1
1. Non-adherence to business model or poor strategic execution
1
1. Non-adherence to business model or 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 & safety issues including store or distribution centre (DC) fire
4
4. Failure to address in-store health & safety issues including store or distribution centre (DC) fire
5
5. Insufficient progress with transformation
5
5. Insufficient progress with transformation
6
6. Volatility of key economic variables
6
6. Volatility of key economic variables
7
7. Food safety and hygiene
7
7. Food safety and hygiene
8
8. Inefficient or ineffective supply chain or a failure in the supply chain
8
8. Inefficient or ineffective supply chain or a failure in the supply chain
9
9. Reliance on information technology (IT)
9
9. Reliance on information technology (IT)
10
10. Complexity of the Group’s African operations
10
10. Complexity of the Group’s African operations
1 Risk in order of priority
  Risk
  Risk after mitigation
1
Non-adherence to business model or 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
Responsibility of Group CEO, Massmart Board and Massmart Executive Committee
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 ongoing 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 & Operational impact
Responsibility of Human Capital Executive and Massmart Executive Committee
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. The Group’s remuneration policy, incorporating short- and longer-term incentives, is designed to reward significant out-performance and provides an opportunity for staff to accumulate wealth. The Share Incentive Plan also acts 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
Responsibility of Group CEO and Divisional CEO’s
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 & safety issues including store or distribution centre (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.
Operational & Reputational impact
Responsibility of Chief Ethics & Compliance Officer and Divisional CEO’s
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 are Automatic Sprinkler Inspection Bureau (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
Insufficient progress with transformation
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.
Reputational impact
Responsibility of Human Capital Executive and Massmart Executive Committee
Mitigation
The Board sets appropriate targets and expectations in the context of new BBBEE codes. Transformation of our senior leadership and management teams remains a key focus, and is monitored and supported by the Group CEO and the Human Capital Executive.
6
Volatility of key economic variables
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 & Operational impact
Responsibility of Group CFO and Divisional CEO’s
Mitigation
Extreme movements in economic variables including interest rates, currencies and raw material or food prices can materially affect consumer behaviour and cause disruption in the sourcing, supply and sale of raw and finished products. Careful monitoring and management of inventory pricing, levels and supply dynamics. All direct foreign exchange import liabilities are covered forward. We have fixed interest rates on the Group’s medium-term debt. Purchase of key stand-alone stores to avoid permanent escalation of the associated lease charges. Keep the net assets of our African operations to a minimum, to avoid potentially large translation effects from currency movements.
7
Food safety and hygiene
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 & Reputational impact
Responsibility of Chief Ethics & Compliance Officer and Divisional CEO’s
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. Massmart Internal Audit Services focus.
8
Inefficient or ineffective supply chain or a failure in the supply chain
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 & Operational impact
Responsibility of Group CEO and Supply Chain Forum
Mitigation
Large RDC’s represent potential single points of failure. High fixed costs are best annuitised through significant volume throughput. Business continuity plans in place for RDC’s. Stable forecasting and replenishment systems. Ongoing review and clearing of dated products.
9
Reliance on information technology (IT)
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
Financial & Operational impact
Responsibility of Group Commercial Executive and Technology, Information and Process (TIP) Forum
Mitigation
TIP Forum approves all major IT developments in Group. IT plans must be aligned with strategy. Ensure adequate resourcing of internal IT management. Massmart Internal Audit Services has significant IT expertise and assesses all IT developments and is part of the
‘go-live’ decision on any project.
10
Complexity of the Group’s African operations
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 & Operational impact
Possibility of some reputational risk in-country. Responsibility of Group CEO and Africa Forum
Mitigation
Careful pre-selection of countries and locations 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 appropriate relationships with key government and regulatory authorities in those countries.