Strategic rationale for the acquisitions
C. Key Risks (cont'd)
1.10 Technology and cyber security risks
Metcash relies on a number of complex information technology systems to support its warehousing and distribution, supply chain, retail, customer service, marketing and finance operations. A severe disruption
to the information technology systems may significantly impact the operations and value of Metcash.
Metcash is undertaking a business transformation program called Program Horizon which will replace older technology, reducing operational risk and onerous maintenance costs. This program is subject to risk
of execution, cost overruns and delays, which may adversely affect the Group's operations and may in turn affect its financial performance. Although Metcash announced in June 2023 further strategies to de-risk
the implementation of Program Horizon (including the completion of the build and subsequent deployment phases of the program being brought in-house and the extension of the deployment timeline to
support a phased, lower-risk roll out strategy), there is a risk that such outcomes do not eventuate, resulting in cost overruns and further delays, which would adversely impact the Group's operations and
financial performance.
Metcash has outsourced a number of functions in finance and IT to Tata Consulting Services (TCS), an Indian-based outsourcing provider. There is a risk that the provision of accounting and IT services could be
disrupted through a failure at TCS due to a wide range of possibilities.
With expanding information privacy and security regulations, and an increasing hostile cyber environment, Metcash recognises information privacy and cyber security as an increasing risk. Any impact on the
availability, integrity or confidentiality of data could result in a breach by Metcash of privacy and security regulations or impact Metcash's commercially sensitive information, which could expose Metcash to
penalties (including financial penalties) and could adversely affect Metcash's operating and financial position or cause reputational harm.
1.11 Social responsibility, environment and climate change
Metcash's operations could be impacted by natural disasters, extreme weather events or other catastrophic events which could materially disrupt its operations and supply chain. There is also a risk that, with
time, the frequency and intensity of natural disasters and extreme weather events may increase if climate change accelerates or worsens.
In 2022, Metcash conducted a climate change risk assessment in line with guidelines from the Task Force on Climate-Related Financial Disclosures, which considered the physical and transitional risks of climate
change on the Group's operations. According to the assessment results the main drivers of physical climate change risk for Metcash are the potential increase in the frequency and severity of acute climate
change events, such as bushfires, drought, floods, extreme storms and cyclones.
The assessment concluded that the highest inherent rated risk is likely to be an increase in insurance premiums year on year. Other lower rated inherent rated risks include damage to facilities and equipment, a
temporary increase in costs to service our retailers during these events, a temporary disruption to our supply chain and distribution network, reduced availability and quality of fresh products and a decrease in
the availability of timber products due to the impact of bushfires.
In relation to transitional risks, the assessment found there are medium level transition risks, including potential reputational damage should Metcash not meet stakeholder expectations on climate management,
and additional compliance costs should government introduce new greenhouse gas emission regulations or laws.
1.12 COVID-19 and pandemic risks
Although the World Health Organisation has declared an end to the COVID-19 public health emergency of international concern, Metcash has continued to experience some challenges influenced by COVID-19,
including employee absenteeism, low to moderate levels of supply chain disruption, and workforce labour shortages. The Group's operations and those of our customers and suppliers could be impacted by
COVID-19 through any reintroduction of restrictions such as social distancing, quarantines, travel or migration restrictions, work stoppages, health authority actions, lockdowns or other related measures. Any of
these factors may adversely impact the Group's operational and financial performance.
1.13 Insurance
While Metcash has in place insurances that it considers are sufficient for a business of its type and size, they are subject to deductibles and there can be no assurance that these insurances would adequately
cover events that may arise. For example, Metcash does not have specific insurance cover for environmental impairment liability, and certain liabilities are not insurable, such as statutory fines and penalties.
Metcash
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