Pick n Pay Stores Limited

Risk management report

The Group operates in the fast moving consumer goods industry and recognises that it will be exposed to certain risks in order to achieve sustainable growth. The focus of the Group’s risk management is to ensure that an appropriate balance between risk and reward is maintained while protecting all stakeholders against avoidable risks and mitigating the impacts of unavoidable risks.

The Board is responsible for Group-wide risk governance by ensuring that adequate systems are in place to identify, evaluate and manage key business risks. The Board is assisted in this regard by the audit and risk committee, whose responsibility it is to develop, communicate and monitor the risk management process across all divisions in the Group. The audit and risk committee is integral to the risk management process, with specific oversight of financial, operational and information technology risks and the associated internal controls (please refer to the audit and risk committee report for further information on the composition and responsibilities of the audit and risk committee). The Chief Finance Officer serves as the Chief Risk Officer for the Group and attends all audit and risk committee meetings by invitation.

The day-to-day responsibility for identifying, evaluating and managing risk remains the responsibility of the senior management team, who are supported by the internal audit function. The internal audit function is independent of business operations and provides assurance on the adequacy and effectiveness of internal controls. In developing its annual combined assurance plan, the internal audit function follows a risk-based methodology to identify key business risks, which are then confirmed and addressed by the relevant individual divisional managers. Currently, the combined assurance plan serves as the source for the Group’s top-down risk management programme. These risks are typically strategic and operational, and are quantified by the finance function, where relevant.

Over the past few financial years the Group experienced restructuring and change, resulting in a tightly focused risk approach, albeit on a predominantly informal basis, aimed at ensuring business continuity. The current risk-related focus for the Group is to embed and stabilise the new structures, standardise systems and processes and to formalise and consolidate risk monitoring and reporting. The intent is to establish a dedicated risk management oversight function within the next two to three years.

Key business risks

The risks reported on in the 2014 financial year relate closely to the Group’s ability to create value and to meet the objectives of its long-term strategic plan. The risks detailed below are by no means complete, rather focusing on those risks that are considered material in the context of the Group’s strategic objectives. This report mainly covers our Pick n Pay business in South Africa, and while in many instances the commentary is applicable to our Pick n Pay business in the rest of Africa and our Boxer business, disclosures will be expanded over the next few years to incorporate all business units.

Pick n Pay recognises that the sustainability of the Group is dependent on sustainable and mutually beneficial relationships with all our stakeholders, and has embedded strong stakeholder engagement throughout its operations. We therefore consider the material risks facing the business, per individual stakeholder group.

Customers

The central objective of our long-term plan is to be the retailer for every South African.