TFG’s material matters, summarised in this section, are a combination of risks, opportunities and issues that can, directly or indirectly, affect the Group’s ability to create sustainable value in the short, medium and long term.
The material matters are discussed with specialists and senior management as part of the annual enterprise risk cycle. The process includes revisiting our previously identified material matters and reviewing the Group strategy.
Matters were identified using the <IR> Framework’s process guidance and applies to TFG Africa, TFG London and TFG Australia, albeit with different levels of likelihood and impact. The material matters, set out below, are grouped according to their nature and indicate the following:
- an increasing or constant level of likelihood and impact;
- the applicable term for the material matter; and
- our strategic response according to the four pillars: Customer, Leadership, Profit and Growth.
The material matters identified for this year remain aligned with the Group’s material matters reported in 2017, with the addition of one matter – reliance on information technology (IT). This is in line with the additional focus the Group is placing on digital transformation, as indicated in the strategy overview.
Volatility of economic and political climate
TFG is predominantly exposed to uncertain and, at times, unstable economic and political environments in South Africa and the United Kingdom, which may result in constrained growth. A stagnant economic climate negatively affects TFG’s customers’ purchasing power and influences their ability to settle accounts.
In South Africa, the impact of the recent 1% VAT hike, as well as youth unemployment and social inequality remain concerning as the country prepares for elections in 2019. These factors all impact interest rates, inflation and the Group’s ability to raise and afford capital.
Read more about our operating environment as context to this material matter.
The recent political changes in South Africa have led to improved confidence levels in the country. However, the Group remains cautiously optimistic around the country’s outlook, but still foresees a difficult economic year ahead.
In the United Kingdom, the unpredictability of the Brexit negotiations has impacted consumer confidence and this will remain the case until the Brexit terms are finalised.
Fashion trends and supply chain
As TFG aspires to be the leading fashion lifestyle retailer, our ability to offer, predict and deliver according to the latest trends, is essential for value creation. Our brands are positioned as fashion-forward, premised on our market-leading in-house capabilities in clothing and store design. Our ability to generate profits furthermore relies on being able to quickly interpret fashion trends – supported by a quick response capability in the TFG Africa supply chain. Quick response units have grown to represent 57,1% of total TFG Africa manufactured units.
Read more about quick response, localisation and our supply chain in our sustainability overview report, available on www.tfglimited.co.za.
Growth across our various markets and channels
Growing our international footprint and delivering an integrated, secure omnichannel customer experience across our various brands are all strategic objectives for TFG. Diversification is one of the drivers of growth, but this remains premised on the ability of our customers to maintain growing levels of disposable income, and for TFG to maintain and grow market share. Changing retail trends demand that we are flexible in the ways in which we engage with our customers, and that we are able to meet their expectation for positive experiences and value including their experience on our digital platforms. Strategic investment in digital transformation will be a key focus area for the Group in the short to medium term to support our future resilience and success.
Read more about growth and performance in the Chief Executive Officer’s report.
Talent management: attracting, retaining and developing key talent
We realise that our ability to create value depends on our people. The Group has to retain and develop its core and critical skills pool, but also has to attract the best talent in the industry. The South African specific imperative is to ensure that we attract and retain employment equity candidates.
The highly competitive retail market requires a strong focus on talent management. This includes both talent acquisition by way of proactively identifying future incumbents for leadership positions in the pipeline and talent development programmes developing our future leaders.
At March 2018, TFG Africa employed 21 531 employees and 6 294 employees were employed by TFG London and TFG Australia.
Read more about employee empowerment in our sustainability overview report.
Reliance on Information Technology (IT)
Information technology (IT) continues to change the environment in which TFG operates and is a vital and integral part of the business. IT is used to create, process and disseminate information that is critical to business performance. TFG recognises the importance of technology and continues to invest in this area. The stability of the IT environment is crucial and understanding the effect of innovation critical to the future growth and success of the Group.
Financial loss due to crime and shrinkage related losses
Retailers the world over battle with inventory shrinkage, and in South Africa, retailers are, in addition, subjected to high levels of physical crime, including shoplifting, burglaries and armed robbery. These are operational security challenges, mainly at store and warehouse level, and are best managed through a culture of zero tolerance, high awareness among employees and physical security measures. TFG continues to invest in its dedicated Forensics department, which monitors and implements loss-combating technologies and processes.
Exchange rate volatility
Exchange rate volatility has a significant impact on profitability for TFG and affordability for customers. Global financial instability therefore impacts purchasing power and could limit our ability to remain price competitive. Geographic diversification, the concomitant diversification of currency and revenue streams, and localisation, combined with international sourcing and supply chain initiatives, assist in mitigating this. Our policy in respect of purchasing forward cover is reviewed regularly.
Complexity of the regulatory environment
The South African regulatory environment is becoming increasingly complex and costly, while our expanded international footprint further heightens compliance and risk profiles for the Group. We have to understand, interpret and apply differing regulatory requirements in multiple jurisdictions.
The potential implications of Brexit are closely monitored by our United Kingdom operations. We recognise that non-compliance can lead to fines, business interruption, financial loss and reputational damage.
Read more about regulation and compliance in the legal compliance report.
Increasing likelihood and impact
Consistent likelihood and impact
Short to medium term
Medium to long term
Short, medium and long term