Rugby Estates plc

The directors consider the principal risks and uncertainties faced by the Group to be the following:

• Conditions in the UK property market generally over the foreseeable future, particularly tenant and investor demand for commercial property. These represent uncertainties in the operating environment rather than risks which can be managed.
• Financial risks, such as sudden adverse changes in interest rates or availability of debt finance. The Group's treasury policies for managing these are set out in note 28 on page 53.
• Transactional risks, such as entering into commitments without proper board approval, failure to carry out proper due diligence on acquisitions and similar matters. These risks are managed through internal control procedures and through the employment of suitably experienced and qualified personnel.
• Judgement risks, such as acquiring a property for redevelopment but ultimately failing to obtain the desired planning consent. Such uncertainties reflect business opportunities as well as risks and are at the heart of any successful property business. Successful business judgements rely on the expertise, knowledge and talent of the management team.
• Reputational risks, which include investor, community, personnel and business relationships. With the growth of the asset management business, the Group's reputation for expertise, professionalism and integrity becomes increasingly important for shareholder value. Managing such risks, and maximising the opportunities arising therefrom, is achieved by employing suitably experienced, qualified and talented personnel who are motivated to achieve the Group's long-term objectives.

The directors are responsible for maintaining a system of internal control to safeguard shareholders' investment and the Company's assets and for reviewing the effectiveness of that system. Any internal control system can only be designed to manage, rather than eliminate, the risk of failure to achieve in part or in whole business objectives and can only provide reasonable (not absolute) assurance against material misstatement or loss. The key elements of the process by which the effectiveness of the system of internal control is reviewed are as follows:-

• The principal risks which the Group faces, or is considered likely to face in the foreseeable future, are formally reviewed at least annually by the board.
• The control mechanisms for each identified risk are formally reviewed on an annual basis.
• Any problem arising is analysed to establish whether its effect could have been avoided or mitigated through improved control procedures.
• The risk and control aspects of changes in the nature or conduct of the Group's business or significant new projects are considered as they arise.
• The Audit Committee considers and determines relevant action in respect of any internal control issues raised by the external auditors or identified by management.

The Group has a very small management team operating from a single location. The board meets at least six times each year and reviews and approves all significant transactions. Each executive director has responsibility for specific aspects of the Group's affairs and executive directors meet regularly to discuss day to day operational matters.

Accordingly, the board exercises close control over all the Group's significant transactions and the executive directors exercise close control over all operational activities. The board has considered the need for an internal audit function, but due to the very small number of staff this is not currently considered to be necessary or practicable.

The directors have reviewed the effectiveness of the system of internal control as it operated during the year ended 31 January 2007 and subsequently up to the date of this report. This has involved considering the present needs of the business, the risks it faces and appropriate control measures.

Source: Rugby Estates Plc Annual Report 2007