RISK MANAGEMENT

As an international multimedia group with business activities in various countries, the group is exposed to a wide range of risks. However, the diversified nature and geographical spread of the group helps to spread risk, particularly in relation to global political and economic instability, market development and currency fluctuations. The identification of risks and their management forms 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. Going forward, the new risk committee will be responsible for reviewing this process.

An internal control overview forum monitors the system of internal control. At present the following major group risks are evident, among a wide range of potential exposures:

Global political and market developments
The Naspers group operates in the media industry internationally and has its primary listing on the JSE and a secondary listing 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. However, it may be caught offguard by new technology or startups or speed of development.

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 the majority of its foreign currency positions, where this is achievable.

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, in conjunction with local partners.

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.

Technical failures
Satellites: The group’s pay-television services are mostly delivered to subscribers via satellite. Satellites are subject to damage or destruction, which may disrupt the transmission of services. Procedures are implemented to augment the availability of services, ranging from backup capacity 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 or other key components remain unprotected or only partially protected.

Electricity supply: The production and distribution of the group’s products depend on electricity supply. Economic growth in emerging markets places pressure on the sources of electricity. The group has taken some measures to lessen the impact of power failures, but protracted power failures will have a negative impact on revenues.

Printing facilities: Damage or malfunction or fires in the printing environment could disrupt circulation of print media and decrease revenue.

Unauthorised access to our programming signals
The delivery of subscription television programming requires the use of conditional-access technology to prevent unauthorised access to programming. We face the risk that our programming signals will be accessed by unauthorised users.

INTERNAL CONTROL SYSTEMS

The company has a system of internal controls, based on the group’s policies and guidelines, in all material subsidiaries 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. The external auditor considers elements of the internal control systems as part of its audit and communicates deficiencies when identified.

All control systems do, however, have shortcomings, including the possibility of human error and the evasion or flouting of control measures. Even the best such system may provide only partial assurance. 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 group evaluated its internal control systems as at 31 March 2010 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 examines and 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 chair of the Naspers audit and risk management committee, with administrative reporting to the financial director. A large part of the internal audit fieldwork is outsourced to a major audit firm.

RELATIONS WITH SHAREHOLDERS

The company maintains communications with its key financial audiences, including institutional shareholders and analysts. The investor relations unit, headed up by Mrs Meloy Horn, manages interaction with these audiences, and presentations take place after the publication of 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 have the opportunity to put questions to the board, management and the chairs of the various subcommittees.

BUSINESS ETHICS

In support of the requirements of King II, the company has formalised its business ethics management process within the group. The group code of business ethics is compliant with appropriate regulatory requirements.

This code applies to all directors and employees in the group. Ensuring that group companies adopt appropriate processes and establish supporting policies and procedures is an ongoing process. Policies and procedures that address key ethical risks, such as managing conflicts of interests and the acceptance of inappropriate gifts, are focused on.

The human resources committee acts as the overall custodian of business ethics. The disciplinary codes and procedures of the various companies are used to ensure compliance with the policies and practices that underpin the overall code of business ethics. Unethical behaviour by senior staffmembers is reported to the human resources committee, as well as the manner in which the company’s disciplinary code was applied in such instances.

Naspers is committed to conducting its business with integrity. This commitment is captured in our integrity chain, which expresses the guiding principles. The group expects all directors and employees to share its commitment to business ethics and legal standards.

REMUNERATION

The remuneration policy and its execution is the responsibility of the human resources committee.

Non-executive directors receive annual remuneration as opposed to a fee per meeting. This recognises the ongoing responsibility of directors for the efficient control of the company. This remuneration is augmented by compensation for services on the subcommittees of the board and boards of subsidiaries. A premium is payable to the chair of the board, as well as chairs of subcommittees.

Remuneration is reviewed annually, with reference to competitors and similar companies, including those that have a dual listing on the JSE and an overseas securities exchange. Independent advice is acquired to review directors’ remuneration. Their remuneration is not linked to the company’s share price or performance. The board annually recommends the remuneration of non-executive directors for approval by shareholders.

In remunerating executives, the group aims to attract exceptional entrepreneurs. It needs to motivate and retain competent leaders in its drive to create sustainable shareholder value. We aim to recognise top performance to further grow the value of the group. The remuneration philosophy for executives strives to meet this objective. Accordingly, the focus of the policy is not primarily on guaranteed annual remuneration packages, but rather on individual incentive plans linked to the creation of shareholder value.

Remuneration packages are monitored and compared with market forces. Most executives have an annual bonus scheme, requiring that strategic and operational objectives (including financial targets) relative to budget are surpassed.

As long-term incentives, executives typically participate in share-based incentive schemes in respect of Naspers N shares or, in appropriate instances, shares or share appreciation rights in their respective subsidiaries. These awards normally vest over a period of four or five years.

The fees for non-executive directors for the past year, as well as the remuneration packages of executive directors, are set out here.