Managing our risks

Risk management framework

Motus has a strong risk management approach embedded in the day-to-day operations of the Group, facilitating responsible risk-taking in management decision making. Our risk management framework identifies and assesses risks at strategic, business and operational levels.

         

Risk management framework
Foundational principles and organisational arrangements for designing, implementing, monitoring, reviewing and continually improving risk management throughout the Group.
  Governance and structure      

The board and its committees
The board is responsible for the governance of risk and ensures that formal risk management processes are implemented to effectively identify and manage the risks facing the Group.
         

Exco and finance and risk review committees (FRRCs)
Assume executive responsibility for management of all risks and implementation of risk governance processes, standards, policies and frameworks.
  Risk management process and control framework      

The process of risk management is to systematically apply management policies, procedures and practices to the following risk activities:

  • Risk appetite and tolerance
  • Risk taxonomy
  • Communication and consultation
  • Risk assessment
  • Risk response
  • Monitoring and review.
    

Key risks are managed using:

  • Policies, standard procedures and practices
  • Internal controls.
  
       

Our combined assurance framework promotes accountability and consistency. It supports a co-ordinated approach to risk management throughout the Group and provides assurance that significant risks are being effectively managed.
         

FIRST LINE of defence (management)
Responsible for the identification and management of risks, in line with agreed risk policies, risk appetite, tolerance levels and controls at an operational level.
  Three lines of defence governance model      

SECOND LINE of defence (risk management, compliance, legal, quality control functions)
Responsible for the oversight and monitoring of different risks and provides the first line of defence with the appropriate tools to effectively manage identified risks.
   

THIRD LINE of defence (internal audit, external audit, independent assurance providers)
Provides independent oversight and assurance to the board and senior management on the adequacy and effectiveness of controls implemented.
         

All three lines of defence report to the board directly, or through the audit and risk committee and/or social ethics sustainability (SES) committee.
PEOPLE, PROCESS, DATA, SYSTEMS, INFRASTRUCTURE
RISK CULTURE AND VALUES

 

Our top risks and responses

Our embedded enterprise risk model identifies and assesses existing and emerging risks. Our processes aim to fully understand these risks and how they affect our strategic, operational, reporting and compliance objectives by establishing the impact and likelihood of the identified risks and the actions required to mitigate and control them. The model also identifies the associated opportunities where effective risk management can be turned into a competitive advantage.

Any risk taken is considered within risk appetite and tolerance levels which are reviewed and, where applicable, updated on a quarterly basis and approved by the divisional FRRC and the Group audit and risk committee.

Emerging risks are those risks where the extent and nature of the potential impact on the business is uncertain. Emerging risk themes that have been identified for increased management attention include the increased risk of employee fraud and misconduct due to the current economic environment, reputational risks arising from the increased use of digital communication, potential changes in consumer buying patterns that may impact the viability of the dealership model, and environmental factors like climate change.

Managing COVID-19

Every territory in which Motus operates has been affected by COVID-19, but responses have been different in each region around the world. Across our businesses, appropriate steps have been taken to protect the wellbeing of our people, customers, and communities.

Our immediate response was to form a Crisis Committee, headed up by the CEO, to ensure co-ordinated action is taken across the Group. The Crisis Committee continues to monitor the latest guidance from the health authorities and provides regular updates to the board and to our people. It continues to monitor and assess the situation closely and has implemented controls across all our businesses to prevent and minimise potential infections and transmission of COVID-19. It has also developed contingency plans should senior leaders and executives be affected. Our environments were prepared for the safe return of our employees, customers and suppliers as lockdown restrictions have been eased.

In the medium term, we will redefine certain key operating models and business practices. In certain instances, we have redesigned the interface between our people and customers as well as other stakeholders, by limiting face-to-face interactions and relying on virtual environments and our omni-channel delivery method. This increased dependence on technology and related digital strategies presents a fundamental shift in our operating model, and will support not only our long-term sustainability but also our competitiveness in the current trading environment. Motus will continue to leverage our established capabilities to identify opportunities to deepen our competitive advantage. We aim to move faster and with more confidence than our competitors, underpinned by agile and risk-aware decision making, rooted in our entrepreneurial culture.

Our top ten risks

Our risk management process considers the environment inside and outside the organisation. In identifying the top risks, management considers their material effects on our business, financial condition or operations, resulting in a quantitative and qualitative impact on the business. All the top business risks identified are considered and incorporated into the development of the Motus strategy and our associated objectives, priorities and targets.

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1

  Risk   1
Negative growth in the geographies in which we operate
  
  Context  

The outlook for economic growth in our markets is poor. The recession prior to COVID-19 and credit downgrades of the South African sovereign rating were already adversely impacting the economy, our operations and customer base.

The impact of COVID-19 is expected to be significant in the short term and recovery is anticipated to be of a longer-term nature. The ability of our operations in multiple geographies to resume business activities, while ensuring the safety of our people and customers, and managing associated costs, will be critical to a swift return to the 'new normalised' economic activity.

In addition, the ongoing political instability, unemployment and social impact in certain countries in which we operate, will continue to negatively impact economic growth on the continent and affect profitability and cash generation.

  
  Response  
  • Focus on cost management, extracting financial and operational efficiencies, and reviewing the dealership footprint.
  • Regular review, analysis and reporting of product margins, unit growth and aggressive balance sheet management with particular focus on working capital investment.
  • Continue to provide service excellence and innovative client offerings, to support sustainable margins.
  • Focus on new opportunities and expedite digital sales channels to market with a focus on offering niche products and services.
  • Ongoing monitoring of the political environment to identify possible positive or negative impact on our operations and assess any opportunities.
  • Selective strategic diversification across sectors and geographies in the medium term.
  
           

2

  Risk   2
Currency volatility in the markets in which we operate
  
  Context  

Currency volatility has a direct impact on the costs of imported new vehicles and parts, affecting the competitiveness and profitability of our products and services and maintenance plans.

The ability to manage Rand volatility by hedging against major currencies at competitive rates has also been impacted by the downgrade of the South African sovereign rating and COVID-19.

Foreign currency translation differences will arise on the consolidation of foreign subsidiaries in the reported results.

  
  Response  
  • Active management of currency volatility through established hedging strategies, policies and governance structures.
  • An Africa treasury committee is in place and receives regular presentations on the current and future state of the African countries in which we operate to understand risks.
  • Foreign currency exposure and conversion is actively monitored by management to manage the effect of currency changes on pricing and to assess appropriate hedging strategies.
  • Monthly forex committee meetings are held to discuss committed and forecast vehicle orders to understand forex requirements.
  • Quarterly asset and liability committee meetings are held, chaired by the Chairman of the board, to review funding requirements, currency hedging, asset allocation, interest rates, funding of acquisitions and other cash management considerations.
  
           

3

  Risk   3
Regulatory compliance
  
  Context  

Motus is subject to a wide range of legislation, which it monitors to ensure compliance. Any breach of compliance could result in fines or sanctions that affect Motus' profitability and may damage our reputation.

Monitoring the changes in legislative environments and interpretations of law is of key importance due to the potential for negative consequences to our business model and operations.

Key material legislation impacting our landscape are shown below.

  
  Response  
  • The Motus compliance universe is managed within the approved risk and appetite framework. At a Group level, compliance monitoring is done by:
    • confirming that current legislation has been operationalised into existing processes and procedures;
    • ensuring that statutory and tax related legislation is correctly managed; and
    • scanning the environment for any material changes to the current legislative landscape. Material changes are defined as those impacting our business model or the core market dynamics.
  • Operationalise our approach by ensuring:
    • Compliance officers are in place and compliance audits are conducted quarterly.
    • Centralisation of specialist areas to where compliance risk is high, for example central monitoring of financial services regulations for compliant sales of finance and insurance products.
    • Increased engagement with business leaders in South Africa to advocate for more effective policies.
    • Ongoing review of compliance with Group ethics framework and legal requirements.
    • Proactive monitoring, input and operational implementation plans and frameworks on emerging legislation.
    • Rigorous compliance programmes are in place and guidance is provided across business segments to ensure compliance with key regulations.
  
           
  Significant emerging legislation impacting our landscape and our responses include:  
 
COVID-19 disaster management
    

Our ability to understand and respond promptly to the new legislative requirements associated with COVID-19, particularly relating to the Disaster Management Act regulations and directives for the automotive industry in South Africa, allows us to implement mitigation strategies to address the economic impact of the crisis on our operations while ensuring the safety of our people and customers.

    
  • A COVID-19 policy and governance framework that sets minimum standards and ensures compliance with health authorities' guidelines, including onsite workplans, track and tracing capabilities and compliance officers' oversight and monitoring of onsite compliance.
  
 
POPIA
    

The comprehensive data protection legislation enacted in South Africa took effect on 1 July 2020 with a one-year period for compliance. Impact of this act on our business requires a holistic update of our policy and procedure framework, review and update of personal data across our value chains and ability to easily access and respond to incidents.

    
  • Group-wide project management team with timelines, project plan and oversight from executive management. To date we have approved the required policies, procedures, standards and notices. A comprehensive change management programme is in place and closer to July next year, training will be rolled out.
  
 
Competition Act – right-to-repair
    

The proposed 'right-to‑repair' policies detailed in draft guidelines issued by the Competition Commission places emphasis on creating an inclusive market by ensuring the promotion of a fair, competitive and viable economy.

    
  • We have implemented a broad stakeholder strategy to understand and implement our response to possible consequences, including involvement in industry bodies in drafting guidance and consumer understanding, working with OEMs regarding legal rights and investment consequences and initiating a multi-business task team to develop and implement a model for second tier workshops.
  

4

  Risk   4
Vehicle and parts inventory management
  
  Context  

The inability to operate at full capacity during the COVID-19 lockdown period has increased the need to reduce current inventory levels to manage liquidity and cash.

Ongoing inventory management is required to meet customer demand for new and pre-owned vehicles, allowing the Group to minimise losses from supply chain disruptions and improve the management of ageing pre-owned vehicle inventory levels.

Shortages of vehicles and parts due to supply chain issues and disruptions could result in loss of sales and missed OEM targets, placing additional pressure on margins and profitability.

  
  Response  
  • Phased resumption of business to full operating capacity is monitored to ensure compliance with COVID-19-related regulations and directives for the automotive industry in South Africa.
  • Initiatives to reduce inventory levels and contain costs have been implemented to mitigate the impact of reduced activity relating to COVID-19, including leveraging the ability to move vehicles and parts between locations to ensure continuous support for customers and operational demand.
  • Reconfiguration of global and local aftermarket parts warehouse footprint to improve efficiency of supply chain delivery channels.
  • Regular meetings held to assess and price pre-owned vehicle inventory and monitor inventory levels.
  • Ongoing internal audit reviews of compliance with vehicle and parts trading policies.
  • Weekly updates with OEMs and suppliers to control inventory levels and monitor effectiveness of supply chains.
  
           

5

  Risk   5
Dependence on specific brands and reliance on key suppliers
  
  Context  

We depend on our relationships with OEMs and franchised dealers, which are critical to our business model. We are required to comply with the agreements we have with them, which include meeting sales volumes, implementing specific processes and policies and maintaining quality dealerships. Failure to meet the required standards may affect our status as an exclusive distributor and retailer of these global brands.

The Group also relies on ongoing commercial relationships with key suppliers, including subcontractors, to deliver superior service to its customers, and the loss of any significant supplier could impact operations and financial performance.

  
  Response  
  • Proactive and continuous engagement with OEMs at senior levels, with regular face-to-face discussions and ongoing negotiation of fixed targets.
  • Standards required by OEMs are maintained and expectations in terms of agreements are met.
  • Continuous monitoring of the customer satisfaction and perception of the OEM brands.
  • Proactive management of inventory levels – vehicles and parts – to meet customer demand.
  
           

6

  Risk   6
Information technology

  • IT strategy and execution of architecture, systems and applications
  
  Context  

A legacy of decentralised IT systems and infrastructure from the divisions' growth through acquisition makes it critical to reduce systems complexity through consolidation, while ensuring that cyber-security is addressed.

IT strategies need to be flexible and effective in meeting requirements and delivering solutions for competitive differentiation and operational effectiveness, especially as the need to implement digital strategies has accelerated due to COVID-19.

  
  Response  
  • Board oversight and monitoring of material IT projects.
  • Ongoing cyber-risk assessments are performed to assess the emerging risk landscape.
  • Strategy alignment review done to ensure appropriate IT strategies.
  • Business continuity processes and disaster recovery plans are in place to ensure operations are unaffected by outages.
  

 

  Risk   6
Information technology

  • Increased cyber-security requirements
  
  Context  

Globally, there is an increase in attempts made by hackers to gain unauthorised access to company IT systems and data.

Cyber-crime has the potential to cause financial loss, disrupt our services and erode our customers' trust.

Our ability to protect and secure our IT systems and information, and how we proactively implement additional security measures to support remote working practices, is critical to managing the threat to operational resilience and reputation.

Our strategy to increase work from home practices has increased the inherent risk linked to cyber-security.

  
  Response  
  • Continuing cyber-awareness and education initiatives are in place.
  • Ongoing assessments by external experts to assess cyber-risks and how these are being mitigated.
  • Enhanced information and cyber-security minimum guidelines, including multi-factor authentication and policies relating to email and general user access, are being implemented.
  • Access to IT systems and information from our operations outside of South Africa is closely monitored.
  • Ongoing monitoring of network activity where daily reports of suspicious activity are investigated.
  • Proactive quantitative and qualitative assessments of the potential impacts on current and future business strategy will be undertaken.
  • In preparation for COVID-19 and the increased need to access our networks remotely, additional investment and resources have been deployed by our IT departments to ensure responsible and effective remote access to networks and data, without compromising minimum security standards.
  

7

  Risk   7
Succession and talent management
  
  Context  

The limited pool of qualified skills in South Africa, and the impact of an ageing skilled working population are challenges in accessing the talent needed to remain competitive and successfully deliver our strategy.

Besides leadership skills, the Group's businesses depend on specialised technical and customer facing skills, which must be developed and retained.

Our top priority is always the safety of our people. Our business is dependent on our people and customers being and feeling safe within our operations. Stakeholders need to feel confident in our leadership responses that we will behave responsibly throughout the COVID-19 pandemic.

The impact of the COVID-19 crisis on our people will need to be managed to ensure their safety and wellbeing.

  
  Response  
  • Co-ordinated transformation policies and programmes focused on development and promotion of internal candidates, and recruitment of employment equity candidates.
  • Detailed succession planning at all levels including the focused recruitment of experienced senior and middle management candidates, with the objective of increasing our available pool of black leadership talent.
  • Training and development programmes, including specialist training academies.
  • Aligning talent management programmes to the key current and future skills needed for the Group.
  • Implementing best people practices, supported by the appropriate systems, in progress within the business segments.
  • Increasing employee communication, improving the co-ordination and consistency of messages and practices.
  • Ensuring multi-channels for communication and feedback during COVID-19.
  • Providing support, advice and clear guidance regarding COVID-19 required actions.
  
           

8

  Risk   8
B-BBEE status of South African-based operations
  
  Context  

Changes to the B-BBEE codes require accelerated transformation at all employment levels and higher levels of black ownership in the Group's South African businesses. Failure to achieve set targets may impact on competitiveness and sustainability.

The Group had to reassess its footprint and rightsize operations to mitigate the impact of COVID-19. This may have a short-term impact on the Group's ability to achieve its B-BBEE targets.

  
  Response  
  • Active monitoring and oversight of B-BBEE scorecard and targets.
  • Clear initiatives in place to meet employment equity targets and skills development driven by Group leadership.
  • Selective and appropriate joint ventures with strategic B-BBEE partners.
  • Focused programme to extend our network to historically underserved areas near and around informal communities; this includes, non-OEM branded workshops, the opening of majority owned black dealerships and formalisation of access to parts and services by informal traders and technicians.
  • Standardised reporting process implemented to report a full B-BBEE scorecard.
  
           

9

  Risk   9
Rapid speed of disruption due to innovation
  
  Context  

The pace of change has accelerated and will inevitably require established brands to embrace digital capabilities to be competitive. Customers are increasingly product savvy and accustomed to the convenience of the digital experience. Sustained competitive advantage is increasingly achieved through innovation.

Innovation has three dimensions – internal innovation; strategic partnerships; and trends, concepts and pilot projects.

The implementation of digital strategies has become critical due to the changes brought about by COVID-19, particularly how we engage with our people and our customers.

  
  Response  
  • Accelerate the implementation of new and improved ways of doing business to reduce costs and increase efficiency.
  • Keep abreast of innovative changes by competitors.
  • Ongoing monitoring of market trends and new innovations by executives.
  • Ongoing focus on how the Group can capitalise on our window of opportunity to create and deliver value.
  • Drive delivery of the innovation strategy throughout the Group and create a culture of innovation and collaboration using the Mx innovation initiative. The Motus Mx digital platform will help us to harness the talent and energy of our employees and to foster a culture of innovation and collaboration in our business.
  
           

10

  Risk   10
Reputational risk
  
  Context  

Transparent and honest engagement with key stakeholder groups, including investors, financiers, and government, is critical to ensure the continued sustainability of the Group.

COVID-19 has necessitated the redesign of key interaction points, a fundamental shift in our operating model and an increased dependence on digital strategies and remote working which limit physical contact.

In addition, the increase in new ways of working, especially remote working, driven by COVID-19 regulations and restrictions, requires increased professionalism from our people when engaging with our stakeholders.

  
  Response  
  • Implement operating and safety procedures to protect our people and customers, designed to prevent the spread of COVID-19 in our environments.
  • Position the Group clearly as a market leader in South Africa with high levels of professionalism and values.
  • Carefully manage the impact of retrenchments and rationalisation of operations on our people.
  • Implement plans that address our social commitment to health and safety, and more general social issues.
  • Ongoing monitoring of our brands in the media to proactively respond to potential adverse public relations.
  • Ensure that our treatment of, and response to stakeholders aligns to our values of fairness and transparency.