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Audit, Risk and Compliance Committee report

The Audit, Risk and Compliance Committee is pleased to present its report for the financial year ended 31 May 2013.

The Committee is an independent statutory committee appointed by the shareholders of the Company. In addition to its statutory duties the Board has delegated further duties to the Committee. This report covers both these sets of duties and responsibilities.

Mandate and terms of reference

The Committee has adopted comprehensive and formal terms of reference which have been approved by the Board and which are reviewed on an annual basis. The
responsibilities of the ARCC include the following:

• examining and reviewing the Group’s financial statements and reporting of interim and final results;
• reviewing and considering, for recommendation to the Board, the consolidated budget for the ensuing financial year;
• overseeing integrated reporting;
• overseeing the Internal Risk and Compliance Committee function;
• monitoring the risk management framework and assess the risks impacting the Group’s ability to achieve its strategic objectives;
• reviewing and satisfying itself of the expertise, resources and experience of the Blue Label finance function;
• overseeing the internal audit function and internal financial control process;
• recommending the appointment of the external auditor and overseeing the external audit process including their audit fee, independence, nature and extent of any
non-audit services; and
• monitoring compliance activities.

Membership and meetings held

In accordance with the requirements of the Act, Messrs JS Mthimunye, GD Harlow, NN Lazarus SC and SJ Vilakazi were appointed to the Committee by shareholders
at the Annual General Meeting held on 29 November 2012.

Membership of the Committee remained unchanged during the year under review, as follows:
JS Mthimunye (Independent Non-Executive chairman)
GD Harlow (Independent Non-Executive Director)
NN Lazarus SC (Non-Executive Director)
SJ Vilakazi (Independent Non-Executive Director)

The members of the Committee collectively have experience in audit, accounting, commerce, economics, law, corporate governance and general industry. All of the members of the ARCC, save for Mr Lazarus SC, are Independent Non-Executive Directors.

Mr Lazarus SC has specialist professional skills and experience and makes an important contribution to the work of the Committee.

The Committee meets quarterly and the quorum for each meeting is three members present throughout the meeting. Mandatory attendees at the meetings are the Joint Chief Executive Officers, the Financial Director of Blue Label and the Financial Director of TPC. The audit partner from PwC and a director from KPMG, to whom Blue Label outsources its internal audit function, are also attendees. Both internal and external auditors are afforded the opportunity to address the meeting and have unlimited access to the chairman of the Committee. During the year, the Committee met with the external and internal auditors respectively without the presence of management. The internal audit function reports directly to the ARCC and is also responsible to the Financial Director on day-to-day administrative matters.

Refer to page 39 for the attendance table of the Committee.

Statutory duties discharged

In execution of its statutory duties during the year under review, the Committee:

• nominated and recommended to shareholders the re-appointment of PwC as independent external auditors, with Eben Gerryts the audit partner as the registered
independent auditor;
• approved the fees to be paid to PwC and other external auditors, where applicable, and approved the terms of engagement;
• maintained a non-audit services policy which determines the nature and extent of any non-audit services that PwC may provide to the Group;
• discharged those statutory duties as prescribed by section 94 of the Act acting in its capacity as the appointed audit committee of the subsidiary companies of
Blue Label;
• considered the Committee’s report describing how duties have been discharged; and
• submitted matters to the Board concerning the Company’s accounting policies, financial controls, records and reporting, as appropriate.

Other duties discharged

Financial statements and reporting

The Committee:

• monitored compliance with accounting standards and legal requirements and ensured that all regulatory compliance matters had been considered in the preparation of the financial statements;
• reviewed the external auditor’s report to the Committee and management’s responses thereto and made appropriate recommendations to the Board of Directors
regarding actions to be taken;
• reviewed and commented on the annual financial statements, interim reports, paid advertisements, announcements and the accounting policies and recommended these to the Board for approval;
• reviewed and recommended to the Board for adoption the consolidated budget for the ensuing financial year; and
• considered the going-concern status of the Company and Group on the basis of review of the annual financial statements and the information available to the Committee and recommended such going-concern status for adoption by the Board. The Board statement on the going-concern status of the Group and Company is contained on page 99 in the directors’ report.

External audit and non-audit services

The ARCC has satisfied itself as to the independence of the external auditor, PwC, as set out in section 94(7) of the Act, which includes consideration of compliance with criteria relating to independence or conflicts of interest as prescribed by the Independent Regulatory Board for Auditors. Requisite assurance was sought from and provided by PwC that internal governance processes within the firm support and demonstrate its claim to independence.

To assess the effectiveness of the external auditors, the Committee considered PwC’s fulfilment of the agreed audit plan and variations from the plan, and the robustness and perceptiveness of PwC in its handling of key accounting treatments and disclosures.

The Committee, in consultation with executive management, agreed to the engagement letter, terms, audit plan and budgeted audit fees for the 2013 financial year.

Any non-audit services to be provided by the external auditors are governed by a formal written policy which incorporates a monetary delegation of authority in terms of non-audit services to be provided. The non-audit services rendered by the external auditors during the year ended 31 May 2013 comprised tax advisory services, tax compliance services and general advisory services. The fees applicable to the aforementioned services totalled R0.9 million (2012: R1.4 million).

The ARCC has nominated, for approval at the Annual General Meeting, the re-appointment of PwC as registered auditors for the 2014 financial year and Eben Gerryts, the audit partner, as the independent registered auditor of Blue Label. The Committee also satisfied itself that PwC is accredited and appears on the JSE List of Accredited Auditors as contemplated in paragraph 3.86 of the Listings Requirements.

Internal audit and internal controls

The Committee:

• reviewed the co-operation and co-ordination between the internal and external audit functions to avoid duplication of work. This will be further formalised through a
combined assurance facilitation;
• examined and reviewed the progress made by internal audit against the approved 2012/13 audit plan;
• approved the internal audit plan for the 2013/14 financial year;
• considered the effectiveness of internal audit;
• considered internal audit findings and corrective actions taken in response to such findings; and
• reviewed the effectiveness of the systems of internal control, including internal financial control and risk management.

Risk management and compliance

The Committee:

• reviewed the integrity of the risk control systems and ensured that the risk policies and strategies of the Company are effectively managed;
• made recommendations to the Board concerning the levels of tolerance and risk appetite;
• monitored bi-annual risk assessments;
• ensured that management considered and implemented appropriate risk responses;
• reviewed the regulatory risk universe of the Company and the ongoing formalisation of the compliance function to assess the extent to which the Company is managing its compliance risk;
• reviewed legal matters that could have a material impact on the Group;
• reviewed the adequacy of the Group’s insurance cover; and
• reviewed developments in corporate governance and best practice and considered their impact and implications across the Group with particular reference to the principles of King III.

The Group’s strategic objectives and risks are detailed on pages 14 to 18.

Expertise and experience of the Financial Director and finance function

The Committee considered the appropriateness of the expertise and experience of the Financial Director and finance function in accordance with the Listings Requirements and governance best practice. The ARCC concluded that the finance function is adequately resourced with technically competent individuals and is effective. The Committee confirms that it is satisfied that David Rivkind possesses the appropriate expertise and experience to discharge his responsibilities as Financial Director.

Annual financial statements

The Committee has reviewed the accounting policies and financial statements of the Company and the Group and is satisfied that they are appropriate and comply with International Financial Reporting Standards and the requirements of the Act.

The Committee recommended the approval of the adoption of the annual financial statements to the Board.

The ARCC is satisfied that it complied with its legal, regulatory and other responsibilities as per its terms of reference.

The contents of this report have been approved by the Committee on 16 August 2013 and read by PwC as at 19 August 2013. Subsequent to this date, the Committee has performed the following responsibilities:

• The Committee considered the integrated annual report, incorporating the annual financial statements for the year ended 31 May 2013. The Committee, further, has
considered the sustainability information as disclosed in the integrated annual report and assessed its consistency with operational and other information known to
Committee members.
• As recommended by King III, internal audit provides a written assessment on the system of internal control and risk management to the Board and a written assessment on internal financial control to the ARCC. The Board’s report on the effectiveness of the system of internal financial controls is included in the Statement of Directors’ Responsibility on page 97 of the report.
• The Committee is satisfied that the Board has performed a solvency and liquidity test on the Company in terms of sections 4 and 46 of the Companies Act and has concluded that the Company will satisfy the test after payment of the final dividend.
• The Committee recommended the approval of the integrated annual report to the Board.

On behalf of the Audit, Risk and Compliance Committee:

JS Mthimunye
Chairman

18 October 2013
 
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Blue Label Integrated annual report 2013