The Audit, Risk and Compliance Committee (ARCC) is pleased to present its report for the financial year ended 31 May 2024.
The ARCC 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.
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:
In accordance with the requirements of the Companies Act, No 71 of 2008 (the Companies Act), Mr JS Mthimunye, Ms NP Mnxasana, Ms LE Mthimunye and Mr SJ Vilakazi were appointed to the Committee by shareholders at the AGM held on 23 November 2023 in the following positions:
The members of the Committee collectively have experience in audit, accounting, commerce, economics, law, corporate governance and general industry. All the members of the ARCC are Independent Non-Executive Directors.
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 and the Financial Director of Blue Label. The external audit partner from SNGGT and a director from Deloitte, 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 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.
In execution of its statutory duties during the year under review, the Committee:
The Committee:
The ARCC has satisfied itself as to the independence of the external auditor, SNGGT, as set out in section 94(7) of the Companies Act, which includes consideration of compliance with criteria relating to independence or conflicts of interest as prescribed by the Independent Regulatory Board for Auditors, including tenure of the audit firm and rotation of the designated individual partner. Requisite assurance was sought from and provided by SNGGT that internal governance processes within the firm support and demonstrate its claim to independence. SNGGT has been the auditor of the Company for two years.
To assess the effectiveness of the external auditors, the Committee considered the quality, delivery and execution of the agreed audit plan and variations from the plan, as well as the robustness and perceptiveness of SNGGT in its handling of key accounting treatments and disclosures. The ARCC has been informed of the most recent results of SNGGT's regulatory and firm inspection and is satisfied with the results thereof.
The Committee, in consultation with executive management, agreed to the engagement letter, terms, audit plan and budgeted audit fees for the 2024 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 2024 comprised tax advisory services, tax compliance services and general advisory services.
The fees applicable to the services totalled R0.1 million (2023: R7.5 million).
The ARCC has nominated, for approval at the AGM, the reappointment of SNGGT as registered auditors for the 2025 financial year. The Committee also satisfied itself in terms of paragraph 3.84(g)(ii) of the JSE Listings Requirements that SNGGT and the designated individual partner are suitable for appointment.
Blue Label's internal audit was outsourced to Deloitte for the year and going forward, and the role of the Chief Audit Executive is fulfilled by the Engagement Director. The ARCC concludes that the Chief Audit Executive and internal audit arrangements are effective and independent.
The Committee:
The ARCC concluded that appropriate financial reporting procedures have been established and were operating, as contemplated in paragraph 3.84(g)(ii) of the JSE Listings Requirements, which includes consideration of all the entities in the consolidated annual financial statements.
In carrying out its responsibility of ensuring appropriate financial reporting procedures are in place, the ARCC had oversight of the procedures performed by management to ensure that internal financial controls are adequate in design and operating effectiveness, and has considered all deficiencies reported by management to the ARCC and external auditors together with steps taken to remedy such deficiencies.
The ARCC concludes that the combined assurance arrangement is effective and will continue to evolve as the Group grows.
In relation to the governance of risk, the Committee:
The ARCC is satisfied that it has dedicated sufficient time to its responsibility towards the governance of risk.
The Committee is satisfied that it has exercised sufficient, ongoing oversight of compliance through:
The Committee considered the appropriateness of the expertise and experience of the Financial Director and finance function in accordance with the JSE Listings Requirements and governance best practice and has satisfied itself in terms of JSE Listings Requirement 3.84(g)(i) that the Group Financial Director has appropriate expertise and experience.
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 Mr Dean Suntup possesses the appropriate expertise and experience to discharge his responsibilities as Financial Director. The Committee is also satisfied that appropriate financial reporting procedures have been established and that those procedures are operating effectively.
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, the JSE Listings Requirements, and the requirements of the Companies Act of South Africa.
The Committee has evaluated the Group annual financial statements of Blue Label Telecoms Limited for the year ended 31 May 2024 and based on the information provided to the Committee, the Committee recommends the adoption of the annual financial statements by the Board.
The significant audit matters considered by the Committee were the sale of advances to customers under postpaid contract device arrangement and the going concern and valuation of Cell C.
These matters were addressed as follows:
Management assessed the accounting treatment and disclosure in respect of each of the three book sales based on the specific terms and conditions of each agreement in terms of IFRS 7, IFRS 9 and IAS 1, and has conducted an assessment of the retained credit risk following the transfer of customer advances related to the three book sales. Management compared the retained credit risk before and after the transfer, and evaluated it against its internal threshold for retained credit risk.
Based on the work performed, management concluded that the independent book sales were to be accounted for and disclosed as follows:
As at 31 May 2024, there was no indication of a further reversal of the previous impairment, and as such, the Group did not estimate the recoverable amount of the investment in Cell C.
Management considered the changes made to the Cell C business strategy, the successful renegotiation of key service agreements and IT support, the enhanced senior executive management team, the continued focus on operational efficiencies, reduced operational expenditure, the optimisation of traffic and the implementation of a fixed-cost infrastructure.
This, together with the effects of the capital and debt restructure of the business as a result of the recapitalisation of Cell C, is expected to improve both the liquidity and performance of Cell C. Taking into account the latest available financial information and estimated future cash flows, management has concluded that the going concern basis is appropriate and Cell C Limited will be able to continue as a going concern for the foreseeable future.
The Committee considered the integrated annual report, incorporating the annual financial statements for the year ended 31 May 2024. The Committee considered the sustainability information as disclosed in the integrated annual report and assessed its consistency with operational and other information known to its members. The Committee recommended the approval of the integrated annual report to the Board. The ARCC is satisfied that it has complied with its legal, regulatory and other responsibilities as per its terms of reference and that it has executed its responsibilities in terms of paragraph 3.84(g)(ii) of the JSE Listings Requirements in its assessment of the suitability of the auditor. The contents of the ARCC report were approved by the Committee members on 30 September 2024.
On behalf of the Audit, Risk and Compliance Committee
Chairman
30 September 2024