Transtelecom JSC realizes the importance of risk management as a key component of the Company's corporate governance system aimed at timely identification and taking measures to reduce the level of risks that could adversely affect the Company's cost and reputation.
The risk management policy of the Company is being implemented through the introduction of the Corporate Risk Management System (hereinafter referred to as the "CRMS"). The CRMS is a set of interrelated elements, united in a single process, within the frameworks of which the Board of Directors, senior officials and employees, each at its own level, participate in identification of potential events that may affect the Company's operations.
The introduction and improvement of the CRMS is a necessary condition for Company's strategic and operational goals achievement and is one of the most important tasks in the short term.
The key objective of the CRMS is to increase the effectiveness of threats and opportunities management, which should contribute to the process of capitalization increasing. The CRMS also has the following objectives:
- design and application of uniform and consistent approaches to Company's risks identification, assessment and management, simplification of procedures for the exchange of vertical information on risks (management) and horizontal one (exchange of experience);
- formation of an opportunity for the Company to set and monitor the quality of risk management in the Company on the basis of clear and understandable criteria;
- formation of an information base for building an asset accounting system, their market value and valuation of the share capital;
- prompt response to emerging risk events, changes tracking in the external and internal environment;
- organization of targeted risk management activities with the aim of their reduction to an acceptable level or their transfer to third parties;
- systematization and further accumulation of information about the Company's risks, business manageability raising;
- increase of the Company's capitalization by increasing the efficiency and optimizing risk management.
For effective operation of the CRMS in the Company, the introduction of basic methodological documentation was made. The Company's risks are recorded in the Risk Register, which is approved by the Company's Board of Directors and are constantly updated.
Each of the risks of the Register undergoes a procedure of its occurrence probability level and the magnitude of the consequences. In addition, during the year, the Company's risk managers drafted additional reports on financial risks, key risks and occurred risks, and also monitored the Company's business processes.
The Company has a Risk Committee, which is an authority under the Management Board that makes decisions on the organization and support of an effective risk management system of the Company. Within the framework of the CRMS effectiveness increase in 2017, a number of the following key events were conducted:
- Quarterly reports on risk management were drafted for the Board of Directors of the Company with description and analysis of key risks of Transtelecom JSC, as well as information on the implementation of plans and programs aimed at risks reduction.
- In order to upgrade the risk profile and develop the risk culture in the Company in 2017, a seminar was held for risk coordinators "Corporate Risk Management System" (general information on the system of risks, identification, activities, etc.).
Depending on the sources of origin and sphere of influence, the following classification of risks for the past year was made in the Company:
- strategic risks - the risks of losses arising from changes or errors (shortcomings) in the definition and implementation of the activity and development strategy, changes in the political environment, regional conjuncture, sectoral decline, and other consistent external factors;
- financial risk - the risk of loss, accidents at work as a result of deficiencies or mistakes in the implementation of internal processes committed by employees (including personnel risks), the operation of information systems and technologies (technological risks), industrial safety, as well as due to external events;
- operational risk - the risk of loss, accidents at work as a result of deficiencies or mistakes in the implementation of internal processes committed by employees (including personnel risks), the operation of information systems and technologies (technological risks), industrial safety, as well as due to external events.
- legal risk - the risk of loss due to non-compliance with the requirements of the legislation of the Republic of Kazakhstan, in relations with non-residents of the Republic of Kazakhstan - the laws of other states, as well as internal rules and procedures.
The Company pays special attention to risks assessment and control, both strategic and operational and other risks that may affect the achievement of long-term strategic goals and key performance indicators.
Following the results of risk assessment and identification, the following key risks of the Company were identified, which could adversely affect its operations and achieve strategic goals:
This risk is associated with adverse changes in exchange rates. As a result of 2017, the Company had a negative exchange rate difference - KZT 275 631 thousand. The negative exchange rate difference in the Company's accounting resulted from the translation of foreign currency funds (balances on settlement accounts), short-term financial investments, remuneration and receivables.
The main ongoing activities for this risk in 2017 were the following: a monthly analysis of the plan-factor implementation of the planned scope of work on investment projects and the identification of reasons for deviations in capital expenditure items. The development of capital investments for 2017 was 19.26%.
This risk is a new risk identified in 2015 in the ITD branch. According to the adjusted budget of Transtelecom JSC for 2017, approved by the resolution of the Board of Directors of November 17, 2016 (Minutes No.9/2016), the disbursement of the revenue plan for the EDT ACS project over 12 months of 2017 was 104%.
Realization of this risk entails loss of existing customers, reduction of revenues and net profit of the Company, as well as probability of the Company's reputation loss. As a result of 2017, no loss of major customers due to damage from the occurrence of risk was revealed.
As part of this risk management, the Company plans to raise the annual salary within the budget of expenses and the Labor Plan in accordance with the Regulations on Labor Remuneration and Motivation of Employees, a higher rate of salary growth for qualified personnel servicing high-tech equipment and a backbone network. Making up of an internal personnel pool from among the qualified experts for succession of experience and knowledge; realization of career growth of their employees, as a tool for motivation.
The Company carries out measures to strengthen the guarding and outreaching work, visits and detours of the route, improvement of the route marking on the ground, performance of cable landing works and the berm building. Also, the timely overhaul of the trunk cable and line-cable facilities, where mechanical damage occurred.
Long breaks in communication can lead to a decrease:
- of transmitted traffic volume;
- quality of communication signals transmission;
- Company's profitability.
По итогам 2017 года сумма ущерба от повреждения магистрального кабеля и линейно-кабельных сооружений составила 3 036 thousand tenge.
Causes of risk:
- Incorrect drawing up of the current repair plan and applications for materials;
- Untimely delivery of materials.
Within the framework of this risk management, the Company is working to control the implementation of the procurement plan, to take prompt measures for emergency situation removal on the CLFs, to formulate the Company's budget for current repair, as well as timely economic activities preparation for the winter period.
This risk is operational risk and affects the key indicator of the Company's performance in the implementation of the sales plan. Over the past year, this risk included the events of review, agreement of the reconciliation reports on the planned costs for communication services of structural units and subsidiaries of KTZ NC JSC. Based on the actual data for 2017, the amount of under-received income from the provision of communication services of the Company amounted to KZT2,279,299 thousand.