NOTES TO THE REVIEWED CONDENSED GROUP INTERIM FINANCIAL STATEMENTS

1. CORPORATE BACKGROUND

Exxaro, a public company incorporated in South Africa, is a diversified resources group with interests in the coal (controlled and non-controlled), TiO2 (non-controlled), ferrous (controlled and non-controlled) and energy (non-controlled) markets. These reviewed condensed group annual financial statements as at and for the year ended 31 December 2019 (condensed annual financial statements) comprise the company and its subsidiaries (together referred to as the group) and the group’s interest in associates and joint ventures.

2. BASIS OF PREPARATION

2.1 Statement of compliance
 

The condensed annual financial statements have been prepared in accordance with the requirements of the JSE Listings Requirements for preliminary reports and the requirements of the Companies Act of South Africa. The Listings Requirements require preliminary reports to be prepared in accordance with the framework concepts and the measurement and recognition requirements of IFRS (as issued by the IASB), the SAICA Financial Reporting Guides (as issued by the Accounting Practices Committee) and Financial Pronouncements (as issued by the Financial Reporting Standards Council). As a minimum,preliminary reports must contain the information required by IAS 34 Interim Financial Reporting.

The condensed annual financial statements have been prepared under the supervision of Mr PA Koppeschaar CA(SA), SAICA registration number: 00038621.

The condensed annual financial statements should be read in conjunction with the group annual financial statements as at and for the year ended 31 December 2018, which have been prepared in accordance with IFRS. The condensed annual financial statements have been prepared on the historical cost basis, except for financial instruments, share-based payments and biological assets, which are measured at fair value. This is the first set of condensed annual financial statements where IFRS 16 Leases (IFRS 16) has been applied. Changes to significant accounting policies are described in note 4.

The condensed annual financial statements of the Exxaro group were authorised for issue by the board of directors on 10 March 2020.

2.2 Judgements and estimates
 

Management made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. The significant judgements and the key source of estimation uncertainty were similar to those applied to the group annual financial statements as at and for the year ended 31 December 2018, except for new judgements and assumptions related to the adoption of IFRS 16 as described in note 4.3.

2.3 Re-presentation of comparative information
  The condensed group statement of comprehensive income (and related notes) for the year ended 31 December 2018 has been re-presented as a result of the investment in Black Mountain being classified as a discontinued operation as described further in note 6.

3. ACCOUNTING POLICIES

 

The accounting policies applied in the preparation of the condensed annual financial statements are consistent with those of the group annual financial statements as at and for the year ended 31 December 2018, except for the adoption of new or amended standards as set out below.

3.1 New or amended standards adopted by the group
 

A number of new or amended standards became effective for the current reporting period.

The group has adopted IFRS 16 for the first time for the year commencing on 1 January 2019. The adoption of IFRS 16 has resulted in the group changing its accounting policies. The impact of the adoption and the new accounting policies are disclosed in note 4.

3.2 Impact of new, amended or revised standards issued but not yet effective
 

New accounting standards, amendments to accounting standards and interpretations issued which are relevant to the group, but not yet effective on 31 December 2019, have not been adopted. The group continuously evaluates the impact of these standards and amendments.

3.3 Carbon tax
 

The Carbon Tax Bill has been implemented with an effective date of 1 June 2019. The registration forms were issued in January 2020 but the payment procedures have not yet been finalised. The first payment of the carbon tax levy is due on 31 July 2020, relating to the period 1 June 2019 to 31 December 2019. An accrual of R3.4 million has been recognised during 2019.

4. CHANGES IN ACCOUNTING POLICIES

 

This note explains the impact of the adoption of IFRS 16 on the condensed annual financial statements and also discloses the new leases accounting policies that have been applied from 1 January 2019.

Overview of changes resulting from the adoption of IFRS 16

IFRS 16 replaces IAS 17 Leases (IAS 17), IFRIC 4 Determining whether an Arrangement contains a Lease (IFRIC 4), SIC 15 Operating Leases-Incentives and SIC 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

The standard establishes a new definition and criteria to identify whether a contract is, or contains, a lease as well as principles for the recognition, measurement, presentation and disclosure of leases. For lessee accounting, a single accounting model is introduced that requires lessees to recognise assets and liabilities for all leases. The standard, however, allows an optional exemption to recognise leases with a lease term of less than 12 months (short-term leases) or leases of low value assets in profit or loss on a straight-line basis. For lessor accounting, IFRS 16's approach is substantially unchanged from IAS 17. Lessor's continue to classify leases as either operating leases or finance leases. Subleases are classified with reference to the underlying right-of-use asset of the head lease.

Refer note 4.1 for details of the group's transition to IFRS 16.

Refer note 4.2 for the new accounting policy applied from 1 January 2019.

Refer note 4.3 for the judgements and assumptions made by management in applying the related accounting policies.

Refer note 8, 13 and 18 for the related disclosures of leases.

Leasing activities (as lessee)

The group leases various land, buildings and equipment as the need arises. Lease contracts are typically made for fixed periods between 18 months to 15 years but may have extension options. Lease contracts are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease contracts do not impose any covenants, but leased assets may not be used as security for borrowing purposes.

Extension and termination options are included in a number of leases across the group. These options are used to maximise operational flexibility in terms of managing lease contracts. The majority of extension and termination options held are exercisable only by the group and not by the respective lessor.

4.1 Transition
4.1.1 Transition method, exemptions and practical expedients applied
 

As lessor

The group had no adjustments to its lessor accounting.

As lessee

IFRS 16 has been adopted using the cumulative effect method. In terms of this method, comparative information has not been restated. Instead, the cumulative effect of initially applying IFRS 16 has been recognised as an adjustment to the opening balance of retained earnings on date of initial application (being 1 January 2019).

In applying IFRS 16 for the first time, the group has elected the following practical expedients:

(a) In applying the definition of a lease:

  • The group has elected not to re-assess whether a contract is, or contains, a lease at the date of initial application. Instead, the group has applied this standard, at date of initial application, to all contracts previously identified as leases in terms of IAS 17 and IFRIC 4. Therefore the definition of a lease in terms of IFRS 16 will only be applied to contracts entered into or changed on or after 1 January 2019.

(b) In determining the transition adjustments of leases previously classified as operating leases:

  • Leases of low value assets were excluded as the group has elected the exemption to not apply lease accounting to these leases from 1 January 2019
  • Leases with a lease term of less than 12 months on initial application were excluded and accounted for as short-term leases from 1 January 2019 (i.e. recognised through profit or loss on a straight-line basis)
  • Initial direct costs of leases were excluded from the measurement of the right-of-use assets recognised on 1 January 2019; and
  • Hindsight was applied to determine the lease term for contracts containing options to extend or terminate the lease.
4.1.2 Impact on retained earnings at 1 January 2019
 

The impact on retained earnings at 1 January 2019 is summarised as follows:

  Note     Rm     
Closing balance at 31 December 2018 (IAS 17)       32 797     
Adjustments from the adoption of IFRS 16, net of tax       (12)    
Adjustment from Exxaro's adoption of IFRS 16, net of tax       (1)    
Portion of gross carrying amount of right-of-use assets recognised relating to the present value of lease payments incurred before 1 January 20191 4.1.4, 4.1.5     10     
Accumulated depreciation on right-of-use assets recognised from commencement date of leases to 1 January 2019 4.1.5     (11)    
Share of equity-accounted investments’ adjustment from the adoption of IFRS 16       (11)    
Opening balance at 1 January 2019 (after IFRS 16 restatement)       32 785     
1 Calculated as the difference between the gross carrying amount of the right-of-use assets recognised of R76 million (refer note 4.1.5) and the lease liabilities recognised of R66 million (refer note 4.1.4), that relate to leases previously classified as operating leases.

The IFRS 16 adoption impact, net of tax, has been adjusted by R1 million, compared to the interim results presented for the six month period ended 30 June 2019, as a result of a lease in an offshore entity being remeasured applying a foreign incremental borrowing rate.

4.1.3 Impact on the statement of financial position at 1 January 2019
 

The table below shows the reclassifications and adjustments recognised on initial application of IFRS 16 for each individual line item as per the statement of financial position.

         At 31 December  
2018
 
      At 1 January  
2019
 
  
Statement of financial position (extract) Note     As 
presented 
Rm
 
   IFRS 16 
adjustment 
Rm
 
Restated 
Rm
 
  
ASSETS
 
                    
Non-current assets          52 226       54    52 280    
Property, plant and equipment  4.1.5     28 825     (14) 28 811    
Right-of-use assets  4.1.5           79  79    
Equity-accounted investments1        17 046     (11) 17 035    
Financial assets        2 634        2 634    
Lease receivables        66        66    
Deferred tax        523        523    
Other assets        3 132        3 132    
Current assets        7 641        7 641    
Inventories        1 604        1 604    
Financial assets        134        134    
Trade and other receivables        3 140        3 140    
Lease receivables                
Cash and cash equivalents        2 080        2 080    
Other assets        678        678    
Non-current assets held-for-sale        5 183        5 183    
Total assets        65 050     54  65 104    
EQUITY AND LIABILITIES                      
Capital and other components of equity                      
Share capital        1 021        1 021    
Other components of equity        8 028        8 028    
Retained earnings        32 797     (12) 32 785    
Equity attributable to owners of the parent        41 846     (12) 41 834    
Non-controlling interests        (701)       (701)   
Total equity        41 145     (12) 41 133    
Non-current liabilities        15 745     39  15 784    
Interest-bearing borrowings        3 843        3 843    
Lease liabilities  4.1.4           39  39    
Other payables        152        152    
Provisions        3 952        3 952    
Retirement employee obligations        193        193    
Financial liabilities        713        713    
Deferred tax        6 874        6 874    
Other liabilities        18        18    
Current liabilities        6 823     27  6 850    
Interest-bearing borrowings        571        571    
Lease liabilities  4.1.4        27  29    
Trade and other payables        2 960        2 960    
Provisions        70        70    
Financial liabilities        757        757    
Overdraft        1 531        1 531    
Other liabilities        932        932    
Non-current liabilities held-for-sale        1 337        1 337    
Total liabilities        23 905     66  23 971    
Total equity and liabilities        65 050     54  65 104    
1 Relates to the group's share of equity-accounted investments’ adjustment from the adoption of IFRS 16.
4.1.4 Lease liabilities recognised on initial application
 

Lease liabilities were recognised for leases, previously classified as operating leases under IAS 17, that had commenced prior to 1 January 2019, excluding leases of low-value assets and short-term leases. These liabilities were measured as the present value of the remaining lease payments discounted using the incremental borrowing rate at 1 January 2019 which ranged between 7.85% and 10.42%.

The table below shows the reconciliation between operating lease commitments (disclosed under IAS 17) at 31 December 2018 and lease liabilities recognised on 1 January 2019:

  Rm  
Operating lease commitments at 31 December 2018 (adjusted)1 1 1 004  
Less: lease commitments relating to leases commencing on or after 1 January 2019 (864)  
Less: lease commitments that relate to short-term leases (13)  
Less: lease commitments that relate to leases of low-value assets (52)  
Lease commitments (remaining lease payments) to which initial application of IFRS 16 has been applied   75  
Less: discounting impact using the lessee's incremental borrowing rate at 1 January 2019 (9)  
Lease liabilities recognised at 1 January 2019 66  
Non-current 39  
Current 27  
1 Operating lease commitments at 31 December 2018, previously disclosed as R876 million, has been adjusted to an amount of R1 004 million, to include an additional R128 million worth of lease commitments (in terms of IAS 17 and IFRIC 4) that was erroneously excluded.

For leases previously classified as finance leases, the group recognised the carrying amount of the lease liability immediately before transition as the carrying amount of the lease liability at the date of initial application. Therefore no adjustment was required for finance lease liabilities at 1 January 2019. The measurement principles of IFRS 16 have been applied since 1 January 2019.

4.1.5 Right-of-use-assets recognised on initial application
 

Right-of-use assets were recognised for leases, previously classified as operating leases under IAS 17, that had commenced prior to 1 January 2019, excluding leases of low-value assets and short-term leases. These assets were measured as if IFRS 16 had been applied since the commencement date of the leases, but discounted using the incremental borrowing rate at date of initial application. In other words, the gross carrying amount of the right-of-use assets were determined taking into account the present value of all remaining lease payments at the commencement date of the leases, but discounted at the incremental borrowing rate of 1 January 2019. The accumulated depreciation was measured from the commencement date of the leases until 1 January 2019.

The right-of-use assets recognised at 1 January 2019 were considered for impairment in terms of IAS 36 Impairment of Assets, however, as the recoverable amounts were in excess of the carrying amounts, no impairment adjustments were required.

For assets acquired in terms of finance leases, as previously classified under IAS 17, the group recognised the carrying amount of these assets immediately before transition as the carrying amount of the right-of-use assets at 1 January 2019. Therefore no adjustment was required except that the carrying amount of these assets has been reclassified from property, plant and equipment to right-of-use assets. The measurement principles of IFRS 16 have been applied since 1 January 2019.

The table below shows the right-of-use assets, by class of asset, at 1 January 2019, reconciled to the reclassifications and adjustments made on initial application of IFRS 16:

  Gross carrying
amount
Rm
Accumulated
depreciation
Rm
Net carrying
amount
Rm
 
Land and buildings 1   1  
Residential land and buildings 4   4  
Buildings and infrastructure 33 (4) 29  
Machinery, plant and equipment 54 (9) 45  
Total right-of-use assets 92 (13) 79  
Relating to leases previously classified as operating leases recognised retrospectively on 1 January 2019   76   (11)   65  
Relating to leases previously classified as finance leases reclassified from property, plant and equipment1   16   (2)   14  
1 Included in machinery, plant and equipment.
4.2 Accounting policies applied from 1 January 2019
 

The group has elected as an accounting policy choice not to apply IFRS 16 to leases of intangible assets.

At inception of a contract, the group assess whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the group assesses whether:

  • The contract involves the use of an identified asset, this may be specified explicitly or implicitly, and must be physically distinct or represent substantially all of the capacity of a physically distinct asset. If the supplier has a substantive substitution right, then the asset is not identified
  • The group has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use; and
  • The group has the right to direct the use of the asset. The group has this right when it has the decision-making rights that are most relevant to changing how and for what purpose the asset is used. In rare cases where all the decisions about how and for what purpose the asset is used are predetermined, the group has the right to direct the use of the asset if either:
    • The group has the right to operate the asset; or
    • The group designed the asset in a way that predetermines how and for what purpose it will be used.

The group has applied this definition to contracts entered into or changed on or after 1 January 2019.

At inception, or on reassessment, of a contract that contains a lease component, the group allocates the consideration in the contract to each lease and non-lease component on the basis of their relative standalone prices.

As lessee

(a) Recognition

Leases are recognised as a lease liability and corresponding right-of-use asset at the commencement date of the leases. Each lease payment is allocated between the settlement of the lease liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the lease liability for each period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis, except, when there is a purchase option which is expected to be exercised, in which case it is depreciated over the asset's useful life.

Non-lease components, contained in a lease, are recognised as an expense in profit or loss when incurred.

(b) Measurement

(i) Initial measurement

Right-of-use assets     Lease liabilities

Measured at cost which is:

  • The amount of the initial measurement of the lease liability
  • Plus any lease payments made at or before the commencement date
  • Less any lease incentives received
  • Plus any initial direct costs
  • Plus estimated restoration costs.
   

Measured at the present value of the following lease payments:

  • Fixed payments (including in-substance fixed payments), less any lease incentives receivable
  • Variable lease payments that are based on an index or a rate
  • Amounts expected to be payable by the group, as a lessee, under residual value guarantees
  • The exercise price of a purchase option if the group, as a lessee, is reasonably certain to exercise that option; and
  • Payments of penalties for terminating the lease, if the lease term reflects the group, as a lessee, exercising that option.

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, an incremental borrowing rate is applied.

(ii) Subsequent measurement      
Right-of-use assets     Lease liabilities

After commencement date of the lease, the group measures the right-of-use asset applying the cost model where a right-of-use asset falls within the scope of IAS 16 Property, Plant and Equipment.

Measured at:

  • Cost less
  • Any accumulated depreciation and any accumulated impairment losses; and
  • Adjusted for any remeasurements or modifications of the lease liability.

Useful lives:
Land and buildings – 15 years
Residential land and buildings – 10 years
Buildings and infrastructure – three to 10 years
Machinery, plant and equipment – two to five years

   

After commencement date of the lease, the group measures the lease liability by:

  • Increasing the carrying amount to reflect interest on the lease liability
  • Reducing the carrying amount to reflect the lease payments made, and
  • Remeasuring the carrying amount to reflect any reassessment or lease modification or to reflect revised in-substance fixed lease payments.

Incremental borrowing rates:
Lease term greater than 12 months but less than 18 months – 7.85%
Lease term greater than 18 months – 10.42% to 10.44%

(c) Short-term leases and leases of low-value assets

Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis, over the lease term, as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Leases of low-value assets comprise IT equipment, furniture, fittings and appliances as well as tools and other small equipment used at the plants.

As lessor

When the group acts as a lessor, it determines at lease inception whether a lease is a finance lease or an operating lease.

To classify a lease, the group makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease. If not, then it is an operating lease. As part of this assessment, the group considers certain indicators such as whether the lease is for the major part of the economic life of the asset.

When the group is an intermediate lessor, it accounts for its interests in the head lease and the sublease separately. It assesses the lease classification of a sublease with reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset. If a head lease is a short-term lease to which the group applies the exemption described above, then it classifies the sublease as an operating lease.

If an arrangement contains lease and non-lease components, the group applies IFRS 15 to allocate the consideration in the contract.

Lease income from operating leases is recognised as income on a straight-line basis over the lease term in profit or loss.

The group recognises the net investment in finance leases, which is the aggregate of the minimum lease payments receivable, discounted at the interest rate implicit in the lease, at the commencement of the lease. On conclusion of the lease agreement the leased asset is derecognised and depreciation ceases. Each lease payment received is allocated between the receivable and finance income. The interest element is recognised in profit or loss over the lease period.

4.3 Judgements and assumptions made by management in applying the related accounting policies
 

(a) Useful lives of right-of-use assets

In determining the useful lives of right-of-use assets, management considers all available information about the lease term as well as the asset's useful life itself. The estimated useful lives of right-of-use assets are determined on the same basis as those of property, plant and equipment.

(b) Incremental borrowing rates

In determining the incremental borrowing rates, management considers the term of the lease, the nature of the asset being leased and the funding strategy and principles applied by the group's treasury department.

(c) Extensions and termination options

In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). The assessment is reviewed if a significant event or a significant change in circumstances occurs which affects this assessment and that is within the control of the lessee.

5. SEGMENTAL INFORMATION

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker, who is responsible for allocating resources and assessing performance of the reportable operating segments. The chief operating decision maker is the group executive committee. Segments reported are based on the group’s different commodities and operations.

During the first half of 2019, the chief operating decision maker revised the segment in which the remaining NBC assets and liabilities were reported on. These assets and liabilities are reported as part of the coal other operating segment instead of the coal commercial Mpumalanga operating segment. The comparative segmental information has been represented to reflect this change.

The export revenue and related export cost items are allocated between the coal operating segments based on the origin of the initial coal production.

The reportable operating segments, as described below, offer different goods and services, and are managed separately based on commodity, location and support function grouping. The group executive committee reviews internal management reports on these operating segments at least quarterly.

Coal

The coal reportable operating segment is split between commercial (Waterberg and Mpumalanga), tied and other operations. Commercial Mpumalanga operations include a 50% (2018: 50%) investment in Mafube (a joint venture with Anglo). The 10.36% (2018: 10.82%) effective equity interest in RBCT is included in the other coal operations. The 49% equity interest in Tumelo continues to be reported as part of the commercial Mpumalanga operations although it is no longer accounted for as a subsidiary, but as an associate since 1 January 2019. The coal operations produce thermal coal, metallurgical coal and SSCC.

Ferrous

The ferrous segment mainly comprises the 20.62% (2018: 20.62%) equity interest in SIOC (located in the Northern Cape province) reported within the other ferrous operating segment as well as the FerroAlloys operation (referred to as Alloys). The Alloys operation manufactures ferrosilicon.

TiO2

The TiO2 segment comprises a 10.38% (2018: 23.35%) equity interest in Tronox Holdings plc, which was classified as a non-current asset held-for-sale on 30 September 2017 (refer note 16), and a 26% (2018: 26%) equity interest in Tronox SA (both South African-based operations). The 26% member’s interest in Tronox UK was redeemed on 15 February 2019.

Energy

The energy segment comprises a 50% (2018: 50%) investment in Cennergi (a South African joint venture with Tata Power), which operates two wind-farms, and an equity interest of 28.59% (2018: 28.98%) in LightApp, as well as an equity interest of 22% in GAM which was acquired in 2019 (refer note 14).

Other

The other reportable segment comprises an equity interest in Curapipe of 15% (2018: 10.53%), an equity interest in Insect Technology of 25.86% (2018: 26.37%), the Ferroland agricultural operation as well as the corporate office which renders services to operations and other customers. The 26% (2018: 26%) equity interest in Black Mountain (located in the Northern Cape province) was classified as a non-current asset held-for-sale and a discontinued operation on 30 November 2019 (refer note 16).

The following table presents a summary of the group’s segmental information:


   Coal    
   Commercial          
For the year ended 31 December 2019 (Reviewed) Waterberg 
Rm
 
Mpumalanga 
Rm
 
Tied 
Rm
 
Other 
Rm
 
  
External revenue (note 7) 14 012  7 240  4 038  292    
Segmental net operating profit/(loss) 5 752  (318) 136  (1 623)   
 Continuing operations  5 752  (318) 136  (1 623)   
– Discontinued operations                
External finance income (note 9) 57  21     30    
External finance costs (note 9) (54) (165)    (27)   
Income tax (expense)/benefit  (1 627) 120  (47) 627    
– Continuing operations  (1 627) 120  (47) 627    
– Discontinued operations                
Depreciation and amortisation (note 8) (1 383) (382) (23) (3)   
Loss on loss of control of subsidiary     (35)         
Share of income/(loss) of equity-accounted investments (note 10)    127       
– Continuing operations     127       
– Discontinued operations                
Cash generated by/(utilised in) operations  6 062  (253) 201  (1 042)   
Capital spend (note 12) (2 951) (2 776)    (90)   
At 31 December 2019 (Reviewed)               
Segmental assets and liabilities                
Deferred tax1        (107) 340    
Equity-accounted investments (note 14)    1 335     2 067    
Loans to associates     133          
External assets  28 832  10 499  1 210  3 951    
Assets  28 832  11 967  1 103  6 358    
Non-current assets held-for-sale (note 16)               
Total assets per statement of financial position  28 832  11 967  1 103  6 358    
External liabilities  1 951  2 336  938  2 684    
Deferred tax1  6 411  715     68    
Liabilities  8 362  3 051  938  2 752    
Non-current liabilities held-for-sale (note 16)    1 410          
Total liabilities per statement of financial position  8 362  4 461  938  2 752    
1 Offset per legal entity and tax authority.

   Ferrous        Other             
For the year ended 31 December 2019 (Reviewed) Alloys 
Rm
 
Other 
ferrous 
Rm
 
Rm  
TiO2
Rm 
 
Energy 
Rm
 
Base 
metals 
Rm
 
Other 
Rm
 
      Total 
Rm
 
  
External revenue (note 7) 130              14        25 726    
Segmental net operating profit/(loss) (3) (1) 2 400  (58)    114        6 399    
– Continuing operations  (3) (1) 270  (58)    114        4 269    
– Discontinued operations        2 130                 2 130    
External finance income (note 9)                210        318    
External finance costs (note 9) (1)             (108)       (355)   
Income tax (expense)/benefit     (65)       (44)       (1 033)   
– Continuing operations              (44)       (968)   
– Discontinued operations        (65)                (65)   
Depreciation and amortisation (note 8) (5)             (116)       (1 912)   
Loss on loss of control of subsidiary                          (35)   
Share of income/(loss) of equity-accounted investments (note 10)    4 413  234  18  52  (152)       4 693    
– Continuing operations     4 413  234  18     (152)       4 641    
– Discontinued operations              52           52    
Cash generated by/(utilised in) operations              304        5 273    
Capital spend (note 12)                (259)       (6 076)   
At 31 December 2019 (Reviewed)                              
Segmental assets and liabilities                               
Deferred tax 11              223        467    
Equity-accounted investments (note 14)     9 835  2 472  350     571        16 630    
Loans to associates                          133    
External assets  279  25  65        4 136        48 997    
Assets  290  9 860  2 537  350     4 930        66 227    
Non-current assets held-for-sale (note 16)       1 741     872           2 613    
Total assets per statement of financial position  290  9 860  4 278  350  872  4 930        68 840    
External liabilities  30           9 460        17 405    
Deferred tax1                 (56)       7 138    
Liabilities  30           9 404        24 543    
Non-current liabilities held-for-sale (note 16)                         1 410    
Total liabilities per statement of financial position  30           9 404        25 953    
1 Offset per legal entity and tax authority.
   Coal    
   Commercial          
For the year ended 31 December 2018 (Audited) (Re-presented) Waterberg 
Rm
 
Mpumalanga 
Rm
 
Tied 
Rm
 
Other 
Rm
 
  
External revenue (note 7) 13 289  7 984  3 665  364    
Segmental net operating profit/(loss) 5 738  1 429  250  (966)   
Continuing operations  5 738  1 429  250  (966)   
External finance income (note 9) 48  33     19    
External finance costs (note 9) (47) (164)    (47)   
Income tax (expense)/benefit  (1 572) (302) (48) 378    
Continuing operations  (1 572) (302) (48) 378    
Depreciation and amortisation (note 8) (1 204) (299) (13)      
Share of income/(loss) of equity-accounted investments (note 10)    114     (36)   
Continuing operations     114     (36)   
– Discontinued operations                
Cash generated by/(utilised in) operations  6 955  1 490  99  (1 366)   
Capital spend (note 12) (3 890) (1 832)         
At 31 December 2018 (Audited)               
Segmental assets and liabilities                
Deferred tax1     35  (53) 135    
Equity-accounted investments (note 14)    1 237     2 157    
Loans to joint ventures     259          
External assets  26 514  7 709  1 062  4 542    
Assets  26 514  9 240  1 009  6 834    
Non-current assets held-for-sale (note 16)                
Total assets per statement of financial position  26 514  9 240  1 009  6 834    
External liabilities  2 567  2 531  725  2 552    
Deferred tax1  6 009  866     39    
Liabilities  8 576  3 397  725  2 591    
Non-current liabilities held-for-sale (note 16)    1 337          
Total liabilities per statement of financial position  8 576  4 734  725  2 591    
1 Offset per legal entity and tax authority.
   Ferrous        Other             
For the year ended 31 December 2018 (Audited) (Re-presented) Alloys 
Rm
 
Other 
ferrous 
Rm
 
TiO2
Rm
  
Energy 
Rm
 
Base 
metals 
Rm
 
Other 
Rm
 
      Total 
Rm
 
  
External revenue (note 7)  169              20        25 491    
Segmental net operating profit/(loss) 17  (3)          (762)       5 703    
Continuing operations  17  (3)          (762)       5 703    
External finance income (note 9)                183        283    
External finance costs (note 9)                (347)       (605)   
Income tax (expense)/benefit  (4)             (105)       (1 653)   
Continuing operations  (4)             (105)       (1 653)   
Depreciation and amortisation (note 8)                (66)       (1 582)   
Share of income/(loss) of equity-accounted investments (note 10)      2 592    492    61    70    (34)         3 259    
Continuing operations     2 592  492  61     (34)       3 189    
– Discontinued operations              70           70    
Cash generated by/(utilised in) operations  60  (2)          (212)       7 024    
Capital spend (note 12)                (68)       (5 790)   
At 31 December 2018 (Audited)                              
Segmental assets and liabilities                               
Deferred tax1           397        523    
Equity-accounted investments (note 14)    9 511  2 185  473  818  665        17 046    
Loans to joint ventures                          259    
External assets  265  25           1 922        42 039    
Assets  273  9 537  2 185  473  818  2 984        59 867    
Non-current assets held-for-sale (note 16)       5 183                 5 183    
Total assets per statement of financial position    273    9 537  7 368    473    818    2 984          65 050    
External liabilities  23           7 291        15 694    
Deferred tax1                 (40)       6 874    
Liabilities  23           7 251        22 568    
Non-current liabilities held-for-sale (note 16)                         1 337    
Total liabilities per statement of financial position  23           7 251        23 905    
1 Offset per legal entity and tax authority.

6. DISCONTINUED OPERATIONS

Tronox Holdings plc

On 30 September 2017, Exxaro classified the Tronox Limited investment as a non-current asset held-for-sale (refer note 16). During March 2019, Tronox Limited redomiciled from Australia to the UK by “top-hatting” Tronox Limited with a new holding company incorporated under the laws of England and Wales called Tronox Holdings plc. Each Tronox Limited shareholder received one share in the newly incorporated company in exchange for each share held in the Australian-incorporated Tronox Limited, which shares are listed on the New York Stock Exchange. On 9 May 2019, Tronox Holdings plc repurchased 14 000 000 shares from Exxaro. The remaining investment in Tronox Holdings plc remains classified as a non-current asset held-for-sale.

It was concluded that the related performance and cash flow information be presented as a discontinued operation as the Tronox Holdings plc investment represents a major geographical area of operation as well as the majority of the TiO2 reportable operating segment.

Black Mountain

On 30 November 2019, Exxaro classified the Black Mountain investment as a non-current asset held-for-sale (refer note 16). It was concluded that the related performance and cash flow information be presented as a discontinued operation as Black Mountain represents the base metals operating segment which management view to be a separate major operation.

Financial information relating to the discontinued operations is set out below:

     For the year ended
31 December 
 
       2019 
Reviewed 
Rm
 
(Re-presented)
2018 
Audited 
Rm
 
   
Financial performance             
Losses on financial instruments revaluations recycled to profit or loss       (1)      
Net gains on translation differences recycled to profit or loss on partial disposal of investment in foreign associate       832       
Indemnification asset movement1       65       
Operating profit       896       
Gain on partial disposal of associate2       1 234       
Net operating profit       2 130       
Dividend income received from non-current assets held-for-sale       47  69       
Share of income of equity-accounted investment3       52  70       
Profit before tax       2 229  139       
Income tax expense       (65)      
Profit for the year from discontinued operations       2 164  139       
Other comprehensive (loss)/income, net of tax       (830)      
Items that have subsequently been reclassified to profit or loss:        (831)      
– Recycling of share of other comprehensive income of equity-accounted investments        (831)      
Items that will not be reclassified to profit or loss:             
– Share of other comprehensive income of equity-accounted investments             
Total comprehensive income for the year      1 334  141      
Cash flow information             
Cash flow attributable to investing activities             
Dividend income received from non-current assets held-for-sale       47  69       
Proceeds from partial disposal of associate classified as non-current assets held-for-sale       2 889       
Cash flow attributable to discontinued operations       2 936  69       
1 The indemnification asset movement arose on the repurchase of the Tronox Holdings plc ordinary shares as Tronox Holdings plc has indemnified Exxaro from any tax obligation which may arise on the disposal of any of the Tronox Holdings plc ordinary shares held by Exxaro since the redomicile.
2 Comprises proceeds of R2 889 million and carrying value of R1 655 million.
3 Relates to Black Mountain.

7. REVENUE

Revenue is derived from contracts with customers. Revenue has been disaggregated based on timing of revenue recognition, major type of goods and services, major geographic area and major customer industries.

   Coal     Ferrous       Other          
   Commercial                              
For the year ended 31 December 2019 (Reviewed) Waterberg 
Rm 
Mpumalanga 
Rm 
Tied 
Rm 
Other 
Rm 
   Alloys 
Rm 
     Other 
Rm 
      Total 
Rm 
Segmental revenue reconciliation                                    
Segmental revenue based on origin of coal production  14 012  7 240  4 038  292     130       14        25 726 
Export sales allocated to selling entity  (1 494) (5 468)    6 962                        
Total revenue from contracts with customers  12 518  1 772  4 038  7 254     130       14        25 726 
By timing and major type of goods and services                                    
Sale of goods at a point in time  12 518  1 721  3 414  6 870     122       12        24 657 
Coal  12 518  1 721  3 414  6 870                      24 523 
Ferrosilicon                 122                122 
Biological goods                         12        12 
Rendering of services over time     51  624  384                1 069 
Stock yard management services        130                         130 
Project engineering services        494                         494 
Other mine management services           292                      292 
Transportation services1     51     92                   145 
Other services                           
Total revenue from contracts with customers  12 518  1 772  4 038  7 254     130       14        25 726 
By major geographic area of customer2                                    
Domestic  12 518  1 772  4 038  292     130       13        18 763 
Export           6 962                   6 963 
Europe           3 617                   3 618 
Asia           3 159                      3 159 
Other           186                      186 
Total revenue from contracts with customers  12 518  1 772  4 038  7 254     130       14        25 726 
By major customer industries                                    
Public utilities  10 211  1 009  4 038  467                      15 725 
Merchants  179  326     6 475                      6 980 
Steel  1 378  68     43                      1 489 
Mining  81  133     266     103                583 
Manufacturing  279              24                303 
Food and beverage  200                            201 
Chemicals     167                            167 
Cement  148                               148 
Other  42  69             13        130 
Total revenue from contracts with customers  12 518  1 772  4 038  7 254     130       14        25 726 
1 Relates mainly to the rendering of export freight services over time (in terms of incoterm CFR) and separate transport requests from customers.
2 Determined based on the customer supplied by Exxaro.
   Coal     Ferrous     Other          
   Commercial                               
For the year ended 31 December 2018 (Audited) (Re-presented)1  Waterberg 
Rm
 
Mpumalanga 
Rm
 
Tied 
Rm
 
Other 
Rm
 
   Alloys 
Rm
 
   Other 
Rm
 
         Total 
Rm
 
Segmental revenue reconciliation                                     
Segmental revenue based on origin of coal production  13 289  7 984  3 665  364     169     20           25 491 
Export sales allocated to selling entity  (1 796) (6 254)    8 050                         
Total revenue from contracts with customers  11 493  1 730  3 665  8 414     169     20           25 491 
By timing and major type of goods and services1                                     
Sale of goods at a point in time1  11 493  1 730  3 145  8 050     163     16           24 597 
Coal1  11 493  1 730  3 145  8 050                       24 418 
Ferrosilicon                 163                 163 
Biological goods                       16           16 
Rendering of services over time1        520  364                 894 
Stock yard management services        224                          224 
Project engineering services1        296                          296 
Other mine management services           364                       364 
Other services                             10 
Total revenue from contracts with customers  11 493  1 730  3 665  8 414     169     20           25 491 
By major geographic area of customer2                                     
Domestic  11 493  1 730  3 665  364     169     15           17 436 
Export           8 050                    8 055 
Europe           4 920                    4 922 
Asia           2 455                    2 458 
Other           675                       675 
Total revenue from contracts with customers  11 493  1 730  3 665  8 414     169     20              25 491 
By major customer industries                                     
Public utilities  9 101  301  3 665  701                       13 768 
Merchants  141  835     6 458                       7 434 
Steel  1 557  165     36                       1 758 
Mining  88  43     747     144                 1 022 
Manufacturing  291  33     101     22                 447 
Food and beverage  89                                89 
Chemicals     96                             96 
Cement  156  202                             358 
Other  70  55     371        20           519 
Total revenue from contracts with customers  11 493  1 730  3 665  8 414     169     20           25 491 
1 Represented for a separate performance obligation identified in the sale of coal contract, being the project engineering services. There has been no impact on the amount of revenue recognised as both performance obligations have been fulfilled during the year.
2 Determined based on the customer supplied by Exxaro.

 

8. SIGNIFICANT ITEMS INCLUDED IN OPERATING EXPENSES

  For the year ended
31 December 
  2019
Reviewed
Rm
  2018
Audited
Rm
 
The following (expense)/income items are included, amongst others, in operating expenses:        
Raw materials and consumables (3 760)   (3 175)  
Staff costs1 (5 248)   (4 622)  
Royalties (459)   (427)  
Contract mining (2 308)   (1 818)  
Repairs and maintenance (2 251)   (2 213)  
Railage and transport (2 353)   (1 787)  
Movement in rehabilitation provisions (127)   194  
Depreciation and amortisation (1 912)   (1 582)  
– Depreciation of property, plant and equipment (1 849)   (1 579)  
– Depreciation of right-of-use assets (59)      
– Amortisation of intangible assets (4)   (3)  
Fair value adjustments on contingent consideration2 296   (357)  
Legal and professional fees (742)   (776)  
Net gains on disposal of property, plant and equipment     122  
Loss on loss of control of subsidiary3 (35)      
Gain on disposal of operation4 76   102  
Loss on dilution of investment in associates5 (42)      
Gain on disposal of associate6 270      
Expected credit losses7 (165)   (64)  
Net impairment charges of non-current assets8 (35)      
Expenses relating to short-term leases (180)      
Expenses relating to leases of low value assets (11)      
Gain on termination of lease 1      
Operating lease income 39   37  
Operating lease rental expense     (232)  
Insurance recoveries for: 148   57  
– Business interruption 99      
– Property, plant and equipment 49   57  
1 Includes an amount of R459 million relating to TVPs.
2 Relates to the ECC acquisition.
3 On 1 January 2019 Exxaro lost control over the management function of Tumelo. This resulted in Tumelo being accounted for as an associate at an initial carrying value of nil.
4 2019 relates to the disposal of the Paardeplaats mining right which formed part of the NBC operation. 2018 relates to the sale of certain assets and liabilities of the NBC operation.
5 Relates to the dilution of Insect Technology and LightApp (refer note 14).
6 Relates to the redemption of membership interest in Tronox UK.
7 Mainly relates to ECLs recognised for non-performing other receivables and the loan to Tumelo.
8 Includes an impairment charge of the equity-accounted investment in GAM (R58 million) and an impairment reversal on the Reductants plant (R23 million).

9. NET FINANCING COSTS

   For the year ended
31 December 
 
   2019 
Reviewed 
Rm
 
   2018 
Audited 
Rm
 
  
Finance income  318     283    
Interest income  292     256    
Finance lease interest income     10    
Commitment fee income       
Interest income from loan to joint venture  11     16    
Finance costs  (355)    (605)   
Interest expense  (506)    (514)   
Unwinding of discount rate on rehabilitation costs  (414)    (408)   
Recovery of unwinding of discount rate on rehabilitation costs  167     158    
Interest expense on lease liabilities  (36)    (1)   
Amortisation of transaction costs  (14)    (27)   
Borrowing costs capitalised 448     187    
Total net financing costs  (37)    (322)   
1 Borrowing costs capitalisation rate: 9.98%    10.13%   

 

10. SHARE OF INCOME OF EQUITY-ACCOUNTED INVESTMENTS

   For the year ended
31 December 
 
   2019 
Reviewed 
Rm
 
   (Re-presented)
2018 
Audited 
Rm
 
  
Associates  4 468     3 009    
SIOC  4 413     2 592    
Tronox SA  234     382    
Tronox UK1        110    
RBCT     (36)   
Curapipe  (4)    (3)   
Insect Technology  (148)    (31)   
LightApp  (28)    (5)   
Joint ventures  173     180    
Mafube  127     114    
Cennergi  46     66    
Share of income of equity-accounted investments  4 641     3 189    
1 Application of the equity method ceased on 30 November 2018 when the investment was classified as a non-current asset held-for-sale.

 

11. DIVIDEND DISTRIBUTIONS

A final cash dividend, number 34, for 2019 of 566 cents per share, was approved by the board of directors on 11 March 2020. The dividend is payable on 28 April 2020 to shareholders who will be on the register on 24 April 2020. This final dividend, amounting to approximately R1 420 million (to external shareholders), has not been recognised as a liability in these condensed annual financial statements. It will be recognised in shareholders’ equity in the year ending 31 December 2020.

The final dividend declared will be subject to a dividend withholding tax of 20% for all shareholders who are not exempt from or do not qualify for a reduced rate of dividend withholding tax. The net local dividend payable to shareholders, subject to dividend withholding tax at a rate of 20% amounts to 452.80000 cents per share.

The number of ordinary shares in issue at the date of this declaration is 358 706 754. Exxaro company’s tax reference number is 9218/098/14/4.

 

  For the year ended
31 December 
  2019
Reviewed
Rm
  2018 
Audited 
Rm 
 
Dividends paid 5 812   5 483  
Final dividend (relating to prior year) 1 393   1 004  
Special dividend 2 251   3 149  
Interim dividend (current year) 2 168   1 330  
  cents   cents  
Dividend per share 2 316   2 185  
Final dividend (relating to prior year) 555   400  
Special dividend 897   1 255  
Interim dividend (current year) 864   530  
  At 31 December 
  2019
Reviewed
  2018
Audited
 
Issued share capital (number of shares) 358 706 754   358 706 754  
Ordinary shares (millions)        
– Weighted average number of shares 251   251  
– Diluted weighted average number of shares 251   326  

 

12. CAPITAL SPEND AND CAPITAL COMMITMENTS

  At 31 December 
  2019
Reviewed
Rm
  2018
Audited
Rm
 
Capital spend        
To maintain operations 2 502   2 847  
To expand operations 3 574   2 943  
Total capital spend 6 076   5 790  
Capital commitments        
Contracted 2 225   4 508  
Contracted for the group (owner-controlled) 1 985   3 533  
Share of capital commitments of equity-accounted investments 240   975  
Authorised, but not contracted 3 119   2 914  

 

13. RIGHT-OF-USE ASSETS

At 31 December 2019  Land and 
buildings 
Rm
 
Residential 
land and 
buildings 
Rm
 
Buildings 
and  
infrastructure 
Rm
 
Machinery, 
plant and 
equipment 
Rm
 
Total 
Rm
 
Gross carrying amount                
Transfer from property, plant and equipment1           16  16 
Recognised on initial application of IFRS 16  33  38  76 
Balance at 1 January 2019  33  54  92 
Additions     457  460 
Remeasurement adjustments         
Lease terminations           (18) (18)
Transfer to property, plant and  equipment3           (16) (16)
At end of the year  497  22  525 
Accumulated depreciation                
Transfer from property, plant and  equipment1           (2) (2)
Recognised on initial application of  IFRS 16        (4) (7) (11)
Balance at 1 January 2019        (4) (9) (13)
Charges for the year     (1) (44) (14) (59)
Lease terminations          
Transfer to property, plant and  equipment         
At end of the year     (1) (48) (14) (63)
Net carrying amount at end of the year  449  462 
1 Assets acquired in terms of finance leases transferred from property, plant and equipment on adoption of IFRS 16.
2 Relates to remeasurements arising from changes in CPI.
3 Transfer to property, plant and equipment as there was a transfer in legal ownership of the underlying asset.

 

14. EQUITY-ACCOUNTED INVESTMENTS

   At 31 December  
   2019 
Reviewed 
Rm
 
   2018 
Audited 
Rm
 
  
Associates  15 056      15 477    
SIOC  9 835      9 511    
Tronox SA  2 472      2 185    
RBCT1  2 067      2 157    
Black Mountain2       818    
Curapipe3  37      22    
Insect Technology4  534      643    
LightApp4  111      141    
Tumelo1           
GAM5           
Joint ventures  1 574      1 569    
Mafube  1 335      1 237    
Cennergi  239      332    
Total carrying value of equity-accounted investments  16 630      17 046    
1 On 1 January 2019 Exxaro lost control over the management function of Tumelo. This resulted in Tumelo being accounted for as an associate and a dilution in the effective interest in RBCT.
2 The investment in Black Mountain was classified as a non-current asset held-for-sale on 30 November 2019 (refer note 16).
3 An additional 4.47% interest was acquired in Curapipe.
4 The interests in Insect Technology and LightApp have diluted during the year.
5 A 22% equity interest in GAM was acquired in exchange for settlement of the Lebonix debt. The investment in GAM has since been impaired to a net carrying value of nil.

 

15. OTHER ASSETS

  At 31 December 
  2019
Reviewed
Rm
  2018
Audited
Rm
 
Non-current        
Reimbursements1 1 648   1 723  
Indemnification asset: Total S.A.2 1 410   1 337  
Biological assets 24   30  
Intangible assets 16   15  
Other 51   27  
Total non-current other assets 3 149   3 132  
Current        
Indemnification asset: Tronox Holdings plc3 65      
VAT 501   480  
Royalties 114   46  
Prepayments 120   110  
Current tax receivables 265   23  
Other 33   19  
Total current other assets 1 098   678  
Total other assets 4 247   3 810  
1 Amounts recoverable from Eskom in respect of the rehabilitation, environmental expenditure and retirement employee obligations of the Matla and Arnot mines at the end of life of these mines.
2 Upon the acquisition of ECC in 2015, Total S.A. indemnified Exxaro from any obligations relating to the EMJV.
3 Indemnification asset which arose on the repurchase of the Tronox Holdings plc ordinary shares as Tronox Holdings plc has indemnified Exxaro from any tax obligation which may arise on the disposal of any of the Tronox Holdings plc ordinary shares held by Exxaro subsequent to the redomicile.

16. NON-CURRENT ASSETS AND LIABILITIES HELD-FOR-SALE

Tronox Holdings plc

In September 2017, the directors of Exxaro formally decided to dispose of the investment in Tronox Limited. As part of this decision, Tronox Limited was required to publish an automatic shelf registration statement of securities of well-known seasoned issuers which allowed for the conversion of Exxaro’s Class B Tronox Limited ordinary shares to Class A Tronox Limited ordinary shares. From this point, it was concluded that the Tronox Limited investment should be classified as a non-current asset held-for-sale as all the criteria in terms of IFRS 5 Non-current Assets Held-for-Sale and Discontinued Operations (IFRS 5) were met. As of 30 September 2017, the Tronox Limited investment, totalling 42.66% of Tronox Limited’s total outstanding voting shares, was classified as a non-current asset held-for-sale and the application of the equity method ceased.

Subsequently, Exxaro sold 22 425 000 Class A Tronox Limited ordinary shares during October 2017. During May 2019, Tronox Holdings plc repurchased 14 000 0000 Tronox Holdings plc ordinary shares from Exxaro after Tronox Limited had redomiciled to the UK. On 31 December 2019, management concluded that the remaining investment in Tronox Holdings plc continues to meet the criteria to be classified as a non-current asset held-for-sale in terms of IFRS 5. Exxaro continues to assess market conditions for further possible sell downs of the remaining 14 729 280 Tronox Holdings plc ordinary shares.

The Tronox Holdings plc investment is presented within the total assets of the TiO2 reportable operating segment and is presented as a discontinued operation (refer note 6).

Black Mountain

During the second half of 2019, the Exxaro board of directors approved a decision to divest from its 26% interest in Black Mountain. A non-binding offer from an interested party was received. On 30 November 2019 the investment was classified as a non-current asset held-for-sale as all the criteria in terms of IFRS 5 were met and the application of the equity method ceased.

The Black Mountain investment is presented within the total assets of the other reportable operating segment and is presented as a discontinued operation (refer note 6).

EMJV

As part of the ECC acquisition in 2015, Exxaro acquired non-current liabilities held-for-sale relating to the EMJV. The sale of the EMJV business is conditional on section 43 consent required in terms of the MPRDA for transfer of the environmental liabilities and rehabilitation obligations of the EMJV to Scinta Energy Proprietary Limited. The liabilities remain classified as non-current liabilities held-for-sale for the Exxaro group as at 31 December 2019 as the required approvals were still pending. Subsequent to 31 December 2019, the required approvals have been obtained (refer note 26).

The EMJV does not meet the criteria to be classified as a discontinued operation since it does not represent a separate major line of business, nor does it represent a major geographical area of operation.

The major classes of assets and liabilities classified as non-current assets and liabilities held-for-sale are as follows:

   At 31 December  
   2019 
Reviewed 
Rm
 
   2018 
Audited 
Rm
 
  
Assets             
Investments in associates  2 613     5 183    
– Tronox Holdings plc  1 741     3 396    
– Tronox UK        1 787    
– Black Mountain  872          
Non-current assets held-for-sale  2 613     5 183    
Liabilities             
Retirement employee obligations1  (1 393)    (1 320)   
Non-current provisions1  (17)    (17)   
Non-current liabilities held-for-sale  (1 410)    (1 337)   
Net non-current assets held-for-sale  1 203     3 846    
1 Relates to the EMJV.

 

17. INTEREST-BEARING BORROWINGS

   At 31 December  
   2019 
Reviewed 
Rm
 
   2018 
Audited 
Rm
 
  
Non-current1  6 991     3 843    
Loan facility  5 991     3 233    
Bonds 1 000          
Preference share liability       610    
Current4  50     571    
Loan facility  46     47    
Bonds     525    
Preference share liability        (1)   
Total interest-bearing borrowings  7 041     4 414    
Summary of interest-bearing borrowings by period of redemption:             
Less than six months  54     576    
Six to 12 months  (4)    (5)   
Between one and two years  2 744     (10)   
Between two and three years  3 605     3 242    
Between three and four years  (1)    611    
Between four and five years  643          
Total interest-bearing borrowing  7 041     4 414    
1 Has been reduced by the amortisation of transaction costs of:  (9)    (20)   
2 New bonds issued during May 2019.             
3 Capital redemption on preference share liability of:  602     1 889    
4 The current portion represents:  50     571    
– Capital repayments        520    
– Interest capitalised  59     61    
– Reduced by the amortisation of transaction costs  (9)    (10)   
Overdraft               
Bank overdraft  976     1 531    

The bank overdraft is repayable on demand and interest is based on current South African money market rates.

There were no defaults or breaches in terms of interest-bearing borrowings.

Below is a summary of the salient terms and conditions of the facilities:

    Loan facility
  Year Bullet term
loan
Amortised
loan
Revolving
facility
 
Aggregate nominal amount (Rm) 31 December 2019 3 250 1 750 2 750  
  31 December 2018 3 250 1 750 2 750  
Issue date or draw date   29 July 2016 29 July 2016 29 July 2016  
Maturity date   29 July 2021 29 July 2023 29 July 2021  
Capital payments   The total outstanding amount is payable on final maturity
date
Four consecutive semi-annual instalments commencing on the date occurring
18 months prior to the final maturity
date
The total outstanding amount is payable on final maturity
date
 
Duration (months)   60 84 60  
Secured or unsecured   Unsecured Unsecured Unsecured  
Undrawn portion (Rm) 31 December 2019 nil 1 750 nil  
  31 December 2018 nil 1 750 2 750  
Interest          
Interest-payment basis   Floating rate Floating rate Floating rate  
Interest-payment period   Three months Three months Monthly  
Interest rate   JIBAR plus a margin JIBAR plus a margin JIBAR plus a margin  
    of 325 basis of 360 basis of 325 basis  
    points points points  
    (3.25%) (3.60%) (3.25%)  
Effective interest rates for transaction costs 31 December 2019 0.17% N/A N/A  
  31 December 2018 0.17% 0.17% N/A  
Closing rate of interest 31 December 2019 10.04% nil 9.63%  
  31 December 2018 10.28% nil nil  

    DMTN Programme (bonds)  
  Year R357 million senior
unsecured floating
rate note
R643 million senior
unsecured floating
rate note
 
Aggregate nominal amount (Rm) 31 December 2019 357 643  
Issue date or draw date   13 June 2019 13 June 2019  
Maturity date   13 June 2022 13 June 2024  
Capital payments   No fixed or determinable
payments, the total
outstanding amount is
payable on final maturity
date
No fixed or determinable
payments, the total
outstanding amount is
payable on final maturity
date
 
Duration (months)   36 60  
Secured or unsecured   Unsecured Unsecured  
Interest        
Interest-payment basis   Floating rate Floating rate  
Interest-payment period   Three months Three months  
Interest rate   JIBAR plus a margin of
165 basis points (1.65%)
JIBAR plus a margin of
189 basis points (1.89%)
 
Closing rate of interest 31 December 2019 8.45% 8.69%  

 

18. LEASE LIABILITIES

   At 31 December        
   2019 
Reviewed 
Rm 
   2018 
Audited 
Rm 
  
Non-current  461          
Current  27       
Total lease liabilities  488       
Summary of lease liabilities by period of redemption:             
Less than six months  15       
Six to 12 months  12          
Between one and two years  28          
Between two and three years  34          
Between three and four years  34          
Between four and five years  43          
Over five years  322          
Total lease liabilities  488       
Analysis of movement in lease liabilities             
At beginning of the year – IAS 17          
Recognised on initial application of IFRS 16  66          
Balance at 1 January 2019  68          
New leases  458          
Lease terminations  (12)         
Lease remeasurement adjustments          
Capital repayments  (33)         
– Lease payments  (69)         
– Interest charges  36          
At end of the year  488          

The lease liabilities relate to the right-of-use assets disclosed under note 13. Interest is based on incremental borrowing rates ranging between 7.85% and 10.44%.

19. PROVISIONS

   Environmental rehabilitation            
   Restoration
Rm
 
Decommissioning 
Rm
 
Residual 
impact 
Rm
 
Other site 
closure 
costs 
Rm
 
   Total 
Rm
 
 
At 31 December 2019                     
At beginning of the year  2 516  451  975  80     4 022   
Charge to operating expenses (note 8) (244) 52  301  18     127   
– Additional provision  374  56  403  19     852   
– Unused amounts reversed  (618) (4) (102) (1)    (725)  
Unwinding of discount rate on rehabilitation costs (note 9) 228  47  139        414   
Provisions capitalised to property, plant and equipment     (4)          (4)  
Utilised during the year  (58)       (15)    (73)  
Reclassification to non-current liabilities held-for-sale  (4)    (69)       (73)  
Loss of control of subsidiary  (6) (2) (1)       (9)  
Total provisions at end of the year  2 432  544  1 345  83     4 404   
– Current provision  66     11  22     99   
– Non-current provision  2 366  544  1 334  61     4 305   
At 31 December 2018                     
At beginning of the year  2 473  450  956  80     3 959   
Charge to operating expenses  (note 8) (133) (29) (32)       (194)  
– Additional provision  35     45        80   
– Unused amounts reversed  (168) (29) (77)       (274)  
Unwinding of discount rate on rehabilitation costs (note 9) 219  42  124  23     408   
Provisions capitalised to  property, plant and equipment     (12)          (12)  
Utilised during the year  (35)       (23)    (58)  
Reclassification to non-current liabilities  held-for-sale  (8)    (73)       (81)  
Total provisions at end  of the year  2 516  451  975  80     4 022   
– Current provision  46        24     70   
– Non-current provision  2 470  451  975  56     3 952   

20. NET DEBT

  At 31 December 
2019 
Reviewed 
Rm 
2018 
Audited 
Rm 
 
Net debt is presented by the following items on the statement of financial position:
Non-current interest-bearing debt (7 452) (3 843)  
Interest-bearing borrowings (6 991) (3 843)  
Lease liabilities (461)    
Current interest-bearing debt (77) (573)  
Interest-bearing borrowings (50) (571)  
Lease liabilities (27) (2)  
Net cash and cash equivalents 1 719  549   
Cash and cash equivalents 2 695  2 080   
Overdraft (976) (1 531)  
Total net debt (5 810) (3 867)  

Analysis of movement in net cash/(debt):

      Liabilities arising from financing activities     
     Cash and 
cash 
equivalents/ 
(overdraft)
Rm 
Non- 
current 
interest- 
bearing debt 
Rm 
Current 
interest- 
bearing debt 
Rm 
Total 
Rm 
  
Net cash at 31 December 2017 (Audited)    6 617  (6 480) (68) 69    
Cash flows     (6 110) 2 139  (3 963)   
Operating activities     (54)     (54)   
Investing activities     (3 195)     (3 195)   
Financing activities     (2 861) 2 139  (714)   
– Interest-bearing borrowings raised     14    (14)    
– Interest-bearing borrowings repaid     (2 161) 2 139  22     
– Shares acquired in the market to settle share-based payments     (467)     (467)   
– Dividends paid to BEE Parties     (247)     (247)   
Non-cash movements     42  498  (513) 27    
Amortisation of transaction costs        (27) (27)   
Preference dividend accrued      (1)   (1)   
Interest accrued          
Lease terminations        
Transfers between non-current and current liabilities      494  (494)    
Translation difference on movement in cash and cash equivalents     42      42    
Net debt at 31 December 2018 (Audited)    549  (3 843) (573) (3 867)   

Analysis of movement in net cash/(debt):

      Liabilities arising from financing activities     
    Cash and 
cash 
equivalents/ 
(overdraft)
Rm 
 
Non- 
current 
interest- 
bearing debt 
Rm 
 
Current 
interest- 
bearing debt 
Rm 
 
Total 
Rm 
 
 
Net debt at 31 December 2018 (Audited)   549  (3 843) (573) (3 867)  
Cash flows    1 171  (3 148) 553  (1 424)  
Operating activities    (2 329)     (2 329)  
Investing activities    2 974      2 974   
Financing activities    526  (3 148) 553  (2 069)  
– Interest-bearing borrowings raised    4 250  (3 750) (500)    
– Interest-bearing borrowings repaid    (1 622) 602  1 020     
– Lease liabilities paid    (33)   33     
– Shares acquired in the market to settle share-based payments    (678)     (678)  
– Dividends paid to BEE Parties    (1 391)     (1 391)  
Non-cash movements    (1) (461) (57) (519)  
Amortisation of transaction costs        (14) (14)  
Preference dividend accrued      13    13   
Interest accrued         
Lease remeasurements      (7)   (7)  
New leases (including IFRS 16 adoption adjustment)     (524)   (524)  
Lease terminations        12  12   
Transfers between non-current and current liabilities      57  (57)    
Translation difference on movement in cash and cash equivalents    (1)     (1)  
Net debt at 31 December 2019 (Reviewed)   1 719  (7 452) (77) (5 810)  

21. OTHER LIABILITIES

  At 31 December 
  2019
Reviewed
Rm
2018
Audited
Rm
 
Non-current    
Termination benefits1 144  
Income received in advance 23 18  
Total non-current other liabilities 167 18  
Current      
Termination benefits1 305 17  
Leave pay 203 171  
Bonuses 241 305  
VAT 21 86  
Royalties 9 50  
Current tax payables 50 209  
Other 97 94  
Total current other liabilities 926 932  
Total other liabilities 1 093 950  
1  During 2019, Exxaro announced the implementation of TVPs. Under this policy, employees that qualified would receive a severance package in exchange for termination of employment. Offers made by Exxaro to the targeted employees (who accepted the agreements) were signed by the end of 2019.

22. FINANCIAL INSTRUMENTS

 

The group holds the following financial instruments:

   At 31 December  
      2019 
Reviewed 
Rm
 
2018 
Audited 
Rm
 
     
Non-current                   
Financial assets                   
Financial assets at fair value through other comprehensive income        235  185       
Equity: unlisted – Chifeng        235  185       
Financial assets at fair value through profit or loss        2 039  1 432       
Debt: unlisted – environmental rehabilitation funds        2 039  1 432       
Financial assets at amortised cost        400  1 017       
Loans to associates and joint ventures1           250       
ESD loans2        124  80       
Other financial assets at amortised cost        276  687       
– Environmental rehabilitation funds           351       
– Deferred pricing receivable3        279  336       
– Impairment allowances        (3)         
Financial liabilities                   
Financial liabilities at amortised cost        (7 112) (4 220)      
Interest-bearing borrowings        (6 991) (3 843)      
Other payables        (121) (152)      
Deferred consideration payable4           (225)      
Financial liabilities at fair value through profit or loss  (488)      
Contingent consideration           (488)      
Current             
Financial assets             
Financial assets at amortised cost        6 208  5 354       
Loans to associates and joint ventures        133       
Associates5        133          
– Gross        182        
– Impairment allowances        (49)       
Joint ventures1             
– Gross             
ESD loans2        82  45       
– Gross        83  45       
– Impairment allowances        (1)      
Other financial assets at amortised cost        57  80       
– Deferred pricing receivable3        57  52       
– Deferred consideration receivable6        29       
– Employee receivables             
– Impairment allowances        (6) (5)      
Trade and other receivables        3 241  3 140       
Trade receivables        2 928  2 971       
- Gross        3 023  3 052       
– Impairment allowances        (95) (81)      
Other receivables        313  169       
– Gross        464  223       
– Impairment allowances        (151) (54)      
Cash and cash equivalents        2 695  2 080       
Financial liabilities             
Financial liabilities at amortised cost        (3 936) (5 457)      
Interest-bearing borrowings        (50) (571)      
Deferred consideration payable4        (307) (395)      
Trade and other payables        (2 603) (2 960)      
– Trade payables        (1 164) (1 456)      
– Other payables        (1 439) (1 504)      
Overdraft        (976) (1 531)      
Financial liabilities at fair value through profit or loss        (191) (362)      
Derivative financial liabilities        (1)      
Contingent consideration        (191) (361)      
1 Loan granted to Mafube in 2018. The loan bears interest at JIBAR plus a margin of 4%, is unsecured and repayable within five years (ending 2023), unless otherwise agreed by the parties. The loan was settled in 2019.
2 Interest-free loans advanced to successful applicants in terms of the Exxaro ESD programme.
3 Relates to a deferred pricing adjustment which arose during 2017. The amount receivable will be settled over seven years (ending 2024) and bears interest at Prime Rate less 2%.
4 Relates to deferred consideration payable in relation to the acquisition of the investment in Insect Technology and LightApp.
5 Loan granted to Tumelo. The loan is interest free, unsecured and repayable on demand, unless otherwise agreed by the parties.
6 Relates to deferred consideration receivable which arose on the disposal of a mining right.
  At 31 December 
  2019
Reviewed
Rm
2018
Audited
Rm
 
Total loan commitment 1 206 1 221  
Mafube1 500 500  
Insect Technology2 706 721  
Undrawn loan commitment 1 206 971  
Mafube 500 250  
Insect Technology 706 721  
1 Revolving credit facility available for five years, ending 2023.
2 A US$50 million term loan facility available from 2020 to 2025.
22.1 Fair value hierarchy
 

The table below analyses recurring fair value measurements for financial assets and financial liabilities. These fair value measurements are categorised into different levels in the fair value hierarchy based on the inputs to the valuation techniques used. The different levels are defined as follows:

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the group can access at the measurement date.
Level 2 – Inputs other than quoted prices included in Level 1 that are either directly or indirectly observable.
Level 3 – Inputs that are not based on observable market data (unobservable inputs).
At 31 December 2019 (Reviewed) Fair value 
Rm 
Level 1
Rm
Level 2
Rm
Level 3 
Rm 
 
Financial assets at fair value through other comprehensive income 235      235   
Equity – unlisted: Chifeng 235      235   
Financial assets at fair value through profit or loss 2 039    2 039    
Non-current debt – unlisted: environmental rehabilitation funds 2 039    2 039    
Financial liabilities at fair value through profit or loss (191)     (191)  
Current contingent consideration (191)     (191)  
Net financial assets held at fair value 2 083    2 039 44   
At 31 December 2018 (Audited) Fair value 
Rm 
Level 1
Rm
Level 2 
Rm 
Level 3 
Rm 
 
Financial assets at fair value through other comprehensive income 185      185   
Equity – unlisted: Chifeng 185      185   
Financial assets at fair value through profit or loss 1 432    1 432     
Non-current debt – unlisted: environmental rehabilitation funds 1 432    1 432     
Financial liabilities at fair value through profit or loss (849)     (849)  
Non-current contingent consideration (488)     (488)  
Current contingent consideration (361)     (361)  
Derivative financial liabilities (1)   (1)  
Net financial assets/(liabilities) held at fair value 767    1 431  (664)  

Reconciliation of financial assets and financial liabilities within Level 3 of the hierarchy:

  Contingent 
consideration 
Rm 
Chifeng
Rm
Total 
Rm 
 
At 31 December 2017 (Audited) (723) 152 (571)  
Movement during the year        
Gains recognised in other comprehensive income (pre-tax effect)1   33 33   
Losses recognised in profit or loss (357)   (357)  
Settlements 299    299   
Exchange losses recognised in profit or loss (68)   (68)  
At 31 December 2018 (Audited) (849) 185 (664)  
Movement during the year        
Gains recognised in other comprehensive income (pre-tax effect)1   50 50   
Gains recognised in profit or loss 296    296   
Settlements 344    344   
Exchange gains recognised in profit or loss 18    18   
At 31 December 2019 (Reviewed) (191) 235 44   
1 Tax on Chifeng amounts to nil (31 December 2018: R12 million).

Transfers

The group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the transfer has occurred. There were no transfers between Level 1 and Level 2 nor between Level 2 and Level 3 of the fair value hierarchy.

Valuation process applied

The fair value computations of the investments are performed by the group's corporate finance department, reporting to the finance director, on a six-monthly basis. The valuation reports are discussed with the chief operating decision maker and the audit committee in accordance with the group's reporting governance.

Current derivative financial instruments

Level 2 fair values for simple over-the-counter derivative financial instruments are based on market quotes. These quotes are assessed for reasonability by discounting estimated future cash flows using the market rate for similar instruments at measurement date.

Environmental rehabilitation funds

Level 2 fair values for debt instruments held in the environmental rehabilitation funds are based on quotes provided by the financial institutions at which the funds are invested at measurement date. These financial institutions invest in instruments which are listed.

22.2 Valuation techniques used in the determination of fair values within Level 3 of the hierarchy, as well as significant inputs used in the valuation models
 

Contingent consideration

The potential undiscounted amount of the remaining future payments that the group could be required to make under the ECC acquisition is between nil and US$35 million. The amount of future payments is dependent on the API4 coal price.

At 31 December 2019, there was a decrease of US$20.4 million (R296 million) (31 December 2018: an increase of US$25.4 million (R357 million)) recognised in profit or loss for the contingent consideration arrangement.

API4 coal price range (US$/tonne)   Future payment  
Reference year Minimum Maximum   US$ million  
2015 60 80   10  
2016 60 80   25  
2017 60 80   25  
2018 60 90   25  
2019 60 90   35  

The amount to be paid in each of the five years is determined as follows:

  • If the average API4 price in the reference year is below the minimum API4 price of the agreed range, then no payment will be made
  • If the average API4 price falls within the range, then the amount to be paid is determined based on a formula contained in the agreement
  • If the average API4 price is above the maximum API4 price of the range, then Exxaro is liable for the full amount due for that reference year.

An additional payment to Total S.A. amounting to R344 million was required for the 2018 reference year, R299 million was required for the 2017 reference year and R74 million was required for the 2016 reference year as the API4 price was within the agreed range. No additional payment to Total S.A. was required for the 2015 reference year as the API4 price was below the range.

The contingent consideration is classified within Level 3 of the fair value hierarchy as there is no quoted market price or observable price available for this financial instrument. This financial instrument is valued as the present value of the estimated future cash flows, using a discounted cash flow model.

The significant observable and unobservable inputs used in the fair value measurement of this financial instrument are the rand/US$ exchange rate, API4 export price and the discount rate.

23. CONTINGENT LIABILITIES

  At 31 December 
  2019
Reviewed
Rm
  2018
Audited
Rm
 
Pending litigation and other claims1 1 103   1 155  
Operational guarantees2 4 506   3 062  
– Financial guarantees ceded to the DMR 3 994   2 971  
– Other financial guarantees 512   91  
Total contingent liabilities 5 609   4 217  
1 Consists of legal cases with Exxaro as defendant. Tax disputes with SARS have been settled.
2 Includes guarantees to banks and other institutions in the normal course of business from which it is anticipated that no material liabilities will arise.

SARS

As previously reported, on 30 March 2016, SARS had issued additional assessments to the amount of R442 million (R199 million tax payable, R91 million interest and R152 million penalties) to which Exxaro formally objected. The matter was settled outside of the Tax Court. A settlement agreement was concluded and signed on 30 September 2019 in terms of which SARS must refund Exxaro an amount of R24 million.

Share of equity-accounted investments' contingent liabilities

  At 31 December 
  2019
Reviewed
Rm
  2018
Audited
Rm
 
Share of contingent liabilities of equity-accounted investments1 1 060   726  
1 Mainly operational guarantees issued by financial institutions relating to environmental rehabilitation and closure costs.

24. RELATED PARTY TRANSACTIONS

The group entered into various sale and purchase transactions with associates and joint ventures during the ordinary course of business. These transactions were subject to terms that are no less, nor more favourable than those arranged with independent third parties.

25. GOING CONCERN

Based on the latest results for the year ended 31 December 2019, the latest board approved budget for 2020, as well as the available banking facilities and cash generating capability, Exxaro satisfies the criteria of a going concern.

26. EVENTS AFTER THE REPORTING PERIOD

Details of the final dividend are provided in note 11.

Subsequent to 31 December 2019, the following notable events occurred:

  • On 17 January 2020, the outstanding conditions for the sale of the EMJV business to Scinta Energy Proprietary Limited were met (refer note 16).
  • On 31 January 2020, the Arnot operation was transferred to Arnot OpCo Proprietary Limited Consortium.
  • On 20 February 2020, Exxaro announced its intention to divest from the ECC group as well as the Leeuwpan operation.
  • As announced on 17 September 2019, Exxaro has concluded an agreement with Khopoli, a wholly owned subsidiary of Tata Power, to acquire Khopoli's 50% shareholding in Cennergi for an amount of R1 550 million, subject to normal working capital adjustments. Post the conclusion of the agreement, Exxaro will have 100% ownership of Cennergi. The last condition precedent was met in March 2020.

The directors are not aware of any other significant matter or circumstance arising after the reporting period up to the date of this report, not otherwise dealt with in this report.

27. EXTERNAL AUDITOR'S REVIEW CONCLUSION

These reviewed condensed group annual financial statements for the year ended 31 December 2019, as set out in the Financials, have been reviewed by the company's external auditor, PricewaterhouseCoopers Inc., who expressed an unmodified review conclusion. A copy of the auditor's review report on the condensed group annual financial statements is available for inspection at Exxaro's registered office, together with the financial statements identified in the external auditor's report.

28. KEY MEASURES1

  At 31 December   
  2019 2018  
Closing share price (rand per share) 131.14 137.87  
Market capitalisation (Rbn) 47.04 49.45  
Average rand/US$ exchange rate (for the year ended) 14.44 13.24  
Closing rand/US$ spot exchange rate 14.13 14.43  
1 Non-IFRS numbers.