Governance report

Risk committee report


Due to the critical importance of effective risk management, the board elected to separate the audit and risk committees in the year under review.

Composition and meetings

Members: SG Pretorius (chairman), MC Krog, TJ Motsohi, TS Munday, DJ Rawlinson, R van Rooyen

The risk committee includes at least three non-executive directors and the chairman of the audit committee is an ex-officio member. The chief executive and financial director are executive members. The committee will meet at least twice a year.

    25 August  
SG Pretorius       
TS Munday       
TJ Motsohi       
DJ Rawlinson       
R van Rooyen       
NC Wentzel       

The responsibilities and functioning of the committee are governed by formal terms of reference approved by the board. These terms of reference will be reviewed annually. The committee ensures that risk disclosure is comprehensive, timely and relevant and that effective policies and risk management plans are in place to allow the group to achieve its strategic objectives.

Risk management is considered a key business discipline designed to balance risk and reward, and protect the group against risks and uncertainties that could impede its business objectives. The board formulates its risk strategy through deliberation with the risk committee on whether Reunert’s risk tolerance has been properly considered and is appropriate to enable the group to achieve its strategies and objectives.

The board acknowledges its responsibility for the risk management process as a whole, as well as forming an opinion on the effectiveness of this process. Management is accountable to the board for designing, implementing and monitoring the process of risk management, as well as integrating it into day-to-day business activities.

Appropriate mitigation or remedial actions are identified and driven through a risk improvement management system. All group companies conduct formal risk assessments and operational risk management meetings twice a year. The Reunert chief executive, financial director and senior management attend operational risk management meetings. Internal audit attends all group risk meetings and facilitates the process. In addition to formal risk management meetings, risks are discussed on a monthly basis at all group company management meetings.

Our risk management methodology can be summarised as follows:

Defining and categorising risks
Risks at each operation are defined and classified as strategic, business, process, operational and compliance related risks.

Assessing the quantitative impact of the risks should they occur
Risks are assessed based on their potential impact on the business in accordance with board approved risk tolerance levels ranging from insignificant to catastrophic.

Assessing the probability or likelihood of the risks occurring
Risks are assessed based on the likelihood of them occurring assuming that there are no controls in place. Risks are scored in a range from rare to almost certain.

Assessing the effectiveness of internal controls in place
Internal controls are recorded and assessed for each identified risk. A control effectiveness rating is assigned to each risk ranging from very effective to ineffective.

Classifying the risks
Residual risks are classified as high, medium and low based on their impact and likelihood of occurring, after taking into account the effectiveness of the internal controls in place.

Developing risk mitigation strategies for all identified risks
Risk mitigation strategies and action plans are developed in line with board approved risk tolerance levels.

Monitoring risks
Risks are continually monitored and discussed formally twice a year.

Risk reporting follows the risk reviews, and is considered by the risk committee twice a year.

Reunert’s key risks and strategies to mitigate these risks are listed below.  
  Major strategic risk     Risk description     Risk mitigation strategies  
  Regulatory and technology changes in the telecoms industry    

The regulated process of reducing interconnection rates started in March 2011 with an initial reduction of 89 cents to 73 cents.

The reductions are expected to continue over the next two years, when it will reduce to 40 cents by March 2014.

This reduction will have a significant impact on Nashua’s revenues, requiring innovative changes in our product offering to substitute revenue flows.  


The acquisition of ECN Telecommunications, which provides voice-over-internet-protocol (VoIP) solutions, is allowing for the conversion from least-cost routing (LCR) solutions to VoIP for Nashua customers.

The conversion of selected customers is currently underway, with a strategy in place to systematically convert all relevant LCR customers onto the ECN network over the next two years.

  Increased competition and commoditisation     All operating segments are impacted by increased product competitiveness, cheap imports and multinationals looking for new markets.     Providing top quality products and services superior to those of our competitors, while maintaining our margins through continued operating efficiencies, is a key strategic focus.  
  Economic and business environment     The downturn in the local and global economies is expected to continue in the short to medium term. As such, our businesses are expected to remain under pressure in terms of their levels of activity and profitability.     The group places significant emphasis on effective cost management and working capital management, productivity improvements and the development of new products and services.  
  Volatility in commodity prices and exchange rates     Many of the group’s businesses are affected by volatile exchange rates, specifically the rand against the US dollar and the euro, as well as movements in the copper price.    

Exchange rate risk and commodity price risk are actively managed within the tolerance levels set by the group’s risk management policies.

Exposures are hedged in compliance with strict group policies.

Inventory levels are kept at optimum operational levels.

  Diversity and transformation     It is vital to be representative of the society in which we do business.    

Transformation will be a key focus for 2012 and after individual targets have been set for all business operations.

Various strategies are being rolled out to retain and mentor key staff and grow the pipeline of suitably skilled, historically disadvantaged, South African employees.  

Brand Pretorius

14 November 2011