Home ● Our deck of cards ● Risk management
Our risk management process aims to achieve an appropriate balance between indentifying and minimising key risks and realising value creation opportunities. The board is ultimately responsible for governing the group’s risk management process, which includes formulating the group’s risk appetite, and setting and monitoring risk tolerance. The board discharges its duties by mandating specific risk management duties and responsibilities to the group risk committee.
Sun International has a formal risk management process and governance structure with various management and board sub-committees responsible for identifying, reviewing and monitoring the group’s risks and identifying opportunities. During 2018, the group’s risk approach was consistently applied group-wide and remains robust.
Risks are linked to the group’s strategic objectives to understand the likelihood of the group achieving its long-term sustainable business strategy. The group considers its risks in terms of the possible impact and likelihood of a risk occurring, along with the effectiveness of mitigating controls, which results in a residual risk exposure. A residual risk rating is allocated to each risk with a detailed risk mitigation action plan that includes quarterly status updates, contingency plans and possible opportunities, to minimise or prevent the risk.
As part of the revised risk management programme, an annual risk workshop is held to ensure the risk methodology is still relevant and that the risks are representative of the group’s risk universe. The risk review workshop includes the risk committee, and relevant executive members. The executive team remains collectively responsible for managing and reviewing the entire register prior to each risk committee meeting.
The group’s management team is tasked with identifying the group’s risks and each unit in South Africa, Africa and Latam has a unit-specific risk register, using the same methodology, which is compiled and consolidated quarterly. The most significant risks are reported to and reviewed by the risk committee at each meeting in the form of a risk dashboard, where the committee interrogates the controls and mitigating actions to ensure management is taking appropriate action and continually monitoring progress. The chairman of the risk committee reports to the board following each meeting, in accordance with the committee’s terms of reference. The committee’s mandate provides that material matters are reported to the group’s audit committee to ensure the committee has appropriate insight into the group’s key risks and opportunities and avoid duplication of matters within the remit of both committees. The board, through the audit and risk committees, considers the risks and opportunities the group may face and assesses each risk.
Factors considered by the board when assessing risk
The chairman of the audit committee is a member of the risk committee. The interaction between these two committees is such that the audit committee has an oversight role specifically in relation to financial reporting risks.
As part of Sun International’s combined assurance model, GIA’s annual internal audit plan includes a review of the consistency of the application of the risk methodology and the effectiveness of risk controls. GIA’s overall mandate includes the evaluation of risk exposures and the:
The risk governance structure depicts the various management and board sub-committees responsible for the risk management process.
As part of the group’s overall risk universe, the following risks have been identified as the top 10 group risks. These risks are used to inform our business strategy accordingly. The residual risk ranking accounts for the impact and likelihood of the risk occurring and the controls in place to effectively mitigate the risk. The residual risk rating determines the urgency of action required by management. For the year under review, two risks (7 and 10) moved into the group top 10 risks, with one new risk (9) being added to the risk register.
Risk rating | Risk description | Residual risk description | Risk category |
1 (2017: 1) |
Smoking legislation (South Africa and Latam) | Serious | Regulated operating environment |
2 (2017: 3) |
Erosion of market share due to EBTs and LPMs in catchment areas | Serious | Increased competition |
3 (2017: 2) |
Weak economic conditions | Serious | Financial sustainability |
4 (2017: 10) |
Maslow Time Square not achieving its feasibility | Moderate | Financial sustainability |
5 (2017: 4) |
Loss of Grandwest Casino licence exclusivity | Within appetite | Gaming and other operating licences |
6 (2017: 5) |
Ongoing changes in licence conditions | Within appetite | Gaming and other operating licences |
7 (2017: 11) |
Illegal gambling (South Africa and Latam) | Within appetite | Increased competition |
8 (2017: 6) |
Increase in gaming taxes and VAT1 | Within appetite | Gaming and other operating licences |
9 (New) |
Increase demands from stakeholders – communities | Within appetite | Regulated operating environment |
10 (2017: 16) |
Cyber threats and information security | Within appetite | Business interruption |
1 | This risk was ranked 13 in the risk register as at 31 December 2018. However, the risk was elevated to 8 post year end due to amended Regulation 85 of the Gauteng Gambling Regulations, 1997, released on 14 January 2019. The amendment purported to introduce a new tax regime for casinos in Gauteng whereby gaming taxes were to be determined with reference to a sliding scale of GGR, effective 1 April 2019. Prior to this amendment, casino licensees were liable to pay a gaming tax amounting to 9% of each licensee’s gross weekly gambling income. CASA opposed this amendment resulting in the Gauteng MEC responsible for Economic Development, Environment, Agriculture and Rural Development agreeing to withdraw the implementation of the amendment, and recommence the process to determine the effect such a proposed tax would have on the Gauteng casino industry. |
Risk description: The draft Control of Tobacco Products and Electronic Delivery System Bill, 2018 was published in May 2018 and includes a ban on smoking (including e-cigarettes) in public areas (both indoor and outdoor areas). This proposed legislation will have a significant impact on casino revenues in South Africa. |
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Risk rating: Serious Risk movement: Unchanged Sun International’s level of control: Low Primary board committee: Risk committee Key stakeholders: Employees, customers, health authorities and shareholders |
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Risk description: The proliferation of EBT and LPM licences issued in the group’s catchment areas have eroded market share from casino operations due to increased competition. |
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Risk rating: Serious Risk movement: Increased Sun International’s level of control: Low Primary board committee: Risk committee Key stakeholders: Shareholders and potential investors, gaming boards, regulators and suppliers |
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Risk description: South Africa continues to experience a weak economic climate that impacted the group’s revenue and costs. The change in the country’s leadership improved investor confidence, which could provide a more positive economic outlook. |
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Risk rating: Serious Risk movement: Increase Sun International’s level of control: Low Primary board committee: Risk and audit committees Key stakeholders: Shareholders and potential investors and employees |
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Risk description: Despite ongoing marketing efforts and with the weak economic conditions, Maslow Time Square is not achieving the original projected estimates and there is a risk of impairment to the asset. |
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Risk rating: Moderate Risk movement: Increased Sun International’s level of control: Medium Primary board committee: Risk committee Key stakeholders: Shareholders and potential investors, gambling boards |
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Risk description: Draft legislation was published in February 2018 that allows for the relocation of casinos. If this legislation is implemented, there is a risk of diluting GrandWest Casino’s gambling revenues, thereby impacting overall profits which may lead to job losses and revenue displacement – all of which have a negative impact on the local economic environment. There has been significant media reaction to this draft legislation, with most interested parties objecting to the relocation of casinos. |
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Risk rating: Within appetite Risk movement: Decreased Sun International’s level of control: Low Primary board committee: Risk committee Key stakeholders: Gambling boards, provincial government, communities and guests |
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Risk description: Regulators may issue more onerous licence conditions that will impact the group’s licence compliance and profitability. |
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Risk rating: Within appetite Risk movement: Decreased Sun International’s level of control: Medium Primary board committee: Risk committee Key stakeholders: Gambling boards, provincial government, shareholders and potential investors |
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Risk description: The proliferation of Illegal gambling operations continues to erode gambling revenues. Companies need to constantly adapt to these invisible operators. Even with law enforcement keeping a watchful eye on illegal gambling in South Africa and in Latam, there has been limited impact on this illegal industry. |
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Risk rating: Within appetite Risk movement: Increased Sun International’s level of control: Low Primary board committee: Risk committee Key stakeholders: Gambling boards, CASA, South African Police Service, and provincial and national government |
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Risk description: The Gauteng Gambling Board gazetted an increase in Gauteng gaming taxes effective 1 April 2019. This will impact our South African operations’ profitability in an already constrained economic environment. |
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Risk rating: Within appetite Risk movement: Decreased Sun International’s level of control: Low Primary board committee: Risk committee Key stakeholders: Gambling boards, CASA, provincial government and shareholders |
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1 | This risk was ranked 13 in the risk register as at 31 December 2018. However, the risk was elevated to 8 post year end due to amended Regulation 85 of the Gauteng Gambling Regulations, 1997, released on 14 January 2019. The amendment purported to introduce a new tax regime for casinos in Gauteng whereby gaming taxes were to be determined with reference to a sliding scale of GGR, effective 1 April 2019. Prior to this amendment, casino licensees were liable to pay a gaming tax amounting to 9% of each licensee’s gross weekly gambling income. CASA opposed this amendment resulting in the Gauteng MEC responsible for Economic Development, Environment, Agriculture and Rural Development agreeing to withdraw the implementation of the amendment, and recommence the process to determine the effect such a proposed tax would have on the Gauteng casino industry. |
Risk description: There has been a significant increase in demands from local communities surrounding our operations, ranging from procurement, employment, shareholding to land opportunities. Political parties are increasing their involvement and local B-BBEE shareholders’ requests are increasing. |
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Risk rating: Within appetite Risk movement: Increased Sun International’s level of control: Medium Primary board committee: Social and ethics committee Key stakeholders: Communities and suppliers |
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Risk description: The group’s dynamic operating environment includes the digital arena, which is susceptible to cyberthreats leading to business interruption, and the risk of customers’ personal information being compromised. |
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Risk rating: Within appetite Risk movement: Increased Sun International’s level of control: Medium Primary board committee: Risk committee Key stakeholders: Customers and guests, employees and shareholders |
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