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Risk Management

The risks of the Türk Telekom Group are determined through Risk Assessment and Evaluation surveys conducted each year. The risks identified in 2018 are classified under the headings of Financial, Strategic and Operational Risks.

The identified risks are then prioritized with the assessments of senior executives of Türk Telekom, and action plans are made to determine their responsibilities and manage the risks or eliminate them altogether. Detailed root cause analysis studies for the basis of action planning are carried out with the related departments and the joint studies are carried out with the Corporate Risk Management Department for the identified risks.

The general assessment of these risks is as follows:

Financial Risks

The Türk Telekom Group is exposed to major financial risks such as liquidity risk, exchange rate risk, interest rate risk and counterparty risk.

Within the framework of the strategy to minimize liquidity risk, financing is obtained from different geographies (America, Europe, Gulf, Japan, China, Turkey) and different investor groups (commercial banks, international financial institutions such as EIB and EBRD, official export financing institutions, bonds) in the long term. This strategy enables the group to access long-term financing and eliminates the dependence on a single geography and investor group and reduces the cost of such financing.

Relating to Eurobonds issued by Türk Telekom, the Group actively monitors the price and yield dynamics of these bonds, which are tradeable instruments in the secondary markets, in order to formulate optimum cash management strategies on a total return and cost basis.

As a result of long credit terms and diversified sources, Türk Telekom carries liabilities in foreign currency. Due to the net liabilities denominated in foreign currency and fluctuating foreign exchange rates, the company may be exposed to foreign exchange rate risk and this risk may have an effect on the cash flow statement and on the balance sheet.

By planning foreign currency cash flow, Türk Telekom can minimize the negative effect of foreign currency risk on cash flow. In regard to impacts on the balanced sheet, first the distribution of foreign currencies between themselves (US dollar and euro) is kept at a balanced level. With respect to the fluctuations in TL against these currencies, the Group initiated a long-term hedging strategy in 2015, and in this framework the Company has hedge position of USD 1.9 billion equivalent, details of which are provided in the footnotes to the financial statement. In addition, Türk Telekom holds a significant portion of its cash assets in foreign currency in order to provide natural protection against foreign currency risk.

To avoid interest rate risk, Türk Telekom has entered a USD 450 million equivalent interest-rate swap position, details of which are provided in the footnotes in the financial statements. Together with the use of fixed-cost funds such as bonds, Türk Telekom reduces its exposure to the risk of a floating interest rate.

With regard to its financial assets, Türk Telekom maintains a position to minimize counterparty risk in accordance with the framework of the limits and diversification policy applied to the other parties.

Türk Telekom carries out the protection transactions related to its financial risks within the framework of the guidance and authorizations of the Board of Directors.

Strategic Risks

The company operates in a market where technological innovation, competition (brand new competitors, product/service prices pressures, etc.) and regulatory developments are quite high. With an awareness of the sector, Türk Telekom carefully analyzes the positions of its competitors and the technological developments in the market as well as the changing customer preferences Taking these factors into consideration, proactive risk management activities are carried out within the framework of the company’s strategic priorities, which will contribute to both increasing company revenues and meeting customer expectations.

New products and services to meet changing customer expectations are developed within the framework of risk analysis performed systematically and implemented in order to develop infrastructure and technology investments necessary to provide the “best customer experience” for these products and services.

The company also substitutes for new products and services where market share might be lost due to regulation and other developments in the market, and evaluates opportunities for smart acquisitions both in domestic and foreign markets.

Operational Risks

The risks in the operational area are defined as the risk of loss due to inadequate or failed internal processes, human resources and systems or external events. Examples include the interruptions in infrastructure and technology systems, the leakage of customer information due to vulnerability against cyber attacks, and the failure to capture the targeted quality level in the service due to various technical problems. Problems encountered can lead to negative customer experience, the implementation of regulatory penalties and, as a result, to a negative impact on company reputation and to a decline in revenues.

Within the scope of Operational Risk Management activities, Business Continuity Management is handled meticulously. Business Continuity Management can be defined as a holistic management process that determines the potential threats exposed to and their impact on key activities should these threats occur, and is a framework that provides protection for internal and external stakeholders, reputation, brand and value-creating activities. Critical products and services are subject to Business Impact Analysis and Risk Assessment, and performance improvements are undertaken following the performance monitoring carried out in line with the continuity objectives. In addition, all information technologies and network operations are carried out within the framework of the security policies in practice. Problems in this scope are constantly analyzed and controlled within the framework of early warning mechanisms.

Within the scope of the studies, regulations, international best practices and standards are closely followed and compliance with relevant legislation and standards is monitored.

In 2018, important practices were introduced for the effective management of human resources, one of the most important sub-headings of operational risks. In this area, detailed root cause analyses were carried out in risk topics such as Effective Management of Talent and Employment, Retention of Talent and Protection of corporate memory, and the areas requiring improvements were determined and action development activities initiated.

The risks listed above are identified, assessed, monitored, reported and mitigated in the context of periodic discussions with the business units. In this process, the interaction of the risks between themselves is taken into account and monitoring systems is formed jointly for the risks that are affected by each other.

Determination of Risk Appetite efforts initiated in 2017 will be completed in line with the views of the management staff and the decisions of senior executives of Türk Telekom will be made in line with the up to date risk appetite.​

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