Exxaro Resource limited Report Selector 2018

Report Selector


Exxaro Resources Limited Group and company annual financial statements

CHAPTER 10: INVESTMENTS IN ASSOCIATES AND JOINT ARRANGEMENTS

10.1  ACCOUNTING POLICIES RELATING TO INVESTMENTS IN ASSOCIATES AND JOINT ARRANGEMENTS

10.1.1 INVESTMENTS IN ASSOCIATES AND JOINT ARRANGEMENTS

Associates are those entities in which the group has significant influence, but not control or joint control, over the financial and operating policies. Significant influence is presumed to exist when Exxaro holds between 20% and 50% of the voting rights of another entity.

Joint arrangements are arrangements in which the group has joint control, established by contracts requiring unanimous consent for decisions on the activities that significantly affect the arrangements’ returns. Joint arrangements are classified and accounted for as follows:

  • Joint operation: when the group has rights to the assets and obligations for the liabilities relating to an arrangement, each of its assets and liabilities, including its share of those held or incurred jointly, are accounted for in relation to the joint operation.
  • Joint venture: when the group has rights only to the net assets of the arrangements, its interest is accounted for using the equity method, similar to the accounting treatment for associates.

The company carries its investments in associates and joint ventures at cost less accumulated impairment losses. The cost of investments in associates and joint ventures is the fair value at the date of acquisition or the fair value at the date of loss of control of a former subsidiary where the company retains an associate or joint venture interest in the former subsidiary.

Investments in associates and joint ventures are accounted for using the equity method and are recognised initially at cost. The cost of the investments includes transaction costs.

The group financial statements include Exxaro’s share of the profit or loss and other comprehensive income of equity-accounted investees, after adjustments to align the accounting policies with those of Exxaro, from the date that significant influence commences until the date that significant influence ceases.

The cumulative post-acquisition movements in profit or loss and other comprehensive income are adjusted against the carrying amount of the investment in the group financial statements.

The group’s interest in associates is carried in the statement of financial position at an amount that reflects its share of the net assets and the goodwill on acquisition.

Dilution gains and losses arising on investments in associates are recognised in profit or loss.

Unrealised gains from downstream transactions with equity-accounted investees are eliminated against the investment to the extent of Exxaro’s interest in the investee. Unrealised gains from upstream transactions with equity-accounted investees are eliminated against related assets to the extent of Exxaro’s interest in the investee.

Dividend income is recognised when the right to receive payment is established.

10.2  SIGNIFICANT JUDGEMENTS AND ASSUMPTIONS MADE BY MANAGEMENT IN APPLYING THE RELATED ACCOUNTING POLICIES

In applying IAS 28 Investments in Associates, management has assessed the level of influence that the group has:

  • RBCT: management concluded that significant influence exists on its 10.82% effective investment in RBCT as a result of Exxaro’s representation on the board of directors of RBCT.
  • Curapipe: management concluded that significant influence exists on its 10.53% investment in Curapipe as a result of Exxaro’s representation on the board of directors of Curapipe.

In applying IFRS 11 Joint Arrangements, management assessed the level of influence that the group has on its investments in joint arrangements and subsequently classified the investments in Cennergi and Mafube as joint ventures due to the fact that unanimous consent is required for board decisions.

10.3  INCOME/(LOSS) FROM INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

  Group     Company  
  Share of income/(loss) of
equity-accounted investments
    Dividend and other income from
equity-accounted investments
 
For the year ended 31 December 2018 
Rm 
  2017 
Rm 
    2018 
Rm 
  2017 
Rm 
 
Continuing operations:                  
Associates                  
Unlisted investments  3 079     3 691        2 569     1 488    
– SIOC  2 592     3 303        2 569     1 390    
– Tronox SA  382     67                   
– Tronox UK1  110     119              98    
– RBCT  (36)    (24)                  
– Black Mountain  70     226                   
– Curapipe  (3)                        
– AgriProtein  (31)                        
– LightApp  (5)                        
Joint ventures                            
Unlisted investments  180     261        58          
– Mafube  114     259                   
– Cennergi  66           58          
Income from investments in associates and joint ventures  3 259     3 952        2 627     1 488    
Discontinued operations:                            
Associates                            
Listed investments                            
– Tronox Limited2        (1 829)       69     109    
Total income from investments in associates and joint ventures  3 259     2 123        2 696     1 597    
1 Application of the equity method ceased on 30 November 2018 when the investment was classified as a non-current assets held-for-sale. The income from Tronox UK, for company, comprises partnership profits.
2 Application of the equity method ceased on 30 September 2017 when the investment was classified as a non-current asset held-for-sale.

10.4  INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

10.4.1 INVESTMENTS IN ASSOCIATES

      Group  
    Note   Investments 
Rm 
Preference 
dividend 
receivable 
Rm 
Total Rm   
At 31 December 2018            
At beginning of the year        15 810  15 812    
Interests acquired1        818     818    
Reclassification to non-current assets held-for-sale2        (1 787)    (1 787)   
Net share of results        3 081     3 081    
– Share of income        3 079     3 079    
– Elimination of intergroup profits             
Dividends received        (2 569)    (2 569)   
Share of reserve movements        124     124    
Movement in indebtedness from associates           (2) (2)   
At end of the year  10.5     15 477     15 477    
At 31 December 2017                   
At beginning of the year        21 518     21 518    
Interests acquired1        26  28    
Loss on dilution of investment        (106)    (106)   
Reclassification to non-current assets held-for-sale2        (6 061)    (6 061)   
Net share of results        1 860     1 860    
– Share income (continuing operations)       3 691     3 691    
– Share loss (discontinued operations)2        (1 829)    (1 829)   
– Elimination of intergroup profits        (2)    (2)   
Dividends received        (1 499)    (1 499)   
Share of reserve movements        72     72    
At end of the year  10.5     15 810  15 812    
1 Refer note 10.5.
2 The reclassification to non-current assets held-for-sale relates to Tronox UK (from 30 November 2018) and Tronox Limited (from 30 September 2017).
      Company  
  Note   Investments 
Rm 
Preference
dividend 
receivable 
Rm 
Total Rm   
At 31 December 2018            
At beginning of the year        2 298  2 300    
Interests acquired1        818     818    
Reclassification to non-current assets held-for-sale2        (1 091)    (1 091)   
Movement in indebtedness from associates           (2) (2)   
At end of the year  10.5     2 025     2 025    
At 31 December 2017                   
At beginning of the year        13 152     13 152    
Interests acquired1        26  28    
Reclassification to non-current assets held-for-sale2        (10 880)    (10 880)   
At end of the year  10.5     2 298  2 300    
1 Refer note 10.5.
2 The reclassification to non-current assets held-for-sale relates to Tronox UK (from 30 November 2018) and Tronox Limited (from 30 September 2017).

10.4.2 INVESTMENTS IN JOINT VENTURES

      Group  
  Note   Investments 
Rm 
Loans Rm  Total Rm   
At 31 December 2018            
At beginning of the year        1 479  126  1 605    
Net share of results        199     199    
– Share of income        180     180   
– Elimination of intergroup profits        19     19    
Dividends received        (58)    (58)   
Share of reserve movements             
Settlement of loan receivable1        (60) (126) (186)   
Loan granted2           250  250    
Interest raised on loan2             
At end of the year  10.5     1 569  259  1 828    
At 31 December 2017                   
At beginning of the year        1 258  126  1 384    
Net share of results        267     267    
– Share of income        261     261    
– Elimination of intergroup profits             
Share of reserve movements        (46)    (46)   
At end of the year  10.5     1 479  126  1 605    
1 The loan to Cennergi of R186 million has been settled
2 A loan of R250 million was granted to Mafube. Interest of R9 million has accrued on this loan balance in accordance with the terms and conditions of the loan. Refer note 11.2.2.
      Company  
  Note   Investments 
Rm 
Loans Rm  Total Rm   
At 31 December 2018            
At beginning of the year     696 186  882   
Settlement of loan receivable1       (186) (186)  
At end of the year 10.5   696   696  
At 31 December 2017            
At beginning of the year     696 186  882   
At end of the year 10.5   696 186  882   
1 The loan to Cennergi of R186 million has been settled.

10.5  DETAILED ANALYSIS OF INVESTMENTS IN ASSOCIATES AND JOINT ARRANGEMENTS

10.5.1 SUMMARY OF INVESTMENTS IN ASSOCIATES AND JOINT ARRANGEMENTS

    Nature
of
business1
Country
of
incorporation
            Group carrying value     Company carrying value   Fair value2   Fair value
hierarchy
level
Valuation
technique
 
  Note         2018
%
  2017
%
  2018
Rm
  2017
Rm
    2018
Rm
  2017
Rm
  2018
Rm
  2017
Rm
       
Associated companies                                                  
Listed                                                  
Tronox Limited3   M USA     23.35   23.66                     3 226   7 290   1 Listed market price  
Unlisted                                     19 705   26 394   2 Adjusted equity value  
SIOC4   M RSA     20.62   20.62   9 511   9 367                          
Tronox SA   M RSA     26.00   26.00   2 185   1 800     1 181   1 181                
Tronox UK5   F UK     26.00   26.00       1 677         1 091                
RBCT   T RSA     12.56   12.56   2 157   2 193                          
Black Mountain6   M RSA     26.00   26.00   818   747                          
Curapipe7   R&D Israel     10.53   13.70   22   28     27   28                
– Investment                   22   26     27   26                
– Preference dividend receivable 11.2.2                               2                
AgriProtein8   WC UK     26.37       643         674                    
LightApp9   EN Israel     28.98       141         143                    
Total associate companies                   15 477   15 812     2 025   2 300                
Incorporated joint ventures                                                  
Unlisted                                                  
Mafube   M RSA     50.00   50.00   1 496   1 105                          
– Investment                   1 237   1 105                          
– Loan10 11.2.2                 259                              
Cennergi   EN RSA     50.00   50.00   332   500     696   882                
– Investment                   332   374     696   696                
– Loan11 11.2.2                     126         186                
Unincorporated joint operations                                                  
Moranbah coal project   M AUS     50.00   50.00                                  
Total joint arrangements                   1 828   1 605     696   882                
Total investments in associates and joint                   17 305   17 417     2 721   3 182                
1 M — Mining, F — Financing, EN — Energy, T — Export terminal, R&D — Research and Development, WC — Waste Conversion
2 Fair value represents the directors’ value for unlisted investments at reporting date and market value for listed investments at reporting date.
3 Tronox Limited was classified as a non-current asset held-for-sale since 30 September 2017.
4 The fair value of SIOC is determined by applying an adjusted equity valuation technique, based on the share price of KIO on 31 December 2018 of R283.05 per share (31 December 2017: R379.13 per share), adjusted for a liquidity discount rate of 20% (2017: 20%).
5 Tronox UK was classified as a non-current asset held-for-sale on 30 November 2018 (refer note 9.4).
6 Black Mountain’s financial year end is 31 March and therefore not co-terminous with that of Exxaro. Financial information has been obtained from published information or management accounts as appropriate.
7 Curapipe was acquired on 3 August 2017.
8 On 31 May 2018 Exxaro acquired an equity interest in AgriProtein. The purchase price amounted to US$52.5 million, comprising an initial cash consideration of US$14.5 million (R184.2 million) paid on 1 June 2018 and deferred consideration amounting to US$38 million (R482.8 million) which will be paid over the next two years. The timing of the deferred consideration is dependent on AgriProtein’s capital expenditure requirements. Transaction costs of R6.6 million were capitalised to the cost of the investment. AgriProtein develops municipal organic water-conversion plants to generate high quality, natural protein sold for use in animal feed and agriculture.
9 On 18 September 2018 Exxaro acquired an equity interest in the shareholding of LightApp. The purchase price amounted to US$10 million, comprising an initial cash consideration of US$5 million (R71.9 million) paid on 27 September 2018 and deferred consideration amounting to US$5 million (R70.7 million) which will be paid over the next two years. Transaction costs of R0.6 million were capitalised to the cost of the investment. LightApp is one of the leading start-ups in industrial energy analytics.
10 A loan was granted to Mafube.
11 The loan to Cennergi of R186 million has been settled in full.

Restrictions

There are no significant restrictions on the ability of associates or joint ventures to transfer funds to Exxaro in the form of cash dividends, or to repay loans or advances made by Exxaro.

Risks

Refer note 13.4 for details with regard to contingent liabilities relating to associates and joint ventures.

Refer note 11.1.4 for details with regard to capital commitments relating to associates and joint ventures.

Refer note 16.3.4 for details with regard to loan commitments relating to associates and joint ventures.

10.5.2 SUMMARISED FINANCIAL INFORMATION OF ASSOCIATES AND JOINT VENTURES

The summarised financial information set out below relates to the associates and joint ventures that are material to the group and represents 100% of the entity’s financial performance and position, adjusted to reflect adjustments made by Exxaro when using the equity method.

  Associates     Joint ventures  
  Tronox SA 
Rm 
SIOC 
Rm 
RBCT 
Rm
    Mafube 
Rm 
Cennergi 
Rm 
 
Statements of comprehensive income                
For the year ended 31 December 2018                
Revenue  9 370  45 725  1 139        1 515  1 050    
Operating expenses  (6 959) (29 395) (1 405)       (1 066) (315)   
Net operating profit/(loss) 2 411  16 330  (266)       449  735    
Finance income  146  484           44    
Finance costs  (543) (221) (110)       (71) (612)   
Profit/(loss) before tax  2 014  16 593  (376)       387  167    
Income tax (expense)/benefit  (546) (3 944) 36        (123) (34)   
Profit/(loss) for the year from continuing operations  1 468  12 649  (340)       264  133    
Loss for the year from discontinued operations     (82)                  
Profit/(loss) for the year  1 468  12 567  (340)       264  133    
Other comprehensive income  12  522                
Total comprehensive income/(loss) for the year    1 480    13 089    (334)         264    133    
Dividends paid to Exxaro    2 569               58      
Statements of financial position                         
At 31 December 2018                         
Non-current assets  11 365  41 431  22 546        3 544  5 570    
Current assets  10 019  21 921  229        751  500    
Total assets  21 384  63 352  22 775        4 295  6 070    
Equity and liabilities                         
Total equity  8 403  46 145  19 937        2 473  730    
Non-current liabilities  9 131  11 559  1 621        1 499  5 311    
Current liabilities  3 850  5 648  1 217        323  29    
Total equity and liabilities  21 384  63 352  22 775        4 295  6 070    
Included above in joint ventures:                         
Cash and cash equivalents                 329  264    
Financial liabilities (excluding trade and other payables and provisions)                  533    5 135    
– Non-current                 533  5 135    
Depreciation and amortisation                 143  181    
  Associates     Joint ventures  
  Tronox SA 
Rm 
SIOC 
Rm 
RBCT 
Rm 
    Mafube 
Rm 
Cennergi 
Rm 
 
Statements of comprehensive income                
For the year ended 31 December 2017                
Revenue  7 400  46 379  1 033        2 006  1 036    
Operating expenses  (6 628) (29 905) (1 265)       (1 255) (419)   
Impairment reversals     4 789                   
Net operating profit/(loss) 772  21 263  (232)       751  617    
Finance income  106  627           35  40    
Finance costs  (532) (378) (35)       (24) (626)   
Profit/(loss) before tax  346  21 512  (267)       762  31    
Income tax (expense)/benefit  (86) (5 418) 43        (230) (27)   
Profit/(loss) for the year from continuing operations  260  16 094  (224)       532    
Loss for the year from discontinued operations     (74)                  
Profit/(loss) for the year  260  16 020  (224)       532    
Other comprehensive income/(loss) 18  (454)               
Total comprehensive income/(loss) for the year    278    15 566    (217)         532    4    
Dividends paid to Exxaro     1 390                   
Statements of financial position                         
At 31 December 2017                         
Non-current assets  11 493  41 006  22 762        2 843  5 794    
Current assets  7 526  20 430  225        564  769    
Non-current assets held-for-sale     1 235                   
Total assets  19 019  62 671  22 987        3 407  6 563    
Equity and liabilities                         
Total equity  6 923  45 452  20 272        2 210  695    
Non-current liabilities  8 640  11 197  1 695        870  5 401    
Current liabilities  3 456  4 973  1 020        327  467    
Non-current liabilities held-for-sale     1 049                   
Total equity and liabilities  19 019  62 671  22 987        3 407  6 563    
Included above in joint ventures:                         
Cash and cash equivalents                 313  553    
Financial liabilities (excluding trade and other payables and provisions)                     5 589    
– Non-current                    5 216    
– Current                    373    
Depreciation and amortisation                 187  188    

10.5.3 RECONCILIATION OF CARRYING AMOUNTS OF INVESTMENTS

Set out below is a reconciliation of the equity attributable to owners of the parent (closing net assets) in 10.5.2, to the carrying value of the investment.

  Associates     Joint ventures  
  Tronox SA 
Rm 
SIOC 
Rm 
RBCT 
Rm 
    Mafube 
Rm 
Cennergi 
Rm 
 
At 31 December 2018                
Closing net assets  8 403  46 145  19 937        2 473  730    
Interest in equity-accounted investment (%) 26.00  20.62  10.82        50.00  50.00    
Interest in equity-accounted investment  2 185  9 515  2 157        1 237  365    
Unrealised profit in closing balances     (4)             (33)   
Loans to equity-accounted investments                 259       
Carrying value  2 185  9 511  2 157        1 496  332    
At 31 December 2017                         
Closing net assets  6 923  45 452  20 272        2 210  695    
Interest in equity-accounted investment (%) 26.00  20.62  10.82        50.00  50.00    
Interest in equity-accounted investment  1 800  9 372  2 193        1 105  347    
Unrealised profit in closing balances     (5)             (33)   
Loans to equity-accounted investments                    186    
Carrying value  1 800  9 367  2 193        1 105  500    
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