| RISK MANAGEMENT REVIEW (CONTINUED) |
| |
|
| Currency risk |
Although the group's holding company is domiciled
in Luxembourg and its financial and reporting currency is the
US dollar, it has significant operations and/or investments
in South Africa, Europe, Mauritius, North America and Australia.
The group's net assets reflect the currency impact on individual
investments. Brait has undertaken to mitigate the currency exposure
of these net assets by hedging or holding a large portion of
its capital in US dollars. At
31 March 2006, approximately 88% of the net tangible assets
of the group was covered or held in US dollars. |
| |
| Solvency risk |
It is essential to ensure that the group is adequately capitalised to
absorb potential losses in its activities, to maintain the confidence of
all those with whom it does business and to fund the future growth
of its operations. The geographical and legal structure of the group
minimises the potential contamination of losses in one segment of
operation with those of another. The group also has a satisfactory
capital base to support the operations of its underlying businesses.
The group held some 53% of its capital in short-term cash deposits at
31 March 2006 and has approved banking facilities of US$13,0 million
(ZAR80,0 million). |
| |
| Operational risk and IT technology |
Operational risk is the potential for loss caused by a breakdown in
information, communication and transaction processing systems and
procedures. While these risks can never be fully protected, Brait
attempts to reduce them by maintaining comprehensive systems of
internal controls, and sound policies and practices in the areas
of information technology, human resources, physical security and
insurance. The enforcement and monitoring of compliance with such
policies and standards of practice is an essential component of
operational risk management.
The group has dedicated significant resource and commitment to an
internal audit function, which is focused on a business and risk-based
audit approach. The primary responsibility for operational risk
management lies at business unit management level. The group also
ensures that operational risk is minimised through the implementation
of sound accounting methods, administrative controls and a code of
conduct.
The assessment of information technology is in the hands of the
executive committee which not only sets IT policies, but also act as the
final decision making authority. The group employs both onsite and
offsite disaster recovery facilities which are tested regularly. Business
continuity plans are in place in the case of catastrophic events. All
business processes are supported by software systems, which are kept
current with the latest technology trends.
The group audit and risk committee, which has responsibility, inter alia,
for overseeing of the management of operational risk, comprises nonexecutive
directors to whom both the external auditors and internal
auditor function have direct access. The functioning of this committee
is dealt with more fully under the corporate governance section of the
annual report. |
| |
| Page up |
| Legal risk |
| Legal risk is the risk that transactions or agreements with third parties
may not be legally enforceable or do not reflect the intentions
approved by the boards or their committees. Brait recognises the legal
risks inherent in complex financial transactions. Brait engages
reputable third party legal professionals who are familiar with the
group's operations and the specific nature of its business for its
transactions in order to mitigate such risks. |
| |
| Compliance risk |
| Compliance or regulatory risk is the risk of non-compliance with
regulatory requirements. Brait has allocated skilled staff to specific
compliance functions as part of its risk management framework. The
management of compliance risk is achieved through monitoring,
reporting and other services, and reports regularly to the audit and risk
committee. |
| |
| Risk management for fund investment |
| The group acts as manager for several funds financed primarily by third
party capital. In both Private Equity and Specialised Funds these funds
are typically subject to a number of governance controls with risk
management effects, including where appropriate: |
| |
| • |
fund mandates setting out investment parameters including
targeted markets, transaction types and investment limits; |
| • |
controlled investment processes including appropriate approval by
investment committees; |
| • |
investor review by way of periodic reporting and performance
evaluation; |
| • |
advisory committee review for resolution of certain potential
conflicts of interest; and |
| • |
statutory and regulatory controls. |
|
| |
| |
| Brait's internal control processes ensure that fund mandates are
adhered to, and these controls are subject to internal audit and thus
audit and risk committee review. The effect on Brait's financial position
is assessed by applying sensitivity analysis to material positions held in
its funds under management. |
| |
| Conclusion |
| The key focus of Brait's risk management strategy is ongoing
identifying, assessing, managing and monitoring all known forms of
risk resident in its operations. This is a continuous process of
developing and enhancing comprehensive risk and control procedures
so as to enable the group to effectively identify and monitor all
potential risks that it may reasonably be exposed to. |
| |
| Page up |
| |
