The directors are responsible for maintaining adequate accounting records, the preparation of the annual financial statements of the group and company as well as to develop and maintain a sound system of internal controls to safeguard shareholders’ investments and assets. In presenting the accompanying group and company annual financial statements, IFRS has been followed, applicable accounting policies have been used and prudent judgements and estimates have been made.
In order for the directors to discharge their responsibilities, management has developed and continues to maintain a system of internal controls aimed at reducing the risk of error or loss in a cost-effective manner. Such systems can provide reasonable, but not absolute, assurance against material misstatement or loss. The directors, primarily through the audit committee, which consists only of independent non-executive directors, meet periodically with the independent external auditors and internal auditors, as well as executive management to evaluate matters concerning accounting policies, internal controls, auditing, financial reporting and financial risk management. The internal auditors independently evaluate the internal controls and coordinate their audit coverage with the independent external auditors. The independent external auditors are responsible for reporting on the group and company annual financial statements. The independent external auditors and internal auditors have unrestricted access to all records, property and personnel as well as to the audit committee.
The directors have reviewed the financial budgets along with the underlying business plans for the period to 31 December 2019. In light of the current financial position and existing borrowing facilities, it is considered appropriate that the group and company annual financial statements be prepared on the going-concern basis. The independent external auditors are responsible for reporting on whether the group and company annual financial statements are fairly represented in accordance with IFRS. The independent external auditors have audited the group and company annual financial statements and their unmodified report appears on pages 24 to 27. Against this background, the directors accept responsibility for the group and company annual financial statements, which were approved by the board of directors on 12 April 2019 and are signed on its behalf by:
|MDM Mgojo||PA Koppeschaar|
|Chief executive officer||Finance director|
12 April 2019
In terms of section 88(2)(e) of the Companies Act, I, SE van Loggerenberg, in my capacity as group company secretary and legal, confirm that, to the best of my knowledge and belief, for the year ended 31 December 2018, Exxaro has filed with the Companies and Intellectual Property Commission all such returns and notices as required of a public company in terms of the Companies Act and that all such returns and notices appear to be true, correct and up to date.
SE van Loggerenberg
Group company secretary and legal
12 April 2019
The directors have pleasure in presenting the group and company annual financial statements of Exxaro Resources Limited for the year ended 31 December 2018.
NATURE OF BUSINESS
Exxaro is a large South African-based diversified resources group, with interests in the coal, TiO2, ferrous and energy markets. Exxaro’s assets vary between controlled and operated assets as well as equity-accounted investments. The major controlled assets are the coal operations, with Exxaro being one of the top five coal producers in South Africa and in turn, Grootegeluk is acknowledged as one of the most efficient mining operations globally and runs the world’s largest coal beneficiation complex.
While coal is the core of our business now and for decades to come, Exxaro understands the finite nature of the fossil-fuel sector and changing global imperatives. Therefore, Exxaro also holds a 50% (2017: 50%) interest in Cennergi, an energy company which aims to be the leading cleaner energy IPP in South Africa.
Exxaro’s major investments in associates include its 23.35% (2017: 23.66%) equity interest in Tronox Limited, a vertically integrated mining and inorganic chemical business. It also includes a 26% (2017: 26%) equity interest in Tronox SA and a 20.62% (2017: 20.62%) equity interest in SIOC, which extracts and processes iron ore.
Exxaro is a public company incorporated in South Africa and is listed on the JSE. It is also a constituent of the JSE’s Top 40 index, as well as the top 30 in the FTSE/JSE Responsible Investment Index, with headquarters in Pretoria, South Africa.
Exxaro’s strategy is based on sustainably growing its coal asset base as well as embarking on investments focused on the security of energy, water and food supply (agriculture). This underpinned the strategy guiding our business of tomorrow, that along with the business of today (being coal) will ensure that Exxaro empowers better lives in Africa and beyond.
Interests acquired during the year in the area of agriculture and energy
Exxaro acquired an equity interest in AgriProtein on 31 May 2018. AgriProtein develops municipal organic waste conversion plants to generate high quality, natural protein sold for use in animal feed and agriculture.
On 18 September 2018, Exxaro acquired an equity interest in LightApp. LightApp is one of the leading start-ups in industrial energy analytics. It is a software company that develops and deploys an energy management system for industrial customers.
Sale of non-core assets and investments to ensure sustainable coal assets
To optimise Exxaro’s coal portfolio, a sale of shares agreement was concluded with Universal Coal for the 100% shareholding in Manyeka, including a 51% interest in Eloff. The transaction closed on 31 July 2018.
On 2 March 2018, Exxaro concluded a sale of asset agreement with North Block Complex Proprietary Limited to dispose of certain assets and liabilities of NBC. Given the composition of the assets, two section 11 applications were submitted to the DMR to transfer the mineral rights. Although the section 11 for the Paardeplaats mining right has not yet been granted, it was agreed with the buyer to close the transaction on 31 October 2018.
The sale of Paardeplaats will be concluded once section 11 approval has been obtained.
INTEGRATED REPORT AND SUPPLEMENTAL INFORMATION
This integrated report contains material information on the activities and performance of the group and its various divisions as well as in the supplementary information. These reports are unaudited. The board of directors (the board) acknowledges its responsibility to ensure the integrity of the integrated report and supplemental information. We have accordingly applied our minds to the integrated report and believe the report addresses all material issues, and fairly presents the integrated performance, impact and sustainability of the organisation.
The directors endorse and acknowledge the principles contained in King IV™. These principles are applied by Exxaro and therefore the disclosures made in the integrated report are essential to allow stakeholders to assess whether the principles and recommended practices are integrated in the business processes of Exxaro. Furthermore, we acknowledge that effective corporate governance should form part of everything we say and do. Corporate governance forms part of the foundational layers of our strategy, and effective governance is therefore entrenched as a way of doing business. Full details on how these principles are applied in Exxaro are set out in the integrated report 2018.
COMPARABILITY OF RESULTS
The results for the years ended 31 December 2018 and 2017 are not comparable due to the key transactions reported in the table. Refer note 5.6 and 5.7 for detail regarding the re-presentation and restatement of 2017 financial information.
The accounting policies applied during the year ended 31 December 2018 are consistent, in all material respects, with those applied in the group and company annual financial statements for the year ended 31 December 2017 except for the adoption of the following new standards, which are relevant to the group, for the first time for the year commencing 1 January 2018:
The impact of the adoption and the new accounting policies are disclosed in note 5.6.
The company registration number is 2000/011076/06. The registered office is Roger Dyason Road, Pretoria West, 0183, Republic of South Africa. Refer chapter 19: annexure 3, for further details.
A new capital allocation framework was adopted in June 2018. In terms of the new framework, free cash flow generated will be prioritised per the diagram below.
This revised framework is in line with Exxaro’s commitment to sustainably return cash to shareholders through the cycle, while retaining a high level of balance sheet strength.
|Number of shares|
|At 31 December||2018||2017|
|Authorised ordinary shares of R0.01 each||500 000 000||500 000 000|
|Issued ordinary shares of R0.01 each||358 706 754||358 706 754|
|Treasury shares held by Kumba Resources Management Share Trust||158 218||158 218|
|Treasury shares held by Eyesizwe||107 612 026||107 612 026|
An analysis of shareholders and the respective percentage shareholdings appears in chapter 19: annexure 1.
The company’s dividend policy is to consider an interim and final dividend for each financial year. At its discretion, the board may consider a special dividend, where appropriate. Depending on the perceived need to retain funds for expansion or operating purposes, the board may approve the payment of dividends.
Given Exxaro’s strong balance sheet, underpinned by strong cash flow generation, the board approved a revised dividend policy during 2018. The revised dividend policy comprises two components; firstly, a pass through of the SIOC dividend received and secondly, a dividend based on a targeted cover ratio of 2.5 times to 3.5 times core attributable coal earnings.
Exxaro declared the following dividends:
Dividend number 31
Interim dividend number 31 of 530 cents per share was approved on 14 August 2018 and declared in South African rand in respect of the six-month period ended 30 June 2018. The dividend payment date was Monday, 25 September 2018 to shareholders recorded in the register of the company at close of business on Friday, 21 September 2018.
Dividend number 32
Final dividend number 32 of 555 cents per share was approved on 12 March 2019 and declared in South African rand in respect of the year ended 31 December 2018. The final dividend payment date is Monday, 13 May 2019 to shareholders recorded in the register of the company at close of business on Friday, 10 May 2019 (record date). To comply with the requirements of Strate, the last date to trade cum dividend is Monday, 6 May 2019. The shares will commence trading ex-dividend on Tuesday, 7 May 2019.
The final dividend declared is subject to 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 final dividend payable to shareholders, subject to dividend withholding tax at a rate of 20% amounts to 444 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.
On 13 February 2018, Exxaro declared a special dividend amounting to 1 255 cents per share following the partial disposal of its shareholding in Tronox Limited during October 2017. The dividend was paid to shareholders on 5 March 2018.
INVESTMENTS AND SUBSIDIARIES
The financial information in respect of investments and interests in subsidiaries of the company is disclosed in note 17.8.
EVENTS AFTER THE REPORTING PERIOD
The group entered into the following transactions subsequent to 31 December 2018:
Refer details above regarding the final dividend for 2018.
The directors are not aware of any matter or circumstance that has arisen since the end of the financial year not dealt with in the integrated report 2018 or in the group and company annual financial statements 2018 that would significantly affect the operations or the results of the group and company. Refer note 18.3 for further details.
DIRECTORATE AND SHAREHOLDINGS OF DIRECTORS
Details of the directors in office at the date of this report are set out in the integrated report 2018.
Details of directors’ shareholdings are contained in note 14.5.3.
In March 2018 as a result of the Replacement BEE Transaction Dr MF (Fazel) Randera, Mr D (Rain) Zihlangu, Mr VZ (Zwelibanzi) Mntambo; Mrs S (Salukazi) Dakile-Hlongwane and Ms MW (Monhla) Hlahla resigned due to the unwinding of MS333. In their stead, Eyesizwe nominated four individuals which the board appointed to take up office with immediate effect: Mr VZ (Zwelibanzi) Mntambo; Ms MW (Monhla) Hlahla, Ms L (Likhapha) Mbatha and Ms D (Daphne) Mashile-Nkosi.
Dr D (Deenadayalen) Konar, who served as chairman of the board, retired by rotation at the AGM on 24 May 2018 and did not make himself available for re-election. Mr S (Saleh) Mayet, who served as a non-executive director also retired at the AGM and did not offer himself for re-election. Furthermore, Dr CJ (Constantinus) Fauconnier, an independent non-executive director retired in terms of the requirements of the MoI (by virtue of his age) and did not offer himself for re-election.
The board subsequently filled these casual vacancies after running a thorough and transparent appointment process through its remuneration and nomination committee, taking into account its race and gender targets of 50% black and 30% black women. It appointed Ms A (Anuradha) Sing, Ms GJ (Geraldine) Fraser-Moleketi, Mr MJ (Mark) Moffett and Mr LI (Isaac) Mophatlane as independent non-executive directors.
Ms GJ (Geraldine) Fraser-Moleketi is not mentioned in the printed report.
In accordance with the MoI, the appointments by the board are required to be confirmed through election by the shareholders at the forthcoming AGM to be held on 23 May 2019.
At the date of the compilation of this report, the following individuals were directors of the company:
DIRECTORS’ SERVICE CONTRACTS
All executive directors’ employment contracts are subject to six calendar months’ notice. Non-executive directors are not bound by service contracts. There are no restraints of trade associated with the service contracts of executive directors.
A detailed analysis of the directors’ and prescribed officers’ remuneration is included in note 14.5.
GROUP COMPANY SECRETARY
Mrs SE (Saret) van Loggerenberg, a Fellow of the Institute of Chartered Secretaries is the company secretary. The contact details of Saret van Loggerenberg appear in the administration section.
INDEPENDENT EXTERNAL AUDITORS
PwC was re-elected as independent external auditors on 24 May 2018 in accordance with section 90 of the Companies Act and has again been proposed for re-election in respect of the 2019 financial year, to occur at the forthcoming AGM on 23 May 2019.
BORROWING POWERS AND FINANCIAL ASSISTANCE
|Amount approved||52 308||50 126|
|Total borrowings (excluding finance leases)||(4 414)||(6 529)|
|Unutilised borrowings||47 894||43 600|
The borrowing powers were set at 125% of shareholders’ funds attributable to owners of the parent for both the 2018 and 2017 financial years.
Pursuant to the authorisation granted at the AGM held on 25 May 2017, shareholders approved, in accordance with section 45 of the Companies Act, the giving of financial assistance to related and inter-related companies of Exxaro.
The directors resolved that the company will satisfy the solvency and liquidity test, as contemplated in section 45 of the Companies Act and detailed in section 4 of the Companies Act, post such assistance. The terms under which such assistance will be provided are fair and reasonable to the company.
EMPLOYEE INCENTIVE SCHEMES
Details of the employee incentive schemes are set out in note 14.3 as well as the remuneration and nomination committee report in the integrated report 2018 and the supplementary information.
Details of related-party transactions are set out in note 15.1.
The directors believe that the group and company have adequate financial resources to continue in operation for the foreseeable future and accordingly the group and company annual financial statements 2018 have been prepared on a going-concern basis. The directors are not aware of any new material changes, or any material non-compliance with statutory or regulatory requirements, that may adversely impact the group or company.
Absa Limited acted as sponsor to the company for the financial year ended 31 December 2018.
Computershare Investor Services Proprietary Limited serves as the South African registrar of the company.
The 18th (eighteenth) AGM of shareholders of Exxaro will be held (subject to any adjournment or postponement) at the JSE Building, 9th Floor Dining Room, One Exchange Square, Gwen Lane, Sandton, South Africa, at 11:00 on Tuesday, 14 May 2019 to consider and, if deemed fit, pass with or without modification, the resolutions.
The audit committee (the committee) is pleased to present its report for the financial year ended 31 December 2018.
The committee is constituted as a statutory committee of the company in terms of section 94 of the Companies Act, and a committee of the board of directors of the company in terms of all other duties assigned to it by the board of directors.
The terms of reference of this committee was reviewed following the publication of King IV™ and a new set of terms of reference was adopted at the end of 2017. In line with King IV™, the committee plays an essential role in providing independent oversight over the effectiveness of assurance functions and services as well as the integrity of the annual financial statements.
The committee reviewed its terms of reference again in 2018 in light of the recent corporate failures nationally and internationally to ensure increased oversight over the reporting of its major subsidiaries.
The role of the committee is to fulfil the statutory duties as set out in section 94(7) of the Companies Act and in addition, to assist the board of directors in providing independent oversight of the following:
In terms of the Companies Act, the committee has an independent role with accountability to both the board of directors and the company’s shareholders. The committee does not assume the functions of management, which remain the responsibility of the executive directors, prescribed officers and other members of senior management, nor does it assume accountability of the functions performed by other committees of the board of directors.
The committee at all times consisted of three independent non-executive directors for the year under review. The chairman of the board of directors is not a member of the audit committee, although he attends all meetings as a permanent invitee. The chief executive officer, finance director, chief audit executive, as well as the independent external auditor and internal auditors are also permanent invitees to meetings. In addition, Mr LI Mophatlane was a permanent invitee and consultant to the committee from June 2018.
Annually two sessions (aligned with approval of the interim and annual financial results) are held with both the independent external auditors and internal auditors, respectively, where management is not present to facilitate an exchange of views and concerns to further strengthen the independent oversight by the committee.
Four quarterly meetings were held in 2018. Attendance of 100% throughout the year illustrates high levels of engagement by our committee members.
The following table provides an overview of designations and attendance since appointment:
|Mr MJ Moffett||Independent non-executive director||100%|
|Mr EJ Myburgh||Independent non-executive director||100%|
|Mr V Nkonyeni||Independent non-executive director and chairman||100%|
|Dr CJ Fauconnier1||Former independent non-executive director||100%|
|Mr J van Rooyen2||Former independent non-executive director and chairman||100%|
|1||Dr CJ Fauconnier retired as a director of the company and chairman of this committee on 24 May 2018.|
|2||Mr J van Rooyen has been appointed chairman of the board of directors and retired as a member of this committee.|
The independent external auditors are PwC. Fees paid to the auditors are disclosed in note 7.1.3. Exxaro has an approved policy to regulate the use of non-audit services by the independent external auditors. This differentiates between permitted and prohibited non-audit services and specifies a monetary threshold against which approvals are considered. In the year under review, PwC was paid R32 million (2017: R36 million), which included R26 million (2017: R26 million) for statutory audit and related activities as well as R6 million (2017: R10 million) for non-audit services, mainly for tax advisory services, agreed upon procedures in respect of a REM channel survey and an investment circular for the proposed disposal of the remaining Tronox Limited investment. The committee is satisfied with the level and extent of non-audit services rendered during the year by PwC and that these did not affect its independence.
The committee annually assesses the independence of PwC and again completed this assessment at its meeting on 8 March 2019, PwC was required to confirm that:
Based on this assessment, the committee again nominated PwC as independent external auditors for 2019. Shareholders will therefore be requested to re-elect PwC in this capacity for the 2019 financial year at the AGM on 23 May 2019.
The committee noted the rotation and change in the PwC audit partner from Mr JFM Kotze to Mr TD Shango, following Mr TD Shango’s suitability assessment as required by this committee in terms of paragraph 3.84(g) (iii) and section 22.15(h) of the JSE Listings Requirements.
The internal audit function is outsourced to EY and its responsibilities are detailed in an internal audit charter approved by the committee and reviewed annually. Its main function remains to express an opinion on the effectiveness of risk management and the internal control environment. The committee is satisfied with the overall performance of the internal audit function provided by EY.
Annual financial statements
The committee reviewed the group and company annual financial statements 2018 and accounting practices in detail and is satisfied that the information contained therein, as well as the application of accounting policies and practices, are reasonable.
Statement on effectiveness of internal financial controls
The committee, with input and reports from the independent external auditors and internal auditors, reviewed the system of internal financial controls, as underpinned by the enterprise risk management framework, during the year. Informed by these reviews, the committee confirmed that there were no material areas of concern that would render the internal financial controls ineffective.
Finance director and finance function
The committee has reviewed an internal assessment of the expertise and experience of Mr PA Koppeschaar, the finance director, and is satisfied he has the appropriate skills to meet his responsibilities. The evaluation also considered the appropriateness of the expertise and adequacy of resources of the finance function.
In terms of King IV™ assurance has been broadened to cover all sources of assurance — including external assurance, internal audit, management oversight and regulatory inspectors. In addition, the combined assurance model has been expanded to incorporate and optimise all assurance services and functions so that, taken as a whole, these enable an effective control environment and also support the integrity of information used for internal decision making by management, the governing body and its committees, and of the organisation’s external reports.
The combined assurance forum (the forum) has been constituted to coordinate the assurance activities within the group in compliance with the enhanced requirements of King IV™ as a minimum. The forum is to implement and embed the combined assurance framework principles as approved by the committee. Permanent invitees to the forum are representatives from the independent external auditors, internal auditors, other major assurance providers as well as members of the committee and sustainability, risk and compliance committee of the board of directors.
The committee is satisfied with the arrangements in place for ensuring an effective combined assurance model.
Other key issues that received attention during the year
|2018 KPIs||Evaluation score1|
|Provide robust independent scrutiny to the company values of assets in the balance sheet, the going-concern assumption and other judgement areas||4|
|Continue scrutinising the risk assessment and ensure alignment on all assurance activities (combined assurance)||4|
|Maintain oversight of inventory, receivables and basis of determination of valuation||4|
|Ensure the effectiveness of internal audit and IT is handled seamlessly and professionally, addressing the challenges and needs in a comprehensive manner||3|
|Monitor developments in mandatory firm rotation in South Africa and implications for Exxaro, as well as tenure of current external auditors||4|
|Provide support to and challenge management in its endeavours to refinance Exxaro’s debt from time to time on acceptable terms||4|
|1||Scored out of 5.|
|Review audit committee KPIs (including the new rand/tonne KPI) quarterly and understand management plans for out of appetite KPIs, periodically review management plans|
|Oversee the splitting of the audit and risk functions to ensure the enhancement of corporate governance in Exxaro|
|Review the macro assumptions to be used for budgets|
|Review the IT strategy and ensure alignment with the Exxaro strategy|
|Approve the levels of materiality to be used for internal and external audit (including the audit protocols and the classification of findings)|
|Ensure alignment of the combined assurance plan, internal audit and external audit plan|
|Ensure that there is a link between internal audit findings and the Exxaro risk profile|
|Track the closing of level 1 internal audit findings and understand the root causes attached to level 1 internal audit findings and repeat internal audit findings|
|Sign-off on the integrity of the integrated report|
The committee, in carrying out its duties has due regard to the principles and recommended practices of King IV™. The committee is satisfied it has considered and discharged its responsibilities in accordance with its terms of reference.
On behalf of the committee
Mr V Nkonyeni
12 April 2019
TO THE SHAREHOLDERS OF EXXARO RESOURCES LIMITED
REPORT ON THE AUDIT OF THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS
In our opinion, the consolidated and separate financial statements present fairly, in all material respects, the consolidated and separate financial position of Exxaro Resources Limited (the company) and its subsidiaries (together the group) as at 31 December 2018, and its consolidated and separate financial performance and its consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa.
What we have audited
Exxaro Resources Limited’s consolidated and separate financial statements set out on comprise:
BASIS FOR OPINION
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the consolidated and separate financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We are independent of the group in accordance with the Independent Regulatory Board for Auditors Code of Professional Conduct for Registered Auditors (IRBA Code) and other independence requirements applicable to performing audits of financial statements in South Africa. We have fulfilled our other ethical responsibilities in accordance with the IRBA Code and in accordance with other ethical requirements applicable to performing audits in South Africa. The IRBA Code is consistent with the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (Parts A and B).
OUR AUDIT APPROACH
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated and separate financial statements. In particular, we considered where the directors made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters, consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.
The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the group financial statements.
Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall group materiality for the consolidated financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate on the financial statements as a whole.
|Overall group materiality||R418 million|
|How we determined it||5% of group profit before tax from continuing operations, adjusted for once-off items.|
|Rationale for the materiality benchmark
We chose profit before tax as the benchmark because, in our view, it is the benchmark against which the performance of the group is most commonly measured by users, and is a generally accepted benchmark. The profit before tax was adjusted to exclude items that are not reflective of the ongoing operations of the business.
We chose 5% which is consistent with quantitative materiality thresholds used for profitoriented companies in this sector.
How we tailored our group audit scope
We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the structure of the group, the accounting processes and controls, and the industry in which the group operates.
Financially significant business units were identified based on scoping benchmarks such as the business unit’s contribution to key financial statement line items (profit before tax, turnover and total assets) and the risk associated with the business unit.
We conducted full scope audit procedures at eight financially significant business units and performed specified audit procedures at four business units in order to obtain sufficient appropriate audit evidence over the consolidated numbers.
In establishing the overall approach to the group audit, we determined the type of work that needed to be performed by us, as the group engagement team, component auditors from other PwC network firms and non-PwC firms operating under our instruction. Where the work was performed by component auditors, we determined the level of involvement we needed to have in the audit work at those components to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on the consolidated financial statements as a whole.
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated and separate financial statements of the current period. These matters were addressed in the context of our audit of the consolidated and separate financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
|Key audit matter||How our audit addressed the key audit matter|
Accounting for the remeasurement and classification of the Tronox Limited investment
This key audit matter relates to the consolidated and separate financial statements.
Included in the financial statements is an investment in Tronox Limited (the investment) classified as a non-current asset held-for-sale in terms of IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations (IFRS 5).
In terms of IFRS 5, this investment is required to be measured at the lower of the carrying amount and fair value less costs of disposal at the reporting date. At 31 December 2018, Tronox Limited’s share price weakened to US$7.78 per share. Management then determined that the carrying amount of R6 110 million exceeded the fair value less costs of disposal of R3 226 million and recognised a loss on remeasurement amounting to R2 884 million.
We considered the accounting for the remeasurement of the investment in Tronox Limited to be a matter of most significance to our current year audit because of the magnitude of the remeasurement and the significance thereof to the company’s financial statements.
Provision for environmental rehabilitation
This key audit matter relates to the consolidated financial statements.
At 31 December 2018, the group’s environmental rehabilitation provision amounted to R 3 942 million.
In determining the environmental rehabilitation provision, management applies significant judgement and assumptions to estimate the closure costs (estimated future costs) and discount rates.
We considered the provision for environmental rehabilitation to be a matter of most significance to our current year audit due to the following:
We assessed the remeasurement of the investment in Tronox Limited at
We independently obtained the Tronox Limited listed share price, number of shares held by the company and the closing exchange rate and recalculated the fair value of the investment as at 31 December 2018. No material differences were noted.
We compared the results of our recalculation to the carrying amount of the investment in order to determine the remeasurement loss. We found the remeasurement loss recognised by management to be reasonable.
We obtained an understanding of management’s process of calculating the environmental rehabilitation provision.
We made use of our sustainability and climate change expertise to perform the following procedures:
We made use of our valuations expertise to test the reasonableness of the discount rates applied by management by independently modelling bond curves over the range of discounting periods utilised by management, taking into account market-related information. We found the discounting rates to be within a reasonable range.
The directors are responsible for the other information. The other information comprises the information included in the Exxaro Resources Limited group and company annual financial statements for the year ended 31 December 2018, which includes the certificate by the group company secretary, the report of the directors and the audit committee report as required by the Companies Act of South Africa, and the Exxaro Resources Limited integrated report 2018. Other information does not include the consolidated and separate financial statements and our auditor’s report thereon.
Our opinion on the consolidated and separate financial statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon.
In connection with our audit of the consolidated and separate financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated and separate financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
RESPONSIBILITIES OF THE DIRECTORS FOR THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS
The directors are responsible for the preparation and fair presentation of the consolidated and separate financial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa, and for such internal control as the directors determine is necessary to enable the preparation of consolidated and separate financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated and separate financial statements, the directors are responsible for assessing the group and the company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going-concern basis of accounting unless the directors either intend to liquidate the group and/or the company or to cease operations, or have no realistic alternative but to do so.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the consolidated and separate financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated and separate financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:
We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the consolidated and separate financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
In terms of the IRBA Rule published in Government Gazette Number 39475 dated 4 December 2015, we report that PricewaterhouseCoopers Inc. has been the auditor of Exxaro Resources Limited for eight years.
Director: TD Shango
12 April 2019