Risk management

Risk review

The primary identified risks to the group are listed below, with both their impact and the management strategies to contend with them being stated.

Customer base retention

Retaining our existing customers and attracting new customers.

How we manage this risk

  • ensuring that we provide exceptional customer service;
  • the provision of keenly priced and attractive product ranges across all divisions and to all targeted market segments;
  • continual staff training at all levels;
  • the use of “mystery shoppers” to gauge levels of customer service;
  • a state-of-the-art multi-media customer services call centre to assist in the rapid resolution of customer enquiries;
  • utilisation of an efficient point-of-sale system that enhances store efficiency and customer service and
  • equipping our stores to be attractive, enticing and congenial.

Information technology (IT)

Ever-increasing reliance upon computer systems necessitates a stable, secure and uninterrupted computer infrastructure.

  • constant senior management review and updating of the IT strategic plan;
  • maintaining a comprehensive, regularly-tested disaster recovery plan that should provide seamless computing capacity in the event of a disaster, involving the establishment of secure computer suites in separate locations with adequate capacity to provide backup access to critical systems;
  • strict change control procedures for all system enhancements;
  • promoting the use of risk assessments for all significant projects;
  • ensuring that access controls are implemented and enforced;
  • ongoing consolidation and standardisation of applications and infrastructure technology;
  • an ongoing upgrade and technology “refresh” programme to ensure that our applications and infrastructure are current and supported;
  • instilling employee awareness of the need for responsible use of computer facilities (all employees being required to abide by a formal computer code of conduct);
  • ongoing emphasis at all levels on enhancing IT security from all potential threats, both internal and external and
  • adopting strong IT governance policies and best practice IT service delivery models.

Supply chain

The inability to provide our customers with the desired merchandise at the right price and time as a result of deficiencies in the management process of the supply chain.

  • considering all possible occurring events and factors that can cause a disruption in a supply chain;
  • examining possible scenarios from past experience and analysing changing market forces;
  • creating solutions culminating in improved stock turn and customer satisfaction; and
  • implementing changes in the supply chain methodically within appropriate and achievable time frames.

A steering committee of 12 senior executives, chaired by the CEO, A D Murray, has been formalised to structure an agile and effective supply chain management process, with specific focus on optimising lead times, supplier conformance, replenishment and pipelines.

Fashion trends

The misreading of fashion trends by the merchandise teams.

  • development and retention of talented merchandise teams who keep abreast of global fashion trends;
  • extensive input from international fashion fairs, consultants, the internet, as well as local fashion research;
  • based in the southern hemisphere, benefiting from the knowledge of the forthcoming season’s successful trends in the northern hemisphere; and
  • utilising advanced systems to ensure that purchasing volumes are correct.

Crime

Crime, particularly armed and violent crime, which continues unabated, creating losses and, in particular, trauma to our staff.

  • continually reviewing security at stores;
  • providing staff training on how to deal with armed robberies;
  • maintaining a strong focus on syndicated identity fraud via a dedicated forensics department;
  • maintaining regular communication with other retailers and anti-crime fora to ensure that we minimise the impact of crime in all of its forms; and
  • utilising an anonymous toll-free whistle-blowing facility for the reporting of criminal acts (details of which are contained later in this report).

Fluctuation in interest and exchange rates

Fluctuations in interest and exchange rates affecting margin stability and profitability. (The prime overdraft rate increased four times during the year under review by a total of 200 basis points, and the Rand depreciated from March 2007 to March 2008 by an average of 7,8% against the US Dollar.)

  • maintaining a strictly controlled and skilled treasury function, guided by formalised, documented policies and procedures;
  • constantly reviewing our borrowings mix between fixed and floating rate instruments, and long- and short-term financing, as the direction of interest rates change;
  • carefully monitoring the group’s debt equity ratio;
  • constantly monitoring the potential benefit of any other interest rate products, such as interest rate swaps and forward rate agreements; and
  • taking forward cover on 100% of our merchandise imports.

Shortage of skills and expertise

Without insightful, specialised, and talented staff at all levels, our continued success and growth through innovation would be endangered.

  • maintaining an effective nominations committee for succession planning and appointment of senior executives and board appointments;
  • ensuring that processes are in place to attract, retain and develop high-quality staff within an environment that can satisfy ambition; and
  • having access to a pool of skills in all key areas via our divisionalised structure, which lends itself to seamless resource transference.

Power outages

The risk of power outages can significantly disrupt our store trading ability.

  • having stand-by generators at all head office and distribution facilities, with sufficient capacity to continue all critical functions;
  • having the ability to trade off-line at stores provided that there is sufficient lighting; and
  • negotiating shared-cost backup power facilities in shopping malls.

Business continuity

The loss of a major head office facility or distribution centre could impact upon critical business functions.

  • maintaining separate head office buildings and distribution facilities, and providing backup facilities for critical functions;
  • splitting the computing capacity over four server rooms in separate locations;
  • maintaining current business continuity plans for all trading and service divisions;
  • maintaining comprehensive physical protection measures; and
  • maintaining appropriate insurance cover.

The impact of HIV/AIDS upon our staff and customer base

Whilst the effect of HIV/AIDS on our staff and customer base still appears to have been limited, we are well aware of the continuous need to assess future risks and consequences.

  • reviewing and taking cognisance of results of the external survey conducted by the Health Monitor Group during 2005;
  • encouraging all employees to ascertain their HIV status;
  • offering all employees in South Africa two free confidential HIV tests per annum at a network of external pharmacies;
  • providing a free, comprehensive disease management service, including antiretrovirals where indicated, to all permanent staff members; and
  • offering optional account balance protection to customers, who have made extensive use of the facility. This has in large part contained the impact on bad debts. In addition, current experience indicates that accounts are continued by extended families.

Internal control

The board of directors is responsible for the group’s systems of internal control. Effective internal control systems have been implemented and are continuously evaluated:

  • to provide reasonable assurance as to the integrity and reliability of the financial statements;
  • to safeguard, verify and maintain accountability of its assets;
  • to detect and minimise fraud, potential liability, loss and material misstatement; and
  • to review compliance with applicable legislation and regulations.

The internal control systems are governed by a comprehensive internal control standards manual that is available to all staff via our intranet. Compliance with these standards rests within each division and is monitored by internal and external audit checks.

The board is not aware of any material breakdown during the past year in the functioning of these controls.

Internal audit

The internal audit department carries out an independent appraisal and assurance function. Although it is responsible to the group’s Financial Director for administrative matters, it reports to the audit committee of the board. This structure does not impair the function’s independence or objectivity. An internal audit charter, approved by the audit committee and conforming to the International Standards for the Professional Practice of Internal Auditing, determines the mission and scope of the function.

Further information on the internal audit function is contained in the divisional reports section of this annual report.

Code of ethics

The group has adopted a code aimed at creating a culture of the highest standards of ethics and uncompromising honesty among all employees. The code is founded on the principles of integrity, good faith, impartiality, openness and accountability. The code of ethics forms an integral part of the induction programme and all new employees agree to subscribe to the code. It is available to all staff members on our intranet.

Whistle-blowing

A whistle-blowing facility has been in place since February 1998 for the reporting of suspected fraud and unethical behaviour. Use is made of an outsourced, anonymous, toll-free hotline. All reports are submitted to the centralised risk management department, which ensures that all incidents are logged and resolved. A minimum reward of R5 000 is paid when follow-up confirms evidence of fraud or unethical behaviour. There is a strong focus on staff awareness of this facility through regular distribution of informational cards and posters.

An additional reward of R10 000 is paid twice annually to a randomly selected staff member who has already been awarded the R5 000 reward.

During the year 74 reports were received, resulting in 12 dismissals.