Dear shareholders,
I am pleased to present the audit committee report, which reflects the committee's independent role with accountability to the board and shareholders for the year ended 31 December 2023.
Nondumiso Medupe
Audit committee chairperson
Committee members are elected at the AGM by shareholders on recommendation from the board, through the nomination committee.
Through its recommendations, the board ensures a balance of skills and experience, with a focus on financial literacy, to enable the committee to discharge its function. All committee members are independent non-executive directors.
Vuyisa Nkonyeni, former independent non-executive director and chairperson of the audit committee, and Isaac Mophatlane, independent non-executive director and committee member, retired by rotation at the AGM on 18 May 2023.
On recommendation from the board, shareholders at the 2023 AGM approved the appointment of Nondumiso Medupe as independent non-executive director and audit committee member. Nondumiso was appointed by the board as the audit committee's first female chairperson.
To increase membership of the committee, the board, on recommendation from the nomination committee, appointed Nosipho Molope as independent non-executive director and member of the audit committee, effective 3 January 2024. Her appointment will be submitted to shareholders for approval at the 2024 AGM.
In 2023, the committee maintained its minimum membership of three independent non-executive director members.
The board is satisfied that the committee members have the necessary academic qualifications or experience in economics, law, corporate governance, finance, accounting, commerce, industry, public affairs or human resource management.
Refer to our board of directors for members' qualifications and experience.
Meeting attendees include the CEO, finance director, members of the executive team and senior management representing areas relevant to discussions of the audit committee, as well as the independent external auditor, the head of internal audit and group manager risk, either by standing invitation or as required. The internal and external auditors have unrestricted access to the audit committee.
Gender and racial diversity
As determined by its terms of reference, the committee held four scheduled meetings and two special meetings in 2023.
| Members | Designation | Attendance at scheduled meetings |
Attendance at special meetings |
| Nondumiso Medupe | Independent non-executive director and audit committee chairperson | 4/4* | 2/2* |
| Billy Mawasha | Independent non-executive director | 4/4 | 2/2 |
| Chanda Nxumalo | Independent non-executive director | 3/4 | 1/2 |
| Isaac Mophatlane | Independent non-executive director | 1/1** | 1/1** |
| Vuyisa Nkonyeni | Independent non-executive director | 1/1** | 1/1** |
| * | Nondumiso Medupe's appointment as member on 3 January 2023 was approved at the AGM on 18 May 2023. |
| ** | Vuyisa Nkonyeni (former chairperson of the audit committee) and Isaac Mophatlane (former member) retired as members at the AGM on 18 May 2023. |
Two additional annual sessions are held with the independent external auditor and internal auditor, separately and without management present, to exchange views and concerns to further strengthen the committee's independent oversight.
The audit committee is an independent statutory committee with members appointed annually by Exxaro's shareholders in compliance with section 94 of the Companies Act and the principles of good governance. In terms of the Companies Act, this committee has an independent role and is accountable to the board and company's shareholders.
The committee does not assume the functions of management, which remain the responsibility of the executive directors, prescribed officers and other members of senior management, nor does it assume accountability for the functions performed by other board committees. In addition to the Companies Act, the committee's duties are guided by the JSE Listings Requirements and King IV.
The committee's terms of reference govern its role and responsibilities. To assist the board, the committee plays an essential role in providing independent oversight of:
The board reviewed and approved the committee's terms of reference, which align with legislation, regulations, King IV and the IoDSA guidance for audit committees.
As there is no regulatory requirement to conduct an external independent performance assessment annually and, while King IV recommends regular performance evaluations for all board committees, it has become a governance practice at Exxaro to conduct such independent assessments every second year.
During the year, in accordance with King IV recommendations, the board conducted an internal evaluation of the committee's performance and effectiveness. The evaluation aimed to identify and record areas needing strengthening or refinement while considering internal and external dynamics and factors that may positively or negatively impact the committee's ability to enhance its performance and effectiveness in these areas. The assessment concluded that the committee functions effectively.
| Key highlights | Material themes |
| Appointment of Nondumiso Medupe as the first female chairperson of the audit committee |  |
| Exxaro Insurance Company Limited's successful implementation of IFRS 17 Insurance Contracts, which became effective on 1 January 2023 |  |
| The committee reviewed the internal audit charter as required by the International Standards for the Professional Practice of Internal Auditing | |
| The committee considered technology and innovation which will be integral for the effectiveness of the internal audit function to ensure (inter alia) an enhanced control environment, which will be deployed over the next three years |  |
| The committee approved the updated combined assurance model to include the five lines of assurance wherein the lines of assurance are differentiated by the level of risk ownership and the independence of assurance effort | |
The committee considered and reviewed an internal assessment of Riaan Koppeschaar's expertise and experience as the finance director and is satisfied that he has the appropriate experience and expertise to execute his responsibilities. The evaluation considered the appropriateness of the expertise and adequacy of resources in the finance function.
The committee ensured that the finance function re-evaluated its disclosures in line with latest accounting developments. A clear focus was placed on financial reporting risks and controls presented by geopolitical macro-economic conditions including supply chain disruptions, inflation, interest rates and market volatility.
The group and company annual financial statements for the year ended 31 December 2023 were prepared by management, reviewed by the committee and the board and audited by the independent external auditor.
The committee is satisfied that the group and company annual financial statements for the year ended 31 December 2023 comply with the relevant provisions of the Companies Act, IFRS® Accounting Standards interpretations issued by the IFRS Interpretations Committee (IFRIC® Interpretations), the JSE Listings Requirements and applicable accounting policies and practices. The committee is satisfied that the group and company annual financial statements fairly present a balanced view of the group and company's financial position, financial performance and cash flows.
During the year, the committee, with input and reports from the independent internal and external auditors, reviewed the system of internal financial reporting procedures based on the ERM framework. This review included consideration of all Exxaro entities within the consolidated group to ensure that the committee had access to all financial information to allow for effective preparation and reporting on the group and company annual financial statements for the year ended 31 December 2023. Informed by these reviews, the committee confirmed that no material findings came to the committee's attention to indicate the ineffectiveness of internal financial reporting controls during 2023.
KPMG was the independent external auditor for 2023, with its delivery partner, AM PhakaMalele. Their reappointment was approved by shareholders as presented by separate resolution at the AGM on 18 May 2023, in terms of the JSE Listings Requirements paragraph 3.84.
Having assessed the suitability of the appointment of the external auditor and designated audit partner, the committee is satisfied that KPMG is independent of the group as per section 94(8) of the Companies Act.
The committee considered the relevant information under paragraph 3.84(g)(iii) of the JSE Listings Requirements. Thus, the committee executed its responsibility to consider the suitability of the external auditor and designated individual auditor, as required by paragraphs 3.84(g)(iii) and 3.87 (and previously paragraph 22(15)) and in terms of their mandate required by paragraph 3.86 of the JSE Listings Requirements.
The committee recommends KPMG with its delivery partner, AM PhakaMalele, for reappointment for the ensuing year ending 31 December 2024 at the upcoming AGM on 23 May 2024 by way of a separate resolution by shareholders in terms of the JSE Listings Requirements paragraph 3.84(g)(iv) and section 61(8) of the Companies Act.
Fees paid to KPMG for 2023 and 2022 are disclosed in the group and company annual financial statements for the year ended 31 December 2023.
The policy for engagement of the external auditor to supply assurance and other services was reviewed in 2023. The committee considered the Revisions to the Non-Assurance Services Provisions of the Code from the International Ethics Standards Board for Accountants and the Revisions to The Non- Assurance Services Provisions of the Code from Independent Regulatory Board for Auditors, and set the threshold for assurance and other services for the external auditor at a maximum of 20% of the statutory audit fee for any given financial year end. It was confirmed that KPMG, in terms of its internal policy, will not provide any advisory or tax services to its audit clients.
During the review period, the following fees were paid to the independent external auditor:
| 2023 Rm |
2022 Rm |
|
| Statutory audit fees | 30.3 | 27.5 |
|---|---|---|
| Non-audit service fees | 3.0 | 1.7 |
| Total | 33.3 | 29.2 |
The committee is satisfied with the level and extent of assurance and other services rendered by KPMG during the year, which did not affect its independence.
The audit committee is satisfied that Safeera Loonat, as designated individual auditor, and KPMG are registered in compliance with paragraph 3.87 of the JSE Listings Requirements.
For both 2023 and 2022, KPMG partnered with AM PhakaMalele, a level 1 B-BBEE company, honouring Exxaro's commitment to transformation.
The committee ensured the internal audit function focused on the company's key risks and is a valuable resource for the audit committee and the organisation.
The internal audit function is partially outsourced to PwC under the management control of Exxaro's head: internal audit. PwC partnered with a level 1 B-BBEE company, Ngubane & Co, to fulfil the internal audit support function. Their responsibilities are detailed in an internal audit charter approved by the committee, which is reviewed and approved annually with an internal audit plan.
The main function of internal audit is to express an opinion on the effectiveness of governance, risk management and systems of internal controls as well as the internal control environment within the group.
The internal audit function provides an independent and objective consulting service designed to add value, maintain assurance and improve Exxaro's operations. The committee is pleased with the overall performance of the internal audit function and the services provided.
The committee reviewed the internal audit charter as required by the International Standards for the Professional Practice of Internal Auditing.
It approved the following:
As required by King IV, assurance was broadened to cover all sources of assurance, including external assurance, internal audit, management oversight and regulatory inspections. The combined assurance model has been updated to include the introduction of the five lines of assurance to differentiate the level of risk ownership and independence of assurance efforts and by providers.
The model incorporates and optimises all assurance services and functions to enable an effective control environment and support the integrity of information used for internal decision making by management, the governing body and its committees and the organisation's external reports.
An annual combined assurance plan is submitted for approval to the audit committee, detailing all proposed assurance activities within the group, including the level of assurance. The committee ensures alignment of the combined assurance plan, internal audit plans and external audit plans. Risk acceptance, level 1 finding disclosure process and risk extension requests are adopted as protocols.
The committee's role is to review the effective establishment and operation of combined assurance within the group. To this end, the company established a combined assurance framework. The committee is satisfied that the combined assurance framework is a platform to coordinate Exxaro's assurance functions. The combined assurance framework coordinates assurance coverage for Exxaro's risk exposure as identified and ranked by Exxaro's risk management function, including optimisation of assurance functions aligned with King IV recommended assurance practices.
The committee is satisfied with the arrangements for ensuring an effective and efficient combined assurance model within the group.
In terms of King IV, the committee exercises oversight of technology and information governance.
The committee received reports on the group's digital transformation as well as the impact of cyber risk on information technology performance to support strategy execution.
As information governance plays a pivotal role in ensuring alignment with organisational objectives and adherence to industry benchmarks, the information management governance framework was aligned with recognised industry standards, including ISO 27001, COBIT 2019, ITIL 4, ISO 31000 and ISO 27031, among others.
To further enhance decision making, oversight and strategic direction, several management governance forums have been implemented in 2023. A number of foundational policies support these structures by guiding behaviour, expectations and operations.
The committee exercised oversight of the following matters in 2023:
tax report)Key focus areas 2023/2024
| Monitoring implementation of the strategy concerning the deployment of new post-modern enterprise resource planning solutions to ensure acceptable cost, risk and alignment with the Exxaro strategy |
| Ensuring alignment of the combined assurance process, internal audit plan and external audit plan in terms of a risk-based approach |
| Reviewing Exxaro's future strategy regarding insurance cover and self-insurance, taking into account global resistance to thermal coal and insurance markets |
| Enhancing the committee composition and skills set |
| Monitoring and considering the impact of cyber security risks and use of artificial intelligence in the finance and internal control environment |
| Managing talent challenges in the finance and internal audit functions as a result of global war for talent |
| Reviewing the transition from a predominantly outsourced model to a co-sourcing internal audit model ensuring Exxaro's transformation objectives are achieved |
In carrying out its duties, the committee has due regard to its terms of reference, the Companies Act, the JSE Listings Requirements and the principles and recommended practices of King IV. The committee is satisfied that it has considered and discharged its responsibilities in accordance with its terms of reference and confirms that it fulfilled its mandate and responsibilities in terms of the Companies Act, the JSE Listings Requirements (paragraph 3.84(g) in particular) and King IV.
On behalf of the audit committee
Nondumiso Medupe
Audit committee chairperson
10 April 2024
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