. The IT systems are also crucial in running
operations, from providing end-to-end customer services to running
internal processes such as billing. The IT architecture changes regularly
due to newer versions, upgrades and security patches. Failure to keep
the architecture updated may result in a system crash or security
breaches. Cognisant of the risks, the Group continuously address
issues such as network congestions, drop calls, upgrades to network
coverage, etc., to ensure better quality network and service delivery.
Operating procedures with appropriate incident escalation procedures
and adequate disaster recovery plans are in place at each OpCo to
ensure seamless business continuity. In addition, the Group maintains a
global insurance programme to mitigate business losses.