Our risks

Imperial Logistics has an embedded enterprise risk model to identify and assess current and emerging risks where effective risk management can be turned into a competitive advantage.

Risk management approach

Risks are assessed against the group's risk appetite and tolerance levels, which are updated on an annual basis and approved by the group's audit and risk committee. The risk management process considers both the internal and external environment, and the potential effects of the risks on our business strategy, financial condition and operational performance, and reputation. Risks are assessed from both a quantitative and qualitative perspective.

The group risk profile is determined by:

  • Reviewing the underlying divisional and operational risk registers.
  • Discussing and assessing risk profiles with relevant managers.
  • Reviewing the current and future business environment in which we operate to identify emerging risks.
  • Reviewing and discussing identified risks with assurance providers (internal and external audit and compliance) to highlight key risk categories with a material inherent impact on the group and our operations.
  • Detailed risk review and oversight at divisional financial and risk review committees (FRRC) as well as the group audit and risk committee.
  • Reviewing of benchmarks and current topical global developments.
  • Reviewing strategic and emerging risks themes.

Risks are assessed at strategic, business and operational levels using both a bottom-up (operational level) and top-down (group level) approach, to establish the impact and likelihood of the identified risks, together with actions required to mitigate and control these risks and to leverage any related opportunities.

Read more in our full corporate governance report available online.

Risk management flow

Risk management flow

Emerging risks

Emerging risk processes that identify, quantify and mitigate risks that affect, or are inherent to strategic objectives and execution, are being introduced to enhance our existing risk management approach. This process considers longer-term strategic risks relating to the industries and geographies in which we operate and the capabilities and service offerings we provide to our clients.

A summary of the emerging risks identified include:

Strategic
  • Increased scrutiny and investor activism driven by corporate governance failures.
  • Ability to effectively implement strategic initiatives and realign focus to deliver on our new vision.
  • Managing reputation and maintaining customer loyalty in challenging operating conditions.
  • Understanding and effectively mitigating cyber vulnerabilities.
  • Assessing the impact of climate change on operations.
  • Speed of disruptive innovation and the potential impact on business models and processes.
  • Third-party reliance that may result in business disruption and compliance breaches.
  • Managing possible business disruption during integration of acquired businesses.
Industry     Geography     Capability
  • Retail (and wholesale) supply chain consolidation reducing the influence of CPG brand owners (manufacturers and importers) on demand and supply chain management resulting in disintermediation of logistics service providers.
  • Potential large-scale adoption of automated electric vehicles and its impact on the scale, process and locations of activities in the global automotive value chain.
  • Market access and security of supply imperatives and their impact on the priorities of healthcare suppliers (multinational and local) and funders (donors and governments) impacting our distributor, and sourcing and procurement operations in Africa.
  • Geopolitical uncertainty and possible changes to trade agreements and their impact on industrial manufacturing and flows of goods impacting our industrial and automotive operations in Germany.
  • Changes in consumer behaviour shaping the channels of product supply in various industries (eg e-commerce) and our agility to anticipate and adapt our relevant business models.
   
  • Understanding the risk related to corporate and sovereign defaults due to constrained economies and potential impact on our working capital and liquidity.
  • Considering reputational and credibility risk and its impact on loss of major clients or agencies in regional or global geographies.
   
  • Regulatory changes impacting the productivity and cost-effectiveness of transportation management operations (eg working hours, payload, emissions).
  • Changes to European inland water levels and the impact on the shipping businesses.
  • Brand owners in-country product ownership preference and the impact on the exclusivity of distribution management or route-to-market service offerings.
  • Business-to-business (B2B) digitalisation enabling new logistics outsourcing business models and its impact on our clients' buying behaviour and the disintermediation of service providers.
  • Our clients' logistics management capabilities (people, processes and systems) and the impact on logistics outsourcing or effectiveness.

Top business risks

Risk exposure     Potential impact     Response
Exit the CPG business in South Africa
   
  • Delays to finalise exit may result in additional management oversight and effort being needed.
  • Ability to minimise the impact on employees and clients may be limited.
  • Impact on South African head office structure and ability to recover fixed costs.
  • Impairment and closure cost provisions may be incorrectly estimated.
  • Contagion risk due to the decision to exit CPG may impact the profitability of our other South African operations.
   
  • Appointed a business closure specialist to oversee the exit.
  • Ongoing monitoring of closure costs and provisions.
  • Viable dedicated contract clients are being reallocated to other South African operations that do not operate on a multi-principal warehouse basis.
  • Additional security measures implemented for safeguarding premises and inventories.
  • Ongoing engagement with employees, unions and clients.
Slow or negative growth in areas of operation
   
  • Exposure to a variety of domestic and global economic and market conditions may impact on business activity and therefore profitability.
  • Slow growth in markets, currency volatility and lower consumer demand with higher indebtedness increases pressure on volumes and margins.
   
  • Ongoing principal profitability reviews to assess growth potential.
  • Regular management review of volumes and margins and ongoing identification of financial and operational synergies to extract efficiencies and opportunities for further cost containment.
  • Embed new operating model to build a client-centric approach and the ability to adapt to market changes.
  • Implementation of new operating model under the recently appointed chief commercial officer to provide dedicated focus to business development and operational excellence, supporting competitiveness and growth.
  • Regular review of business development and sales capabilities.
  • Offering substitute products and pharmaceutical generics in distribution businesses to maintain market share and benefit from consumers buying lower-cost products.
Access to skills and talent management
   
  • Low unemployment rates in the EU are driving increasing wage costs and making it difficult to recruit required talent.
  • Shortage of truck drivers and shipping crews in the EU may result in existing operational capacity not being fully utilised.
  • Besides leadership skills, operations depend on specialised technical and client facing skills which are in scarce supply.
  • Limited pool of qualified skills in African markets and an ageing skilled working population in Europe pose a challenge to resourcing growth strategies.
   
  • Implement best people practices to become an employer of choice in all regions.
  • Invest in new recruiting concepts to deepen our talent recruitment pool.
  • Reduce share of temporary employees by replacing them with permanent staff to retain skills and experience in the business.
  • Initiatives focused on staff retention and focusing on improving employee value proposition.
Turnaround or exit underperforming operations
   
  • Turnaround plans for underperforming operations may require significant management attention and effort to deliver.
  • Underperforming operations may not meet ROIC/WACC hurdle levels, and therefore miss budgeted returns and profits.
  • Inability to appropriately manage capital levels and contain costs may constrain growth.
  • Market factors including increased competition and the heightened risk of disintermediation by clients may also constrain profitability and business model viability.
  • Dependence on fewer profitable contracts or clients poses significant financial risk in case of non-renewal.
   
  • Strict review of capital requirements and asset mix, overseen by ALCO.
  • Investigate opportunities to leverage buying power through centralised procurement processes to create operational efficiencies.
  • Strengthen management of underperforming operations.
  • Continued close oversight of operating performance by group management.
  • Negotiation with clients to implement pricing changes are under way.
  • Consider disinvestment of underperforming operations or those that are not strategically aligned, to release capital for growth.
Climate change
   
  • Low water levels result in less cargo being transported per trip, decreasing capacities and increasing short-term costs in our shipping business.
  • Extreme weather conditions have the potential to disrupt transport routes, while creating an opportunity to enter food import markets during droughts.
   
  • Development of low water vessels in partnership with clients.
  • Fairer risk-sharing of the costs of low water levels with clients are being implemented with some compensation in F2019.
B-BBEE status of South African-based operations
   
  • Failure to achieve set targets and accelerate transformation may impact competitiveness and sustainability as clients may not renew contracts.
  • Potential exclusion from participation in new tender and contracts may constrain future growth.
   
  • Active monitoring and oversight of B-BBEE scorecards.
  • Clear initiatives in place to meet employment equity and skills development targets.
  • Leverage Imperial Logistics Advance B-BBEE ownership credentials to win work in the energy, mining and chemicals industries.
Volatility of currencies, particularly global currency instability and local currency devaluation
   
  • Exchange rate fluctuations may impact the competitiveness and profitability of imported products through the inability to compete on price with local manufactured products. This could negatively impact our margins and resulting returns from operations.
  • Availability of hard currency to pay suppliers of imported products and ability to source foreign currency and hedges at competitive rates.
  • Uncertainty of the impact of Brexit on the British Pound.
   
  • Active management of currency volatility through a hedging strategy (using forward contracts, buying hard currency and/or option strategies), supported by established policy and governance structures.
  • Foreign currency exposure is actively managed by treasury and management, including through restructuring payment terms and sourcing funding in-country.
  • Ongoing scenario analysis to understand potential impact.
  • Ability to re-price products to mitigate the impact of weakening currencies.
  • Preferential pricing and margin support from principals are negotiated to mitigate the impact of the cost of foreign exchange cover on margins.
IT strategy and execution of architecture, systems and applications
   
  • Legacy of decentralised IT systems and infrastructure poses risk of IT system failure, potential loss and manipulation of data.
  • IT architecture may fail to appropriately address internal and external user requirements.
  • Inability to deliver new IT solutions may result in loss of competitive differentiation and operational effectiveness.
   
  • Divisional executive committees (including the divisional chief information officers (CIO)) undertake regular IT strategy alignment reviews per division to ensure appropriate regional IT strategies.
  • Board oversight and monitoring of material IT projects.
  • ALCO approval of innovation fund budget, structure and investment thesis, and audit and risk committee reviews performance annually to ensure that the book value of the USD20 million for investment is recoverable.
  • Formal project governance in place consisting of relevant steering committees per project.
  • Ongoing management of disruption due to system implementation to improve IT architecture.
Cyber risk
   
  • Increased cyber vulnerability exists due to higher data volumes, increased networking technology and dependency on IT.
  • Risks include threat of loss of company and client data; IT failures, manipulation of systems and data and increased risk of fraud.
   
  • Regular workshops with IT, legal, quality management and insurance providers to identify and assess cyber risks.
  • Risk committee review initiatives implemented monthly to further minimise exposure to cyber risk.
  • Group cyber risk awareness campaign rolled out in certain areas of the business with the remainder to be rolled out in the third quarter.
  • Training of staff on the EU's General Data Protection Regulation completed, and necessary steps are in place to comply.
  • Security policies are implemented across the group. Currently reviewing group security policies with completion by H2 F2020.
  • Network monitoring is ongoing by divisional CIOs and IT community.
  • Perform an independent third-party capability maturity assessment to assess readiness for cyber threats and attacks with for completion by H2 F2020.