The audit and risk committee (ARC) took pleasure in welcoming two new appointees during the reporting period, being Professor Lana Weldon and Ms Kristin van Niekerk. The knowledge, diversity and input, which was brought to ARC by these two appointments, has been most beneficial and strengthens the committee.
During the year Deloitte resigned as auditors of the subsidiaries in the banking and finance segment due to the group’s rotation policy. BDO Namibia were appointed in their stead by Trustco Bank Namibia Ltd (Trustco Bank) in September 2018. The Bank of Namibia (BON) approved the appointment of BDO Namibia as the auditor of Trustco Bank on 16 April 2019, which approval is required in terms of the Banking Institutions Act. BDO Namibia and Moore Stephens are now the auditors of all the Namibian entities and Moore Stephens continue as auditors of the South African, Mauritian and Sierra Leonean entities.
CHANGE IN FORMAT OF BOARD MEETINGS
Trustco operates from three different business segments, being insurance and its investments, banking and finance and resources. Each operating segment has its own board and board committees, specialising and focusing in their areas of expertise and business. With this in mind, Trustco adopted an all-inclusive approach for the format of the quarterly board meetings. Senior management, executive teams, all board members (executive and non-executive) throughout the group, auditors (both internal and external) meet for an information sharing session before the formal board meetings commence. This ensures that there is an exchange of ideas, sharing of material company information and that all directors are aware of the activities throughout the group and across the segments. These sessions have been embraced by everyone involved and proven very successful. The ideas, transfer of knowledge, information sharing and transparency are extremely valuable and benefits the entire group.
SIGNIFICANT MATTERS CONSIDERED BY THE ARC
As a result of the economic decline in the property market, evidenced by the low demand and decline in property prices as well as the negative growth experienced by the Namibian economy over a protracted period, it was necessary to reduce the pace of development, servicing and the sale of land. This necessitated the re-evaluation of the nature of the land held as inventory. A significant portion of land will not be developed or sold in the near future and it was decided to revise the strategy and hold a portion of the land for investment purposes. Subsequently, a portion was therefore transferred to investment property. IFRS advisors were consulted on this transaction. Inventory was transferred to investment property at fair value in accordance with IAS 40 Para 63 – 64 and accounted for, consistent with the sale of inventory, as required by the standards.
The impact of the adoption of IFRS 9, which became effective in the current year, has been material in the light of the introduction of the expected credit loss model as required and the negative growth in the economy for eleven consecutive quarters.
Share capital was increased by NAD 672 077 000 on the issue of one hundred and forty three million three hundred thousand (143 300 000) shares on perfection of the Huso transaction when the mining licence was issued to Northern Namibia Development Company (Pty) Ltd for an initial period of fifteen years by the Namibian Ministry of Mines and Energy.
In terms of the agreement to acquire 51% of a diamond prospect in Sierra Leone, an option to acquire a further 9% of the issued share capital of Meya Mining Limited was exercised during the reporting period. In addition to this, an agreement was reached to further increase the shareholding by 5%, bringing the total interest of the group in Meya Mining Limited to 65%. Restructuring of subsidiaries within the group was considered by the ARC. Trustco Capital was transferred to the banking and finance segment as the nature of its activities was more aligned with this segment. In addition to ensuring that all the banking and finance activities were amalgamated into one segment, the transaction would also strengthen the statement of financial position of the segment.
A risk has been identified in the form of legislation which could adversely affect the insurance industry in Namibia as well as the insurance business of the group. The legislation compels all insurers in Namibia to re-insure with the state owned re-insurance company, Namibia National Reinsurance Corporation Limited (NamibRe). This legislation is deemed to be unconstitutional by most of the insurers in Namibia and is therefore being challenged through a class action application to the Constitutional Court of Namibia.
Fraud is an ever present factor to consider and the forensic investigation team has investigated cases of potential fraud such as fraudulent loan applications, petty cash misappropriation, forging/altering signatures, fraudulent hospital claims and fraudulent invoicing by suppliers. The ARC continuously monitors the prevention and mitigating measures introduced by management to ensure any element thereof is detected early or countered.
Market volatility in share prices on the JSE periodically triggers an investigation into the trading activities of certain shares by the Financial Services Conduct Authority (FSCA). The regulators are concerned about shareholders whose trading could be seen as market manipulation. During the year the regulator investigated some of these trades. It is important to note that these investigations are not into the activities of the company but into the trading activities on the exchange. Further education on market perception and understanding is required from the regulator.
In conclusion, as chair of the ARC, I am excited about the growth trajectory the company has embarked upon and the improved level of good corporate governance implemented throughout the group. To the chairpersons of the segment ARCs and fellow committee members, I thank you for your valued contribution and am looking forward to the new year.
CHAIRMAN OF THE AUDIT
AND RISK COMMITTEE AND
INDEPENDENT NON-EXECUTIVE DIRECTOR