1
1. Poor strategic execution
1
1. Poor strategic execution
2
2. Talent retention and succession
2
2. Talent retention and succession
3
3. Competitor attack on our major merchandise categories
3
3. Competitor attack on our major merchandise categories
4
4. Failure to address in-store health and safety issues including store or DC fire
4
4. Failure to address in-store health and safety issues including store or DC fire
5
5. Complexity of the Group’s African operations
5
5. Complexity of the Group’s African operations
6
6. Food Safety and Hygiene
6
6. Food Safety and Hygiene
7
7. Inefficient or ineffective supply chain or a failure in the supply chain
7
7. Inefficient or ineffective supply chain or a failure in the supply chain
8
8. Volatility of key economic variables
8
8. Volatility of key economic variables
9
9. Insufficient progress with Transformation
9
9. Insufficient progress with Transformation
10
10. Ineffective cost control
10
10. Ineffective cost control
1 Risk in order of priority
  Risk
  Risk after mitigation
1
Poor strategic execution
Definition +
Through poor design, implementation, execution or prioritisation of our business model or strategy, the Group’s longer-term financial performance and competitive positioning could be severely compromised. The resultant financial performance may be sub-optimal on either an absolute or relative basis.
Financial impact
Group Executive Committee responsibility
Mitigation
The Group insists on strategic clarity at the Divisions and Massmart Corporate. The strategies of all Divisions and the Group are formally documented and are reviewed annually at Divisional level, at Group Executive Committee level and then by the Board. A Division’s strategies dictate management’s operational tactics and priorities. The annual budget process is an output of these reviews and on-going monthly monitoring of annual financial results and comparison to budget at Divisional Boards and Group Executive Committee level takes place.
2
Talent retention and succession
Definition +
Scarcity of retail-specific skills.
Developing and retaining sufficient business and leadership skills to ensure long term competitiveness.
Over dependence on key leaders in the Group.
The need for an actively managed leadership succession pipeline.
Scarcity of skills outside of South Africa
Financial and Operational impact Ongoing area of focus
Group CEO / Human Capital Executive responsibility
Mitigation
This remains a major focus area. The Executive Committee actively monitors the progress, development and possible succession plans for the ‘Top 200’ employees, as well as monitoring a further 200 employees. There are in-house education programmes prepared and presented in conjunction with local and international business schools that focus on developing middle and junior executives, and there is an in-house graduate recruitment programme in place. Annual ‘fire-side chats’ are held with each executive in the Group, which are attended by that person’s superior and a third executive. The Group’s remuneration policy, incorporating short- and longer-term incentives, is designed to reward significant out-performance. The Share Scheme is intended to act as a retention mechanism.
3
Competitor attack on our major merchandise categories
Definition +
Negative impact from a sustained attack by a major competitor (international or local) aimed at one or more of the Group’s major categories or formats.
Financial impact Difficult to predict
Group CEO / Divisional CEOs responsibility
Mitigation
Maintain a relevant and competitive product offering that offers affordable value to our customers. Invest in brand awareness and loyalty. Manage low-cost efficient operations. Ensure suppliers believe that our stores and associated supply chain offer an ideal route to market. Optimise our store locations, and ensure regular store refurbishments and format renewal.
4
Failure to address in-store health and safety issues including store or DC fire
Definition +
Legal consequences of non-compliance with Occupational Health and Safety Act.
Ensuring staff & customer safety when moving & storing inventory, including racking & stacking.
Possible significant reputational risk from customer or employee injury or death
Significant size of individual stores and DCs mean potentially large insurance claims for fire damage.
Reputational impact
Chief Ethics and Compliance Officer / Divisional CEO’s responsibility
Mitigation
Increase executive, staff and customer awareness in-stores. Internal Audit reviews. Use of professional third parties to assess in-store health and safety issues, including legislative and regulatory compliance. Supply chain focus to reduce inventory volumes. All Makro stores ASIB compliant. High awareness across Group, ongoing monitoring of system maintenance and testing. Replacement of roof insulation with appropriate fire retardant insulation in Massbuild stores. Work with external risk assessors and insurance brokers. Focus on storage of flammable products. Proper location and management of electricity generators.
5
Complexity of the Group’s African operations
Definition +
The complexity, of doing business in 12 African countries, each with different regulatory, fiscal and customs environments. Political risk can become an issue. African currencies can be illiquid, making cash repatriation vulnerable. There are also operational and logistical challenges in managing the lengthy supply chain. There are, in addition, often challenges presented in securing legal title to land in some countries.
Financial and Operational impact
Group CEO / Divisional CEOs responsibility
Mitigation
Careful pre-selection of countries for new stores, with a thorough evaluation of customs, tax, exchange control and business legislation. Regular repatriation of cash. Dedicated executives across several functions monitor and manage the African operations. Keep supply chain as short as practical. Develop relationships with key government and regulatory authorities in those countries.
6
Food Safety and Hygiene
Definition +
Non adherence to food safety standards and/ or failure to maintain appropriate hygiene levels may result in legal liability and significant reputational damage as well as impact trading performance. The concern extends especially to ‘Private Label’ products.
Financial and Reputational impact
Chief Ethics and Compliance Officer’s / Divisional CEOs responsibility
Mitigation
Supplier compliance audits. Use of QA tests by third parties (Food Consulting Services). Food safety management system audited by Diversey. Formulated product-recall procedure. Internal audit focus.
7
Inefficient or ineffective supply chain or a failure in the supply chain
Definition +
An ineffective or inefficient supply chain may result in sub-optimal inventory management, with duplication of costs and over or under stocking affecting holding costs and sales.
Must have lowest-cost movement & holding of inventory through entire supply chain.
The risk is compounded when there is a slowdown in sales. An over stock position results.
Financial impact
Group CEO’s / Divisional CEO’s responsibility
Mitigation
Dedicated Supply Chain executives, with Group Forum. Optimisation of regional distribution centres (RDC’s). Business continuity plans in place for RDC’s. Stable forecasting and replenishment systems. Ongoing review and clearing of dated product.
8
Volatility of key economic variables
Definition +
Unpredictable or dramatic changes in economic factors (inflation, interest rates, exchange rates).
Margin decline from deflation.
Effect on consumer confidence and spending from interest rate and / or inflation rate volatility.
Impact on imported stock valuation.
Impact on foreign operations’ results & net assets reported in SA currency, with possible material translation gains / losses.
Adverse systemic economic effect from HIV / AIDS, (unemployment, crime, healthcare costs).
Financial and Operational impact
CFO responsibility
Mitigation
All direct foreign exchange import liabilities are forward covered.
Interest rates on the Group’s medium-term debt have been fixed.
Property lease escalation rates are negotiated as low as possible. The Group continually explores means of keeping the net assets of its African operations to a minimum, thereby reducing the translation effect of any currency movement. This includes repatriating cash profits as frequently as possible and settling cross-border liabilities timeously.
9
Insufficient progress with Transformation
Definition +
Adverse reputational exposure due to under delivering in respect of BBBEE requirements. In the broader national context, inadequate transformation at all levels by Massmart and other South African businesses will curb the country’s longer-term growth potential.
This issue includes insufficient Black representation at Executive level at the Group and Divisions
Reputational impact
Group Executive Committee responsibility
Mitigation
Will set appropriate targets and expectations in the context of new codes and to maximise the visibility of initiatives such as the Supplier Development Fund, even if these initiatives do not directly influence the scorecard. Transformation is an agenda item at all Divisional and Group Board meetings and a senior executive at Massmart has overall responsibility for delivering the strategy.
10
Ineffective cost control
Definition +
It is strategically important to maintain a low cost base and essential that the Group implements sustainably low and efficient operational and overhead cost structures. Our "Every Day Low Price" strategy requires an every day low cost foundation.
Financial and Operational impact
Group Executive Committee responsibility
Mitigation
Ongoing cost control through monitoring, benchmarking, review and innovation. Executives incentivised on PBIT growth. RDC and supply chain strategy. Reduce cost and waste.Improve effectiveness and efficiency in procurement and inventory management. Eliminate unnecessary complexity. Careful new store roll-outs. Collaborate with Walmart / ASDA on We Operate for Less programmes.