• OVERVIEW
  • Operating Profit – History
  • Financial highlights
  • Group profile
  • Investment case
  • Customer-focused business model
  • History of consistent growth
  • Five-year financial review
  • Geographical footprint
• DIRECTORATE
  REPORTS
  • Board of directors
  • ­Chairman's report
  • ­Chief executive officer's report
  • ­Chief financial officer's report
• OPERATIONAL REVIEW
  • ­Executive committee
  • Operations
  • ­­Credit
• GOVERNANCE AND SUSTAINABILITY
  • Corporate governance
  • Audit and risk committee report
  • Risk management
  • Sustainability report
  • Remuneration
• ANNUAL FINANCIAL STATEMENTS
  • Directors' responsibility statement
  • Company secretary's certificate
  • Independent auditor's report
  • Directors' report
  • Income statement
  • Balance sheet
  • Statement of changes in equity
  • Cash flow statement
  • Segmental report
  • Notes to the annual financial statements
  • Company income statement
  • Company balance sheet
  • Company statement of changes in equity
  • Company cash flow statement
  • Notes to the company annual financial statements
  • Interest in subsidiary companies

RISK MANAGEMENT

INTRODUCTION

Risk management forms an integral component of the group’s governance framework and enables management to limit the impact of business, industry and general risks and protect the interests of all stakeholders.

The board retains accountability for risk management and responsibility is delegated to the Audit and Risk committee to ensure the group has adequate risk and internal controls.

There was no significant change in the overall risk profile of the group during the year. The directors confirm that risk mitigation and monitoring processes have proved to be robust and have been effective in limiting the impact of risks on the business in the challenging economic environment. The potential impact of some of the key risks was actively reduced during the period through focused management actions.

RISK MANAGEMENT PROCESS

The risk management principles outlined in King ll are embedded into key processes to ensure the business remains sustainable and continues to create wealth for shareholders. The King III principles will be integrated into the risk management process in the new financial year. As part of the King lll implementation process, the Audit and Risk Committee has been split with effect from the new financial year and separate committees constituted for the audit and risk functions.

Risk management is the responsibility of management, with internal audit acting as a facilitator in quantifying, measuring and reporting on the status of business risks to the Risk Working Group.

Senior executives and management undertake a control self-assessment exercise twice a year to formally evaluate risks facing the business. This process is facilitated by internal audit. The results are reported to the Risk Working Group to identify significant risks to the group and to recommend strategies to address these risks, which include mitigating or exploiting the risks.

Ownership of each risk is assigned by the Risk Working Group to specific executives or business units who are accountable for managing the risk.

A profile of the key risks facing the group is presented to the Audit and Risk Committee twice a year by the Risk Working Group.

CHANGES IN KEY RISKS

Changes in key risk ratings:

The following changes have been made to the key risks facing the group:

• Information technology: Risk rating changed from “high” to “medium”. The severity of the risk has been mitigated by the planned upgrade to the current in-store system and the appointment of technical support staff capable of maintaining the new hardware/IT systems infrastructure.
• Market/currency exposure: Risk rating changed from “high” to “medium”. Volatility in the currency, interest rate and equity markets has declined during the financial year and consequently the risk to the group has reduced. The risk is constantly monitored and the group’s exposure to these markets is hedged where appropriate.
• Supply base: Risk rating changed from “medium” to “low”. The level of risk has reduced due to management’s ongoing focus on diversifying the supply base, sourcing exclusive merchandise ranges, both locally and internationally and monitoring the performance of logistics providers.
• Reputation: Risk rating changed from “medium” to “low”. The level of the risk is considered to be lower following increased activities in stakeholder communication which are aimed at enhancing the Lewis brand.

New key risk identified:

• Socio-political: Increasing industrial action and labour unrest and its potential impact on the country’s economy has heightened the socio-political risk facing the group.

 

INSURANCE

The group’s external insurance and self-insurance programmes cover a wide range of risks. The insurance levels and insured events are reviewed annually to ensure adequate cover and amended after taking into account changed processes and emerging risks.

Risk	Significance	Definition	Management Action
Credit management		The risk of not being able to maintain the optimal credit quality of the debtors book and manageable levels of bad debt.	Centralised credit granting process Technology-based credit scoring systems Credit scorecards regularly reviewed to maintain credit risk levels Store-based collections process provides early warning of payment difficulties Continuous assessment of quality of credit granted and collection performance Refer to Credit report
Market/currency exposure		The impact of foreign exchange movements, interest rate increases and fluctuations in the equity market on the group’s profits.	Forward cover contracts to mitigate exchange rate fluctuations Treasury policy Monthly management meetings with Monarch’s investment advisors and quarterly review by the Monarch board Refer to note 28 on financial risk management
Information technology		The risk of being dependent on the information technology platforms to support the operations of the company.	Software development and hardware services outsourced Service level agreements with service providers Continual review of existing systems and service arrangements by IT Steering Committee Disaster Recovery Plan tested regularly
People skills		The risk of not managing the group’s human resources in such a way that it supports the objectives of the business.	Performance management system for key executives and staff Fast Track management programme Training and development Succession planning Enhancing the effectiveness of the recruitment function Salary surveys Share incentive schemes Developing effective relationships between staff and unions Refer to Sustainability Report
Regulatory		The impact of regulations and legislation on the operations of the group.	Monitoring legal publications Utilisation of a legal compliance system Membership of industry associations provides contact with regulators Services of advisors are retained for key areas of the business
Crime		The risk of financial loss or loss of human life as a result of crime, employee dishonesty or fraud.	Strong focus on internal control environment Internal audit coverage Reinforcement of the “Lewis behavioural code” Toll-free confidential hotline to report fraud Security guards at high risk branches Drop safes and cash-in-transit procedures Alarm systems and physical security Prosecution of staff guilty of committing fraud
Socio-political		An adverse change in political and social conditions in South Africa may negatively impact the economic environment in which the group operates.	Monitoring political and social developments Reviewing impact of any macro economic policy changes Realigning group strategy, where necessary
Supply base		The risk of not being able to satisfy customer demand as a result of the group’s procurement strategies and supply chain management.	Continuous identification of vendors to maintain exclusive, differentiated merchandise Appropriate diversification of supply base Balance between imported and local supply Monitoring performance of logistics providers
Reputation		The substantial erosion in the reputation or value associated with the group’s brand name which could have a material adverse impact on the business, financial condition and results of operations.	Regular briefings and interaction with analysts and shareholders Financial statement compliance review Regular compliance reviews Customer Service Excellence campaign Staff training and awareness Customer care line Corporate social investment
Business Continuity Planning (BCP)		To ensure the ability to continue trading and provide customers with credible product offerings in the event of a disaster or business interruption.	BCP reviewed on an annual basis Regular BCP Steering Committee meetings BCP tested every year
High likelihood of occurrence with fundamental impact on business model  Medium likelihood of occurrence with material impact on business model  Low likelihood of occurrence with moderate impact on business model