External audit
The external auditors are responsible for reporting on whether the financial statements are fairly presented in terms of International Financial Reporting Standards and the Companies Act. The external auditors offer reasonable, but not absolute, assurance on the accuracy of financial disclosures. The preparation of all financial statements is the responsibility of the board.
There is consultation between external and internal auditors to ensure an efficient and comprehensive audit process. This includes periodic meetings to discuss matters of mutual interest.
The audit and risk committee determines the principles for approving the use of the external auditors for non-audit services.
Internal audit
The board, guided by the audit and risk committee, is satisfied that the Group had an effective internal audit function that operated in line with a board-approved internal audit charter for the year under review. The internal audit function was provided by Sizwe Ntsaluba Gobodo, an external service provider. The roles and functions of the internal auditors were defined by the standards of the Institute of Internal Auditors.
Internal audit provided an independent, objective assurance that added value to the Company’s operations. Internal audit assisted the Group in accomplishing its objectives by bringing a systematic, disciplined approach to evaluating and improving the effectiveness of the Group’s risk management, internal control and governance processes.
Internal audit plans covered matters identified in risk management assessments as well as issues highlighted by the board, audit and risk committee, executive directors and senior management.
The internal audit function was terminated effective 1 July 2013 based on a cost-benefit decision.
Financial and operational risks and controls
Risk governance operates within a defined structure approved by the board and monitored by the audit and risk committee. The objectives are to identify the level of risk appropriate to the Group, taking into account the need to increase shareholder value through an entrepreneurial culture and ensuring the Group achieves its objectives. Risk identification includes both actual and potential risks. The potential impact of key risks is measured against a broad set of assumptions.
Steps to mitigate risks and compensating controls are implemented and monitored. This process is recorded in a critical risk areas document that covers a broad range of risks including physical and operational risks, human resources risks, technology risks, business continuity and disaster recovery risks, credit and market risks, and compliance risks. All business unit management committees review and update their own critical risk areas at least twice a year.
The following critical risk areas that may impact at a Group level have been identified:
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Risk
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Risk mitigation
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1. Content delivery shift from physical to digital
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TMG is bolstering its physical product and adopting digital delivery platforms.
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2. Piracy
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TMG is involved in educating the general public to avoid buying pirated products. The Entertainment business provides financial support to the Southern African Federation Against Copyright Theft (SAFACT) to combat piracy.
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3. Loss of licences and agencies
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Strategic management of Group licences is in place, and includes building and maintaining relationships with licensors.
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4. Loss of key personnel
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Retention of key employees is an important part of the Group’s human resources function. In cases where key personnel do leave, their replacement is identified in advance by succession planning.
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5. Contravention of Competition Act
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Compliance with competition law is continually reviewed.
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6. Power outages
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Generators have been acquired to provide power to critical sites and processes during power outages.
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7. Loss of key customers
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Strategic management of key customers is in place, and includes building and maintaining relationships with these customers.
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8. Ability to service borrowings
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Cashflow is continually managed and reviewed.
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9. Destruction of Head Office building
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Relevant security is maintained for the building.
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Systems of internal controls include defined lines of accountability. The board is satisfied as to the effectiveness of the Company’s internal controls.
Operational risks are managed to acceptable levels by ensuring the appropriate infrastructure, controls, systems and people are in place across the Group. Contingency plans are in place to ensure ongoing product and service delivery under adverse conditions.
The adequacy and effectiveness of the Company’s risk management is assessed by internal and external assurance providers. The board is aware that it operates in a dynamic environment, and is alert to new areas of risk exposure that may require its attention. Accordingly, there is a continual focus on ensuring the control environment in which the business operates is understood and maintained at the required level.
The board is satisfied that an adequate risk management process is in place to identify, evaluate and manage key risks faced by the Group.
DIRECTORS’ RESPONSIBILITY
The directors acknowledge their responsibility for the adequacy of accounting records, effectiveness of risk management and the internal control environment, appropriateness of accounting policies, and the bases of estimates and provisions. The directors also acknowledge their responsibility for preparing the annual financial statements, adhering to appropriate accounting standards, and preparing related information that fairly presents the state of affairs and the results of the Company and of the Group.
GOING CONCERN
The directors confirm they are satisfied that the Company and the Group have adequate financial resources to continue in business for the foreseeable future. Accordingly, the annual financial statements have been prepared on the going-concern basis.
BUSINESS ETHICS AND CODE OF CONDUCT
The Group complies with applicable laws and regulations. Dealings with stakeholders are based on integrity and ethics. TMG conducts its business through fair practices, and trades with suppliers who subscribe to similar ethical standards. The Company’s code of conduct, set out on page ··, is incorporated into the group human resources manual and communicated within the Group and with external parties. The Company’s editorial charter affirms its commitment to the principle of editorial independence. In addition to complying with national, corporate and industry standards and regulations, TMG also abides by various media-specific codes of conduct.
The directors’ code of conduct is in line with the recommendations of King III. It covers a wide range of business practices and procedures. It does not endeavour to cover every issue that may arise, but sets out basic principles to guide directors of the Company and its subsidiaries to deal with ethical issues, to advise on channels to report possible unethical conduct and to foster a culture of honesty and accountability.
SHARE DEALINGS BY DIRECTORS AND MANAGEMENT
In line with statutory and regulatory obligations and best practice, directors and management may not deal directly or indirectly in the Company’s shares during specific closed periods. These closed periods operate from year end to the announcement of annual results, and from half-year end to the announcement of interim results. Restrictions on share dealings are also applied during any other period considered sensitive in terms of the requirements of the JSE Limited.
Directors and the company secretary require the prior approval of the chairman, chief executive officer or financial director before dealing in the Company’s shares.
INDUSTRY ENGAGEMENT
TMG is actively engaged in a variety of industry bodies, including World Association of Newspapers, Print and Digital M edia South Africa, Newspaper Association of South Africa, South African Press Association, Magazine Publishers Association of South Africa, Printing Industries Federation of South Africa, Southern African Federation Against Copyright Theft, National Organisation for Reproduction Rights in M usic in Southern Africa, Content Delivery and Storage Association, Recording Industry of South Africa, South African M usic Performance Rights Association, Publishing Association of South Africa, South African Booksellers’ Association, and Sustainable Energy Society of Southern Africa, through funding and by the leading roles played by TMG executives and management in these industry bodies.
COMMUNICATIONS WITH SHAREHOLDERS
The chairman and executive directors regularly engage with major shareholders, institutional investors, analysts and the media. Group operations have their own programmes in place to inform stakeholders on material issues.
Financial results are published in the press, and on the Company’s website. Shareholders have been offered the opportunity to receive financial results electronically. Shareholders are invited to attend the annual general meeting of the Company.
There were still numerous certificated shareholders at 30 June 2013. Shareholders are reminded that they are unable to deal in their TMG shares unless the shares are dematerialised.
TMG encourages as many shareholders as possible to receive annual and interim financial reports, and other corporate documentation, in a user-friendly electronic format. Shareholders who wish to take advantage of this service are kindly requested to contact Computershare whose details appear on page ··. Once registered to receive electronic information, shareholders receive email notification of the release of annual and interim financial reports. This notification directs shareholders to the appropriate page on TMG’s website to view the documents concerned.