Exxaro Resource limited Report Selector 2018

Report Selector


Exxaro Resources Limited Group and company annual financial statements

CHAPTER 12: FUNDING

12.1 DEBT

 

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

         Group        Company    
For the year ended 31 December  Note     2018 
Rm
 
   2017 
Rm
 
      2018 
Rm
 
   (Restated)
2017 
Rm 
 
  
Finance income        283     217        1 327     1 338    
– Interest income        256     207        151     141    
– Finance lease interest income        10     10                   
– Commitment fee income                               
– Interest income from indebtedness by subsidiaries  17.4                    1 176     1 197    
– Interest income from loans to joint ventures        16                         
Finance costs        (605)    (828)       (1 114)    (1 137)   
– Interest expense        (514)    (600)       (398)    (582)   
– Interest expense from indebtedness to subsidiaries  17.4                    (704)    (543)   
– Unwinding of discount rate on rehabilitation costs  13.3     (408)    (410)       (3)    (3)   
– Recovery of unwinding of discount rate on rehabilitation                                  
    costs        158     163                   
– Finance lease interest expense        (1)    (3)                  
– Amortisation of transaction costs        (27)    (9)       (9)    (9)   
– Borrowing costs capitalised1  11.1.3     187     31                   
Total net financing costs        (322)    (611)       213     201    
1Borrowing costs capitalisation rate:        10.13%     8.98%                   
Included in interest income:                                  
– Interest income on financial assets at amortised costs        65     11                
– Interest income on cash and cash equivalents        188     166        151     136    
– Interest income on financial assets at fair value through profit or  loss           25                   
– Interest income on non-financial assets                               
Total interest income        256     207        151     141    
Included in interest expense:                                  
– Interest expense on financial liabilities measured at amortised  cost        (505)    (578)       (395)    (561)   
– Interest expense on bank overdrafts        (3)    (21)       (3)    (21)   
– Interest on non-financial liabilities        (6)    (1)                  
Total interest expense        (514)    (600)       (398)    (582)   

12.1.3 INTEREST-BEARING BORROWINGS

   Group        Company    
At 31 December  2018 
Rm
 
   (Re-presented)
2017 
Rm 
 
      2018 
Rm
 
   (Restated)
2017 
Rm
 
  
Interest-bearing borrowings                            
Non-current interest-bearing borrowings1  3 843     6 480        3 233     3 994    
Loan facility  3 233     3 474        3 233     3 474    
Bond issue        520              520    
Preference share liability2  610     2 483                   
Finance leases                         
Current interest-bearing borrowings3  573     68        572     57    
Loan facility  47     52        47     52    
Bond issue  525           525       
Preference share liability  (1)    (5)                  
Finance leases     16                   
Total interest-bearing borrowings  4 416     6 548        3 805     4 051    
Summary by financial period of redemption                            
– Less than six months  578     67        576     57    
– Six to 12 months  (5)          (4)         
– Between one and two years  (10)    509        (9)    511    
– Between two and three years  3 242     (13)       3 244     (9)   
– Between three and four years  611     3 239        (2)    3 244    
– Between four and five years        2 620              123    
– Over five years        125              125    
Total interest-bearing borrowings  4 416     6 548        3 805     4 051    
1The non-current portion represents:  3 843     6 480        3 233     3 994    
— Capital repayments  3 863     6 524        3 250     4 020    
— Transaction costs  (20)     (44)        (17)     (26)    
2Capital redemption on preference share liability  1 889                         
3The current portion represents:  573     68        572     57    
— Capital repayments  522     16        520          
— Interest capitalised  61     66        61     66    
— Transaction costs  (10)     (14)        (9)     (9)    
   Group    
At 31 December  2018 
Rm
 
   2017 
Rm
 
  
Finance leases             
Included in the above interest-bearing borrowings are obligations relating to finance leases.1             
Minimum finance lease payments payable:             
– Not later than one year     17    
– Later than one year but not later than five years          
Total minimum finance lease payments payable     20    
Less: future finance charges        (1)   
Present value of finance lease liabilities     19    
– Non-current          
– Current     16    

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.

  Group     Company  
At 31 December 2018
Rm
  2017
Rm
    2018
Rm
  2017
Rm
 
Overdraft                  
Bank overdraft 1 531   54     1 046   37  

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:

  Loan facility    
At 31 December Year   Bullet term loan Amortised
term loan
Revolving
facility
Preference
share liability
 
Aggregate nominal amount (Rm) 2018   3 250 1 750 2 750 2 491  
  2017   3 250 2 000 2 750 2 491  
Issue date or draw down date     29 July 2016 29 July 2016 29 July 2016 11 December 2017  
Maturity date     29 July 2021 29 July 2023 29 July 2021 9 December 2022  
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
The total
outstanding amount
is payable on final
maturity
 
Duration (months)     60 84 60 60  
Secured or unsecured     Unsecured Unsecured Unsecured Secured  
Undrawn portion (Rm) 2018   nil 1 750 2 750 nil  
  2017   nil 1 750 2 750 nil  
Interest              
Interest payment basis     Floating rate Floating rate Floating rate Floating rate  
Interest payment period     Three months Three months Monthly Dependent on
Eyesizwe receiving
dividends from
Exxaro
 
Interest rate     JIBAR plus a margin
of 325 basis points
(3.25%)
JIBAR plus a margin of
360 basis points
(3.60%)
JIBAR plus a margin
of 325 basis points
(3.25%)
80% of prime rate  
Effective interest rates for the 2018   0.17% 1.17% N/A 0.2%  
transaction costs 2017   0.17% 1.17% N/A 0.2%  
Rate of interest per year 2018   10.26% 10.60% nil 8.2%  
  2017   10.46% 10.81% 10.19% 8.2%  

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.

      DMTN Programme (Bond issue)  
  Year   R480 million senior unsecured
floating rate note
R520 million senior unsecured
floating rate note
 
Aggregate nominal amount (Rm)     480 520  
Issue date or draw down date     15 May 2014 15 May 2014  
Maturity date     19 May 2017 19 May 2019  
Capital payments     No fixed or determined payments,
the total outstanding amount is
payable on final maturity date
No fixed or determined payments,
the total outstanding amount is
payable on fina
 
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 170 basis
points (1.70%)
JIBAR plus a margin of 195 basis
points (1.95%)
 
Effective interest rates for the transaction costs 2018     0.08%  
  2017   0.13% 0.08%  
Rate of interest per year 2018     9.17%  
  2017   9.03% 9.17%  

12.1.5 NET (DEBT)/CASH

   Group       
At 31 December     2018 
Rm
 
   2017 
Rm 
 
     
Total net (debt)/cash     (3 867)    69       
Non-current interest-bearing borrowings     (3 843)    (6 480)      
Current interest-bearing borrowings     (573)    (68)      
Net cash     549     6 617       
– Cash and cash equivalents     2 080     6 657       
– Cash and cash equivalents classified as held-for-sale           14       
– Overdraft     (1 531)    (54)      

Analysis of movement in net (debt)/cash:

      Group       
         Liabilities from
financing activities
 
        
      Cash and cash
equivalents/
(overdraft)
Rm
 
Non-current
interest-
bearing
borrowings
Rm
 
Current
interest-
bearing
borrowings
Rm
 
Total
Rm
 
     
Net debt at 31 December 2016     5 183  (6 002) (503) (1 322)      
Cash flows     1 416  (472) 515  1 459       
Operating activities     3 326        3 326       
Investing activities     4 451        4 451       
Financing activities     (6 361) (472) 515  (6 318)      
– Interest-bearing borrowings raised     2 491  (2 491)            
– Interest-bearing borrowings repaid     (2 534) 2 019  515          
– Shares acquired in the market to settle share-based payments     (99)       (99)      
– Repurchase of share capital     (6 219)       (6 219)      
Non-cash movements     (47) (6) (14) (67)      
Amortisation of transaction costs           (9) (9)      
Preference dividend accrued        (11)    (11)      
Reclassification to non-current assets held-for-sale     (14)       (14)      
Transfers between non-current and current liabilities        (5)         
Translation difference on movement in cash and cash equivalents     (33)       (33)      
Net cash at 31 December 2017 (previously presented)    6 552  (6 480) (2) 70       
Reclassifications1     65     (66) (1)      
Net cash at 31 December 2017 (Re-presented)    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)      
– Dividend 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 payable cancelled             
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     549  (3 843) (573) (3 867)      
1 The reclassification to cash and cash equivalents and overdrafts consists of a R51 million reclassification adjustment for interest accrued on bank accounts and bank accounts that were incorrectly classified as well as a R14 million adjustment for the bank balance which was classified as a non-current asset held-for-sale. The reclassification to current interest-bearing borrowings relates to the R66 million reclassification adjustment for interest accrued on the loans and bonds.
  Company    
At 31 December   2018 
Rm 
  (Restated)
2017 
Rm 
   
Net (debt)/cash is presented by the following items on the statement of financial position:            
Total net (debt)/cash   (4 175)   1 467     
Non-current interest-bearing borrowings   (3 233)   (3 994)    
Current interest-bearing borrowings   (572)   (57)    
Net (overdraft)/ cash   (370)   5 518     
– Cash and cash equivalents   676    5 555     
– Overdraft   (1 046)   (37)    
      Company       
         Liabilities from
financing activities
 
        
      Cash and cash
equivalents/
(overdraft)
Rm
 
Non-current
interest-
bearing
borrowings
Rm
 
Current
interest-
bearing
borrowings
Rm
 
Total
Rm
 
     
Net debt at 31 December 2016 (Restated)    4 191  (5 985) (540) (2 334)      
Cash flows     1 309  2 000  480  3 789       
Operating activities     (4 135)       (4 135)      
Investing activities     9 243        9 243       
Financing activities     (3 799) 2 000  480  (1 319)      
– Interest-bearing borrowings repaid     (2 480) 2 000  480          
– Shares acquired in the market to settle share-based payments     (69)       (69)      
– Repurchase of share capital     (6 219)       (6 219)      
– Share capital issued     4 969        4 969       
Non-cash movements     18  (9) 12       
Amortisation of transaction costs           (9) (9)      
Interest accrued                
Transfers between non-current and current liabilities        (9)         
Translation difference on movement in cash and cash equivalents     18        18       
Net cash at 31 December 2017 (Restated)    5 518  (3 994) (57) 1 467       
Cash flows     (5 903) 250     (5 653)      
Operating activities     (8 312)       (8 312)      
Investing activities     2 983        2 983       
Financing activities     (574) 250     (324)      
– Interest-bearing borrowings repaid     (250) 250             
– Shares acquired in the market to settle share-based payments     (324)       (324)      
Non-cash movements     15  511  (515) 11       
Amortisation of transaction costs           (9) (9)      
Interest accrued                
Transfers between non-current and current liabilities        506  (506)         
Translation difference on movement in cash and cash equivalents     15        15       
Net debt at 31 December 2018     (370) (3 233) (572) (4 175)      

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

           Group        Company    
For the year ended 31 December  Note     2018 
Rm
 
   2017 
Rm
 
      2018 
Rm
 
   (Restated)
2017 
Rm
 
  
Interest received        229     188        1 327     1 319    
Finance income  12.1.2     283     217        1 327     1 338    
Non-cash flow items                                  
Interest income not yet received        (44)    (19)             (19)   
Finance lease interest income adjustment        (10)    (10)                  
Interest paid        (518)    (597)       (1 107)    (1 132)   
Finance costs  12.1.2     (605)    (828)       (1 114)    (1 137)   
Non-cash flow items                                  
Unwinding of discount rate on rehabilitation costs  13.3     408     410             
Recovery of unwinding of discount rate on rehabilitation costs        (158)    (163)                  
Amortisation of transaction costs        27                
Borrowing costs capitalised        (187)    (31)                  
Finance costs capitalised to loan less finance costs paid and interest accrued not yet paid        (3)          (5)    (7)   
  Net financing costs (paid)/received        (289)    (409)       220     187    

12.1.7 FINANCIAL LIABILITIES COMPOSITION

         Group        Company    
At 31 December  Note     2018 
Rm
 
   2017 
Rm
 
      2018 
Rm
 
   (Restated)
2017 
Rm
 
  
Non-current financial liabilities                                  
Financial liabilities at fair value through profit or loss        488     414        1 072     2 791    
Contingent consideration (previously classified as designated at fair value through profit or loss)       488     414        488     488    
Put option1                       584     2 377    
Financial liabilities at amortised cost        225              225          
Deferred consideration payable2        225              225          
Total non-current financial liabilities  16.3     713     414        1 297     2 791    
Current financial liabilities                                  
Derivative financial liabilities                               
Financial liabilities at fair value through profit or loss        361     309        361     309    
Contingent consideration (previously classified as designated at fair value through profit or loss)       361     309        361     309    
Financial liabilities at amortised cost        395              10 478          
Deferred consideration payable2        395              395          
Non-interest-bearing loans from subsidiary3  17.7                    8 197          
Treasury facilities with subsidiaries at amortised cost4  17.7                    1 886          
Total current financial liabilities  16.3     757     309        10 839     309    
Total financial liabilities        1 470     723        12 136     3 100    
1 Relates to Exxaro company’s obligation to repurchase shares from Eyesizwe in terms of the Replacement BEE Transaction. During 2018, a portion of the put option lapsed as a portion of the preference share liability was redeemed.
2 Deferred consideration payable in relation to the acquisition of the investment in AgriProtein and LightApp.
3 Loans granted by subsidiary companies which are interest free, unsecured and repayable on demand.
4 Treasury facilities with subsidiaries have no repayments terms and are repayable on demand. Interest is charged at money market rates.

12.1.8 OTHER LIABILITIES COMPOSITION

  Group     Company  
At 31 December 2018
Rm
  2017
Rm
    2018
Rm
  (Restated)
2017 
Rm 
 
Non-current other liabilities                  
Income received in advance 18   6            
Deferred revenue1     374            
Total non-current other liabilities 18   380            
Current other liabilities                  
Deferred revenue1     62            
Leave pay 171   157     15   15  
VAT 86   101         51  
Royalties 50   29            
Bonuses 305   373     77   112  
Other current liabilities 111   95     27   25  
Total current other liabilities 723   817     119   203  
Total other liabilities 741   1 197     119   203  
1 During 2017, a deferred pricing adjustment was recognised in relation to a coal supply agreement which would be released to profit or loss over seven years. However, under IFRS 15 this was accelerated and recognised as part of the
1 January 2018 opening balances transition impact. Refer note 5.6.3.

12.2 EQUITY

 

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

   Group        Company    
At 31 December  2018 
Rm
 
   2017 
Rm
 
      2018 
Rm
 
   2017 
Rm
 
  
Authorised                            
500 000 000 ordinary shares of R0.01 each                
Issued and fully paid                            
358 706 754 (2017: 358 706 754) ordinary shares of R0.01 each                
Share premium  11 261     11 261        11 261     11 261    
Treasury shares held by Eyesizwe1  (10 242)    (10 242)                  
Treasury shares held by Kumba Resources Management                            
Share Trust1  (2)    (2)                  
Total  1 021     1 021        11 265     11 265    
1 These entities have been consolidated.
  Company  
  Number of shares  
Reconciliation of authorised shares not issued 2018    2017   
Authorised unissued ordinary shares at beginning of the year 141 293 246    141 884 495   
Shares repurchased during the year     66 630 316   
Shares issued during the year to Eyesizwe     (67 221 565)  
Authorised unissued shares at end of the year 141 293 246    141 293 246   
  Company  
  Number of shares  
Reconciliation of treasury shares in issue 2018    2017   
At beginning of the year 107 770 244    2 552 232   
– Held by Kumba Resources Management Share Trust 158 218    158 218   
– Held by Mpower 2012     2 394 014   
– Held by Eyesizwe 107 612 026       
Treasury shares distributed by Mpower 2012 to good leavers and on final vesting     (2 394 014)  
Treasury shares issued to and held by Eyesizwe     107 612 026   
Treasury shares in issue at end of the year 107 770 244    107 770 244   

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.
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