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Responsibility for annual financial statements

The directors of Tiger Brands Limited are responsible for the integrity of the annual financial statements of the company, consolidated subsidiaries, associates and the objectivity of other information presented in the integrated annual report. The fulfilment of this responsibility is discharged through the establishment and maintenance of sound management and accounting systems, an organisational structure which provides for delegation of authority and establishes clear responsibility, together with the constant communication and review of the operations’ performance measured against approved plans and budgets.

Management and employees operate in terms of a code of ethics approved by the board. The code requires compliance with all applicable laws and maintenance of the highest integrity in the conduct of all aspects of the business.

The financial statements, prepared in terms of International Financial Reporting Standards, are audited by our external auditors in conformity with International Standards on Auditing.

An audit committee of the board of directors, composed entirely of independent non-executive directors, meets periodically with our internal and external auditors as well as management to discuss internal financial controls and auditing and financial reporting matters. The auditors have unrestricted access to management, financial records as well as the audit committee.

The directors have no reason to believe that the group’s operations will not continue as going concerns in the year ahead, other than where closures or discontinuations are anticipated, in which case provision is made to reduce the carrying cost of the relevant assets to net realisable value.


Directors’ approval

The financial statements for the year ended 30 September 2020, are in agreement with the books of account at that date, were approved by the board of directors on 19 November 2020 and signed on its behalf by:

Khotso Mokhele
Chairman

Noel Doyle
Chief executive officer

19 November 2020

Certificate by company secretary

Certified in terms of section 88(2)(e) that the company has filed required returns and notices in terms of the Companies Act of South Africa, and that all such returns and notices appear to be true, correct and up to date.

Kgosi Monaisa
Company secretary

19 November 2020


Audit committee report

The committee is constituted as a statutory committee of Tiger Brands in respect of its duties in terms of section 94(7) of the Companies Act of South Africa. The committee’s activities are guided by a detailed charter informed by the Companies Act and King IV™*, which is reviewed and approved by the board annually.

The committee has executed its duties and responsibilities for the group’s accounting, internal control and internal audit, external auditing and financial reporting practices for the review period in line with its approved charter.

* Copyright and trademarks are owned by the Institute of Directors in South Africa NPC and all of its rights are reserved.
Composition

The committee comprises three independent non-executive directors, and its chairman is not the chairman of the board. Members and attendance is detailed in the integrated annual report.

Biographical details of members and fees are noted in the remuneration report of the integrated annual report.

The fundamental role of an audit committee is to assist the board in fulfilling its oversight responsibilities in areas such as financial reporting, internal control systems and internal and external audit functions. The committee works closely with the group’s risk and sustainability committee, the social and ethics committee to identify common risk and internal control themes, and achieve synergies across all combined assurance processes to ensure that where appropriate, these functions can leverage off each other.

This report is provided by the audit committee appointed for the 2020 financial year.


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Areas of focus
External audit

The committee, among other matters:

  • Nominated Ernst & Young Inc. to shareholders for appointment as the external auditor, with Ahmed Bulbulia as the designated auditor, for the financial year ended 30 September 2020. It ensured that the appointment complied with all applicable legal and regulatory requirements, and that the auditor and designated auditor are accredited by the JSE Limited
  • Approved the external audit engagement letter, plan and budgeted audit fees. Fees paid to the auditor are detailed in note 3 of the group financial statements
  • Reviewed the audit results, evaluated the effectiveness of the auditor and its independence, and evaluated the external auditor’s internal quality-control procedures
  • Obtained an annual written statement from the auditor that its independence was not impaired
  • Considered the reports of the external auditor on the group’s systems of internal control, including financial controls
  • Determined the nature and extent of all non-audit services provided by the external auditor and pre-approved all non-audit services in line with the group’s audit and non-audit services pre-approval policy
  • Obtained assurances from the external auditor that adequate accounting records were being maintained
  • Considered whether any reportable irregularities were identified and reported by the external auditor in terms of the Auditing Profession Act, No 26 of 2005, and determined that there were none
  • The committee chairman met with senior leadership of the audit firm to discuss the firm’s risk and quality processes independently from what the audit team disclosed to the committee.
 
Independence of the external auditor

The audit committee is satisfied that Ernst & Young Inc. is independent of the group after considering the following factors:

  • Representations by Ernst & Young Inc. to the committee
  • The auditor does not, except as external auditor or in rendering permitted non-audit services, receive any remuneration or other benefit from the company
  • The auditor’s independence was not impaired by any consultancy, advisory or other work undertaken
  • The auditors met, in all material respects, the criteria specified for independence by the Independent Regulatory Board for Auditors and international regulatory bodies.

Non-audit fees

The committee annually reviews and approves the list of non-audit services which the auditors are permitted to perform in line with the company’s Audit and Non-Audit Services Pre-Approval policy. There is a pre-approval process where all non-audit service engagements above a certain threshold must be approved by the group chief financial officer, and pre-approved by the chairman of the committee. If a higher threshold is to be applied it has to be approved by the entire committee. Quarterly, the cumulative spend for the year to date is presented to the committee to keep track of the non-audit spend and the nature of services. The 2020 non-audit fees were 6,2% of the audit fees. This is above the group’s threshold of 5%, which is in place for non-audit services, in aggregate and individually per firm. The increase is due to once-off tax reviews conducted on the foreign subsidiary (Deli Foods) resulting from closure of the business.


Financial statements

For the financial statements, the committee:

  • Confirmed the going-concern requirement as the basis of preparing interim and annual financial statements
  • Reviewed compliance and determined that the capital and debt facilities of the group are adequate
  • Examined and reviewed the interim and annual financial statements, as well as all financial information disclosed to the public before submission to and approval by the board
  • Ensured that the annual financial statements fairly present the financial position of the company and group at the end of the financial year and the results of operations and cash flows for that period
  • Considered accounting treatments, significant unusual transactions and accounting judgements
  • Considered the appropriateness of accounting policies adopted and any changes
  • Reviewed the external auditor’s audit report including the key audit matters identified by the external auditors which are included in the Tiger Brands Limited annual financial statements. The committee has considered the appropriateness of the key audit matters reported on by the external auditors and is satisfied with management’s treatment and audit responses thereof
  • Reviewed the representation letter on the group financial statements signed by management on behalf of the board
  • Considered any issues identified and reviewed any significant legal and tax matters that could have a material impact on the financial statements
  • Met separately with management and external auditors to review and discuss the annual financial statements.
Internal controls and internal audit

For internal controls and internal audit, including forensic audit, the committee:

  • Reviewed and approved the internal audit charter and annual audit plan, including the annual budget and evaluated the independence
  • Effectiveness and performance of the internal audit function and compliance with its charter
  • Considered reports of the internal auditor on the group’s systems of internal control including financial controls and business risk management
  • Received assurance that an adequate and effective system of internal control and risk management is being maintained
  • Received assurance that proper and adequate accounting records were maintained and that the group’s systems safeguarded its assets against unauthorised use or disposal
  • Reviewed significant issues raised by internal and forensic audit functions and the adequacy of corrective action taken
  • Assessed the performance and the arrangements of the internal audit function and found it to be in general conformance with the International Standards for the Professional of Internal Auditing as issued by the Institute of Internal Auditors (IIA) standards. In addition, the committee is satisfied that the internal audit function is independently and appropriately resourced
  • Spearheaded the recruitment and appointment of the internal audit and risk director, Ms Carmen Botha, effective from 1 November 2020.

The committee confirms it has no reason to believe there were any material breakdowns in the design and operating effectiveness of internal financial controls during the period that have not been addressed or are not being addressed by management.

In terms of risk management and information technology relevant to its functions, the committee:

  • Reviewed the group’s policies on risk management practices, including fraud and information technology risks as they relate to financial reporting and the going concern assessment, and found them to be adequate and effective
  • Considered and reviewed the outcomes of the quarterly risk and sustainability committee meetings.

For sustainability issues, the committee:

  • Considered the outcomes of the risk and sustainability committee meetings
  • Met with senior management to consider findings on assurance and made appropriate enquiries from management. Through this process, it has received the necessary assurances that material disclosures are reliable and do not conflict with financial information.

For legal and regulatory requirements, where these may affect the financial statements, the committee:

  • Reviewed, with management, legal matters that could have a material impact on the group
  • Reviewed, with the company’s internal counsel, the adequacy and effectiveness of the group’s procedures to ensure compliance with legal and regulatory responsibilities
  • Monitored concerns on accounting matters, internal audit, internal accounting controls, contents of the financial statements, potential violations of the law and questionable accounting or auditing matters
  • Considered reports provided by management, the internal auditor and external auditor on compliance with legal and regulatory requirements.
Combined assurance

During the year, the committee reviewed the plans and work outputs of the external and internal auditors and concluded these were adequate to address all significant risks facing the business.

There is an enterprise-wide system of internal control and risk management in all key operations to manage and mitigate risks. The combined assurance approach is integrated with the risk management process to assess assurance activities across the various lines of defence.

Chief financial officer expertise and experience

The committee considered the expertise, resources and experience of the acting chief financial officer, Pamela Padayachee and chief financial officer, Deepa Sita, and concluded that these were appropriate.

In addition, the committee is satisfied with:

  • The expertise, effectiveness and adequacy of resources and arrangements in the finance function
  • The experience, effectiveness, expertise and continuous professional development of senior members of the finance function.

Biographical details appear in the integrated annual report.


Company secretary

The board is satisfied that Advocate Kgosi Monaisa has the necessary skills, experience and qualifications for this position.

All directors have unlimited access to the services of the company secretary, who is responsible to the board for ensuring proper corporate governance principles are applied.

The company secretary also ensures the proper administration of proceedings and matters relating to the board, the company and shareholders in line with applicable legislation and procedures. He is responsible for director training and induction, as well as the annual board evaluation.

The committee confirms that the company secretary maintains an arm’s length relationship with the board and directors, taking into account that the company secretary is not a director of the company nor related to any directors.

Annual financial statements

Following its review of the annual financial statements of Tiger Brands Limited for the year ended 30 September 2020, the committee believes that, in all material respects, these comply with the relevant provisions of the Companies Act and International Financial Reporting Standards (IFRS) and fairly present the consolidated and separate financial position of the company at that date and the results of its operations and cash flows for that year. The committee has also satisfied itself on the integrity of the remainder of the integrated annual report for the year ended 30 September 2020.

Having achieved its objectives, the audit committee recommended the annual financial statements and integrated report for approval by the board. The board has since approved the annual financial statements and integrated report 2020, which will be open for discussion at the upcoming annual general meeting.

On behalf of the committee

Emma Mashilwane
Chairman – audit committee

19 November 2020


Independent auditor’s report

To the shareholders of Tiger Brands Limited

Report on the audit of the consolidated and separate financial statements

Opinion

We have audited the consolidated and separate financial statements of Tiger Brands Limited and its subsidiaries (the group) and company set out here which comprise the consolidated and separate statements of financial position as at 30 September 2020, and the consolidated and separate statements of profit or loss and other comprehensive income, the consolidated and separate statements of changes in equity and the consolidated and separate statements of cash flows for the year then ended, and notes to the consolidated and separate financial statements, including a summary of significant accounting policies.

In our opinion, the consolidated and separate financial statements present fairly, in all material respects, the consolidated and separate financial position of the group and company as at 30 September 2020, and its consolidated and separate financial performance and consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the consolidated and separate financial statements section of our report. We are independent of the group and company in accordance with the Independent Regulatory Board for Auditors’ Code of Professional Conduct for Registered Auditors (IRBA Code) and other independence requirements applicable to performing audits of financial statements of the group and company and in South Africa. We have fulfilled our other ethical responsibilities in accordance with the IRBA Code and in accordance with other ethical requirements applicable to performing audits of the group and company and in South Africa. The IRBA Code is consistent with the corresponding sections of the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (including International Independence Standards). We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated and separate financial statements of the current period. These matters were addressed in the context of our audit of the consolidated and separate financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the consolidated and separate financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated and separate financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated and separate financial statements.


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Key audit matter and audit consideration

How the matter was addressed in the audit


Impairment assessment of non-financial assets (goodwill, property, plant and equipment “PPE” and investment in associates) – group and company

Non-financial assets – goodwill, intangible assets, PPE and investment in associates represent 47% of total assets and 66% of total equity.

Management tests goodwill and investment in associates annually for impairment. PPE is assessed annually for an indication of impairment and if such an indication exists, management conducts an impairment assessment.

The impairment assessment process is complex, and the calculation of the recoverable amount requires the use of estimates and assumptions concerning the future cash flows, evaluation of discount rates and other assumptions, which are inherently uncertain and could change over time.

In performing the yearly assessment of impairment as required by IAS 36 Impairment of Assets, management noted that certain cash-generating units were either possibly impaired or were sensitive to changes in volume and discount rates applied to the valuation model impairments of goodwill, PPE and investment in associates. Refer to note 13.

Due to the complexity of the impairment calculations and the estimates and judgement required in evaluating recoverable amounts we consider this to be a key audit matter.

Our audit procedures included:

  • Assessing the reasonableness of the completeness of the impairment assessments by evaluating managements impairment assessment process
  • Evaluating the determination of the cash-generating units to distinguish between standalone business valuations and brand valuations and fair value less cost to sell as these have different valuation methodologies applied to them
  • We evaluated the models used by management in determining the value in use of the identified cash-generating units or the recoverable amount, as well as independently by using our internal transaction support experts, to reassess the discount rate, EBIDTA multiples, valuation methodology used as well as the cash flow forecasts
  • We compared the cash flow forecasts used in the impairment model to the approved budgets and other relevant market and economic information
  • We identified different risk dependent cash flows used in the valuation models to assess whether different specific risk premiums needed to be added to the discount rate or EBITDA multiples when discounting those cash flows
  • We evaluated and challenged management’s future cash flow forecasts and the process by which they were drawn up, and tested the underlying value in use calculations by comparing future cash flows to prior period actual results to assess management’s forecast accuracy rate
  • Calculated a range of possible impairment by performing a sensitivity analysis around the key assumptions of volume growth, margins and the discount rate used in the models as well and the fair value of the asset
  • Considered the adequacy and accuracy of disclosures in the financial statements.

Key audit matter and audit consideration

How the matter was addressed in the audit


Adoption of IFRS 16 Leases – group

IFRS 16 Leases became effective for the group in the current year, commencing 1 October 2019. The group has applied the modified retrospective approach for the initial application of the standard, resulting in the recognition of right-of-use assets, lease liabilities and accumulated profit amounting to R356 million, R413 million and R43 million respectively on initial application.

At 30 September 2020, right-of-use assets amounting to R292 million and lease liabilities of R336 million were recognised on the group statement of financial position. The disclosures required by IFRS 16 are contained in notes 11 and 25. The impact of adopting IFRS 16 Leases is disclosed in note 1.

The group has a significant number of lease agreements with different lessors with different terms and conditions. Therefore, the initial adoption of IFRS 16 is regarded as a key audit matter, due to the extent of audit effort required and the significant impact on the group’s reported results.

The extent of audit effort required was as a result of the significant number of lease agreements, which we evaluated on initial adoption, as well as the new leases and modifications during the year, as well as the evaluation of lease terms for the inclusion/exclusion of option periods. In addition, there were significant judgements made by management on the incremental borrowing rates applied, which required the involvement of our internal valuation specialists.

Our procedures included:

  • Involving our internal valuation specialists, we assessed the reasonability of the incremental borrowing rates applied at initial adoption and at year-end by agreeing the base rates to external sources, evaluating the credit margins applied by management to the base rates and recalculating the discount rates
  • Evaluating the completeness of the leases identified by management, by comparing lease agreements to rental payments made during the year
  • Evaluating the appropriateness of the lease periods used in the valuation, including the consideration of option periods included in lease contracts by agreeing lease terms and options to lease agreements and assessing the expected lease period determined by management;
  • For a sample of leases, we:
    • Inspected the terms and conditions of the underlying contract and evaluated managements identification of relevant lease terms to determine whether the leases were correctly considered for adoption and accounted for in terms of the standard
    • Assessed the appropriateness of the contractual considerations, including the assessment of fixed and variable lease payments by agreeing lease payments to lease contracts and terms
    • Recalculated the lease liabilities, right-of-use assets, finance costs and depreciation
    • Recalculated the impact of lease modifications;
  • Based on the above procedures, evaluating the initial measurement and valuation of the right-of-use assets and lease liabilities with respect to the requirements of IFRS 16, including the practical expedients applicable to the modified retrospective approach that was selected for initial adoption
  • Evaluating the adequacy of disclosures made by management with reference to the requirements of IFRS 16 Leases which included utilising our IFRS specialists to review the disclosures.


Other information
The directors are responsible for the other information.

The other information comprises the information included in the 100-page document titled “Tiger Brands Limited annual financial statements for the year ended 30 September 2020”, which includes the directors’ approval, the certificate by company secretary and the audit committee report as required by the Companies Act of South Africa. The other information does not include the consolidated or the separate financial statements and our auditor’s report thereon.

Our opinion on the consolidated and separate financial statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon.

In connection with our audit of the consolidated and separate financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated and separate financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the directors for the consolidated and separate financial statements

The directors are responsible for the preparation and fair presentation of the consolidated and separate financial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa, and for such internal control as the directors determine is necessary to enable the preparation of consolidated and separate financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated and separate financial statements, the directors are responsible for assessing the group and company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going-concern basis of accounting unless the directors either intend to liquidate the group and company or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the consolidated and separate financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated and separate financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated and separate financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

  • Identify and assess the risks of material misstatement of the consolidated and separate financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control
  • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the group and company’s internal control
  • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors
  • Conclude on the appropriateness of the directors’ use of the going-concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the group and company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated and separate financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the group and/or the company to cease to continue as a going concern
  • Evaluate the overall presentation, structure and content of the consolidated and separate financial statements, including the disclosures, and whether the consolidated and separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation
  • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated and separate financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.

From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the consolidated and separate financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.


Report on other legal and regulatory requirements

In terms of the IRBA Rule published in Government Gazette Number 39475 dated 4 December 2015, we report that Ernst & Young Inc. has been the auditor of Tiger Brands Limited for 17 years.

Ernst & Young Inc.
Director – Ahmed Bulbulia
Registered auditor
Chartered accountant (SA)

19 November 2020

102 Rivonia Road
Sandton
Johannesburg