Exxaro report selector 2019

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Exxaro Resources Limited
Group and company annual financial statements for the year ended 31 December 2019

Currently viewing: CHAPTER 12 / 12.1 Debt

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, lease liabilities, 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        2019 
Rm
 
   2018 
Rm
 
            2019 
Rm
 
   2018 
Rm
 
     
Finance income              318     283              2 140     1 327       
Interest income relating to:              312     282              2 140     1 327       
– Financial assets at amortised cost              34     38                         
– Cash and cash equivalents              212     188              159     151       
– Financial assets at FVPL              43     30                            
– Non-financial assets                                              
– Finance leases                 10                            
– Indebtedness by subsidiaries     17.3.3                             1 979     1 176       
– Loans to joint ventures              11     16                            
Commitment fee income                                           
Finance costs              (355)    (605)             (1 890)    (1 114)      
Interest expense relating to:              (542)    (515)             (1 878)    (1 102)      
– Financial liabilities measured at amortised cost              (476)    (505)             (448)    (395)      
– Bank overdrafts              (27)    (3)             (27)    (3)      
– Non-financial liabilities              (3)    (6)             (6)            
– Indebtedness by subsidiaries     17.3.3                             (1 364)    (704)      
– Lease liabilities              (36)    (1)             (33)            
Unwinding of discount rate on rehabilitation costs     13.3        (414)    (408)             (3)    (3)      
Recovery of unwinding of discount rate on rehabilitation costs              167     158                            
Amortisation of transaction costs              (14)    (27)             (9)    (9)      
Borrowing costs capitalised1     10.1.3        448     187                            
Total net financing (costs)/income              (37)    (322)             250     213     
1 Borrowing costs capitalisation rate:              9.98%     10.13%                          

12.1.3 INTEREST-BEARING BORROWINGS

   Group        Company    
At 31 December  2019 
Rm
 
   2018 
Rm
 
      2019 
Rm
 
   2018 
Rm
 
  
Interest-bearing borrowings                            
Non-current1  6 991     3 843        6 991     3 233    
Loan facility  5 991     3 233        5 991     3 233    
Bonds2  1 000              1 000          
Preference share liability3        610                   
Current4  50     571        50     572    
Loan facility  46     47        46     47    
Bonds2     525           525    
Preference share liability        (1)                  
Total interest-bearing borrowings  7 041     4 414        7 041     3 805    
Summary by interest-bearing borrowings by period of redemption:                            
Less than six months  54     576        54     576    
Six to 12 months  (4)    (5)       (4)    (4)   
Between one and two years  2 744     (10)       2 744     (9)   
Between two and three years  3 605     3 242        3 605     3 244    
Between three and four years  (1)    611        (1)    (2)   
Between four and five years  643              643          
Total interest-bearing borrowings  7 041     4 414        7 041     3 805    
1 The non-current portion represents:  6 991     3 843        6 991     3 233    
  – Capital repayments  7 000     3 863        7 000     3 250    
  – Reduced by the amortisation of transaction costs  (9)    (20)       (9)    (17)   
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        50     572    
  – Capital repayments        520              520    
  – Interest capitalised  59     61        59     61    
  – Reduced by the amortisation of transaction costs  (9)    (10)       (9)    (9)   

 

  Group     Company  
At 31 December 2019
Rm
  2018
Rm
    2019
Rm
  2018
Rm
 
Overdraft                  
Bank overdraft 976   1 531     976   1 046  

The bank overdraft is repayable on demand and interest 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      
  Year   Bullet term loan   Amortised
term loan
  Revolving
facility
 
Aggregate nominal amount (Rm) 2019   3 250   1 750   2 750  
  2018   3 250   1 750   2 750  
Issue date or draw down 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) 2019   nil   1 750   nil  
  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 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%)  
Effective interest rates for the 2019   0.17%   N/A   N/A  
transaction costs 2018   0.17%   0.17%   N/A  
Closing rate of interest at 2019   10.04%   nil   9.63%  
31 December 2018   10.28%   nil   nil  

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

Neither the company nor any of its subsidiaries are required to undertake any specified event(s) 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.

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

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

      DMTN programme (bonds)  
  Year   R357 million senior unsecured
floating rate note
  R643 million senior unsecured
floating rate note
 
Aggregate nominal amount (Rm)     357   643  
Issue date or draw down date     13 June 2019   13 June 2019  
Maturity date     13 June 2022   13 June 2024  
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 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 of189 basis points (1.89%)  
Closing rate of interest at 31 December 2019   8.45%   8.69%  

12.1.5 NET DEBT


   Group 
   2019 
Rm 
   2018 
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)   

 

         Group     
            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        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        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        1 719  (7 452) (77) (5 810)    

 

   Company    
   2019 
Rm
 
   2018 
Rm
 
  
Net debt is presented by the following items on the statement of financial position:             
Non-current interest-bearing debt  (7 439)    (3 233)   
Interest-bearing borrowings  (6 991)    (3 233)   
Lease liabilities  (448)         
Current interest-bearing debt  (67)    (572)   
Interest-bearing borrowings  (50)    (572)   
Lease liabilities  (17)         
Net cash and cash equivalents  673     (370)   
Cash and cash equivalents  1 649     676    
Overdraft  (976)    (1 046)   
Total net debt  (6 833)    (4 175)   

 

            Company          
            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 2017        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)      
Cash flows        995  (3 750) 535  (2 220)      
Operating activities        (7 676)       (7 676)      
Investing activities        5 894        5 894       
Financing activities        2 777  (3 750) 535  (438)      
– Interest-bearing borrowings raised        4 250  (3 750) (500)         
– Interest-bearing borrowings repaid        (1 020)    1 020          
– Lease liabilities paid        (15)    15          
– Shares acquired in the market to settle  share-based payments        (438)       (438)      
Non-cash movements        48  (456) (30) (438)      
Amortisation of transaction costs              (9) (9)      
Interest accrued                   
Lease remeasurements           (5)    (5)      
New leases (including IFRS 16 adoption adjustment)          (475)    (475)      
Transfers between non-current and current liabilities           24  (24)         
Translation difference on movement in cash and cash equivalents        48        48       
Net debt at 31 December 2019        673  (7 439) (67) (6 833)      

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     2019 
Rm
 
   2018 
Rm
 
      2019 
Rm
 
   2018 
Rm
 
  
Interest received        289     229        2 140     1 327    
Finance income  12.1.2     318     283        2 140     1 327    
Non-cash flow items                                  
– Interest income accrued not yet received        (20)    (44)                  
– Finance lease interest income adjustment        (9)    (10)                  
Interest paid        (558)    (518)       (1 881)    (1 107)   
Finance costs  12.1.2     (355)    (605)       (1 890)    (1 114)   
Non-cash flow items                                  
– Unwinding of discount rate on rehabilitation costs  13.3     414     408             
– Recovery of unwinding of discount rate on rehabilitation costs        (167)    (158)                  
– Amortisation of transaction costs        14     27             
– Borrowing costs capitalised        (448)    (187)                  
Finance costs capitalised to loans less finance costs paid and interest accrued not yet paid        (16)    (3)       (3)    (5)   
Net financing costs (paid)/received        (269)    (289)       259     220    

12.1.7 FINANCIAL LIABILITIES COMPOSITION

      Group     Company  
At 31 December Note   2019
Rm
  2018
Rm
    2019
Rm
  2018
Rm
 
Non-current financial liabilities                      
Financial liabilities at FVPL         488         1 072  
Contingent consideration         488         488  
Put option1                   584  
Financial liabilities at amortised cost         225         225  
Deferred consideration payable2         225         225  
Total non-current financial liabilities 16.3       713         1 297  
Current financial liabilities                      
Financial liabilities at FVPL     191   362     191   361  
Contingent consideration     191   361     191   361  
Derivative financial liabilities         1            
Financial liabilities at amortised cost     307   395     14 207   10 478  
Deferred consideration payable2     307   395     307   395  
Non-interest-bearing loans from subsidiary3 17.5             8 452   8 197  
Treasury facilities with subsidiaries at amortised cost4 17.5             5 448   1 886  
Total current financial liabilities     498   757     14 398   10 839  
Total financial liabilities     498   1 470     14 398   12 136  
1 Relates to Exxaro company’s obligation to repurchase shares from Eyesizwe in terms of the Replacement BEE Transaction. During 2019, the put option lapsed as the preference share liability was redeemed.
2 Deferred consideration payable in relation to the acquisition of the investment in Insect Technology and LightApp.
3 Loans granted by subsidiary companies which are interest free, unsecured and repayable on demand.
4 Treasury facilities with subsidiary companies 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 2019
Rm
  2018
Rm
  2019
Rm
  2018
Rm
 
Non-current                
Termination benefits1 144       51      
Income received in advance 23   18   1      
Total non-current other liabilities 167   18   52      
Current                
Termination benefits1 305   17   63    
Leave pay 203   171   24   15  
Bonuses 241   305   57   77  
VAT 21   86   20      
Royalties 9   50          
Current tax payables 50   209   10      
Other 97   94   19   27  
Total current other liabilities 926   932   193   119  
Total other liabilities 1 093   950   245   119  
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.