Risk committee

report

The Risk Committee is pleased to present its report for the financial year ended 31 March 2017 to the shareholders of TFG.

The Foschini Group Enterprise Risk Management (ERM) framework provides a structured, dynamic and consistent approach to risk management. It is an integrated approach and recognises that effective risk management is critical to the achievement of strategic objectives and the long-term sustainable growth of the business. The process is continuous and risks are updated throughout the year. The framework is in line with relevant standards, including ISO 31000, the COSO framework and the King Code of Governance for South Africa 2009 (King III).

OUR APPROACH

Overall, the Supervisory Board is accountable to ensure that risks are effectively managed, and it has delegated the oversight of risk management to the Risk and Audit Committees in terms of two separate mandates. The Risk Committee reviews significant risks and their related mitigations and reports back to the Supervisory Board at each meeting. The Audit Committee focuses on the financial risks and reviews the effectiveness of the risk process. Each business area is responsible for identifying, assessing and managing the risks in their respective area.

Annual risk workshops are held across the Group and identified risks are documented in a risk register and assessed on the basis of likelihood of occurrence and potential impact on the Group (risk exposure). Mitigations are identified against each risk and the remaining residual risk assessed based on defined criteria. The risks with the highest exposure attribution are presented to the Operating Board to be reviewed and challenged ahead of being submitted to the Risk Committee and ultimately the Supervisory Board for review and approval. This process is facilitated by the Group Enterprise Risk function.

Quarterly updates on identified risks, related mitigations and emerging risks are provided to the executive Risk Committee for consideration. Significant matters and any revisions to risks are reported to the Risk Committee. The Group continuously seeks to improve and enhance the risk management process, while maintaining a practical and business-minded approach at the same time. The Supervisory Board’s approach to risk appetite is conservative without inhibiting or unduly restricting the Group from utilising opportunities.

The Supervisory Board confirms that the Group’s risk management, mitigation and monitoring processes have been effective in limiting the potential impact of risks on the business during the year under review.

 

INFORMATION TECHNOLOGY GOVERNANCE

An IT steering committee has been established, which includes representatives from the various trading and services divisions. The committee meets quarterly and reviews the emerging IT-related risks, disaster recovery plans and any significant IT initiatives. The Risk Committee receives feedback on matters discussed and monitors IT initiatives to ensure these do not pose a risk to the continuity of the Group’s operations.

LEGISLATIVE COMPLIANCE

At each Risk Committee meeting, an update on legal compliance is presented. This update includes a legislative radar or forecast of significant legislative developments in all of the countries in which the Group has a footprint. Key areas of non-compliance, if any, are also brought to the attention of this committee. During the financial year, no fines and/or other forms of sanction were issued against the Group and no directors or senior management members were accused of or held liable for non-compliance with any laws, regulations or codes of conduct.

Further information on legislative compliance is provided in the Corporate governance report.

KEY RISKS AND SIGNIFICANT UNCERTAINTIES

The landscape, five continents and 34 countries, in which the Group operates is impacted by the expansion into new territories. Global and local events have led to instabilities in the economy, influencing available capital and our consumer. Our consumer has less disposable income and this increases the risk to turnover and debtor delinquencies. The Group continues to monitor the progress of Brexit and to consider the implications it may have for our UK businesses.

RISK DESCRIPTION MITIGATING ACTIVITIES
Regulatory risks  
The South African regulatory environment continues to increase with complexity. This complexity becomes heightened as the Group expands internationally, and as it is faced with understanding and applying differing regulatory requirements in multiple jurisdictions.
  • The Group Legal and Compliance department monitors significant risks and provides the business with updates and training as and when required.
  • Regular reports are provided to senior management and the Audit and Risk Committees respectively, addressing significant aspects across all jurisdictions in which the Group has a footprint.
The introduction of revised credit legislation continues to pose challenges in terms of compliance and our customer base.
  • The Group strategy and related initiatives are in place to grow TFG’s account base and the average spend per account.
  • Regular compliance monitoring.
Operational risks  
Continued high levels of crime (i.e. burglaries and armed robberies but excluding credit fraud) reduces operating margin.
  • The Group subscribes to a culture of zero tolerance and has embarked on the roll-out of a revised enhanced security strategy.
  • A Forensic department has been established to coordinate investigations, engage with anti-crime forums, other retailers, mobile providers, industry bodies and the South African Police Service.
A fire, flood or other natural disaster affects the warehouses or head office campus.
  • Business continuity plans have been developed across the Group. These plans are reviewed annually and are tested on a regular basis.
Failure of IT infrastructure.
  • Disaster recovery plans are in place across the Group.
The weakening economy and/or a financial and/or catastrophic disaster leads to the collapse of key suppliers.
  • The Group’s supply chain strategy includes sourcing alternate suppliers and maintaining relationships with relevant government, industry and trade union organisations.
  • This includes building sustainable relationships with local suppliers and the continuous performance measurement and grading of suppliers.
  • Recommended improvements are discussed and the progress of implementation is regularly assessed.
Economic risks  
Instability in the economy both locally and globally influences available capital and our consumer.
  • The funding strategy is presented to and reviewed by the Supervisory Board annually.
  • Treasury meetings are held monthly to review funding requirements and options.
  • The Group has an increasingly diversified business model.
The impact of global financial instability and the effect of fluctuating exchange rates on purchasing power and the ability to remain price competitive.
  • The strategy for purchasing forward cover is reviewed regularly to ensure that it remains relevant and provides the best possible protection against currency fluctuations for committed and future orders.
A stagnant economic climate negatively affects TFG’s customers’ purchasing power and influences their ability to settle accounts.
  • The Group continually strives to increase accessibility to a broad spectrum of the market by growing its footprint in varied locations.
  • The Group continues to refine credit score models for collections and follow-ups to assist customers in maintaining an open-to-buy position.
  • Credit applications are reviewed for fraud indicators and assessed against NCA-compliant internal scorecards, credit bureau scores and verification of employment where necessary. Collection strategies are regularly reviewed with the assistance of internal behavioural and credit bureau scorecards.

The Group’s risks continue to evolve as new risks emerge and appropriate mitigating activities are introduced to reduce the overall residual risk. The following risk has subsequently been removed from this year’s risk register:

  • Power outages: During the last two reporting periods, limited power outages have been experienced.

E Oblowitz
Chairman: Risk Committee

29 June 2017