Audit and Risk Committee report

Chris Boulle

CHAIRMAN

Attendance and composition

Focus areas for 2024

General

• Reviewed and approved the Committee Charter.
• Reviewed and recommended the consolidated financial statements and Integrated Annual Report 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 is appropriately qualified and experienced to lead the finance function at Famous Brands.
• Reviewed and approved an updated Limits of Authority Framework.
• Reviewed the outcomes of the committee evaluation and undertook to implement all recommendations.
• Reviewed the annual work plan.
• Reviewed and recommended the Group’s F2025 budget to the Board for approval.

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.

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 annual financial statements.
• 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, the Integrated Annual Report, 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 press release, short and long-form announcements, interim results and annual financial statements 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.
• Considered the JSE Proactive Monitoring Report dated 3 November 2023 and assessed how the issues raised impact the Group’s financial statements.
• Reviewed and recommended to the Board the Group’s F2025 budget.
• Reviewed and recommended to the Board management’s submission for the dividend declaration.

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 D.R.E  & Co. Chartered Accountants 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.
• Approved the proposed audit fees for the year under review.

Our external auditor was appointed in 2020, and the Committee is of the opinion that the firm remains independent. Our lead external audit partner retired at the end of the 2024 audit. A policy and controls are in place to address the provision of non-audit services from the external auditor.

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 make a positive statement on the adequacy and effectiveness of internal financial reporting controls.
• Oversaw the project to improve internal financial reporting controls focusing on revenue and payroll.

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 progress made to close insurance gaps.
• Reviewed and gave input into the capitalisation of our cell captive insurer (read more).
• Monitored the implementation of the final year of the three-year IT security plan and approved the 2025 IT security plan.
• Reviewed and considered changes to legislation and regulations which had a potential impact on the Group.

Overseeing the Group’s risk management

The Board, assisted by the Committee, monitors our principal risks and risk mitigation practices while keeping an eye on emerging risks. In South Africa and in many other parts of the world, upcoming elections amplify political uncertainties. We are also monitoring supply chain-related risks related to changes in weather patterns (El Niño) and geopolitical tensions disrupting shipping routes resulting in delays. These require increased inventory holdings and reduce the availability of working capital.

Cyber risk is a major global risk concern as attackers are increasingly sophisticated and organised. In 2024, the Group successfully implemented the final year of our three-year IT security plan. The plan, which was informed by external technical analysis, has improved our overall organisational security maturity, with noted improvements in application and infrastructure protection and a greater understanding from employees of identifying and preventing cyber threats. The objective going forward is to institute an annual and ongoing cybersecurity programme.

The Committee reviewed and approved the IT security plan for 2025. Our planning also includes measures to protect personal information we collect from consumers to avoid reputational damage and potential fines.

In 2024, the Committee reviewed the Group’s planning in the unlikely event of a total electricity grid collapse in South Africa. We are comfortable that we have appropriate plans to ensure an orderly shutdown of our operations in a blackout followed by a plan to secure our assets.

Our executives, management, and assurance providers collaborate to embed risk culture across the Group. Our combined assurance methodology includes teams from audit, compliance, risk, and business management to provide a coordinated approach to risk management. Based on the 2024 review and ongoing monitoring and supervision, the Group’s risk management and internal control systems function effectively.

In 2024, work was completed to improve the controls for the Group’s payroll. We are comfortable with the implementation of key systems, such as SAGE’s payroll system and a financial consolidation tool. This financial consolidation tool has made financial reporting more efficient and reliable. This year our external auditors reduced their fees due to their increased reliance in our internal control environment.

Read more about our combined assurance model 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 anticipated higher levels of load shedding, the drawdown of our debt facilities to develop the Midrand Campus, our loan service and covenant requirements and working capital requirements. 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.

Priorities for 2025

The key focus areas identified for 2025 are as follows:

• Monitoring the annual budget including costs related to load shedding.
• Reviewing the implementation of the 2025 IT security plan.
• Reviewing measures to improve the internal control environment.
• Evaluating scenario planning for emerging risks including coalition politics in South Africa.
• Further embedding the improvement of the financial statements and reporting processes across the Group.
• Ever evolving regulatory and reporting requirements.

Conclusion

Having considered all the material factors and key audit matters, the Committee recommended the AFS for the year ended 29 February 2024 for approval to the Board. The Board has approved the AFS and IAR, 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 Committee’s activities.

Chris Boulle
Chairman

21 June 2024