In determining the material risks of the Group, a formalised “top down” and “bottom up” risk
management process is applied. The following key impacts and risks have been identified:
| General
economic
conditions,
including
certain
political,
social and
environmental
conditions in
South Africa |
|
The economic downturn is
expected to persist for some
time to come. This may
affect consumer health, and
in turn could have an adverse
effect on revenue and
profitability, in spite of the
Group’s historical resilience
to adverse economic
conditions. |
|
It has been the Group’s experience that the
diversity of its mix of products and services
and distribution channels has limited its exposure
to economic downturns. Consumers appear
to be unwilling to reduce spending on utilities,
transport and airtime. In this regard the Group’s
products are bought rather than sold.
Blue Label believes that economic sentiment is
positive in the areas in which it operates. In the
past it has taken courageous decisions to
terminate product lines and business activities
in areas where returns have not delivered
appropriately when compared to other competing
opportunities. The Group continues to consider
expanding its operations beyond South Africa,
the UK, India and Mexico with particular focus on
other emerging markets, which are typified as
large and fast growing with low penetration. |
| Margin
compression |
|
Network operators determine
the margins to the prepaid
airtime distribution channel.
Blue Label may not always
be able to pass on to the
retailer or customer any
margin compression
enforced by the network
operators. |
|
Management is confident that based on historical
trends, the Group will be able to continue to pass
on any margin compression to the distribution
channel. Any margin compression is also likely to
force inefficient distributors out of the distribution
chain, a trend welcomed by management. In
addition, the Group is constantly looking to add
new product and service offerings comparable
at higher margins than its traditional business,
through the leverage of its significant distribution
footprint and merchant relationships. |
| Further
declines
in interest
rates |
|
As the Group is highly liquid,
declines in interest rates
have an effect on finance
income. |
|
Wherever possible, free cash flow is utilised for
early settlements or bulk buying in order to
obtain discounts in excess of interest rates. |
| Further
increases in
rand/foreign
exchange rates |
|
Changes to the rand
exchange rate affect the
results reported from, and
any refinancing required by,
associate and joint venture
companies in the UK, India
and Mexico. |
|
Associate and joint-venture companies in the UK
and India are not expected to require any further
financing. Every effort will be made to secure the
best available foreign exchange rate in any
further financing required in Mexico. |
| Non-compliance
with legislation |
|
Non-compliance with
legislation applicable to the
Group could lead to fines and
negative reputational impact,
i.e. POPI, CPA, WASPA
legislation, Companies Act,
Income Tax Act, Value Added
Tax Act, JSE Listings
Requirements, OHSA, BEE
Act, Employment Equity Act,
industry charters and
scorecards. |
|
All legislation that affects the Group has been
identified, analysed and categorised according to
its impact and relevance. The process is ongoing
to test and ensure ongoing compliance on an
operational level. |
| Ability to
attract and
retain skilled
resources |
|
The Group’s future
performance will depend
largely on the efforts and
abilities of its key personnel
and employees. The existing
executive management at
Blue Label pioneered the
mass prepaid market and
established the Group’s
business model. Blue Label’s
future success will depend, in
part, upon its ability to
continue to attract, retain,
motivate and reward
personnel, including executive
officers and certain other key
and specialised employees. |
|
The Joint Chief Executive Officers and co-founders,
are both substantial shareholders
and are passionate about and dedicated to
the sustainability and growth of the Group.
Key members of the management team are
bound by service and restraint agreements and
in many instances are shareholders of Blue
Label. Executive management has implemented
talent management and succession planning in
key areas of the Group. Appropriate skills
transfer activities are ongoing through on the job
and other training programmes.
The Remuneration and Nomination Committee
has approved remuneration policies which
include long-term retention benefits and
incentives. In addition, key components of the
Group’s remuneration policy have been adjusted
to focus on retention. |
| Increasing
exposure to
issues such as
data security,
breaches in
technology
security or
privacy |
|
As the bulk of the Group’s
inventory is of a virtual
nature, defence against
cybercrime is a top priority
as susceptibility to hacking
and the penetration of
firewalls are always matters
of extreme concern. |
|
The Group is significantly dependent on the
systems and platforms that it utilises to deliver
its products and services, as well as to manage
its merchant base. Over the past few years,
Group technology spend has been increasing in
recognition of this key imperative, in order to
support not only significant growth in the
business (and the concomitant rise in the
number and type of transactions processed),
but also to improve system availability and
robustness. This invariably includes a major
focus on the security of all systems, both
production and enterprise, in order to suitably
detect and manage security threats, as well as
the ability to recover from damage that may be
caused as a result of security-related incidents. |
| Elimination of
the middle man |
|
In most industries a
wholesaler is at risk of being
eliminated from the supply
chain if the supplier has the
infrastructure and capabilities
to supply the customer
directly. |
|
From inception, the objective of the Blue Label
Group was to become a one-stop destination for
the supply and distribution of all of the networks’
offerings. This would provide both convenience
and efficiency to the retailer and customer.
Furthermore the technology and footprint
developed by the Group allows retailers to earn
additional revenue by the introduction of
additional products. This would make it difficult
to disintermediate the Group.
No single network can offer this complete
solution.
The introduction of the sale of prepaid electricity,
and its phenomenal uptake in South Africa,
strengthens Blue Label’s foothold as a one-stop
destination that is most convenient to the retailer.
Blue Label’s increasing bouquet of products and
its aggregation thereof will continue to ensure
that its middle man status as distributor is
essential to the retailer. The Group will continually
develop and upgrade new, innovative products to
strengthen the foundation of the middle man.
Many merchants have access to limited cash flow,
and by utilising Blue Label’s vending solution, this
allows them to vend products and services which
they previously could not afford to, due to various
complexities, i.e. managing stock levels,
obsolescence, pilferage at store level, inability to
order small quantities, access to limited stock
ranges, to name a few.
Also, the addition of such products and services,
and a growing suite of products, necessitates
that Blue Label not only excels in the sourcing,
management and delivery of these products, and
the management of its merchant base, but also
that it delivers an excellent supporting back-office
capability – including the ability to deliver and
manage reconciliation and settlement on behalf
of its customers, extensive and professional
merchant support services, and deep technology
support for online and integrated systems. These
competencies make it even more difficult for Blue
Label to be disintermediated, because of the
significant value that it provides to merchants,
not only in the products and services it delivers,
but also in respect of the increasingly complex
back-office support functionality required
to deliver such services.
Blue Label is not seen as a competitor. It is
rather seen as an aggregator and an enabler
to both its customers and suppliers. |
| Disaster
recovery and
continuity of
business |
|
The Group has developed
proprietary technology
supporting the roll-out of its
bouquet of products and
services. The Group’s
infrastructure connects into
some of South Africa’s major
banks, Eskom, utility
companies and
telecommunication operators
and switches, both debit and
credit card, electronic funds
transfer transactions and
e-token products for some of
the country’s leading retailers
and petroleum companies.
The effective and continuous
operation of this
infrastructure is critical to
the company’s service
delivery. |
|
Management recognises the importance
assigned to IT in its corporate governance
systems.
The Technology team has been strengthened.
The Group has a formal Business Continuity and
Disaster Recovery Plan which provides guidance
for emergency and crisis management, business
unit recovery and technology disaster recovery.
The latter includes the restoration of information
technology facilities. The plan describes the
IT framework and procedures to be activated
in the event of a disaster. The major goals of the
plan are to:
| • |
minimise interruptions to the normal
operations; |
| • |
limit the extent of disruption and damage; |
| • |
minimise the economic impact of the
interruption; |
| • |
establish alternative means of operation in
advance; |
| • |
train personnel on emergency procedures;
and |
| • |
provide for rapid restoration of service and,
where possible/required, to ensure high
availability/continuity of critical business
operations. |
|
