Material Issues,
risks and opportunities
How we determine material issues
Material issues are the factors that are likely to have the most material impact on the Group’s revenue and profitability, and therefore influence our ability to create and sustain value for stakeholders.
The material issues are reviewed annually during the course of the Group’s strategic planning process which is undertaken by the executive directors and senior management of Truworths and Office.
The strategic planning processes result in the formulation of strategic plans and projects that are presented to and endorsed by the board. The achievement of the strategic plans and the attainment of other measurable deliverables form the performance targets for the executive directors and senior management for purposes of the Group’s incentive schemes.
Factors influencing material issues
In identifying and reviewing these material issues for Truworths and Office the following factors are typically considered:
- Prevailing political and macroeconomic climate
- Current and forecast trading environment
- Competitor landscape
- Business strengths and weaknesses
- Human, manufactured, intellectual, social and financial capital resources
- Legislative and regulatory framework
- External opportunities and threats
- Industry trends and consumer behaviour
- Group strategy
- Key risks as detailed in the Group’s risk registers
- Needs, expectations and concerns of primary stakeholders
Opportunities
Medium-term opportunities have been identified for each material issue to provide shareholders with insight into the growth drivers of Truworths and Office over a two to four-year time horizon.
The directors confirm that the material issues for Truworths for the 2020 financial period are unchanged, these being fashion risk, supply chain efficiency, account risk management and retail presence (stores and online).
The directors confirm that the Office material issues remain appropriate for the 2020 financial period, notably fashion risk, supply chain efficiency and retail presence (stores and online). Owing to the disappointing performance the turnaround in Office has been added as a material issue.
Risks
The risks relating to the Truworths and Office material issues are extracted from the risk registers of the two businesses. The risks in these registers reflect the key risks facing the businesses and could impact on the delivery of the objectives outlined in the material issues section if not effectively managed.
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RISK |
REPORT REFERENCE |
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Debt relief legislation will enable the SA National Credit Regulator (NCR) to extinguish debts owed by qualifying critically indebted customers to credit providers such as Truworths |
Truworths material issue: Managing account risk |
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Risk of online sales substituting store sales in a fast-changing UK retail landscape |
Office material issue: Managing retail presence, Turnaround strategy |
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Exchange rate volatility creates challenges in managing retail selling prices of imported merchandise |
Truworths material issue: Managing the risk of fashion; Office material issue: Managing the risk of fashion |
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Availability of counterfeit goods devalues the brand and impacts sales negatively |
Truworths material issue: Managing the risk of fashion |
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Ineffective management of merchandise and buying decisions over stock ranges and volumes in Office |
Office material issue: Managing the risk of fashion, |
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Availability of skilled IT human resources for support and projects |
Truworths Human Capital Report |
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Low cash sales growth in Truworths |
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Electricity load shedding in South Africa remains a risk to trading |
Truworths material issue: Managing retail presence |
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The uncertainty of the impact that Brexit could have on the Office business |
Office material issue: Turnaround strategy |
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Suitability and sustainability of Office’s ageing merchandise management system, having become acutely dependent on highly skilled scarce internal and external resources |
Office material issue: Managing the risk of fashion |
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Loss of head office building |
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Inability to effectively manage account risk in Truworths |
Truworths material issue: Managing account risk |
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Organic and acquisitive growth in the business placing increased pressure on Truworths’ distribution and warehousing capacity |
Truworths material issue: Optimising supply chain efficiency |
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A major cybersecurity incident could lead to the loss of sensitive information |
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Increasing competition from international retailers entering the South African market |
Truworths material issue: Managing the risk of fashion |
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Loss of key executives and senior employees |
Truworths Human Capital Report; Office Human Capital Report; Remuneration Committee Report |
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Impact of changing product mix within Sports and MTO ranges on Office’s gross margin |
Office material issue: Managing the risk of fashion |
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Absence of formalised disaster recovery and business continuity plans for Office |
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Office’s reliance on third-party brands |
Office material issue: Managing the risk of fashion, Optimising supply chain efficiency |
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Availability of key IT systems that support and enable daily trade |
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Loss of or inability to access distribution facilities |
Truworths material issue: Optimising supply chain efficiency |
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Truworths’ dependency on warehouse management system and throughput required to meet peak demand |
Truworths material issue: Optimising supply chain efficiency |
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BBBEE certification |
Truworths Human Capital Report; |
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Suppliers not operating to contracted standards of ethical behaviour could result in reputational damage and interruption of supply |
Truworths material issue: Optimising supply chain efficiency; Office material issue: Optimising supply chain efficiency |
