King 3 - Application of King 3 principles for year

LENMED INVESTMENTS LIMITED COMPLIANCE WITH KING III – 28 FEBRUARY 2014 FINANCIAL YEAR KING III PRINCIPLE 1. Ethical Leadership and Corporate Citizenship 1.1 Effective leadership based on an ethical foundation 1.2 Responsible corporate citizen 1.3 Effective management of company’s ethics 2. Boards and Directors 2.1 The board is the focal point for and custodian of corporate governance 2.2 Strategy, risk, performance and sustainability are inseparable 2.3 The board should report on the company’s system of internal controls 2.4 Directors act in the best interests of the company 2.5 The Chairman of the Board is an independent non-­‐executive director. The CEO of the company should also not fulfil the role of chairman of the board. 2.6 The board appoints the CEO and there is a framework for the delegation of authority has been established 2.7 The Board comprises a balance of power with a majority of non-­‐
executive directors who are independent 2.8 Directors are appointed through a formal process 2.9 Formal induction and ongoing training of directors is conducted 2.10 The Board is assisted by a competent, suitably qualified and experienced Company Secretary 2.11 Regular performance evaluations of the Board its committees and the individual directors 2.12 Appointment of well-­‐structured committees and oversight of key functions 2.13 An agreed governance framework between the group and its subsidiary Boards is in place 2.14 Directors and executive are fairly and responsibly remunerated 2.15 Remuneration of directors and senior executives is disclosed 2.16 The company’s remuneration policy is approved by its shareholders 3. Audit Committee 3.1 Effective and independent 3.2 Suitably skilled and experienced independent non-­‐executive directors 3.3 Chaired by an independent non-­‐executive director 3.4 Oversees integrated reporting 3.5 A combined assurance model is applied to improve efficiency in assurance activities 3.6 Satisfies itself of the expertise resources and experience of the company’s finance function 3.7 Oversees Internal Audit 3.8 Integral to the risk management process 3.9 Recommends the appointment of the External Auditors and Apply Under review/ Do not apply √ √ √ √ Partially apply √ √ (1) √ √ (2) √ √ √ √ √ (3) √ (4) √ √ √ √ √ √ √ √ √ √ √ √ √ √ 1 LENMED INVESTMENTS LIMITED COMPLIANCE WITH KING III – 28 FEBRUARY 2014 FINANCIAL YEAR KING III PRINCIPLE oversees the External Audit process 3.10 Reports to the Board and shareholders on how it has discharged its duties 4. The Governance of Risk 4.1 The Board is responsible for the governance of risk and setting levels of risk tolerance 4.2 The Audit and Risk Committee assists the Board in carrying out its risk responsibilities 4.3 The Board delegates the process of risk management to management 4.4 The Board ensures that risk assessments and monitoring are performed on a continual basis 4.5 Frameworks and methodologies are implemented to increase the probability of anticipating unpredictable risks 4.6 Management implements appropriate risk responses 4.7 There is continual risk monitoring by management 4.8 The Board receives assurance on the effectiveness of the risk management process 4.9 Sufficient risk disclosure to stakeholders 5. The Governance of Information Technology 5.1 The Board is responsible for information technology (IT) governance 5.2 IT is aligned with the performance and sustainability objectives of the company 5.3 Management is responsible for the implementation of a IT governance framework 5.4 The Board monitors and evaluates significant IT investments and expenditure 5.5 IT is an integral part of the company’s risk management 5.6 IT assets are managed effectively 5.7 The Audit and Risk Committee assists the Board in carrying out its IT responsibilities 6. Compliance with Laws, Codes, Rules and Standards 6.1 The Board ensures that the company complies with relevant laws 6.2 The Board and directors have a working understanding of the relevance and implications of non-­‐compliance 6.3 Compliance risk should form an integral part of the company’s risk management process 6.4 The Board has delegated to management the implementation of an effective compliance framework and process 7. Internal Audit 7.1 Effective risk-­‐based internal audit and follows a risk based approach to its plan 7.2 Written assessment of the effectiveness of the company’s system of internal controls and risk management 7.3 Internal Audit is strategically positioned to achieve its objectives Apply Partially apply Under review/ Do not apply √ √ √ √ √ √ √ √ √ (5) (b) √ √ √ √ √ √ √ √ (6) √ √ (7) √ (7) √ (7) √ √ (5) (b) √ (8) 2 LENMED INVESTMENTS LIMITED COMPLIANCE WITH KING III – 28 FEBRUARY 2014 FINANCIAL YEAR KING III PRINCIPLE 8. Governing Stakeholder Relationships 8.1 Appreciation that stakeholders’ perceptions affect a company’s reputation 8.2 Management proactively deals with stakeholder relationships 8.3 There is an appropriate balance between its various stakeholder groupings 8.4 Equitable treatment of shareholders 8.5 Transparent and effective communication to stakeholders 8.6 Disputes are resolved effectively and timeously 9. Integrated Reporting and Disclosure 9.1 Ensures that integrity of the company’s integrated report 9.2 Sustainability reporting and disclosure is integrated with the company’s financial reporting 9.3 Sustainability reporting and disclosure is independently assured Apply Under review/ Do not apply √ Partially apply √ √ √ √ √ √ √ √ (9) Notes Ref (1) (2) (3) (4) (5) (6) (7) Explanation The board holds an annual strategy session where the key strategic issues facing the company are debated and the strategy is refined and adopted. The inclusion of risk as an integral part of strategy will receive further attention at strategy sessions, including possible opportunities in risk. The strategy is reviewed regularly and is a standard board agenda item. The Chairman, who is also the CEO, is not independent. This is an historical arrangement arising from the control structure. The shortcoming is addressed through the appointment of an independent lead non-­‐executive director. The company has initiated a process to ensure that directors receive ongoing training. Although the board and committees assess their performance, the assessment of directors on an individual basis has not yet been formalised but is planned. (a) Group Internal Audit is of the opinion that the group’s system of internal controls is effective and that the internal financial controls form a sound basis for the preparation of reliable financial statements. (b) Although risk management is a standard agenda item at the Audit and Risk Committee, there is no formal assurance on the effectiveness of the risk management process. There is an IT Policy in place and regular IT reports and minutes provided to the Audit and Risk Committee. However IT governance is still evolving within the company and the areas indicated will receive attention going forward. Further, the Group has not utilised independent assurance to assess the competence and independence of IT. This is a relatively new department and until it has matured no such assurance will be sought. The Group does not have a formal system of determining whether it complies fully with every detail of the recent plethora of legislation. Lenmed is committed to compliance in all its activities. It has embarked on a process of determining an assessment of its legal compliance 3 LENMED INVESTMENTS LIMITED COMPLIANCE WITH KING III – 28 FEBRUARY 2014 FINANCIAL YEAR through its legal advisors and the Council for Health Service Accreditation of Southern Africa (“COHSASA”) which might only be completed in eighteen months’ time. (8) The Group has not utilised independent assurance to assess the competence and independence of Internal Audit. This is a relatively new department and until it has matured no such assurance will be sought. (9) Other than assurance from internal audit and external audit, the areas of sustainability and disclosure have not been externally assured. The board considers the current level of assurance to be acceptable but will monitor this aspect. 4