Material issues, risks and opportunities

• Social unrest in the areas in which the Group operates impacts retail and manufacturing activities.
• The risk is particularly relevant for Ceramic Industries’ factories and TopT retail stores.
• Impacts safety of Group employees and customers.
• Risk of social unrest is elevated given the impact of the pandemic on the economy.

• Business interruption insurance cover in place.
• The portfolio and marketplace are analysed on an ongoing basis to ensure risk is mitigated and targeted property returns are achieved.
• The Group has a Social Unrest policy in place primarily focused on the safety of Group employees and customers.
• Ongoing community engagement and social economic development activities conducted in communities in which we operate.

• Continuous investment in and management of relationships with communities within which we operate.

• Non-compliance with relevant and stringent infection prevention and physical distancing protocols can lead to the spread of the virus, which compromises the safety of staff and customers.
• Virus transmission between customers and/or employees.

• All business units have developed stringent workplace plans with duly appointed compliance officers.
• Workplace plans detail various processes with regards to prevention, detection and containment of viral spread.
• Remote working is encouraged where possible.
• Various awareness and training initiatives in place for employees.
• HR policies have been implemented or adapted to deal with Covid specific considerations.

• Internal audits are performed regularly to test compliance to regulations on a regular basis.
• Disciplinary action taken by senior management for any non-compliance.

• External penetration of our networks (including hacking, phishing, etc.). Probability intensified due to increased web traffic to webstores which are integrated into SAP, ongoing high profile hacking incidents internationally (related to malware) and increased remote access of our networks by employees working remotely due to Covid-19 measures.
• Website cloning and rerouting of online payments gateway via webstores and new mobile devices with integrated payment pebble.
• External penetration of Android-based handheld scanners used in the stores (including hacking, phishing, etc.).
• Increased usage and access points with roll out of new local stores, East Africa stores and webstores.

• Prevented with use of firewalls, segmentation of network landscape, implementation of secure socket layer certificates to encrypt end-to-end data and antivirus solution with additional patch management controls.
• Quarterly penetration testing performed by external service providers.
• Handheld scanners hosted on hidden network with SSL encryption enabled.
• Cyber insurance in place through reputable provider.
• Regular updates of passwords with complexity.
• Multi-factor authentication and mail filtering measures in place.
• Central patch management for end-user computers.
• Data loss protection enabled on cashier desktops, with all USB parts disabled.

• Quarterly review of all network policies and procedures and network and router configurations to assess risks in order to mitigate them.
• Heat mapping of internal and external networks, reviewed on a monthly basis with senior management.
• Cyber security and penetration testing outsourced to third-party service provider.

• The deteriorating economic conditions in South Africa may have an adverse impact on the ability of the Group to generate revenue growth and impact on the quality of earnings.
• This risk is amplified as a result of the Covid-19 pandemic and its significant impact on economic activity across the globe.

• Continuous close monitoring of circumstances with particular focus on further investments in South Africa.
• Adjustment of costing and pricing to support weak/price sensitive consumer demand (enabled by integrated supply chain and continuous focus on cost reduction, enabling flexibility on gross margin and pricing).
• Integrated supply chain allows for consistent stock supply, with in excess of 70% of product procured locally.
• Opening of new stores.
• Comprehensive e-commerce offering expands retail reach.
• Continuous monitoring of socio-economic developments and its impact on business sustainability and operations.

• Work with suppliers and leading experts to ensure ‘wow’ factor of products and merchandising.
• Use business information tools to train and motivate operators to innovate and pioneer.
• The Business Optimisation Programme ("BOP") continues to improve product lifecycles, thereby ensuring constant responsiveness to evolving fashion.
• Optimal range/pricing structures will remain a priority.
• The Group’s high standing among customers is to be maintained by continuing to deliver an offering in line with customer demand. In this regard, continuous improvement in the approach to product research and development is crucial.

• The supply of gas for the Group’s factories (tiles and sanitaryware) is at risk as available gas reserves may be depleted by 2029.
• Ongoing load shedding and disruption of electricity supply adversely impacts manufacturing operations.

• The Group is an active participant in the Industrial Gas Users Group (“IGUA-SA”) which is advocating for alternative gas supply solutions for the industry.
• Continuous manufacturing improvements are made to reduce gas and electricity consumption.
• Load shedding schedules are monitored and production planned accordingly.
• Solar panels and back-up generators used for alternative energy.

• A combined heat and power plant project is being explored.
• A project to generate 3 MW from solar power at the Gryphon tile factory is underway.

Loss of earnings and future growth due to:

• external market forces such as worldwide trends (e.g. product substitution) and economic conditions (e.g. exchange rates);
• competitor activity and/or an increase in competitors in the market;
• convenience of alternate retail channels such as e-commerce and boutique offerings; and
• challenges in obtaining SABS
  or similar approval.

• Regular regional meetings are held to source insight into markets, receive product feedback and communicate fashion trends, product innovation, merchandise and store improvements, market analysis and opportunities for growth.
• There are experienced brand/divisional/supply chain managers in the business, who focus on key products and areas.
• Ongoing cost/pricing adjustments (enabled by integrated supply chain and continuous focus on cost reduction, enabling flexibility on gross margin and pricing) and expansion of distribution channels (e.g. e-commerce).
• Store displays and trading space are continually refreshed, and ideas shared across the Group via various mediums (e.g. operations newsletter).
• Ongoing ‘competitor shopping’ undertaken and necessary responses implemented.
• Inventory provisioning process in stores ensures improved product lifecycles.
• BOP utilised to improve in-stock levels of business critical items, and management/exit of slow moving inventory.
• Expansion of product categories (e.g. lighting) and foreign operations (rest of Africa).

• The Group's stated intent is to be a world-class, low cost retailer through alignment of customer satisfaction and profitability. By providing an unparalleled shopping experience and implementing best practice business principles across its operations the Group will continue to advance its achievements of this goal.

• Not remaining fashionable is a major risk and has significant influence on the market share enjoyed by the business.
• The risk is especially pertinent for age group 35 and below.
• Customer expectations not satisfied with product offering.

• Regular regional meetings are held to source insight into markets, receive product feedback and communicate fashion trends, product innovation, merchandise and store improvements, market analysis and opportunities for growth.
• There are experienced brand/divisional/supply chain managers in the business, who focus on key products and areas.
• Attendance at international trade fairs.
• Ongoing cost/pricing adjustments and expansion of distribution channels e.g. e-commerce).
• Store displays and trading space are continually refreshed, and ideas shared across the Group via various mediums (e.g. operations newsletter).
• Ongoing ‘competitor shopping’ undertaken and necessary responses implemented.
• Inventory provisioning process in stores ensures improved product lifecycles.
• BOP utilised to improve in-stock levels of business critical items, and management/exit of slow moving inventory.

• Work with suppliers and leading experts to ensure ‘wow’ factor of products and merchandising.
• Use business information tools to train and motivate operators to innovate and pioneer.
• BOP continues to improve product lifecycles, thereby ensuring constant responsiveness to evolving fashion.
• Optimal range/pricing structures will remain a priority.
• The Group’s high standing among customers is to be maintained by continuing to deliver an offering in line with customer demand. In this regard, continuous improvement in the approach to product research and development is crucial.

• Individuals are not adequately trained/developed, and succession planning may be inadequate.

• The Group conducts various training courses and operates an established Tiling and Plumbing Academy. Training spend is significant.
• Divisional management and the executive directors of the Group are closely involved in the operations of the business and regular regional meetings are held, as well as other regular interactions.
• The business implements career advancement training which comprises its Leadership Development Programme, Operator Training Programme (“OTP”) and other university-affiliated courses.
• Senior management and executive directors partake in executive development programmes run by reputable institutions with relevant expertise.
• The Group has a culture of developing and promoting from within, and various initiatives and programmes are in place to foster this.
• Employee engagement surveys are conducted and reviewed by Group management.
• E-learning platforms are in place with Group and retail-specific content.
• International expertise is sought for manufacturing where necessary, with key focus being transfer of skills.

• Instil greater retail-specific focus in training and development programmes; attract and retain key talent through promoting business partnerships; and encourage commitment to business success through development programmes and remuneration and reward strategies.
• OTP will continue to serve as an important mechanism to build leadership capacity in the Group.
• Enhanced e-learning initiatives will improve training in outlying and rural areas.
• Building of additional capacity in the Human Resource department.