RISK MANAGEMENT
As an international multimedia group with business activities
in various countries, the group is exposed to a wide range of
risks, which may have serious consequences.
However, the diversified nature of the group helps spread
the risk. The identification of risks and their management
form part of each business unit’s business plan. These are
assessed by the board annually.
Several group companies have specific risk management
functions. The audit and risk management committee also
reviews the risk management process.
An internal control overview committee was established
subsequent to Naspers deregistering from the SEC. As the
group remains committed to high standards of corporate
governance and particularly to strong systems of internal
control and risk management, the need for such a forum to
oversee these issues was recognised.
At present the following major risks are evident, among
a wide range of related exposures:
Global political and market developments
The Naspers group operates in the media and entertainment
industry worldwide and has its primary listing on the JSE. The
company successfully applied for the listing of its ADSs on the LSE. It is consequently sensitive to any global political
and other events that may influence the global economy or
share prices.
Competition and technical innovations
The group operates in fiercely competitive and sometimes
maturing markets. Technology forms an integral part of its
operations. Several print products may be diminished by
internet rivals. The group devotes significant resources to
analyse emerging trends in technology and consumer demand,
and to the development of new products and services, but it
may be mistaken in its analyses or its projects may misfire.
Currency fluctuations
The group reports in South African rand, the exchange rate
of which may vary relative to other currencies. In addition,
in several markets the group has substantial input costs in
foreign currencies. The movements of these currencies could
have a negative or positive impact on our income or
expenses. Unrealised and realised currency translation gains
or losses may distort the group’s financial accounts. The
group has a policy to hedge only some of its foreign
currency positions.
Legislation and regulations
The media industry is, in general, subject to government
regulation in most countries. Failure or delays in obtaining or
renewing regulatory approvals could influence the availability
of our services to our customers. The Naspers group aims to
comply with applicable laws and regulations. To achieve this,
the group cooperates with the various regulators in the
countries in which it operates. Furthermore, the group
participates in the regulatory processes in the various
territories, sometimes in conjunction with partners that are
local experts.
Political and economic instability
Political instability in any of the countries in which the group
operates, could cause us damage. The group undertakes an initial risk assessment before entering new territories and
monitors current risks in countries in which it operates.
Technology failures
Satellite failure: most of the group’s pay-television services are
delivered to subscribers via satellite. Satellites are subject to
damage or destruction, which may disrupt the transmission of
services. Some procedures are implemented to secure the
availability of our services, ranging from back-up capacity in
some cases to built-in redundancy. The cost of these measures
is considered against the impact and likelihood of the risk
occurring and consequently, in some cases, satellites remain
unprotected or only partially protected.
Electricity supply: The production and distribution of the
group’s products depend on constant and high-quality
electricity supply. South Africa’s economic growth in the
short term places pressure on the sources of electricity. The
group has taken measures to lessen the impact of power
failures (eg by installing generators), but the effect of
protracted power failures will have a negative impact on
revenues.
Printing facilities: Damage or malfunction in the printing
environment would disrupt circulation of print media and
decrease revenue. This risk is only partially mitigated by
insurance cover and back-up.
INTERNAL CONTROL SYSTEMS
The company has a system of internal control, based on the
group’s policies and guidelines, in all material subsidiaries,
associates and joint ventures under its control. For those
entities in which Naspers does not have a controlling interest,
the directors who represent Naspers on these boards seek
assurance that significant risks are managed and systems of
internal control are effective. Risk managers and the internal
auditors monitor the functioning of internal control systems
and make recommendations to management and to the audit
and risk management committee. External auditors consider
elements of the internal control systems as part of their audit
and communicate deficiencies when identified.
All internal control systems do, however, have
shortcomings, including the possibility of human error and
the evasion or flouting of control measures. Even the best
internal control system may provide only partial assurance
to us. The group’s internal controls and systems are designed
to provide reasonable, and not absolute, assurance on the
integrity and reliability of the financial statements; to
safeguard, verify and maintain accountability of its assets;
and to detect fraud, potential liability, loss and material
misstatement, while complying with applicable laws and
regulations. The work that was performed in compliance with
Sarbanes-Oxley Section 404 for the year ended 31 March
2007 further strengthened the internal control environment.
The group evaluated its internal control systems as at
31 March 2008 with regard to financial reporting and
safeguarding of assets against unauthorised purchases, use
or sales. During the period under review, the internal control
system revealed no significant breakdown in internal control.
INTERNAL AUDIT
An internal audit function is in place throughout the group
and is an independent appraisal mechanism that evaluates the
group’s procedures and systems (including internal controls,
disclosure procedures and information systems), ensuring that
these are functioning effectively. The head of internal audit
reports to the chairman of the Naspers audit and risk
management committee, with administrative reporting to the
finance director. The annual internal audit plan for 31 March
2008, approved by the audit and risk management committee,
focused on providing assurance on the effectiveness of
internal control over financial reporting. The internal audit
fieldwork is outsourced to one of the major auditing firms.
RELATIONS WITH SHAREHOLDERS
The company maintains a dialogue with its key financial
audiences, especially institutional shareholders and analysts.
The investor relations unit manages interaction with these audiences and presentations take place after publishing
interim and final results.
The company’s website (www.naspers.com) provides the
latest and historical financial and other information, including
financial reports. The board encourages shareholders to attend
its annual general meeting, notice of which is contained in
this annual report, where shareholders will have the
opportunity to put questions to the board, management and
the chairs of the various board subcommittees. |
