TDC Group Annual Report 2011(6,4MB) - TDC Annual Report 2011

Risk Description and impact Mitigation
Outsourcing risks
Network risks
Financial risks
• Change of main IT outsourcing partner or heavy offshoring
of the current CSC workforce may cause an
increased number of IT incidents and longer project
delivery times.
• Failure to continue to optimise existing and future
outsourcing relationships, and in the event that TDC’s
current outsourcing arrangements become
unsatisfactory, or its obligations are not met, TDC
may be unable to find new outsourcing partners on
economically attractive terms or on a timely basis or
at all.
• Increased outsourcing of development and operation
of Value Added Services (VAS) to multiple partners
adds complexity in all processes (plan, build and run),
as the different partners have different platforms and
processes. Increased complexity and outsourcing of
quality control increases the risk of faults.
• All IP strategy is based on a single platform, which
means that network breakdowns may have greater
consequences than before.
• TDC's EMTN bonds and new credit facilities contain
change of control provisions that in conjunction with
a rating downgrade below investment grade or a
withdrawal of TDC's ratings could result in lenders
terminating their commitments and requiring TDC to
repay its outstanding debt partly or fully. Further,
TDC's new EMTN bonds and new credit facilities also
contain cross default provisions which in case a
default occurs could result in lenders terminating
their commitments and requiring TDC to repay its
outstanding debt under agreements that contain a
cross default provision. Finally, if TDC is downgraded
below the investment grade, the interest payments
(coupon) on the EMTN bonds issued in 2011 will
increase by 1.25 percentage points.
• Exchange rates and/or interest rates may develop
unfavourably for TDC, resulting in a financial
downside.
• TDC’s financial counterparties may enter into financial
distress and be unable to meet their obligations to
TDC.
• Downgrade of TDC’s credit rating could increase its
financing costs and limit its access to financing
sources.
• Pressure on payment terms from large customers
due to the increased cash flow focus may cause
longer payment days from debtors.
• See also the following notes to the Consolidated
Financial Statements: note 26D about financial
management and market risk disclosures, note 27
about pension obligations and note 38 about
Contingent liabilities.
TDC Group Annual Report 2011
• Plan knowledge transfer in detail.
• Negotiate at all levels with outsourcing partners and
explore exchanging the existing sourcing set up.
• Getting transparency regarding suppliers’ activities
and risk.
• Implement all new functionality (services, platforms)
using a handover process with explicit acceptance
criteria.
• Ensure that roles and responsibilities are fully defined
and documented.
• Reduce the risk of major power cuts in the IP network
by a continuous problem management process.
• Compile stability reviews.
• Ensure that TDC to the extent possible complies with
its contractual financial obligations.
• Prudent risk management within risk tolerance limits
defined in the Financial Strategy approved by the
Board of Directors.
• Diversify counterparty exposure.
• Weekly statement of counterparty exposure.
• Settling value of positions.
• Remain in continuous dialogue with the rating
agencies to ensure correct understanding of current
financial performance and expectations for the future.
• Weekly reporting to account managers.
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