Description of Key Risks of Kcell JSC
The Risk Management Unit conducts ongoing monitoring of the dynamics of key risks and oversees the implementation of mitigation measures. Monitoring results are submitted quarterly to the Company’s Board of Directors in the form of risk management reports. The Company’s key risks include:
Strategic Risk is defined as the potential for losses resulting from changes in, or errors in defining and implementing, the Company’s business strategy and development plans, as well as from shifts in the political or regional environment, market volatility, or consumer behavior. Risk factors also include intensifying price competition driven by actions of other mobile operators or new legislation. The Company seeks to mitigate these risks by maintaining strong regional market leadership and launching competitive tariffs and products to grow its market share in Kazakhstan.
Operational Risk refers to the potential for losses due to shortcomings or failures in internal processes, supply chain disruptions, staffing challenges, corporate culture, or governance practices. Most of these risks are assessed as low and are addressed through standard risk management procedures already in place. An exception is the area of information systems and technologies, which the Company classifies as high risk. Safeguarding customer confidentiality and ensuring robust data management are vital to the Company’s service offering. Any data breach could result in serious short- and long-term consequences for the business. In response, the Company’s networks are protected by advanced information security systems and comprehensive measures designed to reduce the risk of cyberattacks.
Financial Risks. The Company is exposed to various financial risks arising from multiple sources, including price volatility, interest rate fluctuations, exchange rate movements, and other macro- and microeconomic factors. The risk management system is designed to minimize the potential adverse impact of these fluctuations on the Company’s operations and financial performance.
Foreign Exchange Risk. The Company’s foreign exchange risk primarily stems from fluctuations in the exchange rate of the Kazakhstani tenge against the US dollar. Although profit is less sensitive to currency fluctuations, certain revenues – such as those from roaming services – are denominated in US dollars. Additionally, the majority of equipment, installations, and inventories are purchased in this currency. The Company does not use derivative financial instruments to hedge its currency risk. Instead, it applies a “natural” hedging approach by aligning assets and liabilities denominated in foreign currencies where economically practical and feasible.
Liquidity risk may arise when the Company is unable to access sufficient funds in a timely manner to meet its financial obligations. This could result from a shortage of liquid assets, the inability to dispose of assets on favourable terms, or challenges in securing additional short-term financing.
As part of its liquidity risk management strategy, the Company ensures operational liquidity at minimal cost and risk through the following measures:
- Developing and regularly updating liquidity management plans that outline strategic approaches and tools to ensure timely access to financial resources;
- Diversifying funding sources to minimise reliance on any single lender or mechanism and reduce overall liquidity risk;
- Proactively managing receivables and payables to improve cash flow efficiency and optimise the working capital cycle.
Effective liquidity risk management enables the Company to avoid potential financial disruptions and maintain operational resilience amid volatile financial market conditions.
Regulatory Risks arise from changes in the regulatory environment in which the Company operates, including legislative amendments, shifts in the regulation of natural monopolies, and government-imposed restrictions (e.g. sanctions, anti-dumping regulations, and changes in tax policy). Managing regulatory risk involves a set of proactive measures to minimize potential adverse impacts, including: identifying and analyzing relevant regulatory requirements; developing and implementing risk mitigation strategies; updating internal procedures and policies accordingly; responding promptly to legislative changes.
Effective regulatory risk management requires continuous monitoring and analysis, the ability to adapt quickly to new legal requirements, and close collaboration across all levels of the Company and with shareholders to ensure compliance and adherence to all applicable standards and regulations.