Audit and Risk Committee report

“In 2023, Famous Brands continued to enhance its risk management processes and improve its financial controls. A key project was the continued implementation of the second year of our three-year IT security plan with pleasing improvements in our cyber security maturity.”

Mandate

The purpose of the Audit and Risk Committee is to assist the Board in discharging its oversight responsibilities, including safeguarding the Group’s assets, ensuring adequate risk management and control processes, and preparing financial statements in compliance with all applicable legislation and regulations.

Attendance and composition

Members Invitees Relevant skills profile of members

Chairman

  • CH Boulle (4/5)

Members

  • B Mathe (5/5)
  • T Mosololi* (1*/5)
  • F Petersen-Cook (5/5)
  • CEO
  • Group Financial Director
  • Chairman of the Board
  • N Halamandaris
  • Group Risk Executive
  • Internal Audit Manager
  • Company Secretary
  • Representatives from KPMG (external auditors)
Committee members are highly skilled in finance, accounting and risk
* Thabo Mosololi was appointed as a member of the Audit and Risk Committee on 1 February 2023.

Focus areas for 2023

General
  • Reviewed and approved the Committee Charter.
  • Reviewed and recommended the IAR to the Board for approval.
  • Provided our input on the suitability of the successor to the Group Financial Director. The Committee believes that the Group Financial Director-designate is appropriately qualified and experienced to lead the finance function at Famous Brands.
  • Reviewed and approved an updated Limits of Authority Framework
Annual assessments

In a closed session with the auditors, the Committee reviewed and considered the following assessments:

  • The Group Financial Director.
  • The finance structure.
  • The Head of Internal Audit.

Overall, the Committee confirms that it is satisfied with the expertise and competency of the Group Financial Director and the finance function and identified areas for improvement. The Committee found that the Head of Internal Audit was knowledgeable and provided effective leadership to the department. The Chairman of the Committee provided feedback directly to the parties concerned.

Financial statements, accounting practices and other financial matters
  • Reviewed the assessment prepared by management of the Group’s going concern status and made recommendations to the Board. The Committee concurred that the adoption of the going concern is appropriate for the preparation of the Group AFS.
  • Reviewed the financial and general covenants applicable to the Group based on the lending and capital structure, which was found to have been appropriate and complied with.
  • Considered matters raised relating to financial reporting and accounting practices, internal audit, contents of the Group’s and the Company’s financial statements, internal financial controls, and any related matters.
  • Reviewed the processes for reporting matters relating to financial reporting and accounting practices, internal audit, contents of the Group’s and the Company’s AFS, internal financial controls and any related matters and agreed on matters that required improvement. The Committee can confirm that there were no matters of concern noted.
  • Reviewed and recommended the short and long-form SENS announcements, interim results and Group AFS to the Board for approval.
  • Considered accounting treatments, significant unusual transactions and key accounting judgements.
  • Considered the reports of the internal and external auditors on the Group’s systems of internal control, including financial controls, business risk management and maintenance of an effective internal control system.
  • Received assurance from management that proper and adequate accounting records were maintained and the systems safeguard the assets against unauthorised use or disposal.
  • Reviewed the Group tax report.

The Committee is of the opinion that there were no material breakdowns in internal controls, including financial controls, business risk management and the maintenance of effective material control systems.
External audit

  • Considered the quality controls and processes of the external auditor and specifically audit quality reviews conducted over the designated auditor, including those performed by the Independent Regulatory Board for Auditors (IRBA) as part of its routine review process in terms of the Auditing Profession Act.
  • Considered the appropriateness of the other auditors engaged to perform audits within the Group, being Blick Rothenberg in the UK and PKF Botswana, and deemed them appropriate.
  • Reviewed the external auditors’ report on the consolidated and Company AFS and the key audit matter.

Our external auditor was appointed in 2020, and the Committee is of the opinion that the firm remains independent. Our lead external audit partner will rotate off the audit in 2025. There were no provision of non-audit services from the external auditor in 2023.
Internal audit and internal financial reporting controls

  • Reviewed and approved the internal audit business plan and budget.
  • Performed the annual review and approval of the Internal Audit Charter.
  • Reviewed the internal audit reports and processes.
  • Reviewed the ongoing commitments to ensure that the CEO and Group Financial Director can provide a positive statement on the adequacy and effectiveness of internal financial reporting controls.
  • Oversaw the refining and mapping of our critical financial controls, taking into account the changing environment and ensuring that out risk control metrics are appropriate.
Risk management

  • Evaluated and reported the effectiveness of risk management controls and governance processes to the Board.
  • Reviewed and approved the risk management business plan and budget.
  • Performed the annual review and approval of the Risk Management Charter.
  • Reviewed the Group risk register, IT governance, and the insurance gap analysis and approved management’s steps to close gaps.
  • Reviewed and gave input into the formation of a cell captive insurer.
  • Monitored the implementation of the second year of the three-year IT security plan.

Guiding risk management at Famous Brands

As global risks increase and economic uncertainty persists, Famous Brands’ risk function must evolve to ensure organisational resilience.

We operate in a demanding environment where current and emerging risks can disrupt our business and our ability to create and preserve value. The Board, assisted by the Committee, monitors our greatest risks and the steps to mitigate them per our authorised risk appetite and risk management strategy. We manage and monitor current and emerging risks as part of our routine procedures. We are addressing our cyber risk by implementing our three-year IT security plan that was informed by external technical analysis and is implemented by our internal expert with the support of competent security experts.

In 2023, the Committee considered climate-change-related risks, their materiality on our business, and how to measure and report them. This was relevant in 2023 as the world continues to experience climate-related impacts, including KwaZulu-Natal’s devasting April 2022 floods.

Our executives, management, and assurance providers work together to strengthen the risk culture across the entire Group. Our combined assurance methodology includes teams from audit, compliance, risk, and business management to provide a coordinated approach to risk management. The Committee confirms that the Group’s risk management and internal control systems are effective based on the review carried out in 2023 and the monitoring and supervision operations carried out.

Read more about our combined assurance model.
Read more about our top risks and risk management processes.

Going concern

The Committee has considered the management-prepared going concern assessment and the Group’s outlook for trading conditions that will last for the foreseeable future. This evaluation is based on a variety of different scenarios. They include the impact of continued load shedding at expected high stages, the loan service and covenant requirements, and the working capital needs. The Committee is satisfied that the Group is a going concern for the foreseeable future based on the information available at the time of approval of the Group AFS.

Key focus areas for 2024

The key focus areas identified for 2024 are as follows:

  • Monitoring the annual budget and additional load shedding-related costs.
  • Supporting the incoming Group Financial Director, including ensuring she has the right people and resources to succeed in her new role.
  • Reviewing the implementation of the final year of the three-year IT security plan.
  • Further alignment of financial systems.

Conclusion

Having considered all the material factors and key audit matter, the Committee recommended the Group AFS for the year ended 28 February 2023 for approval to the Board. The Board has approved the Group AFS, which will be open for discussion at the forthcoming AGM of shareholders.

The Committee is satisfied that it has fulfilled its responsibilities in accordance with its terms of reference for the year. I will be available at the AGM to answer any questions regarding the activities of the Committee.

Chris Boulle

Chairman

21 June 2023