Report & Accounts - JLT

Directors’ ReportDirectors’ Report30Jardine Lloyd Thompson Group plc Annual Report & Accounts 2005Treasury: Treasury policy is reviewed and approved bythe Board and a review group (reporting to the FinanceDirector and Audit and Compliance Committee) isresponsible for monitoring treasury activity andperformance. The Group has policies to cover the keytreasury activities of investment of funds, counterpartyrisk, foreign exchange and interest rate risk.Cash and investments mostly consist of money marketdeposits, commercial paper, certificates of deposit andmoney funds with prime banks and institutions.The Group maintains a counterparty policy based onpublished rating criteria to limit the concentration of fundsand the exposure with any one party. Monetary limits areassigned to each counterparty based on an agreed scalein relation to their rating.The Group adopts a prudent approach to themanagement of its US dollar foreign exchange exposureby maintaining a hedging programme based on the use offorward foreign exchange contracts and, to a lesserextent, options with the objective of selling forward aminimum of 50% of US dollar income projected to ariseduring the following 12 months and 25% of that expectedto arise over the subsequent 12 months.Interest rate risk arises on the interest earnings from bothown and fiduciary funds held in the Group. The Grouppolicy is to protect its sterling and US dollar interestearnings by maintaining, on a rolling 12-month basis, aminimum hedged position. Depending on marketconditions this minimum can alter between 25% and75% of projected interest earnings during the following12 months and between zero and 50% over thesubsequent 12 months.Financial risk management, borrowing facilities, liquidityrisk and foreign currency risk are discussed withinthe Treasury Section of the Financial Review on pages18 and 19.Risk management controls: In accordance with the Code,a process has been established for identifying, evaluatingand managing risks faced by the Group.This process has been in place for the full financial yearand up to the date the financial statements wereapproved.The Group conducts a formal annual ‘risk profiling’ reviewto identify and profile the significant risks, both operationaland strategic, faced by the Group and to review theeffectiveness of risk management controls including lossprevention and recovery planning.This exercise involves the senior management across theGroup and covers a broad range of risks, includingoperational, financial/treasury, information technology,health & safety, human resource and legal areas.Monitoring of risk is facilitated internally by functionalmanagement and assurance gained through financial,compliance and quality based auditing. Significant failuresare reported to the executive directors to ensure remedialaction is taken.The Group’s procedures for the management of risk havebeen reviewed by the Board during the year. The annualrisk profiling report has been reviewed by the Audit andCompliance Committee on behalf of the Board which issatisfied that appropriate processes and procedures are inplace in order to identify and manage the significant risksfaced by the Group.As noted above, the overall responsibility for internalcontrols within the Company and its subsidiaryundertakings rests with the directors of the Company.Reviewing and monitoring the effectiveness of suchcontrols forms part of the duties of the Audit andCompliance Committee. Monitoring procedures includedetailed reviews of operating company systems which areroutinely undertaken by internal audit. The responsibilityfor internal controls within associated undertakings restsessentially with the senior management of thoseoperations, the role of the Group being to monitor itsinvestments and to exert influence, normally throughBoard representation.Investment appraisal: Major items of capital expenditurerequire Board approval.The Board is also responsible for the overall strategy ofthe Group, including acquisitions and related duediligence requirements.