Strategic risk management
Board
- The Board determines the level of risk tolerance and limits of risk appetite are set as part of the strategic direction of the Group
- The Board is ultimately responsible for the governance of risk
ARCC
- Monitors risk management activities at the Group and subsidiary level on an ongoing basis
Group Chief Risk Officer
- Ensures that the risk management framework is operating effectively in the divisions
- Chairs bi-annual inter-divisional risk forum
Divisions – divisional boards and executive committees
- Regularly review strategic and emerging risks and identify and prioritise high-risk areas on risk maps based on impact and likelihood
- Analyse high-risk areas to identify potential root causes
- Identify mitigating controls and associated monitoring/ assurance activities for each high-risk area
Divisional Chief Risk Officers
- Ensure divisional risk procedures are in accordance with and support the Group’s risk management framework
- Oversee management’s response to matters identified as requiring improvement
The Board is responsible for approving Datatec’s risk appetite and when the risk tolerance is exceeded, it is management’s responsibility to take action.
Datatec’s aim is for the risk register to be a management tool driving the following two critical areas:
- Business-driven goals via strategic planning
- Compliance-driven goals via risk managers and internal audit
Risk-based leadership with the Board at its apex is fundamental to Datatec’s approach to its operations. In line with the King IV Code, the Board governs risk in a way that supports the organisation in setting and achieving its strategic objectives.
OUR RISK MANAGEMENT PROCESS
The Group’s risk management process has three key steps:
HOW DO WE IDENTIFY RISKS?
Our risks are identified as threats that can impact the Group’s ability to deliver its objectives and its strategy. Our risks are regularly reviewed in the context of our operating environment.
HOW DO WE RESPOND TO OUR RISKS?
Our risks are assessed and prioritised. The relationship between the impact and likelihood of risks is recorded in risk registers. Key risk responses are identified and reviewed to ensure that our process continually improves and evolves.
RISK OVERSIGHT
RISK MANAGEMENT FRAMEWORK
Organisation
Policy and procedures
Deliverables
Assurance and guidance
OUR KEY RISKS
- Supply chain
- Technological market disruption
- Dependence on key vendors
- Internal technological risks
- Dependence on key customers
- Management of payment discount, product rebates and allowances
- Risk of failure to fund working capital needs sufficiently
- Value generation: disposals and acquisition risk
- Risk of overdependence on key personnel
As an ICT group with operations and activities across both established and emerging markets, we face challenging risks as well as numerous opportunities. The strategic objectives affected by each key risk are illustrated using our strategic objectives icons.
Datatec Group
KEY RISK
OUR STRATEGIC RESPONSE
Supply chain
- Continue to collaborate with vendors
- Put mitigation actions in place until the situation normalises
- Constantly monitor supply routes and options
- Additional focus on non-device based solutions
Technological market disruption
- Careful partner selection in terms of vendors
- Work closely with our vendor partners
- Employ qualified staff at operating divisions who can pre-empt market changes resulting from new technology
- Provide products and services ahead of competitors
Dependence on key vendors
The Group is dependent on certain vendors, particularly Cisco, whose products and services accounted for over 35% of the Group’s revenue.
If any one of the Group’s principal vendors terminates, fails to renew or adversely changes its agreement or arrangements with the Group materially, it could materially reduce the Group’s revenue and operating profit and thereby seriously harm the Group’s business, financial condition and results of operations.
- Maintain strong and transparent relationships
- Diversify vendor portfolio to reduce reliance on any one specific vendor
Internal technological risks
The Group’s internal systems are at risk, both from planned changes leading to business interruption and disruption by external “cyber” threats.
The Group continued to face the threat of financial crime attempted by “phishing” emails and “social engineering”. The Group has high dependence on its key information systems.
- Deploy significant resources on its own information security defences
- Utilise enhanced data privacy policies and procedures
- Utilise technological means such as anti-virus and anti-phishing software as well as the expertise of IT experts
- Continuously enhance threat prevention and detection policies, tools, procedures, and internal controls
- Actively monitor and address threats
- Education/awareness campaigns among employees
Dependence on key customers
The Group’s customer base is much larger than its vendor base but nevertheless includes large individual customers in specific regions.
Accordingly, the exposure to credit risk must be noted as a key risk of the business.
- Maintain close relationships with key customers of the Group
- Operate rigorous credit assessment and control procedures
Management of payment discounts, product rebates and allowances
The Group receives significant benefits from purchase and prompt payment discounts, product rebates, allowances and other programmes from vendors based on various factors.
A decrease in purchases and/or sales of a particular vendor’s products could negatively affect the amount of discounts and volume rebates the Group receives.
Because some purchase discounts, product rebates and allowances are based on percentage increases in purchases and/or sales of products, it may become more difficult for the Group to achieve the percentage growth in volume required for larger discounts.
In addition, vendors may exclude the Group from time to time from participation in some of their programmes.
- Maintain strong and transparent relationships with our vendor partners
- Oversight over prompt pay discounts, product rebates, allowances and vendor-based programmes
- Monitor growth and actively manage growth in strategic areas
Risk of failure to fund working capital needs sufficiently
The Group’s business is working capital intensive; this is particularly relevant for Westcon International.
Westcon International’s financing facilities are utilised to finance accounts receivable and inventories.
The availability of these facilities and any material changes thereto may affect the business’s ability to fund its working capital requirements.
- Manage working capital through inventory control and effective accounts receivable management
- Regularly monitor funding availability, sales and collection forecasts
- Engage in regular communication with providers of funding.
- Working capital is a key focus area of the review processes in the risk management framework
- Ensure sufficient liquidity available
Value generation: disposals and acquisition risk
The execution of the Group’s strategy requires further growth and improvement of the Logicalis business.
This will continue to place additional demand on management, customer support, administrative and technical resources. If the Group is unable to manage its restructuring and growth effectively, its business operations or financial conditions may deteriorate.
If the Group is unable to successfully integrate an acquired company or business, it could lead to business disruptions.
- Consider further acquisition opportunities
- Undertake extensive due diligence of potential acquisitions, including detailed integration planning
- Process management and oversight by Datatec’s central team
- The Board has undertaken a Strategic Review which seeks to address the persistent gap between Datatec’s valuation and the inherent value of its underlying assets
Risk of overdependence on key personnel
The Group’s future success depends largely on the continued employment of its executive directors, senior management and key sales, technical and marketing personnel.
Certain key employees have relationships with principal vendors and customers, which are particularly important to the business of the Group.
The executive directors, senior management team and key technical personnel would be difficult to replace and the loss of any of these key employees could harm the business and prospects of the Group.
- Maintain a high standard of employment conditions and working environment
- Provide benefits and share incentive schemes
- Ensure proper succession planning in place
Logicalis
Supply delivery delays
During FY22, Logicalis has seen delays in delivery times by Cisco and other vendors presenting a challenge to its operations.
Response: Logicalis will continue to collaborate with vendors and put in place mitigation actions until the situation normalises.
Customers moving to public cloud as part of hybrid cloud strategies
Response: Build skills and capability in public cloud as well as enhance relationships with major providers. In addition, this year, Logicalis created a global organisation to develop and standardise solutions across its key markets.
Dependence on key vendors
Response: Logicalis will continue its programme of diversification of vendor portfolio to reduce reliance on any one specific vendor and maintain strong and transparent relationships with them.
Liquidity management
Response: Focus on optimising Logicalis for the current environment which will include cost and liquidity management. Logicalis will continue to assess its ongoing funding requirements as trading conditions change in future and growth opportunities arise, but it is envisaged that the credit capacity currently used across Logicalis remains adequate for the short to medium term.
Macroeconomic environment
Response: Conduct thorough market analyses and monitor the macroeconomic factors in volatile markets, including the impact of inflation and hyperinflation.
Cyber security threats
Response: Threat prevention and detection policies, tools, procedures, and internal controls are continuously being enhanced and audited. Threats are actively monitored and addressed. Disaster recovery, business continuity plans, and incident response are formally documented, reviewed and tested. Phishing campaigns and mandatory security awareness training are conducted regularly throughout.
Retention and acquisition of talent
Response: This year Logicalis has seen a tightening of the labour markets particularly on technical skills. Logicalis continues to monitor this via its Human Resources (“HR”) departments and tools (career bands, performance management and survey platforms) to ensure it remains attractive in the market.
Westcon International
Impact of global semi-conductor shortages
Response: Implement advanced ordering and increase safety stock of critical stock-keeping units. Additional focus on non-device based solutions.
Global supply chain disruption
Response: Constantly monitor supply routes and options. Additional focus on non-device based solutions.
Liquidity and financing – availability of working capital funding
Response: Regularly monitor funding availability, sales and collection forecasts; and engage in regular communication with providers of funding.
Inventory management – fast moving high obsolete inventory resulting in excessive write-offs
Response: Ensure stringent inventory management controls and monthly inventory reviews; and include stock rotation rights in vendor contracts.
Foreign exchange – impact of fluctuations on results and management of exposures
Response: Ensure that Westcon International is adequately hedged.
Macroeconomic environment
Response: Conduct thorough market analyses and monitor the macroeconomic factors in volatile markets.
Failure to manage payment discounts, product rebates and allowances
Response: Oversight over prompt payment discounts, product rebates, allowances and vendor-based programmes. Monitor growth and actively manage growth in strategic areas. Maintain strong and transparent relationships with vendor partners.
Dependence on key vendors
Response: Maintain strong and transparent relationships.
Cyber security threats
Response: Threat prevention and detection policies, tools and procedures are continuously being enhanced. Threats are actively monitored and addressed. Disaster recovery and business continuity plans are formally documented, reviewed and tested. Phishing campaigns and mandatory security awareness training are conducted regularly throughout Westcon International.
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