Material Issues,
risks and opportunities
MATERIAL ISSUES
Material issues are the factors that are likely to have the most material impact on the Group’s revenue, profitability and sustainability, and therefore influence our ability to create and sustain value, or limit value erosion, for stakeholders.
HOW MATERIAL ISSUES ARE MANAGED
The material issues are reviewed annually during the course of the Group’s strategic planning process:
IDENTIFY
factors with a material impact on the business
- Macroeconomic and trading environment and operating context (Please see Retail trading environment)
- Needs, expectations and concerns of primary stakeholders (Please see Managing stakeholder relationships)
- Key Group risks (Please see Material issues, risks and opportunities)
- Human, manufactured, intellectual, social and financial capital resources
- Legislative and regulatory framework
DETERMINE
material issues
- Based on the outcome of the assessment, determine the issues that are likely to have the most material impact on performance in the year ahead, as well as in the long term
- These issues are reviewed by the Chief Executive Officer and Chief Financial Officer, and presented to and endorsed by the board
- The material issues are aligned with the Group’s Business Philosophy, strategic objectives, plans and projects
- Measurable deliverables from the strategic plans and projects are incorporated in the performance targets for executives
INTEGRATE
material issues
- Annual operational plans are developed for managing each material issue
- Key performance indicators are determined to monitor the progress in managing the material issues
- Risks and mitigation plans are outlined for each of the material issues
- Medium-term opportunities are identified which highlight the potential to create value over a two to four-year time horizon
REPORT
on material issues
- Report to the board on material issues at quarterly meetings
- Report to shareholders on the material issues in the integrated report and through SENS announcements
- Outline progress in delivering on the operational plans, performance against targets and challenges impacting the material issues
MATERIAL ISSUES FOR 2022
The directors confirm that the material issues applied in the 2021 reporting period remain relevant and are unchanged for the 2022 financial period.
The material issues for 2022 are as follows:
COVID-19
The COVID-19 pandemic has continued to have a significant impact on the Group’s performance and operations in South Africa and the UK in the reporting period. Despite the material nature of its impact, management believes that COVID-19 cannot be separated from the Group’s other material issues and it has therefore not been included as a stand-alone material issue. Instead, the impact and management of the consequences of the pandemic are considered in the course of the review of the other material issues.
Key group risks
This matrix and accompanying table summarises the Group's key risks and reflects the residual risk rating, i.e. after taking into account the impact of risk mitigation actions.
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RESIDUAL RISK |
REPORT REFERENCE |
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Risk of online sales substituting store sales in a fast-changing UK retail landscape |
Office Material Issue: Retail Presence; Group Material Issue: Office Turnaround |
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Organic and acquisitive growth in the business in medium term placing increased pressure on Truworths’ distribution and warehouse capacity |
Truworths Material Issue: Supply Chain |
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Contending with the volatile Rand/US dollar exchange rate in managing retail selling prices of imported merchandise |
Truworths Material Issue: Aspirational Fashion |
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Supply chain disruption |
Truworths Material Issue: Supply Chain; Office Material Issue: Supply Chain |
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Impact of changing product mix within sports and made-to-order (MTO) ranges on Office’s gross margin |
Office Material Issue: Aspirational Fashion |
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Lack of skilled IT human resources for support and projects |
Truworths Human Capital Report; Office Human Capital Report |
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Electricity load shedding in South Africa impacting on ability to trade |
Truworths Material Issue: Retail Presence |
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The uncertainty of the impact that the Brexit transition could have on Office |
Office Material Issue: Supply Chain |
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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: Aspirational Fashion; Chief Financial Officer’s Report |
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Loss of key executives and senior employees |
Truworths Human Capital; Office Human Capital; Remuneration Committee Report; Chairman’s Report |
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A major cybersecurity incident could lead to the loss of sensitive information and resultant reputational damage |
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Major business disruption due to a disaster that leads to the loss of or inability to access one or more of the main business sites for an extended period |
Governance Creating Value; Truworths Material Issue: Supply Chain |
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Ineffective management of account risk in Truworths |
Truworths Material Issue: Account Management |
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Debt relief legislation will enable the SA National Credit Regulator to extinguish debts owed by qualifying critically indebted customers to credit providers such as Truworths |
Truworths Material Issue: Account Management |
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COVID-19 implications |
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Office’s reliance on third-party brands |
Office Material Issue: Aspirational Fashion; Office Material Issue: Supply Chain |
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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: Supply Chain; Office Material Issue: Supply Chain |
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Failure by Truworths to comply with the amendments to the Employment Equity Act and ministerial determinations could result in penalties |
Truworths Human Capital |
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Lack of key IT systems to support and enable daily trade |
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Truworths’ dependency on the warehouse management system and throughput required to meet peak demand |
Truworths Material Issue: Supply Chain |
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Availability of counterfeit goods devalues the brand and impacts sales negatively |
Truworths Material Issue: Aspirational Fashion |
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Non-compliance with Protection of Personal Information Act (POPIA) and National Credit Act (NCA) |
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Further development and formalisation of disaster recovery and business continuity plans for Office |
|
RESIDUAL RISK |
REPORT REFERENCE |
|
|
|
Risk of online sales substituting store sales in a fast-changing UK retail landscape |
Office Material Issue: Retail Presence; Group Material Issue: Office Turnaround |
|
|
Organic and acquisitive growth in the business in medium term placing increased pressure on Truworths’ distribution and warehouse capacity |
Truworths Material Issue: Supply Chain |
|
|
Contending with the volatile Rand/US dollar exchange rate in managing retail selling prices of imported merchandise |
Truworths Material Issue: Aspirational Fashion |
|
|
Supply chain disruption |
Truworths Material Issue: Supply Chain; Office Material Issue: Supply Chain |
|
|
Impact of changing product mix within sports and made-to-order (MTO) ranges on Office’s gross margin |
Office Material Issue: Aspirational Fashion |
|
|
Lack of skilled IT human resources for support and projects |
Truworths Human Capital Report; Office Human Capital Report |
|
|
Electricity load shedding in South Africa impacting on ability to trade |
Truworths Material Issue: Retail Presence |
|
|
The uncertainty of the impact that the Brexit transition could have on Office |
Office Material Issue: Supply Chain |
|
|
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: Aspirational Fashion; Chief Financial Officer’s Report |
|
|
Loss of key executives and senior employees |
Truworths Human Capital; Office Human Capital; Remuneration Committee Report; Chairman’s Report |
|
|
A major cybersecurity incident could lead to the loss of sensitive information and resultant reputational damage |
|
|
|
Major business disruption due to a disaster that leads to the loss of or inability to access one or more of the main business sites for an extended period |
Governance Creating Value; Truworths Material Issue: Supply Chain |
|
|
Ineffective management of account risk in Truworths |
Truworths Material Issue: Account Management |
|
|
Debt relief legislation will enable the SA National Credit Regulator to extinguish debts owed by qualifying critically indebted customers to credit providers such as Truworths |
Truworths Material Issue: Account Management |
|
|
COVID-19 implications |
|
|
|
Office’s reliance on third-party brands |
Office Material Issue: Aspirational Fashion; Office Material Issue: Supply Chain |
|
|
Suppliers not operating to contracted standards of ethical behaviour could result in reputational damage and interruption of supply |
Truworths Material Issue: Supply Chain; Office Material Issue: Supply Chain |
|
|
Failure by Truworths to comply with the amendments to the Employment Equity Act and ministerial determinations could result in penalties |
Truworths Human Capital |
|
|
Lack of key IT systems to support and enable daily trade |
|
|
|
Truworths’ dependency on the warehouse management system and throughput required to meet peak demand |
Truworths Material Issue: Supply Chain |
|
|
Availability of counterfeit goods devalues the brand and impacts sales negatively |
Truworths Material Issue: Aspirational Fashion |
|
|
Non-compliance with Protection of Personal Information Act (POPIA) and National Credit Act (NCA) |
|
|
|
Further development and formalisation of disaster recovery and business continuity plans for Office |