In reviewing Massmart’s risk appetite and tolerance, the Risk Committee considers the severity of the potential impact of key risks and the controls or management actions in place to mitigate such impacts within appropriate tolerance levels.
The Risk Committee is responsible to the Board for overseeing the Group’s risk management programme. The day-to-day responsibility for risk management, including maintaining an appropriate loss prevention and internal control framework, remains with Massmart’s Executive Committee and divisional Executives. Each division has developed a risk and loss prevention process. The Committee tables a Group risk register to the Board, in February, August and November, which is aggregated from those prepared by the divisions and the Massmart Executive Committee.
In determining the key risks and opportunities facing Massmart, we take into consideration the Group’s long-term strategy, its operating context and environment, the interests of our key stakeholders, media coverage and/or public concern. As part of the risk reporting process, risk incidents are determined in the context of identified material matters and events, which have the potential to significantly affect the Group’s ability to achieve its strategic objectives.
We define risk as any issue that can impact Massmart’s ability to achieve its objectives such as protecting shareholder value and business reputation, enhancing our brand, ensuring compliance and safeguarding our operations. We aim to deal with our operating uncertainty by not only minimising the downside, but by seeking to capitalise on the upside potential to achieve our strategy.
Non-adherence to our business model or inability to adapt our strategy to changing market conditions Talent retention and succession Threat of cyber security breach Insufficient progress with transformation Inability to innovate in response to a changing competitive landscape
Poor consumer environment impact on potential growth
Failure to address health and safety issues across our facilities IT systems capability and capacity to support operations and future growth Increase in cost of goods and operating expenses undermining the low-cost foundation of the business Inefficient or ineffective supply chain or a failure in the supply chainNO CHANGEINCREASED RISK EXPOSUREDECREASED RISK EXPOSURE
NEW RISK
The continuing adverse economic environment is increasing competition in retail and intensifying price and promotion activity. Massmart’s ability to successfully and sustainably execute on its strategy is dependent on adherence to the Group’s business model, failure to do so could impact longer-term financial performance and compromise our competitive positioning.
- Having strategic clarity at divisional and Group levels
- Formally documented strategic objectives are reviewed regularly at Group Executive Committee level and then by the Board
Given the scarcity of retail skills, there is a risk of an inadequate pipeline of the skills required to sustain current operations and achieve Massmart’s long-term strategic objectives. There may also be an over-dependence on key leaders in the Group. This creates the need to actively manage development, retention and succession planning of sufficient skills within the Group.
- Quarterly Group talent risk reviews focused on succession planning for mission critical roles as part of an ongoing talent project
- Completed identification of future Massmart DNA and the competencies relevant to Massmart’s strategy
We receive and store personal information about our customers, associates and suppliers in our information systems. We also depend on the secure transmissions of confidential information over public networks on our online platforms. Failure to protect this information, by inadequately protecting ourselves against advanced cyber breaches, could result in reputational damage, lawsuits and substantial costs.
- The Chief Security Officer addresses and manages information and cyber security risks
- Massmart leverages resources and methodologies from Walmart’s IT Security Division
- Cyber security assessments have been undertaken and intrusion detection and prevention systems have been implemented
- A Group-wide security awareness programme has been implemented
In the broader national context, it is clear that retailers need to be invested in impactful initiatives that improve economic inclusivity, both in our supply chain and the transformation of our management team. Inadequate transformation across Massmart may result in adverse reputational and commercial risk. This may include limited access to B2B/commercial business opportunities.
- Clear quantitative and qualitative BBBEE targets are in place
- A percentage of our Executive incentivisation is linked to transformation
- Formation of a Diversity and Inclusion Committee is driving impactful initiatives, such as the Women’s Leadership Council, exploring barriers to women in retail and Corporate
The digitalisation of retail means that we operate in an ever-changing competitive environment. We face strong competition from other retailers in terms of price, merchandise selection and availability and our store formats and locations. A failure to respond effectively to competitive pressures and changes in retail could adversely affect our financial performance.
- Maintaining low-cost, efficient operations will enable us to provide relevant, competitive and affordable products to our customers
- Continue to optimise our store locations and ensure regular store refurbishments and format renewals
- Our active investment into the ecommerce capability across the Group will assist us in ensuring we are the preferred online destination for our customers
The business continues to feel the impact of negative GDP growth in South Africa, low consumer confidence, volatile exchange rates, increased fuel and municipal tariffs and load-shedding.
Our rest of Africa businesses expose Massmart to currency volatility, in-country currency regulation and currency availability challenges, which may result in material forex gains/losses.
- Continual monitoring of economic indicators in all our markets
- Close monitoring and adjustment of our borrowing portfolio, leverage and interest charges to maintain a sustainable financial position
- Portfolio review of property lease escalation rates and targeted renegotiations
- All direct foreign exchange import liabilities are hedged
Failure to comply with the Occupational Health and Safety Act, regulations and by-laws could compromise the health and safety of our associates and customers and could result in reputational or legal consequences. The significant size of our stores and DCs means potentially large insurance claims in the case of fire damage. Unsafe storage or racking of product increases the risk of injury. Lost confidence would be difficult and costly to re-establish.
- Our Food Safety Management and Health and Safety programmes are continuously reviewed and improved by the Massmart Group Subject Matter Expert
- Effectiveness of these programmes are measured by tracking key performance indicators
- Ongoing monitoring by independent external service providers and Massmart’s Internal Audit Services
Delays or failure in IT implementations, failure to integrate and update systems timeously and downtime of IT systems could present a risk to the operational continuity of our stores and online trading. This may result in additional IT costs and lost sales. An over-reliance on external service providers may also impact operations.
- Appointment of Chief Information Officer (CIO) driving alignment and leverage of Group-wide systems
- CIO forum reviews and approves all major IT projects in the Group
- The formation of our own SAP centre of excellence minimises our dependence on external service providers
- Drawing on Walmart’s expertise for IT support
- Working with Walmart’s Indian Development Centre for additional tech support
Our business model is driven on a high volume, high density, and low-cost premise to enable the sale of merchandise at the lowest possible price. High cost inflation and inefficiency are potential threats to this approach. The success of our business model is dependent on cost of goods sold, efficiencies and working capital productivity.
- Collaborations leveraging Group scale to maintain price advantage
- Created visibility of cost categories across the Group and identified an addressable indirect spend baseline of R10.4 billion, and cost saving opportunities of between R0.6 billion and R1.5 billion
- Centralised supply chain strategy
- Eliminating duplicated costs through integrated Group operating model
It is essential that we have the lowest possible cost to serve for the movement and storage of inventory, and appropriate stock availability. An inefficient supply chain may result in sub-optimal inventory management, with cost inefficiencies and/or over or under-stocking affecting holding costs and sales. Failure in the supply chain could cause out-of-stocks of products resulting in sales loss and reputation damage; or a slowdown in sales resulting in over-stock of products.
- Dedicated supply chain Executives
- Group supply chain team leveraging core assets of transport and DCs
- Increased volumes of products moved through supply chain network to reduce costs and stock holdings
- Improved processes and systems in planning, forecasting, replenishments, DCs and transport