In determining the material risks of the Group, a formalised “top down” risk management process is applied.
The following key impacts and risks have been identified:
| Risk |
|
Context |
|
Mitigating factors |
 |
| Fluctuating
economic
conditions,
including
certain political,
social and
environmental
conditions in
South Africa |
|
These factors can 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 and strikes.
Consumers appear to be unwilling to reduce spending on
utilities, transport and airtime. In this regard the Group’s
products continue to be in demand.
The Group is focusing on its existing platforms, both locally
and internationally. Its vast geography of point-of-sale
presence afford continuous opportunities to provide additional
products and services to be expedited on these growing points
of presence. |
| 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. |
| 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 prevailing 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,
Mauritius and Mexico. |
|
Associate and joint venture companies in the UK, Mauritius
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. |
|
Legislation that affects the Group is 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 short-term 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 and will
remain entrenched. The Group will continually develop and
upgrade new, innovative products to strengthen the
foundation of its middle man status. 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, and
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 simultaneously
delivering 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 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 Group’s service
delivery. |
|
Management recognises the importance assigned to IT in its
corporate governance systems.
The technology team has been strengthened – in people,
skills and capacities. The Group’s Business Continuity and
Disaster Recovery Plan provides guidance for emergency and
crisis management, business unit recovery and technology
disaster recovery. The latter includes the restoration of IT
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 and limit damage to normal
operations; |
|
minimise the economic impact of the interruption; |
|
establish alternative means of operation in advance; |
|
train personnel on emergency procedures; |
|
provide for rapid restoration of service, ensuring
availability/continuity of critical business operations; and |
|
communicate appropriately to relevant stakeholders. |
|