Corporate governance
Pick n Pay Stores Limited
Risk management report
The Board has recognised the importance of an effective risk management process and has adopted an enterprise-wide approach to risk management. Risks identified are captured and rated in the Group's risk register.
The Board is responsible for ensuring that adequate procedures and processes are in place to identify, assess, manage and monitor key business risks. The Board is assisted in its responsibilities by the audit committee, whose objective is to monitor, develop and communicate the process for managing risk across all divisions in the Group. The day-to-day responsibility for identifying, evaluating and managing risk resides with management. The risk management process, which is regularly assessed by the audit committee, involves a formalised system to identify and assess risk, both at a strategic and operational level. Mitigating controls, and other assurances in identifying and assessing the risks, are continuously evaluated.
The Group's assets are insured against loss, with cover being taken out above predetermined self-insurance levels. In a disaster recovery circumstance, business continuity plans will ensure the business continues with the least amount of disruption, both from an information technology and operational viewpoint. These plans are reviewed and updated regularly.
A summary of major risks and mitigation strategies is presented in the table below:
Risk |
Risk mitigation |
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| Strategic and market risk |
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| Damage to brand and reputation |
The Group's governance philosophy seeks to protect and enhance our brand and reputation. Pick n Pay strives to maintain ethical business practices, and to achieve the highest levels of compliance and integrity. |
| Increasing competition |
The Group continuously monitors market trends and sets its strategy accordingly, with the aim of ensuring that Pick n Pay remains the retailer of choice. |
| Ability to implement and execute strategy |
All Group strategies are formally documented. Strategic progress reports are reviewed and evaluated monthly by the executive committee and bi-annually at Board level. |
| Ability to manage the impact of potential differentials in markets identified for expansion |
The Group has a measured approach to expansion into non-South African markets. The regulatory environment and economic stability of the selected countries are carefully evaluated. Care is taken to ensure that good relationships are developed and maintained with key government and regulatory authorities. |
Increased awareness of
green/ethical issues |
Levels of customer expectations on green/ethical issues are tracked via the smartshopper survey. The Group consistently retains a leading position in respect of “green retail” and is committed to addressing sustainability issues. Employee awareness initiatives include energy usage and saving initiatives such as the use of natural refrigerants over synthetic substances to reduce greenhouse-emitting gases. World-class sustainability features, tested in our “green store”, PnP-on-Nicol, are being implemented where appropriate throughout the Group. |
| Sustainable food supply |
The Group continues its analysis of the potential effects of climate change on food supply, and is actively involved in sustainable food supply initiatives in at-risk product areas. A comprehensive supply chain ESG risk analysis process was initiated in 2013. Understanding of these risks will increasingly inform supply chain decision-making.
The Group continues to monitor the potential effect on food supply of wage disputes among agricultural labour forces. |
| Financial risk |
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| Volatility of profit margins |
Market conditions and their effect on profitability are continuously reviewed by management and the Board. Unit sales growth and cost efficiencies are the primary drivers to protect profit margins. Unit sales growth depends on high levels of customer satisfaction. |
| Going-concern status |
The going concern of the Group is reviewed by the Board at least twice a period and includes a review of adequate levels of capital to continue operations and implement strategy. |
| Liquidity and credit risk |
The Group maintains a strong capital base (represented by total shareholders' equity) so as to maintain investor, creditor and market confidence and to sustain future development of the business. |
| Operational risk |
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| Product quality and third-party liability |
Product safety and quality are carefully scrutinised by our internal quality control and food safety technicians. Where any indications exist of a product flaw, the product is immediately uplifted and returned to the supplier. Merchandise is purchased from reputable suppliers. The safety and quality of house brands are carefully scrutinised by food safety technicians. Appropriate levels of insurance are in place. |
| Safeguarding of assets |
Group assets are insured against loss. Business continuity plans are in place. All stores and distribution centres have surveillance cameras in place which are monitored to assist in the safe keeping of assets. |
| Security of supply |
Pick n Pay places much emphasis on forging good relationships with suppliers to ensure that the partnership is mutually beneficial to both parties. Electronic data interchange (EDI) is in process to improve delivery and communication levels between Pick n Pay and suppliers. Central distribution is in place to assist with improving lead times and minimising out of stocks. |
| Reliance on information systems |
The information systems division evaluates and decides on appropriate technology for the Group. Further details on information systems risks are on pages here. |
| Energy security and utilities |
Resource use is a key focus of our optimisation drive. The Group has consistently reduced energy usage for the past 3 years and significant savings will enable further investment in reducing fuel and electricity consumption. |
| Legislative risk |
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| Compliance with legislation |
Pick n Pay has an in-house compliance office to monitor and assess the impact of legislation on the business. Use is made of external specialists and advice where necessary. |
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