Managing our risks
The Board assumes responsibility for the governance of risk, sets the direction for how we approach and address risk, and mandates the Risk Committee to exercise ongoing oversight of enterprise risk management. Risk management is an integral part of our Board’s decision-making process.

The outcome of risk oversight

The management of risk is key to the achievement of our business sustainability and our long-term strategy. In determining the key risks and opportunities facing Massmart, consideration is given to the Group’s strategy, its operating context and environment, the interests of key stakeholders, media coverage and/or public concern. By maintaining an effective level of risk management and risk governance at Massmart we are able to provide the business with the information it needs to effectively manage its risks and opportunities and continually take the corrective action that will allow it to deliver on its business strategy and targets.

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.

The Risk Committee, which is responsible to the Board for overseeing the Group’s risk management programme, assesses Massmart’s risk appetite and tolerance three times a year. The Board, through the Risk Committee, defines risk appetite as the nature and extent of risk that Massmart is willing to take in order to meet its strategic objectives. 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.

Massmart’s Executive Committee and Business unit Executives are responsible for day-to-day risk management, including maintaining an appropriate loss prevention and internal control framework. Each business unit has developed a risk and loss prevention process. The Risk Committee tables a Group risk register with the Board, in February, August and November every year, which is aggregated from those prepared by the Business units and the Massmart Executive Committee.

No change
Increased risk exposure
Decreased risk exposure
New risk
Level of risk
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Medium
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Potential impact
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Estimated likelihood
Likely
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Top 10 key risks facing the Group
Residual risks 2020
Our response to the risks and opportunities they present
1
Poor consumer environment, exacerbated by the impact of Covid-19, limiting growth potential in and outside of SA
2019: 6
  • Maintaining low-cost business model and flexing capacity for trading through review of trading channels and participating in e-commerce
  • All direct foreign exchange import liabilities are covered forward as is the loan owed to Walmart
  • Close monitoring and adjustment of borrowing portfolio, leverage and interest charges to maintain sustainable financial position
Level of risk
Potential Impact
Estimated Likelihood
2
Risks associated with the Covid-19 Pandemic coupled with the declaration of the National Disaster and lockdown conditions (especially the risk of a ban/ restrictions on liquor trading)
  • Maintain focus on trading challenges and respond rapidly and constructively engage with government
  • We are striving to be best-in-class in creating a safe working environment for all of our associates and have created various support materials including posters and videos to reinforce our high standards. Our goal is to set the retail industry standard relative to health and safety
  • At the same time, we want to create the safest shopping environment we possibly can for our customers. This means sanitising surfaces, ensuring sufficient sanitisation stations throughout stores and reinforcing social distancing regulations, including limits on the number of customers in our stores
Level of risk
Potential Impact
Estimated Likelihood
3
Risk that delays in resolution to S4 HANA system implementation/ execution challenges will impact the Game Turnaround performance
2019: 8
  • Continued dedicated resources in Technology, Supply Chain and Finance monitoring of stock flows and the status of Finance suspense accounts
  • Focused team from Walmart’s Indian Development Centre clearing system bugs and providing IT support
  • Master data governance framework has been implemented and data champions appointed
Level of risk
Potential Impact
Estimated Likelihood
4
Operating model ineffciencies impacting our ability to implement EDLP, resulting in lost market share
2019: 1
  • Having strategic clarity at business unit and Group levels
  • Formally documented strategic objectives are reviewed regularly at Group Executive Committee level and then by the Board
  • SmartOrg Wave I is complete (Transition to an integrated, customer facing approach in which we have two business units, Retail and Wholesale, supported by centres of excellence (Supply Chain, Real Estate, IT, HR, Financial Shared Service and partnership with Genpact))
  • SmartOrg Wave II in progress where we will engage in a Business Re-engineering Process through which we will assess the work that we are doing and determine how to structure ourselves to complete critical activities
Level of risk
Potential Impact
Estimated Likelihood
5
Inability to attract, develop and retain key talent
2019: 2
  • Implementation of Success Factors tool to track associate development and talent, with My HR launched in the second quarter of 2020. Full implementation to be completed by end 2021
  • Sponsorship programme for high potential candidates, with specific focus on diverse background high potential candidates, launched in the third quarter of 2020
  • Traction on Turnaround plan outcomes give a level of reassurance to associates
Level of risk
Potential Impact
Estimated Likelihood
6
Failure to comply with economic transformation laws and regulations
2019: 4
  • Clear quantitative and qualitative BBBEE targets are in place
  • Transformation Committee established to manage Employment Equity and skills, including broader Diversity, Equity and Inclusion agenda
  • Three-year Department of Labour (DoL) plan submitted with regular tracking of appointments and promotions in line with DoL commitments through the implementation of our TalentPrint digital talent management system
  • A percentage of our Executive incentivisation is linked to transformation • Incorporating unconscious bias training as part of associate onboarding
Level of risk
Potential Impact
Estimated Likelihood
7
Failure to address health and safety issues across our facilities
2019: 7
  • The health and safety management programme across the Group
  • The approach to address this risk and ensure safe operational environments is having a common Health and Safety programme framework which focuses on three pillars: People, Processes and Systems
  • Effectiveness of these programmes are measured by tracking key performance indicators
  • Ongoing monitoring by independent external service providers and Massmart’s Internal Audit Services
Level of risk
Potential Impact
Estimated Likelihood
8
Inability to innovate as a mitigation against existing, new and changing competitors
2019: 5
  • Digitalisation, as encompassed in the omnichannel and e-commerce strategy, is one of the Group’s key strategic priorities
  • Maintaining a relevant and competitive product offering that offers affordable value to our customers while also investing in brand awareness and loyalty
  • 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
Level of risk
Potential Impact
Estimated Likelihood
9
Negative growth in the Rest of Africa operations due to adverse macroeconomic and political environment
  • Treasury function is fully operational and in-country funds are efficiently managed across business units to ensure maximum amounts are frequently repatriated to settle cross border liabilities
  • Dedicated business unit executives to manage Africa operations
  • Active and regular dialogue with stakeholders (regulators, officials, landlords)
  • Country risk reviews – with ensuing action plans
Level of risk
Potential Impact
Estimated Likelihood
10
Liquidity risk
  • Active and regular dialogue with stakeholders (regulators, officials, landlords), particularly during level 5 lockdown period as a result of the Covid-19 pandemic
  • Country risk reviews – with ensuing action plans
  • Reducing costs intelligently, focusing our efforts on Every Rand Matters (now more than ever) and Smart Spend initiatives in combination with other austerity initiatives
  • Maintain focus on various strategies to improve cash generation
  • Incorporated Zero based Budgeting principles for areas most susceptible to this for purposes of the 2021 budget
  • The two term loans (R2 billion in total) maturing end of February 2021 were successfully rolled over for a period of two and three years respectively
  • Obtained a loan from Walmart (R4 billion) to provide additional headroom in case of further unforeseen challenges
Level of risk
Potential Impact
Estimated Likelihood