Audit committee report
Report to shareholders on the activities of the audit committee for the year ended 31 March 2018.
The audit committee is a committee of the board. In addition to specific statutory responsibilities to shareholders in terms of the Companies Act, it assists the board by advising and making submissions on financial reporting, overseeing the governance, risk management process and internal financial and non-financial controls, external and internal audit functions as well as statutory and regulatory compliance of the company. For the review period, the committee complied with the requirements of King IV™.
Terms of reference
The committee has formal terms of reference that were reviewed during the year and approved by the board. It has executed its duties in the period in line with these terms of reference.
The committee comprises four independent non-executive directors:
|Membership||Qualification relevant||Tenure (years)|
|N Gobodo (chair)||CA(SA)||1|
|N Goldin||BCom (hons), MBA||2|
|T Moyo||CA(Z), CA(SA)||3|
Effective 9 April 2018, Mr Ross, the committee chair, resigned as non-executive director of PPC Ltd and Ms Gobodo was appointed as the audit committee chair. On 13 April, Mr Sehoole was appointed to the committee.
The CEO, CFO, chief audit executive, senior financial executives of the group and representatives from the external auditors attend committee meetings. The internal and external auditors have unrestricted access to the committee.
The committee held five scheduled meetings during the year, with attendance shown below:
|29 May 2017||All present|
|12 July 2017||All present|
|18 September 2017||All present|
|14 November 2017||All present|
|8 March 2018||All present|
In executing its statutory duties for the year, the committee:
- Nominated Mr Mashifane, from the audit firm Deloitte & Touche (Deloitte), for appointment as lead engagement auditor. In the opinion of the committee, Mr Mashifane was independent of the company
- Determined Deloitte's terms of engagement
- Believes the appointment of Deloitte complies with the relevant provisions of the Companies Act, JSE Listings Requirements and King IV™
- Developed and implemented a policy setting out the extent of any non-audit services the external auditors may provide to the company or may not provide
- Pre-approved all non-audit service contracts with Deloitte
- Received no complaints on the accounting practices and internal audit of the company, the content or auditing of its financial statements, internal financial controls, or related matters
In executing its delegated duties and making its assessments (as reflected in its terms of reference), the committee obtained feedback from external and internal audit and, based on the processes and assurances obtained, believes the accounting practices are effective. Accordingly, the committee fulfilled all its obligations set out below.
The committee reviewed the financial statements, summarised annual financial statements, preliminary announcements, short-form announcements and accompanying reports to shareholders and other announcements on the company's 2018 results to the public.
- Recommended to the board to engage an external assurance provider on material sustainability issues
- Reviewed disclosure of sustainability issues in the integrated and supplementary reports to ensure it is reliable and does not conflict with financial information
- Recommended the integrated report to the board for approval
- Took responsibility for the performance assessment of Ms Putzier, chief audit executive (CAE). A formal performance assessment was performed at the end of the financial year and nothing has come to the attention of the committee indicating a decline in performance
- Approved the internal audit plan and changes to the plan and satisfied itself that the audit plan makes provision for effectively addressing the critical risk areas of the business
- Reviewed internal audit's compliance with its charter and considered whether the internal audit function has the necessary resources, budget and standing in PPC to discharge its functions
The committee is an integral component of the risk management process and specifically reviewed:
- Financial risks
- Financial reporting risks
- Internal financial controls
- Fraud risks as they relate to financial reporting
- IT governance
- Evaluated and reported on the independence of the external auditor
- Reviewed the quality and effectiveness of the external audit process
- Based on its satisfaction with the results of activities outlined above, recommended to the board that Deloitte should be reappointed for 2019, with Mr Mashifane nominated as the registered auditor
- Determined fees to be paid and terms of engagement of the auditor
- Ensured the appointment of the auditor complies with the Companies Act and other relevant legislation
The committee has satisfied itself of the appropriateness of the expertise and experience of Ms Ramano, the financial director, and confirms this to shareholders.
- The committee has reviewed the expertise, resources and experience of the company's finance function. It noted that management was taking steps to alleviate the impact of a higher workload given the number of projects and increased complexities
- In making these assessments, the committee obtained feedback from external and internal audit
- Based on the processes and assurances obtained, the committee believes the accounting practices are functional and effective. While the finance function is efficient, there are some deficiencies that require management attention. The committee is satisfied that management is implementing appropriate plans to remedy the situation
Oversight of risk management
The committee engages with the risk and compliance committee to ensure adequate understanding of risk management processes.
Internal financial controls
- Reviewed the effectiveness of the company's system of internal financial controls, and received assurance from management and internal audit
- Reviewed material issues raised by the internal and external audit process
- Based on the processes and assurances obtained, we believe material internal financial controls are effective
Key areas from the year-end audit report
As noted in the directors' report, preparing the financial statements requires management and the board to exercise judgement in compiling financial information. To the extent that significant judgement was applied, appropriate disclosure is reflected in the respective notes to the financial statements.
The auditors also report on matters they deem significant. These are discussed in their report on page 136 of the financial statements.
In finalising the consolidated annual financial statements for the year ended March 2018, the audit committee considered the following balances to have been prepared with a significant amount of judgement:
Potential impairment of significant assets
PPC group performs impairment calculations twice each year, at interim and at year-end stage. All subsidiaries of PPC Ltd are assessed for indications or conditions that may suggest an impairment. In accordance with IAS 36.10(a) and (b), the following are assessed irrespective of whether there is any indication of impairment:
- Goodwill acquired in a business combination
- Intangible asset with an indefinite useful life
- Intangible asset not yet available for use
Where such an indication exists, PPC estimates the recoverable amount of the asset and compares this to the current carrying amount of the entity and the goodwill balance (where applicable) (IAS 36.09).
PPC measures the recoverable amount as value in use, as it expects to recover the value of the asset through use, unless an asset has been identified as held for sale or there is a suitable market where fair values are readily available. The selection of an appropriate method is prescribed by IFRS requirements.
The group has expanded into the DRC and Rwanda, with the DRC plant commissioned in the current financial year. The plant in Rwanda was commissioned in calendar 2016. PPC has been operating in Zimbabwe since acquiring the business in 2001, with a further investment in a cement mill in Harare which was commissioned in the previous financial year.
Given the economic and political environments and life-of-mine estimates, impairment assessments were undertaken by management on all subsidiaries.
The audit committee reviewed and debated assumptions used by management in preparing the impairment assessments, under the discounted cash flow model, including the weighted average cost of capital applicable to each subsidiary. It concluded that there was no impairment required on CIMERWA, PPC Zimbabwe, PPC Cement RSA and the rest of the materials businesses. However, on reviewing the PPC Barnet DRC subsidiary's discounted cash flows, the committee concluded that an impairment of this operation was appropriate and concurred with management on an impairment of US$14 million (R165 million). It was also noted that management should continue to monitor the impairment indicators and, if still applicable by the time the company finalises its 2019 half-year results, further impairment reviews should be performed.
The committee also noted constraints in remitting funds from Zimbabwe as a result of in-country liquidity issues and the potential impact on the going concern assumption. In addition, the committee noted the disclosure of Zimbabwe's cash and cash equivalents at year-end.
Capitalisation of plant expansion costs and capitalisation date for the DRC plant
The 1.2mtpa plant in the DRC was commissioned in the current financial year. In determining the most appropriate commissioning date, management considered various factors, to determine when the plant would be in the condition necessary for it to operate in the manner intended by management.
The committee reviewed management's assessment of when the plant would be deemed to be operating in this manner, taking account of significant factors listed in the property, plant and equipment note on determining commissioning dates and timing of performance acceptance certificates.
In addition, the committee debated the process followed by management to determine appropriate costs to be capitalised to plant and equipment. It concurred with management's assessment on the commissioning date of 1 November 2017.
The committee reviewed management's assessment of the DRC plant's capital work in progress account and the exercise undertaken to transfer expenditure to the fixed assets register and expensing of US$6 million of expenditure previously capitalised to plant under capital work in progress.
The committee has fulfilled all its statutory duties as per the requirements of section 94(7) of the Companies Act. The committee also complies with paragraph 3.84(g) of the JSE Listings Requirements.
On behalf of the audit committee
12 July 2018