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Material Issues,
risks and opportunities

HOW MATERIAL ISSUES ARE DETERMINED

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, in which the executive directors and senior management of Truworths and Office participate.

The strategic planning processes result in the formulation of strategic plans and projects that are presented to and endorsed by the board. Measurable deliverables in respect of the strategic projects 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 sociopolitical climate
  • Macroeconomic and trading environment, which this year considered particularly the impact of COVID-19 on current and forecast trading conditions
  • 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 strategic objectives
  • Key risks as detailed in the Group’s risk registers
  • Needs, expectations and concerns of primary stakeholders

Impact of COVID-19

The COVID-19 pandemic has had a significant impact on the Group’s performance and operations in South Africa and the UK. Notwithstanding its significance, COVID-19 cannot be separated from the Group’s other material issues and has therefore not been elevated to a stand-alone material issue. Instead, we have elected to provide the detail of our response to COVID-19 in a separate section of the report and to deal with the impact of the pandemic across each of the other material issues in an integrated manner. Refer to Managing the Impact of COVID-19.

Opportunities

Medium-term opportunities have been identified for the material issues to provide shareholders with insight into the growth drivers of Truworths and Office over a two to four-year time horizon.

The Office turnaround strategy which was included as a material issue for the Office business in 2020, has been elevated to a Group material issue.


The directors confirm that the material issues for Truworths for the 2021 financial period are unchanged, these being fashion risk, supply chain efficiency, account risk management and retail presence (stores and online).


The directors also confirm that the Office material issues remain appropriate and are fashion risk, supply chain efficiency and retail presence (stores and online) as well as implementation of the turnaround strategy.

Risks

Certain of 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.

Likelihood and consequence

RESIDUAL RISK

REPORT REFERENCE

Failure by Truworths to comply with the amendments to the Employment Equity Act and ministerial determinations could result in penalties

Truworths Human Capital Report

Risk of online sales substituting store sales in a fast-changing UK retail landscape

Office Material Issue: Managing Retail Presence; Group Material Issue: Office Turnaround Strategy

COVID-19 implications, including a lower active account base and increased consumer indebtedness

Managing the Impact of COVID-19; Truworths Material Issue: Managing Account Risk

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

Inability to effectively manage account risk in Truworths

Truworths Material Issue: Managing Account Risk

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

Supply chain management

Truworths Material Issue: Optimising Supply Chain Efficiency

Footfall in London substantially reduced due to the COVID-19 pandemic

Office Material Issue: Managing Retail Presence; Group Material Issue: Office Turnaround Strategy

Availability of skilled IT human resources for support and projects

Truworths Human Capital Report

Low sales growth in Truworths

Chief Financial Officer’s Report

Electricity load shedding in South Africa remains a risk to trading

Truworths Material Issue: Managing Retail Presence

The uncertainty of the impact that Brexit could have on the Office business

Group Material Issue: Office Turnaround Strategy

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

National Credit Act: Review of the affordability assessment regulations

Truworths Material Issue: Managing Account Risk

A major cybersecurity incident could lead to the loss of sensitive information

Governance Creating Value

Loss of key executives and senior employees generally, as well as through the CEO succession process

Truworths Human Capital Report; Office Human Capital Report; Remuneration Committee Report; Chairman’s Report

Absence of formalised disaster recovery and business continuity plans for Office

Governance Creating Value

Office’s reliance on third-party brands

Office Material Issue: Managing the Risk of Fashion, Optimising Supply Chain Efficiency

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

Availability of key IT systems that support and enable daily trade

Chief Financial Officer’s Report

Loss of or inability to access distribution facilities and/or head office buildings

Truworths Material Issue: Optimising Supply Chain Efficiency, Governance Creating Value

Truworths’ dependency on warehouse management system and throughput required to meet peak demand

Truworths Material Issue: Optimising Supply Chain Efficiency

Organic and acquisitive growth in the business placing increased pressure on Truworths’ distribution and warehousing capacity

Truworths Material Issue: Optimising Supply Chain Efficiency

Availability of counterfeit goods devalues the brand and impacts sales negatively

Truworths Material Issue: Managing the Risk of Fashion

Non-compliance with Protection of Personal Information Act (POPI) and National Credit Act (NCA)

Governance Creating Value