12.1.1 ACCOUNTING POLICIES RELATING TO NET FINANCING COSTS AND INTEREST-BEARING BORROWINGS

Borrowing costs, finance income and other financing expenses

Fees paid on the establishment of loan facilities are capitalised to the loan as transaction costs to the extent that it is directly related to the establishment of the loan facility. In this case, the fee is deferred until the draw down occurs in which case it is amortised using the effective interest rate method. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down (ie revolving credit facility), the fee is capitalised as a prepayment and amortised over the period of the facility to which it relates.

General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for its intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

Finance income comprises interest income on cash and cash equivalents, finance leases, loans to joint ventures, indebtedness by subsidiaries as well as interest income on funds invested that are recognised in profit or loss. Interest income is recognised as it accrues in profit or loss, using the effective interest rate method.

Finance expense comprises interest expense on borrowings, agreements for the use of assets (classified as finance leases), unwinding of the discount rate on provisions, indebtedness to subsidiaries, recovery of unwinding of discount rate on rehabilitation costs and amortisation of transaction costs.

Fees and commission

Fees and commission income and expenses that are integral to the effective interest rate on a financial asset or financial liability are included in the measurement of the effective interest rate. Other fees and commission expenses relate mainly to transaction and service fees and are expensed as the services are rendered.

Loans and borrowings

Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost.

12.1.2 NET FINANCING (COSTS)/INCOME

12.1.3 INTEREST-BEARING BORROWINGS

¹In 2018 a finance lease was cancelled before the lease term expired and the assets returned. The outstanding lease commitment was R8 million when it was cancelled.

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

12.1.4 DETAILED ANALYSIS OF INTEREST-BEARING BORROWINGS

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

There were no defaults or breaches in terms of interest-bearing borrowings during both reporting periods.

Neither the company nor any of its subsidiaries are required to undertake any specified events in respect of the interest-bearing borrowings.

The group is required to comply with the following financial covenants in terms of the loan facility:

• Ratio of consolidated EBITDA (excluding non-cash BEE credential costs) to net interest paid of the group for any measurement period shall not be less than 4:1
• Ratio of consolidated net debt1 to equity of the group for any measurement period shall be less than 0.8:1
• Ratio of consolidated net debt1 to consolidated EBITDA (excluding non-cash BEE credential costs, including dividends received from equity-accounted investments) of the group for any measurement period shall be less than 3:1.

¹For purposes of financial covenants, net debt is adjusted for pending litigation and other claims as well as other financial guarantees (refer note 13.4).

Exxaro is required to comply with the following financial covenants in terms of the preference share liability:

• Ratio of consolidated net debt to consolidated EBITDA1 of the group for any measurement period must be less than 3.5:1

¹As defined per the agreement.

The group has complied with all the above mentioned contractually agreed financial governance.

12.1.5 NET (DEBT)/CASH

Analysis of movement in net (debt)/cash:

12.1.6 NOTES TO THE STATEMENTS OF CASH FLOWS RELATING TO NET FINANCING COSTS (PAID)/RECEIVED

12.1.7 FINANCIAL LIABILITIES COMPOSITION

12.1.8 OTHER LIABILITIES COMPOSITION

12.2.1 ACCOUNTING POLICY RELATING TO SHARE CAPITAL

Where any company within the Exxaro group of companies purchase Exxaro shares (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the group’s equity holders until the shares are cancelled or reissued. Where such ordinary shares are subsequently reissued, any consideration received, net of any directly attributable incremental costs and the related income tax effects, is included in equity attributable to the group’s equity holders.

The shares are listed on the JSE, with one vote per share, and shareholders are entitled to dividends declared from time to time.

12.2.2 SHARE CAPITAL

Exxaro’s issued ordinary shares, net of treasury shares were 250 936 510 on 31 December 2018 (2017: 250 936 510).

Refer to the notice of the AGM in the summarised group annual financial statements and notice of the AGM 2018 for resolutions pertaining to the unissued ordinary shares under the control of the directors until the forthcoming AGM.

Exxaro has no unlisted securities.

12.2.3 SHARE REPURCHASES

Exxaro had no share repurchase transactions during 2018.

In 2017, Exxaro repurchased ordinary shares from Main Street 333 as follows:

• January 2017 repurchase: 43 943 744 shares for R3 524 million;
• December 2017 repurchase: 22 686 572 shares for R2 695 million.