Report of the Audit Committee for the year ended 31 December 2022

This report details how the Audit Committee has met its responsibilities under its Terms of Reference in the last twelve months. The Audit Committee focused particularly on the appropriateness of the Group’s financial statements. The Committee has satisfied itself, and has advised the Board accordingly, that the 2022 Annual Report and Financial Statements are fair, balanced and understandable, and provide the information necessary for shareholders to assess the Group’s performance, business model and strategy. The significant issues that the Committee considered in relation to the financial statements and how these issues were addressed are set out in this Report.

One of the Audit Committee’s key responsibilities is to review the Group’s risk management and internal controls systems, including in particular internal financial controls. During the year, the Committee carried out a robust assessment of the principal risks facing the company and monitored the risk management and internal control system on an on-going basis. The Committee also reviewed the effectiveness of both the external audit process as part of the continuous improvement of financial reporting and risk management across the Group.

The Board has established an Audit Committee to monitor the integrity of the Company’s financial statements and the effectiveness of the Group’s internal financial controls. The Committee’s role and responsibilities are set out in the Committee’s terms of reference which are available from the Company and are displayed on the Group’s website. The Terms of Reference are reviewed annually and amended where appropriate. During the year, the Committee worked with management, the external auditors, and other members of the Board in fulfilling these responsibilities.

Committee membership and meetings

The Audit Committee consists of two non-executive Directors: Roy Harrison and Sir Colin Terry (Committee Chairman) served during the year ended 31 December 2022.  Following completion of the RTO on the 2 June 2023, Roy Harrison and Sir Colin Terry stepped down from the committee and were replaced by Sir Mark Lyall Grant and Ahmet Shala (as new committee chairman). Andrew Allner attends the committee meetings by invitation.  The biographies of each can be found on pages 29-33 of the 2022 Annual Report.  The Board considers that the Committee as a whole has an appropriate and experienced blend of commercial, financial and industry expertise to enable it to fulfil its duties.  The Committee met two times during the year ended 31 December 2022 and all members of the Committee attended each meeting. 

Each committee meeting was attended by the Group CEO and the Group Financial Director. The external auditors may also attend these meetings as required.  The Company Secretary is the secretary of the Audit Committee.

The Chairman of the Audit Committee also met with the external audit lead partner outside of committee meetings as required throughout the year.

The Audit Committee report deals with the key areas in which the Audit Committee plays an active role and has responsibility. These areas are as follows:

1)       Financial Reporting and related primary areas of judgement;

2)       The External Audit process; and

3)       Risk Management and Internal controls.

The Committee is responsible for monitoring the integrity of the Group’s financial statements and reviewing the financial reporting judgements contained therein. The financial statements are prepared by a finance team with the appropriate qualifications and expertise.

The Committee confirmed to the Board that the Annual Report and Financial Statements, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy.

In respect of the year to 31 December 2022, the Committee reviewed:

• the Group’ s Interim Report for the six months to 30 June 2022; and

• the Final Results Announcement and Annual Report and Financial Statements to 31 December 2022.

In carrying out these reviews, the Committee:

• reviewed the appropriateness of Group accounting policies and monitored changes to and compliance with accounting standards on an on-going basis;

• discussed with management and the external auditors the critical accounting policies and judgements that had been applied;

• discussed a report from the external auditors at that meeting identifying the significant accounting and judgemental issues that arose in the course of the audit;

• considered the management representation letter requested by the auditors for any non-standard issues;

• discussed with management future accounting developments which are likely to affect the financial statements; and

• considered key areas in which estimates, and judgement had been applied in preparation of the financial statements.

The primary areas of judgement considered by the committee in relation to the Group’s 2022 financial statements, and how they were addressed by the committee are set out below.

Significant risks considered by the Committee in relation to the financial statements and corresponding actions taken by the Committee to address the issues

• Impairment Assessment

The Committee reviewed the key judgements, operating and economic assumptions which underlie the assessment of whether there are indications that assets may be impaired. The external auditor reviewed management’s assessment and discussed this review with the Committee.

• Group’s ability to continue as a going concern

The Committee reviewed the Group’s going concern statement set out in the Report of the Directors. In considering the assessments made, the Committee paid attention to the robustness of the stress testing scenarios. The external auditor reviewed management’s assessment and discussed this review with the Committee.

• Valuation of Inventory

The Committee reviewed the calculations and assumptions provided by management which support the valuation of inventory. The Committee reviewed the judgements around the expected net realisable value of the inventory in conjunction with forecast sales. The Committee is comfortable with the carrying value of inventory.

External Audit Process

The Audit Committee has responsibility for overseeing the Group’s relationship with the external auditor including reviewing the quality and effectiveness of their performance, their external audit plan and process, their independence from the Group, their appointment and their audit fee proposals. Prior to commencement of the 2022 year-end audit, the Committee approved the external auditor’s work plan and resources and agreed with the auditor’s various key areas of focus, including impairment, inventory and going concern. During the year the Committee met with the external auditor without management being present. This meeting provided the opportunity for direct dialogue and feedback between the Committee and the auditor. The Audit Committee considers the requirements and guidance for auditor rotation on an annual basis and makes recommendations as appropriate to the Company.

The Committee is responsible for ensuring that the external auditor is objective and independent. PKF Littlejohn LLP was appointed in 2019, following a formal tender process in which several leading global firms submitted tenders and presentations. This was the last formal tender process carried out by the Group. The Committee received confirmation from the auditor that they are independent of the Group under the requirements of the Financial Reporting Council's Ethical Standards for Auditors. The auditors also confirmed that they were not aware of any relationships between the Group and the firm or between the firm and any persons in financial reporting oversight roles in the Group that may affect their independence.

In order to further ensure independence, the Committee has a policy on the provision of non-audit services by the external auditor that seeks to ensure that the services provided by the external auditor are not, or are not perceived to be, in conflict with auditor independence. By obtaining an account of all relationships between the external auditor and the Group, and by reviewing the economic importance of the Group to the external auditor, the committee ensured that the independence of the external audit was not compromised. During the year the committee reviewed and updated its policy on the engagement of external auditors and the provision of non-audit services in order to bring it into full compliance with the EU audit reform legislation. An analysis of fees paid to the external auditor, including non-audit fees, is set out in Note 6 to the 2022 Annual Report.

The Audit Committee has been delegated the responsibility for monitoring the effectiveness of the Group’s system of risk management and internal control by the Board. The Audit Committee monitors the Group’s risk management and internal control processes through detailed discussions with management and executive Directors, and the external audit reports, as part of both the year-end audit, all of which highlight the key areas of control weakness in the Group. All weaknesses identified by the external audit are discussed by the Committee with Group management and an implementation plan for the targeted improvements to these systems is put in place. As part of its standing schedule of business, the Committee carries out an annual risk assessment of the business to formally identify the key risks facing the Group.

This report was approved by the Board of Directors and signed on its behalf by:

Ahmet Shala
Chairman of the Audit Committee
October 2023