Materiality, material risks and opportunities

DETERMINATION OF MATERIALITY

The matters included in our integrated annual report are principally aimed at providers of financial capital in order to support their financial capital allocation assessments. The interests of the providers of financial capital are, however, largely aligned with other key stakeholders in that they also are focused on the creation of value in the long term.

In determining which matters are material for disclosure in our integrated annual report we have considered whether the matter substantively affects, or has the potential to substantively affect, our strategy, our business model or the forms of capital we utilise and ultimately our ability to create value over time.

The assessment of the magnitude of the impact and the likelihood of the occurrence of the group's top risks and opportunities included below informed the identification and prioritisation of the material matters for inclusion in the integrated annual report. The matters identified were compared with those being reported on by organisations in the same or similar industries to ensure that relevant matters have not been excluded from the report.

Materiality, material risks and opportunities

MATERIAL RISKS AND OPPORTUNITIES

The risk management process followed in identifying the group's top risks and opportunities is included on page 79. The matrix reflecting the assessment of movement in the magnitude of the impact and the likelihood of the occurrence of the group's top risks and opportunities over the year is noted below. The specific risks and opportunities within each risk landscape (in order of assessed residual risk), their potential impact and the group's risk responses are noted on pages 28 and 29.

TSOGO SUN GROUP RISK AND OPPORTUNITY LANDSCAPES MOVEMENT

from March 2017 to March 2018

Materiality, material risks and opportunities
Principal risk landscapes       Specific risks we face   Potential impact   Risk responses     Associated strategic
priorities
 
Macro-economic environment      
  • Growth negatively affected by macro-economic factors
  • Concentration of operations in South Africa
  • Increased funding costs due to ratings downgrade
  • Constrained growth in government travel
  • Resources cycle in offshore operations
 
  • Lower revenue growth and profitability
  • Increased funding costs
 
  • Revised strategic priorities
  • Review organisational structures
  • Further focus on cost reduction
  • Renewed and focused marketing and promotions
  • Reward programmes
   
  • Financial strength and durability
  • Organic growth
Regulatory change
and compliance
     
  • Additional casino licences or relocation of existing casino licences
  • Policy uncertainty
  • Smoking legislation
  • Changes in casino licensing conditions
  • Bingo legislative issues and legal challenges
  • Changing BBBEE requirements
  • Increased complexity of compliance, e.g. POPI, CPA and FICA
  • Visa regulations
  • Loss of casino licences
 
  • Lower revenue, higher costs and reduced profitability
  • Uncertain operating environment resulting in frozen investment spend
 
  • Engage authorities, including gambling boards
  • Submit comments to law makers through formal comment structures
  • Robust compliance procedures
  • Engage law makers through employer and industry bodies
  • Litigate where required
  • Comprehensive BBBEE programme
   
  • Deliver to our beneficiaries
  • Regulatory compliance
Adverse tax
environment
     
  • Potential increased national and provincial gaming taxes
  • Possible VAT increases
  • Increase in personal taxes
  • Aggressive tax authorities
  • Increased rates and property taxes
 
  • Reduced profitability
  • Uncertain operating environment resulting in frozen investment spend
  • Increased cost of compliance
 
  • Lobby government through CASA
  • Educate legislators regarding gaming impact through direct lobbying
  • Lodge of appeals on assessments and property valuations
  • Robust compliance procedures
   
  • Deliver to our beneficiaries
  • Regulatory compliance
  • Organic growth
Portfolio management and product relevance      
  • Product relevance in target markets
  • Increase in maximum bet and maximum payout limits at limited payout machine sites
  • Lack of maintenance leading to obsolete product
  • Customers choose other leisure options
  • Technology and social trends
 
  • Reduced income and profitability
  • Obsolete hotel stock
  • Reduced footfall and customers and thus gaming win
  • Disruption to operations and reduced profitability
 
  • Overview of markets
  • Interaction with local authorities
  • Investment in facilities and maintenance capex to ensure relevance
  • Market research to timeously spot trends
  • Partnerships with other leisure suppliers
  • Social media interaction
   
  • Product relevance to customer experience
  • Organic growth
Capacity and market issues      
  • Fixed cost nature of the business
  • Impact of Time Square on the Gauteng market
  • Trading disruption during construction
  • Casino capacity constraints
  • Security of tenure on leases and management contracts
  • Ability to manage booking channels including OTAs including Airbnb
  • Hotels oversupply in certain markets
  • Locations of EBTs infringing on casinos
 
  • Lower revenue growth and profitability
 
  • Review organisational structures
  • Further focus on cost containment
  • Interaction with gambling boards and city officials
  • Monitoring returns on new businesses
   
  • Organic growth
Missed opportunities      
  • New gaming opportunities
  • Investments in expansion not yielding expected returns
  • Hotels opportunities, local and offshore
  • Ineffective integration of acquired businesses
 
  • Lower revenue growth and profitability
  • Missed revenue opportunities
  • Wasted investment
 
  • Proper and robust evaluation of all new opportunities
  • Non-financial due diligence of opportunities
  • Monitoring returns on new businesses
   
  • Organic growth
  • Inorganic growth
Human
resources
     
  • Employment equity challenges at senior levels
  • Changes in labour legislation
  • Unrealistic expectations, social pressure and/or unresolved industrial relations issues leading to violent strikes and unrest
  • Limited pool of qualified, trained and talented staff
  • Lifestyle diseases, including HIV/Aids, hypertension and diabetes
 
  • Failure to meet BBBEE targets
  • Reduced customer satisfaction, disruption to operations and reduced profitability
  • Work stoppages, reduced profitability and reputational impacts
 
  • Retention of staff through appropriate remuneration structures
  • Engage with and empower staff
  • Fast track and develop talented staff
  • Performance-driven culture
  • Focused employment equity strategy
  • Labour rate parity
   
  • Human resources
  • Deliver to our beneficiaries
Unreliable and
costly utilities
     
  • Unreliable water supplies
  • Unreliable electrical supply
  • Rise in electricity and water costs
 
  • Disruption to operations and reduced profitability
  • Machinery breakdown
 
  • Demand-side management programmes to reduce consumption
  • Water handling/storage capacity for emergency supply
  • Self-reliance on generators for emergency electricity supply
   
  • Product relevance to customer experience
  • Organic growth
Crime and
security
     
  • Casino and hotel robberies/follow home robberies
  • Major violent incidents
  • Fraud by employees/from external sources
  • Illegal gambling
 
  • Lower revenues, increased cost and lower profitability
  • Reputational risk
 
  • Physical security and surveillance procedures and crime intelligence
  • Coordination with the South African Police Service
  • Pressure on gaming boards and government to curtail illegal gambling
  • Internal control frameworks and internal audit procedures
   
  • Regulatory compliance
  • Organic growth
Cyber, IT and information management      
  • Hacking and hacktivism
  • Sub-optimal online transacting
  • Payment Card Industry Data Security Standards
  • POPI legislation
  • Loss of information
 
  • Reputational risk
  • Fines and penalties
  • Reduced income and profitability
 
  • IT security
  • Payment card industry standard compliance
  • Appointment of Information Officer
  • Review of online transaction opportunities and website rewrite
  • Increased IT auditing and assurance
   
  • Regulatory compliance
  • Organic growth