Material focus areas and risk
Materiality and material matters
There are certain material matters that might disrupt Bidvest’s ability to continue creating value for its stakeholders. Our decentralised, asset-light and everyday essential products and service business model is, in itself, an effective risk management tool.
As external factors emerge and evolve, the key matters that may interrupt the operations of the Group’s business are carefully assessed through a controlled process, which include the board’s Risk committee, divisional Risk committees and Internal Audit. The meaning of material is defined and clarified across the Group. Those matters that may have an impact on the effective and successful future operations are assessed and the risk management thereof, including mitigating action, integrated into day-to-day activities. On an enterprise-wide level the key material matters are described below.
Global risks
According to the International Monetary Fund (IMF), the outlook for the global economy has deteriorated in recent months, and the world faces an increasing risk of recession in the next 12 months. The commodity price escalation from the war in Ukraine exacerbated the cost-of-living crisis for hundreds of millions of people, and the situation seems to be deteriorating.
As a consequence, several shocks have hit a world economy already weakened by the pandemic and its supply chain and other disruptions. Higher-than-expected inflation worldwide triggered tighter financial conditions; a worse-than-anticipated slowdown in China, reflecting the ripple effects globally of its continued zero-COVID strategy; and further negative spill overs from the war in Ukraine. The latter seems to be impacting European economies disproportionately, owing to higher energy prices, weaker consumer confidence and slower manufacturing momentum due to persistent supply chain disruptions, the short supply of gas and rising input cost.
In response to negative inflation surprises, central banks have raised interest rates faster than anticipated. This is a difficult balancing act to rein in inflation without inducing a recession. Today, 60% of low-income countries are in or at high risk of government debt distress, up from 20% a decade ago.
At the same time living standards are dropping around the world and this is disproportionately impacting the most vulnerable people, government finances are stretched, and climate change mitigation needs urgent multilateral action.
Cyber security and the climate change ‘cost’ remains concerning across the globe with significant investment being directed toward mitigation and implementing disaster recovery plans. Business interruption insurance has become an expensive consequence.
Material focus area: Inflation
Root |
Key performance |
Consequence |
Control and |
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Rising energy prices Rising labour cost Higher input commodity prices Reduced manufacturing capacity |
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Contract terms to pass on wage increases Active management of GP margin Use enabling technology such as robotics, remote monitoring Energy savings initiatives Pursue fleet and distribution efficiencies |
Material focus area: Challenging economic outlook
Root |
Key performance |
Consequence |
Control and |
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Lowered GDP growth forecasts Recession risk building globally Accelerated interest rate hikes result in reduced consumer spend and weakened business confidence High unemployment in SA |
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Value-adding essential solutions and products to customer Offering spans wide price-range Innovation Skills development Organic focus on growth segments, especially mining and agriculture Acquisitive focus on growth industries and geographies |
Material focus area: Supply chain constraints
Root |
Key performance |
Consequence |
Control and |
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Pandemic resulted in supply chain shifts from SA to other ports and skewed containerised cargo flows Durban port efficiencies continue to lag pre- COVID levels Russia / Ukraine war negatively impacting supply of energy and agricultural-related commodities Flooding caused supply disruption at certain vehicle manufacturer facilities |
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Front loading of orders Securing alternative raw material sources Substitution of product Broaden sourcing supplier base Take-or-pay agreements |
Material focus area: Cyber assaults
Root |
Key performance |
Consequence |
Control and |
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Criminal intent |
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Intrinsic system and operational diversity of the Group Actioning ALICE continuous monitoring and improvement suggestions Ad-hoc ethical hacking IT governance framework Disaster recovery plans Business interruption insurance |
Material focus area: Climate change
Root |
Key performance |
Consequence |
Control and |
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Heavy reliance on coal as source of power Limited utilisation of clean, renewable energy Single usage and limited recycling Growing population increases burden on nature |
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Installation of solar systems Water and waste recycling efforts Environmentally friendly product and service innovation Advocacy work through UN Global Compact Network SA |
Refer to Environmental, Social and Governance Report, This is us, for detailed climate change discussion.
Country risks
During the fourth quarter of FY2022, SA experienced unprecedented rolling blackouts. By mid-July 2022, the country surpassed the 1 150 hours of load shedding experienced for the entire 2021, equating to more than 2 500GWh or 1.0% of energy required. Rolling blackouts continued through August and September 2022, severely impacting economic progress.
Eskom’s coal power stations are, on average, 42 years old, resulting in high levels of breakdowns. This was exacerbated by labour unrest which halted preventative maintenance and impeded repairs.
On 25 July 2022, SA President Cyril Ramaphosa announced an action plan to confront the electricity crisis in SA. Six interventions were tabled:
- Restructure Eskom and improve the availability of existing supply;
- Improve conditions for private investment in new generation capacity by removing the 100Mw generation cap;
- Accelerate procurement of new capacity from renewables, gas and battery storage;
- Empower municipalities to procure additional electricity;
- Provide better conditions for businesses and households to invest in rooftop solar; and
- Fundamentally transform the electricity sector to achieve long-term energy security.
Changes to legislation, processes and regulatory frameworks are needed to execute on some of the above interventions. These regulatory changes are still awaited.
The non-availability of power has moved from a nuisance to a material business continuity risk which needs to be mitigated. The installation of solar solutions, with or without battery capability, has become a risk mitigation tool in addition to other sustainability considerations.
Unfortunately, it is not only SA’s power infrastructure that has deteriorated. Lack of, or interruptions to, the rail network as well as basic essential services (such as water) delivered by government entities and municipalities have become commonplace. This is due to a lack of maintenance over many years and operational inefficiencies, exacerbated by flood damage. State-owned enterprises need to reassess why they exist and focus on delivering just that. The private sector stands ready to help execute on that for the benefit of all.
Material focus area: Impaired SA infrastructure
Root |
Key performance |
Consequence |
Control and |
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Energy crisis as a result of constrained base load and alternative energy supply Inefficient and damaged rail network Deteriorating water quality and supply |
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Installations of solar systems and backup generators Alternative water sourcing and storage solutions Truck staging area and back of port facilities |
Other risks
Other key risks include sustained employment and the retention of skills. The Group endeavours to continuously develop the skills of its employees and in the industries in which it operates and continues to focus on maintaining and rewarding a high-performance culture, while maintaining its encouragement for an entrepreneurial attitude. There is ongoing development of employees through training academies, graduate and learnership programmes and recognition. Bidvest is also investing in the human capital of its various communities, which affords the Group the opportunity to draw skills from and support local businesses. There are also wellness services programmes available to all employees.
A Group supplier diversity programme was launched during the year. The programme is designed as a unique learning experience for the entrepreneur, focused on business context and awareness, entrepreneurial mindset, business modelling, building competency and capacity as well as sustainable business practices. Contributors, facilitators and partners will monitor and evaluate performance against objectives on an ongoing basis.
