Risk Management System
Risk management is carried out at MTS Group in compliance with the common conceptual risk management framework1. The 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 MTS Group.
1 “Enterprise Risk Management. Integrated Model” of the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The Integrated Risk Management Policy is approved at MTS Group1. Integrated risk management is aimed at ensuring a reasonable guarantee of achievement strategic goals of the Company and maintenance of the MTS Group risk level within the 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.
The basic principles of the risk management process
Integration principle
provides for a systemic approach to management of all types of risks inherent in MTS business, across the entire organizational structure and geography of MTS Group operation. Cross-functional interaction and coordination of structural units is maintained to manage risks outside the framework of their specialization, as well as accounting of mutual effect of risks of 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.
Principle of justification
provides for an analysis of the ratio between the costs for risk assessment reduction and potential damage from their occurrence.
The system of integrated risk management makes it possible to address the following objectives:
- 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 efficiency;
- accumulation of knowledge in the field of integrated risk management.
The Risk Management Team of the Corporate Center (RMT 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. RMT CC applies econometric method to analyze 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 decisions on the elaboration of mitigation measures. The Chairman of the Risk Committee is the MTS President. The committee includes members of the Management Board, Vice Presidents and other senior executives. The competences and responsibilities of the Committee include consideration and approval of the following: goals for development of the process of integrated MTS risk management; risk-management methodology; MTS risk portfolio and priority of actions to manage risks considering the feasibility of their costs and restricted 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 assessing the efficiency of MTS Group’s internal control systems in 2023, the risk management process was deemed efficient.
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 reports submitted by the Audit Committee.
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 assess the 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 assessed by the Internal Control Block, this information is also presented to the Audit Committee for consideration.
Risk Management Team 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 management. The Team also carries out operational control of the process and provides cross-functional interaction between the 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, assessment, implementation of risk management measures and reporting on the activity within the process of integrated risk management.
Risk Management Integration 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.
- Determination of substantial risks influencing strategic goals, 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.
Procurement Procedures
- Analysis and accounting of risks when selecting suppliers.
The risk management process passed all stages of introduction, 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.
2023 Key Activities
- Risk Committees of MTS, MGTS and RTK CCs were held following the risk monitoring in 2023. The risk reports for the first six months of 2023 and for 2023 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 reflecting the company’s exposure to the most significant risks.
- Monitoring and assessment of risks related to the geopolitical situation were carried out.
2024 Plans
In 2024, there are plans to update the risk section for external reporting (reports of the issuer for the Central Bank of the Russian Federation) and hold the Risk Committee meetings on a regular basis. Continuous monitoring of the situation related to the geopolitical situation is also planned in order 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.