Report of the audit committee

INTRODUCTION, ROLES AND RESPONSIBILITIES

The Life Healthcare Group Holdings 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,^TM* 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.

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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, Chief Executive Officer, Chief Financial Officer, the Group Chief Internal Audit Executive, Group Risk Manager and senior management in the financial function attended meetings at the invitation of the committee, together with the external auditors. 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, compliance and IT governance committee, which ensures the flow of information between the two committees.

As part of the external, independent evaluation of the board for the 2020 financial year, the performance of the committee was assessed and found to be satisfactory. In addition, members were assessed by the nominations and governance committee, on behalf of the board, 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 2019 to 30 September 2020:

Name		Qualifications		Date appointed		Attendance1
PJ Golesworthy (Chairman)		BA (Hons), Accountancy Studies, CA		10 June 2010		6/6
AM Mothupi		BA (Honours), Political Science		3 July 2017		6/6
GC Solomon		CA(SA)		10 June 2010		6/6
RT Vice		CA(SA)		1 February 2014		6/6

* Four (4) scheduled meetings and two (2) special meetings 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 on Remuneration report.

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 2021.

FULFILMENT OF THE COMMITTEE'S MANDATE

The committee has adopted comprehensive and formal terms of reference, which were comprehensively revised for the year under review and have been approved by the board, ensuring alignment with evolving best practice governance trends, as well as material changes to the JSE Listings Requirements. 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 whether there were significant weaknesses in the design, implementation or execution of the internal financial controls
• Considered and satisfied itself on the appropriateness of accounting policies and material estimates, assumptions and judgements
• 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 2020
  • the annual results for the year ended 30 September 2020
  • 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 2020, and the applicability of the issues raised, with the view to improving disclosure where applicable
• Noted the final findings of the report from the JSE's thematic review for compliance with IFRS 9 and IFRS 15 published in 2019
• 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 Chief Financial Officer, PP van der Westhuizen and satisfied itself that his expertise and experience is appropriate to meet the responsibilities of the position
• Oversaw the process, on behalf of the board, to apply to the JSE for dispensation from the requirements of paragraph 3.84(f) of the Listings Requirements to allow PP van der Westhuizen to fulfil the dual role of Chief Financial Officer and Interim Chief Executive Officer from 18 January 2020 until 31 August 2020
• 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, compliance and IT governance committee
• Reviewed legal matters that could have a material impact on the Group
• Performed the functions required in terms of section 94(2) of the Companies Act on behalf of the Group's South African subsidiary companies

CYBER-ATTACK ON THE SOUTH AFRICAN OPERATIONS

The southern African operation was the victim of a criminal attack, targeting some of its IT systems. The patient care systems were not impacted and the Company acted immediately on becoming aware of the incident, taking systems offline, in order to actively contain the attack. In line with the Company's business continuity plans, hospitals and administrative offices switched over to backup manual processing systems and continued to function, albeit and regrettably, with some administrative delays. The security incident affected admissions systems, business processing systems and email servers, which were immediately taken offline as a precaution and to ensure that we proactively contained the attack, and where necessary, commence remediation. Systems were only fully restored in September 2020.

IMPACT OF COVID-19

The committee considered the COVID-19 global pandemic (the pandemic) and related impact on the Group's operations and the preparation of the 2020 annual financial statements. The committee is satisfied that the relevant events related to the pandemic have been disclosed accordingly in the annual financial statements. The impact of the pandemic necessitated an in depth review of the following key matters:

• Impairment assessments of non-current assets, and specifically intangible assets and goodwill
• The recoverable amount of financial assets
• The solvency, liquidity and going concern assessments

At the outset of the pandemic, management assessed the potential impacts on the Group's liquidity and capacity to withstand adverse scenarios associated with the ability to continue operating. Forecasting processes were introduced to model the outcomes of a range of different scenarios reflecting different assumptions around the development of the pandemic and ability to operate. A number of mitigating actions were taken to manage cash outflows as well as to secure additional banking facilities. A relaxation of covenants was also successfully negotiated with our lenders for the September 2020 and March 2021 reporting dates. A condition of this relaxation was a requirement that no dividends be declared without lenders' approval. Given the uncertainty associated with the pandemic, on recommendation from the committee the board resolved not to declare an interim or final dividend.

In recommending that the going concern assumption was an appropriate basis for preparing the annual financial statements, the committee, inter alia, considered the liquidity forecasts, including the assumptions, and available debt facilities.

Further, the impacts of the cyber-attack and the pandemic delayed the implementation of a number of important financial system projects that were in progress in South Africa to address legacy system risks and to improve financial reporting. They further impacted the timing of the roll out of SAP to the International businesses.

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 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 for the year under review was outsourced to Ernst & Young (EY) in South Africa and BDO continues for the International business.

The EY outsource arrangement expired at the end of September 2020 while the BDO contract expires at the end of the 2021 financial year. During the course of the year under review a tender process for a global internal audit outsource partner was undertaken, with PricewaterhouseCoopers (PwC) being approved by the committee. PwC commenced as the outsource partner in South Africa on 1 October 2020 and will take over from BDO in the International business on 1 October 2021.

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 2020 financial year and subsequent changes thereto during the year;
• considered the effectiveness and performance of the internal audit function and the Chief Internal Audit Executive which 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.

The work of the internal audit function was materially impacted by the pandemic, which limited the ability to travel and necessitated a re-prioritisation of the 2020 internal audit plan, resulting in a lower number of internal audit assignments. In addition, the cyber-attack necessitated a delay in a number of IT-related assignments, which have been deferred into the 2021 financial year. Internal Audit conducted a number of reviews to assess the adequacy and effectiveness of manual processes and controls implemented due to the unavailability of systems in order to provide assurance around the integrity of the financial information.

EXTERNAL AUDIT

Following approval by shareholders at the AGM in January 2020, Deloitte served, for the first time, as the Group's registered external auditors for the 2020 financial year and Mr B Nyembe was appointed as the designated partner.

For the year under review, 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 auditors' report and confirmed that no material unresolved issues existed between the Group and the external auditors;
• reviewed and agreed the key audit matters identified by Deloitte, and 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 Deloitte's own assessment, and found it to be satisfactory. Confirmation was obtained from Deloitte that no material matters had been raised in regulatory or internal reviews of the audit partner;
• considered the external auditors' suitability assessment in terms of paragraph 3.84(g)(iii) and section 22.15(h) of the JSE Listings Requirements;
• confirmed that Deloitte'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 Deloitte in terms of the approved non-audit services policy which amounted to R2 million, being 4.3% of the Group audit fee in the current year; and
• confirmed that no reportable irregularities had been identified or reported by the external auditors under the Auditing Profession Act.

Deloitte's first year of audit was materially impacted by the pandemic and the impact of the cyber-attack on the financial systems. The planned timing of the audit was affected and the inability to rely on certain IT controls in South Africa resulted in a manually intensive and substantive audit process, with a consequent increase in the audit fee. The committee considered whether it would be appropriate to delay the release of the Group's results but, based on the assurances of management and Deloitte around completion of the audit, resolved to recommend to the board that the Company release its reviewed results on the planned date. It is testament to both management and Deloitte that this was achieved in the very difficult environment.

The committee resolved to recommend to shareholders that Deloitte be appointed as the Group's registered external auditors for the 2021 financial year and Mr B Nyembe as the designated partner.

JSE LISTINGS REQUIREMENTS ON ATTESTATION

The JSE Listings Requirement relating to Chief Executive Officer and Chief Financial Officer sign-off on the effectiveness of internal controls over financial reporting will apply to the Group for the 2021 financial year.

KEY AREAS OF FOCUS FOR 2020

In addition to the matters highlighted above, the other specific areas of focus for the committee in relation to the 2020 financial year included:

• reviewing the adoption of IFRS 16 Leases, which was effective for the year under review;
• continuous focus on the Group's reporting processes and financial controls and integration of the international operations;
• oversight of the transition in external auditors to Deloitte;
• further improvements to the Group-wide approach to combined assurance and internal audit; and
• in light of the cyber-attack on the Company, the committee played a role in providing support to management as the Company recovered from the impact of the attack. The committee continued to evaluate key risks, related controls and mitigations in respect of the IT infrastructure and project implementation, as it related to internal controls, and monitored continuous improvement initiatives within the finance function.

KEY AREAS OF FOCUS FOR 2021

For the new financial year, the committee will continue to oversee management's efforts to ensure the ongoing integrity of the Group's risk and control environment in these unprecedented times of the COVID-19 pandemic, and on the effects on financial reporting matters. Key focus areas will include:

• the continued oversight of the implementation of the South African system projects and the SAP project within the International operations;
• oversight of the settling in of the newly appointed internal auditors and the delivery of the internal audit plan;
• continued evaluation, with the support of the risk, compliance and IT governance committee, of the key risks, related controls and mitigations in respect of the IT infrastructure and project implementation, as it relates to internal controls;
• overseeing the accounting for the disposal of Scanmed and the subsequent disclosures to the market following the sale; and
• continuous focus on the Group's reporting processes and financial controls and integration of the international operations.

The committee confirms that for the 2020 financial year, 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.

I wish to place on record my appreciation to management, the external auditors and my fellow committee members for the support and dedication in what has been a particularly challenging year for the Company.

On behalf of the audit committee.

PJ Golesworthy
Chairman: audit committee

Johannesburg

9 December 2020