Report of the audit committee

FOR THE YEAR ENDED 30 SEPTEMBER 2019

INTRODUCTION

The Life Healthcare Group Holding Limited audit committee (the committee) is pleased to present its report in terms of section 94(7)(f) of the Companies Act and as recommended by King IV, for the year under review. The committee's primary role is assisting the board in discharging its responsibilities by monitoring the adequacy and effectiveness of the Group's systems and control environment, including that the Group has appropriate financial reporting procedures and that these procedures are operating as intended, and oversight over the preparation of the integrated report and fairly presented financial statements in compliance with all applicable legal and regulatory requirements and accounting standards. The Chairman of the committee reports to the board on the committee's deliberations and decisions at every board meeting.

COMPOSITION OF THE AUDIT COMMITTEE

Members of the committee are formally nominated by the board for re-election by shareholders. The individual members satisfy the requirements to serve as members of an audit committee as provided in section 94 of the Companies Act and have the requisite level of knowledge and experience to fulfil their duties.

The Chairman of the board, Group Chief Executive Officer, Group Chief Financial Officer, the Group Chief Internal Audit Executive, Group Risk Manager and senior management in the financial department attended meetings at the invitation of the committee, together with the external auditor. In line with best practice, the internal and external auditors have unrestricted access to the committee where they are able to raise any matter which requires the committee's attention and also have the opportunity to meet with the committee without members of management being present. The Chairman of the committee and AM Mothupi are members of the risk committee, which ensures the flow of information between the two committees.

As part of the annual evaluation of the board, the performance of the committee and its members were assessed and found to be satisfactory. In addition, members were assessed in terms of the independence requirements of King IV and the Companies Act. All members of the audit committee continue to meet the independence requirements.

The composition of the committee and the attendance at the meetings by its members are set out below for the year 1 October 2018 to 30 September 2019:

Name	Qualifications	Date appointed	Attendance¹
PJ Golesworthy (Chairman)	BA (Hons), Accountancy Studies, CA	10 June 2010	5/5
AM Mothupi	BA (Honours), Political Science	3 July 2017	5/5
GC Solomon	CA(SA)	23 March 2005	5/5
RT Vice	CA(SA)	1 February 2014	5/5

¹ Four (4) scheduled meetings and one (1) special meeting were held during the year under review.

The biographical details of the committee members can be viewed on the Group's website. The fees paid to committee members are outlined in the table of directors' remuneration.

The current members of the committee will be recommended to shareholders at the next annual general meeting (AGM) for appointment for the financial year ending 30 September 2020.

FULFILMENT OF THE COMMITTEE'S MANDATE

The committee has adopted comprehensive and formal terms of reference which have been approved by the board and are reviewed on an annual basis. The terms of reference can be viewed on the Group's website at www.lifehealthcare.co.za.

The committee has discharged all its responsibilities as contained in these terms of reference, including but not limited to reviewing accounting policies and ensuring that financial information issued to stakeholders is prepared in alignment with relevant legislation and best practice.

The main functions performed by the committee during the year under review were as follows:

monitored the proper operation of adequate and effective systems of internal controls, including receiving and reviewing reports from both internal and external auditors concerning the effectiveness of the internal control environment;
considered and satisfied itself that no significant weaknesses in the design, implementation or execution of the internal financial controls were identified;
considered and satisfied itself on the appropriateness of accounting policies and critical judgements, accounting estimates and assumptions;
monitored the reporting processes and the preparation of fairly presented financial statements in compliance with the applicable legal and regulatory requirements and accounting standards, and recommended, for adoption by the board, the financial information that is publicly disclosed, which for the year, included:
- the interim results for the six months ended 31 March 2018
- the annual results for the year ended 30 September 2019
- the related SENS and press announcements for both interim and year-end;
confirmed the going concern basis of preparation of the interim and annual financial statements;
considered the JSE's proactive monitoring of financial statements report, as issued in 2019, and the applicability of the issues raised, with the view to improving disclosure where applicable. Further, the committee considered and responded to queries raised by the JSE in terms of its proactive monitoring programme to the satisfaction of the JSE;
made recommendations regarding dividend declarations, having considered the liquidity and solvency tests;
reviewed and recommended for approval by the board the integrated report, including the disclosure of sustainability issues;
reviewed the qualifications, experience and expertise of the Group Chief Financial Officer, PP van der Westhuizen, and satisfied itself that his expertise and experience is appropriate to meet the responsibilities of the position;
the committee also considered and satisfied itself of the appropriateness of the expertise and adequacy of resources and experience of the Group's finance function;
considered the reports of management and the internal and external auditors regarding compliance with legal and regulatory requirements, as well as relevant findings of the risk committee;
reviewed legal matters that could have a material impact on the Group; and
performed the functions required in terms of section 94(2) of the Companies Act on behalf of the Group's subsidiary companies.

INTERNAL AUDIT AND INTERNAL CONTROLS

The committee ensured that the internal audit function is independent and has the necessary resources to enable it to fulfil its mandate. The Group Chief Internal Audit Executive reports functionally to the Chairman of the committee and administratively to the Group Chief Financial Officer. An outsourced internal audit function operates across the Group with the Group Chief Internal Audit Executive responsible for coordinating the planning, implementation and reporting thereon. The South African internal audit function has been outsourced to Ernst & Young (EY) and a limited scope internal audit in Poland was outsourced to Deloitte, as in the prior year. BDO was appointed as internal auditors for Alliance Medical during the 2019 financial year.

The committee:

reviewed the internal audit charter in line with King IV recommendations and recommended the approval thereof to the board;
approved the risk-based internal audit plan for the 2019 financial year and subsequent changes thereto during the year;
considered the effectiveness and performance of the internal audit function and were found to be satisfactory for the year under review;
reviewed the combined assurance model and considered its effectiveness;
received risk updates, particularly in relation to matters affecting financial reporting;
reviewed and evaluated reports relating to internal audit and risk management and the adequacy of management's responses and corrective actions;
reviewed arrangements made by the Company to enable employees and outside whistle blowers to report any concerns about possible improprieties and received reports on the issues raised; and
reviewed internal audit's assessment of the internal control environment.

EXTERNAL AUDIT

Following approval by shareholders at the annual general meeting in January 2019, PwC served as the Group's registered external auditor for the 2019 financial year and M Naidoo was reappointed as the designated partner. During the year under review, M Naidoo resigned as a partner from PwC and joined the Company as Chief Financial Officer-designate for our South African business. The committee ensured that a proper and transparent process was in place to ensure the independence of PwC in carrying out the 2019 audit and considered assurances provided by management, M Naidoo and PwC to give effect thereto. A Rossouw was subsequently appointed as the designated audit partner for the Company and M Naidoo has remained completely outside of the year-end audit and assurance process.

The committee:

approved the auditors' terms of engagement and fees. The fees paid to the external auditors are disclosed in note 6 to the annual financial statements;
reviewed and approved the external audit plan and ensured no limitations were imposed on the scope of external audit;
reviewed the external auditor's report and confirmed that no material unresolved issues existed between the Group and the external auditor;
reviewed and agreed the key audit matters identified by PwC that are set out in its report;
obtained assurances from the external auditors that adequate accounting records were being maintained;
reviewed the quality and effectiveness of the external audit process, based on the committee's own assessment, the views of management and PwC's own assessment, and found it to be satisfactory. Confirmation was obtained from PwC that no material matters had been raised in regulatory or internal reviews of the audit partner;
considered the external auditor's suitability assessment in terms of paragraph 3.84(g)(iii) and section 22.15(h) of the JSE Listings Requirements;
confirmed that PwC's independence was not impaired and received assurance that its internal governance processes support and demonstrate its claim to independence;
reviewed and confirmed the non-audit services provided by PwC in terms of the approved non-audit services policy which amounted to R7 million, being 21% of the Group audit fee in the current year; and
confirmed that no reportable irregularities had been identified or reported by the external auditor under the Auditing Profession Act.

AUDIT FIRM ROTATION

One of the material focus areas for the committee during the year under review was the approval and appointment of the new Group external auditor, effective for the Group in the 2020 financial year. PwC has served as auditors for more than 20 years and the committee resolved in the prior year to make the change before the mandatory audit firm rotation requirements became effective for the Group.

The board and committee, following a formal tender process, appointed Deloitte & Touche (Deloitte) as the Company's external auditor, with B Nyembe as the designated audit partner, for the financial year ending 30 September 2020.

PwC's appointment as external auditors ended on conclusion of its responsibilities relating to the 30 September 2019 financial year audit, which was concluded on 20 November 2019. Deloitte's appointment as external auditor was made effective immediately after PwC's appointment concluded, subject to further shareholder approval at the Company's AGM in January 2020. During the course of the 2019 audit Deloitte has engaged with management and PwC in preparation.

The committee satisfied itself through enquiry that both Deloitte and the audit partner are independent as defined by the Companies Act and as per the standards stipulated in the audit profession. The committee is also satisfied that the audit firm and designated partner are accredited to appear on the JSE list of accredited auditors and advisers.

The committee wishes to thank PwC for its professional and dedicated service to the Group during its tenure.

KEY AREAS OF FOCUS FOR 2019

The significant areas of focus for the committee in relation to the 2019 financial year included:

overseeing the accounting for the disposal of Max Healthcare Institute Limited and the subsequent disclosures to the market following the sale;
reviewing impairment testing of goodwill, including key assumptions to the impairment tests, which included the cash flows derived from the annual financial plans, long-term growth rates and the discount rates applicable to the respective geographies and businesses, as well as considered the sensitivities to changes in the assumptions and the related disclosure required by IAS 36 Impairment of Assets;
reviewing the adoption of new and amended accounting standards, including IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers, applicable in 2019 and evaluating the approach and current disclosure for IFRS 16 Leases, which is effective for the 2020 financial year;
continued focus on the Group's reporting processes and controls, as well as further integration of the international operations;
monitoring of digital transformation, information security and continuous improvement initiatives, particularly within the finance function;
further improvements to the Group-wide approach to combined assurance and internal audit and bedding down of the outsourced internal audit model in international operations;
focus on building the appropriate bench strength across the enlarged Group, and in particular with Alliance Medical Group Limited following a number of finance staff changes, and to ensure appropriate financial systems to facilitate more effective and timeous reporting at Group level; and
continued monitoring of the implementation of the SAP enterprise resource planning (ERP) system which impacts the financial control environment.

KEY AREAS OF FOCUS FOR 2020

Reviewing the adoption of new and amended accounting standards, including IFRS 16 Leases, which is effective for the 2020 financial year.
Continuous focus on the Group's reporting processes and financial controls and integration of the international operations.
Evaluating key risks, related controls, mitigations in respect of IT infrastructure and project implementation, as it relates to internal controls.
Oversight of the transition in external auditors to Deloitte.

The committee confirms for the 2019 financial year that it has discharged its responsibilities in accordance with its terms of reference and in compliance with the requirements of the Companies Act, the JSE Listings Requirements and all other relevant legislation.

On behalf of the audit committee

PJ Golesworthy
Chairman: audit committee
Johannesburg

18 November 2019