Risk Management System
Risk management is carried out at the MTS Group within the accepted conceptual risk management frameworks1.Risk management policy aims to minimize unexpected losses from risks and to maximize capitalization, taking into account the relation between risk and return on investments acceptable to the shareholders and the management of the MTS Group.
1 “Enterprise Risk Management. Integrated Model” of the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The basic principles of the risk management process are as follows:
Integration principle
envisions a systemic approach to management of all types of risks inherent in MTS business, in all organizational structure and geography of MTS Group presence. Cross-functional collaboration and coordination of structural divisions is maintained to manage risks outside the framework of their specialization, as well as accounting of mutual effect of risks from various units. A single Company-management notification channel is provided for the whole risk spectrum to guarantee the completeness, quality and comparability of the information provided for each level of decision-making;
Continuity principle
consists of the implementation of a set of ordered risk management procedures on a regular basis;
Justification principle
envisions an analysis of the ratio between costs for risk assessment reduction and potential damage from their occurrence.
The Integrated Risk Management Policy is approved at the MTS Group1. Integrated risk management is aimed at ensuring reasonable guarantee of achievement of strategic objectives of the Company and maintenance of risk level of the MTS Group within limits acceptable for the Company management.
1 Approved by the resolution of the Board of Directors of MTS PJSC on December 15, 2017, Minutes No. 265.
System of integrated risk management makes it possible to solve the following tasks
- Identification and systematic analysis of the risks faced by the Company;
- Obligatory consideration of significant risks when making management decisions;
- Distribution of responsibility for risk management;
- Development of additional measures and plans for responding to significant risks and monitoring their implementation;
- Monitoring of risks and their management effectiveness
- Accumulation of knowledge in the field of integrated risk management
The Risk Management Department of the Corporate Center (RMD CC) assesses the most significant risks on the basis of long-term financial model and regularly conducts simulations for obtaining key financial figures considering the risk and probability distributions of these indicators. RMD CC applies econometric method for the analysis of individual risks.
A report on the status of the MTS Group risks is reviewed regularly by the Risk Committee, which discusses the key company risks and makes collective decision on the elaboration of measures for their mitigation. The Chairman of the Risk Committee is the MTS President. The committee includes Management Board members, Vice Presidents, and other senior executives. The competences and responsibilities of the committee include consideration and approval of the following: objectives for development of the process of integrated MTS risk management; risk-management methodology; MTS risk portfolio and priority of actions to manage risks with account of the feasibility of their costs and restriction of resources; MTS risk-portfolio management strategy, etc.
Notification of the MTS Group management is carried out taking into account the whole risk spectrum to ensure the completeness, quality and comparability of the information provided for each level of decision-making.
Based on the results of evaluating the effectiveness of MTS Group’s internal control systems in 2022, the risk management process was deemed effective.
Organizational Risk Management Support
The Board of Directors operates directly or through its committees within its competences and resolves the issues of assessing the political, financial and other risks affecting the Company’s operation. The MTS Board of Directors delegates monitoring of risk management efficiency to the MTS Audit Committee, and also reviews the Audit Committee’s reports.
The Audit Committee monitors the risk management efficiency, as well as the assessment of procedures used by MTS Group to identify the principal risks and evaluation of appropriate control procedures (including the procedures for loss control and risk insurance) in order to determine their adequacy and efficiency.
The Risk Committee makes collective decisions in the field of integrated risk management.
The efficiency of the risk management process is estimated by the Internal Control Block, this information is also presented to the Audit Committee for consideration.
Risk Management Department of the Corporate Center is responsible for developing a risk assessment methodology, regular collection of information and reporting the results of this assessment to the Risk Committee and the company executives. The Department also carries out operational control of the process and provides cross-functional interaction between units within the integrated risk management at the Company. Cross-functional interaction with the risk owners at subsidiaries is provided by the risk coordinators at such subsidiaries.
Risk owners are the heads of functional units, whose achievement of goals is affected by the risks. The owners are responsible for the analysis, evaluation, implementation of risk management measures and reporting on the activity within the process of integrated risk management.
Integration of risk management into decision-making processes
Risk management is an integral part of all processes of the Company: policy development, strategic, business, budget and investment planning, change management, and procurement procedures.
Strategic planning
- Identification of risks related to various conditions of environment.
- Analysis and accounting of key risks within the framework of the selected macro scenario.
- Definition of substantial risks influencing strategic objectives, but not resulting in their revision, and development of actions to manage such risks.
Business planning and budgeting
- Analysis and accounting of risks related to failure to achieve the main financial KPIs.
Investment planning
- Analysis and accounting of project risks related to failure to achieve NPV and other parameters of projects.
Procurement procedures
- Analysis and accounting of risks in choice of suppliers.
The risk management process passed all stages of implementation, automation and integration into the company’s business processes (into strategic and investment planning, as well as into the cross-functional projects and the preparation of external reporting), which now makes it possible to identify and consider the risks when making key decisions for the guaranteed achievement of goals and strengthening of business leadership.
2022 Key Activities
- Risk Committees of the MTS, MGTS and RTK CCs were held based on the results of risk monitoring in 2022. Risk reports for the first half of 2022 and for 2022 were also submitted for consideration by the Audit Committee and the Board of Directors.
- An additional report has been developed for the Audit Committee and the MTS Board of Directors, which reflects the company’s exposure to the most significant risks.
- Monitoring and assessment of risks related to the geopolitical situation were carried out.
Plans for 2023
In 2023, there are plans to update the risk section for external reporting (20-F for the New York Stock Exchange, reports of the issuer for the Central Bank of the Russian Federation) and regularly hold Risk Committee meetings. Continuous monitoring of the situation related to the geopolitical situation is also planned to identify, assess and further mitigate the risks.
Key Risk FactorsDetails on these and other risks see in the section “Item 3 – Key Information – D. Risk Factors” of the Annual Report according to the form 20-F, and in reports of MTS PJSC.