
MATERIAL RISKS AND OPPORTUNITIES
RISK GOVERNANCE
The board governs risk in a manner that supports Tiger Brands in setting and achieving its strategic objectives. While the board delegates oversight responsibilities to the audit committee and to the risk and sustainability committee, it remains accountable for the governance of risk and for ensuring that Tiger Brands’ combined assurance model enables an effective control environment. This is done in a manner consistent with generally accepted frameworks and good practice, including King IVTM and ISO 31000:2018.
Implementation responsibility and culture
Whereas the board and its committees execute oversight duties, the executive committee is tasked with the design, implementation, and operation of risk and combined assurance arrangements. This includes the development and maintenance of an appropriate risk awareness culture to establish an enabling environment within which these arrangements can be deployed. It is within this context that Tiger Brands gives life to the philosophy of continuous improvement, tempered by the need to remain fit-for-purpose.
Risk profiling
Tiger Brands adopts a bi-directional comprehensive approach to identifying risks, which includes a top-down as well as bottom-up analysis. The top-down approach starts with a group view of Tiger Brands allowing for the big picture to develop. Consideration is given to the operating environment, the business model, and the associated objectives and strategies defined by the group. Similarly, business units are required to analyse, among others, their operating environments, business models, products, and strategies to identify risks specific to them, which are reported to the group level for oversight. Common business unit risks may then be identified and may potentially be managed at the group level.
Furthermore, Tiger Brands recognises that effective risk management may generate additional benefit beyond the protection that simple risk remediation affords, eg, enhancing a competitive advantage, or perhaps increasing reputational standing with stakeholders. As such, cost-benefit assessments on risk responses and remediation strategies include opportunities as part of the benefit assessment, while costs associated with remediation actions are included in the cost side of the assessment. This allows Tiger Brands to select risk responses and remediation actions that are context appropriate and rooted in a comprehensive and balanced approach to risk management.
The group executive committee oversees the identification of group risks and responses. Business unit management oversees and manages business unit risks and reports the most material risks to the group executive committee through the operational risk management committee. A consolidated Tiger Brands risk profile is then compiled and reported to the board risk and sustainability committee before finally being submitted to the board of directors.
In addition to the analysis and remediation of top risks, we maintain a combined assurance programme that aims to provide stakeholders with comfort that the control measures deployed to shape risks are adequate and effective.
Risk appetite and tolerance
General risk appetite and tolerance ranges are defined by group executive management and annually approved by the board. These ranges are reflected in the heat maps and provide general guidance regarding expected responses to mapped risks. In addition, for each risk group executive management determines a targeted residual risk level. These targets are set against the backdrop of the approved risk appetite and tolerance ranges and more specifically define the nature and extent of each risk’s control improvement plan. This is subject to oversight as per the Tiger Brands’ risk management policy, together with the risk assessment, its analysis, and its current controls.
While the group will accept risk to achieve its ambitions of being a market-leading, international, diversified FMCG company, there is a strong focus and aversion to risk in the areas of food safety, the delivery of quality products and loss of life.
Oversight
The design, implementation and operation of the risk and combined assurance arrangements are subject to quarterly oversight by the operational risk management committee, the risk and sustainability committee, and the board of directors. The first is a sub-committee of the group executive committee and includes group executive management, business unit management and corporate functional leads, while the other is a sub-committee of the board. Notwithstanding this oversight programme, the management teams of the various business units and group operations monitor and manage their risk profiles continuously. This active and continuous process of engagement with risks provides the basis for reporting into the quarterly risk oversight programme.
OUR TOP RISKS
Our material risks are those that exceed our residual tolerance level and are thus identified as having the most material implications for Tiger Brands and its employees.
The heat map represents the inherent risk profile of our material risks. Without adequate remediation the risks are potentially a threat to the group as a going concern and thus merit management attention.
INHERENT RISK MAP |
RESIDUAL RISK MAP |
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Following management’s intervention through various remediation programmes, some of which are still being implemented, the material risk profile shows a marked improvement, albeit still in need of further remediation.
The positioning of Albany route-to-market and cost competitiveness do not appear to improve on the back of implemented control processes,reflecting the company’s cautious stance on these risks. Although we are confident in our response strategies, we are monitoring the effectiveness of control processes for clear evidence of improvement. Once evidence is apparent, the residual risk ratings for these risks will be reassessed. Similarly, market responsiveness shows a marginal improvement from inherent to residual level because of the dynamic and often uncontrollable nature of the market, together with the need to see tangible evidence of control effectiveness before reducing risk levels.
The following table briefly reviews the implications, mitigation measures, and the year-on-year trend in the risk rating, for each of our top risks.
1. ALBANY ROUTE-TO-MARKETAttacks on Albany delivery vehicles carrying stock and cash Risk trend
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2.1 MARKET RESPONSIVENESSInadequate response to changes in market dynamics (customer and consumer) and competition Risk trend
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2.2 COST COMPETITIVENESSDecline in competitiveness due to higher input costs across the entire value chain, with specific reference to procurement, manufacturing, packaging and logistics, and corporate costs Risk trend
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3.1 FOOD SAFETYHarm to the consumer caused either by foodborne illnesses (food products), or undesired skin/body reactions (personal and home care products) Risk trend
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3.2 CYBER SECURITYAny risk of financial loss, disruption or damage to Tiger Brands’ reputation due to failures of its information technology systems because of large-scale cyber security attacks Risk trend
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3.3 OCCUPATIONAL HEALTH AND SAFETY (OHS)Failing to provide a safe working environment for our employees, contractors, and visitors Risk trend
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3.4 INDUSTRIAL ACTIONDeteriorating labour relations and associated disruption of our value chain Risk trend
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4 THIRD-PARTY SUPPLIER RISKFailing to adequately manage risks associated with the following outsourced activities: manufacturing, and in-bound supply Risk trend
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Retired risks
The impact of Covid-19 was retired from the risk profile this year. The South African government's move to an unrestricted social and commercial environment on the back of a marked decrease in severe cases of Covid-19 follows the broader international trend. On the back of this, the expectation of a return to lockdown conditions experienced during the last two years is lower and as a result this risk has been retired as a standalone risk. This does not imply, however, that it no longer represents a threat to Tiger Brands. The group remains vigilant to its effects and to the possibility that it may again develop into a material risk and has thus included pandemics as root causes for the materialisation of other risks. Our business continuity programme provides the foundation of our response to events of this nature.
Emerging risks
The company has identified several emerging risks, including climate change, the reliable supply of administered services such as water and electricity, and fuel shortages.
The physical and transition risks of climate change are particularly relevant to Tiger Brands’ operations given its strong agricultural association. The risk retains its emerging status due to its size and complexity, making it difficult to describe and manage as a single risk. We continue to monitor climate change from a bottom-up and top-down perspective, identifying specific themes as their relationship with Tiger Brands become more apparent.
Water and electricity are similarly an important dependency in our manufacturing processes. We have largely addressed the unreliable supply of electricity by installing generators and concluding power purchase agreements to introduce solar power at four of our plants, an important step towards a broader rollout. This comes, however, at a significant cost. Access to reliable water supply to support our operations is an important emerging risk, impacted by changing rainfall patterns arising from climate change, as well as challenges relating to municipal water infrastructure in certain areas; this may affect the continuation of operations, production, product quality and food safety.
A related concern is fuel shortages. The increased reliance on generators to mitigate against loadshedding increases the use of fuel. In addition, fuel permeates the supply chain from inbound logistics, to manufacturing to channel distribution. Moreover, general market shortages will impact the cost of inputs as increased fuel prices impact inflation.
We are closely monitoring and managing these risks through normal risk management processes.