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Exxaro Resources Limited
Annual Financial Statements 2022
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CHAPTER 17:Subsidiaries

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

17.2.1 Control assessment for consolidation of subsidiaries

In applying IFRS 10 Consolidated Financial Statements, management has applied judgement in assessing whether Exxaro has control over certain entities where the percentage shareholding does not provide control. Specifically:

Eyesizwe

Exxaro has control over Eyesizwe even though the group only holds a 24.9% (2021: 24.9%) equity interest in Eyesizwe which is made up of the company's equity interest of 14.9% and a further 10% held equally by Exxaro ESOP SPV and Exxaro Community NPC. Eyesizwe was created and designed for the sole purpose of providing Exxaro with BEE credentials and as a structure to hold Exxaro shares. The implementation of the Replacement BEE Transaction protects the stability of Exxaro's operations reinforcing the sustainability of relationships with key stakeholders, equips Exxaro for growth by positioning Exxaro with market-leading empowerment credentials in the South African mining sector and creates long-term value for shareholders.

Exxaro is able to direct the strategic direction of Eyesizwe and, as per the transaction agreements, Eyesizwe's MoI may not be amended or replaced without Exxaro's prior written consent. All these points indicate that Exxaro has been involved from the inception of the Replacement BEE Transaction, to ensure that the design and operation of Eyesizwe achieves the purpose for which it was created. Eyesizwe can also not dispose of Exxaro shares without the prior consent of Exxaro. Exxaro has significant exposure to the variable returns of Eyesizwe, through the creation and maintenance of the BEE credentials during the lock-in period as well as through the equity investment held by Exxaro in Eyesizwe. All these factors have been considered in determining that, even though Exxaro does not have majority voting rights in Eyesizwe, it still has control over Eyesizwe and consolidates the results of Eyesizwe in the group results of Exxaro.

17.2.2 Non-controlling interests

Eyesizwe NCI

As part of the Replacement BEE Transaction, implemented in 2017, Eyesizwe was incorporated and established as the empowerment vehicle to hold 30% of Exxaro shares. A portion of the 30% acquired interest was financed by means of an issue of Eyesizwe preference shares to various financial institutions. The shares held by Eyesizwe in Exxaro were provided as security for these preference shares.

The outstanding preference share obligation was settled early by Eyesizwe during October 2019 as a result of the dividends which were received from Exxaro. This has resulted in Eyesizwe's other shareholders (IDC and Eyesizwe SPV Proprietary Limited) becoming true equity shareholders as they are now exposed to both upside and downside risk in relation to the Exxaro shares.

From an Exxaro group perspective this resulted in the recognition of NCIs for Eyesizwe's other shareholders. On initial recognition the NCI in Eyesizwe was recognised at the net asset value of the consolidated Eyesizwe results. Subsequent to initial recognition, the NCI share in the movement of profit or loss and OCI.

Cennergi group NCI

In 2020, Cennergi, as the acquiree, had outstanding share-based payment transactions that Exxaro, as the acquirer, did not replace, cancel or exchange as part of the acquisition. The share-based payment transactions had vested and therefore accounted for as part of NCI in the Cennergi group acquisition and measured at their market-based measure in terms if IFRS 2 Share-based Payment (IFRS 2). These arrangements were viewed as in-substance share options with the minorities, as the minorities are not exposed to downside risk nor benefit, until such time as the underlying shareholder financing of the arrangements have been settled.

Subsequently the in-substance share option holders in Tsitsikamma SPV have become true equity shareholders as they are now exposed to both upside and downside risk in relation to the Tsitsikamma SPV shares. The NCI of Tsitsikamma SPV has been recognised at the net asset value of Tsitsikamma SPV at the date on which the in-substance share options were exercised. The remaining Amakhala SPV in-substance share option holders remain valued at the acquisition date valuation determined by applying a Monte-Carlo simulation technique that used the following key assumptions:

  • Risk-free curve – ZAR swap zero curve semi-annual:
Year 1 to 5: 5.31% to 6.20%
Year 6 to 16: 7.03% to 10.28%
  • Lock-in discount percentage:
33% for community BEE parties
  • Standard deviation tolerance:
7%
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CHAPTER 1: THE YEAR IN BRIEF
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The year in brief

CHAPTER 2: REPORTS
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2.1 Responsibility statement on internal financial controls
2.2 Directors' approval
2.3 Certificate by the group company secretary
2.4 Report of the directors
2.5 Audit committee report
2.6 Independent auditor's report

CHAPTER 3: SEGMENTAL REPORTING
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3.1 Accounting policy relating to segmental reporting
3.2 Significant judgements and assumptions made by management in applying the related accounting policy
3.3 Reportable segments
3.4 Geographic location of segment assets

CHAPTER 4: FINANCIAL STATEMENTS
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4.1.1 Group financial statements of comprehensive income
4.1.2 Group financial statements of financial position
4.1.3 Group financial statements of changes in equity
4.1.4 Group financial statements of cash flows
4.2.1 Company financial statement of comprehensive income
4.2.2 Company financial statement of financial position
4.2.3 Company financial statement of changes in equity
4.2.4 Company financial statement of cash flows

CHAPTER 5: EARNINGS
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5.1 Accounting policy relating to earnings
5.2 Attributable earnings per share
5.3 Reconciliation of headline earnings
5.4 Headline earnings per share
5.5 Dividend distributions
5.6 Notes to the statements of cash flows relating to earnings
CHAPTER 6: OPERATIONAL PERFORMANCE AND WORKING CAPITAL
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6.1 Operational performance
6.2 Working capital
6.3 Notes to the statements of cash flows relating to operational performance and working capital

CHAPTER 7: TAXATION
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7.1 Accounting policies relating to taxation
7.2 Significant judgements and assumptions made by management in applying the related accounting policies
7.3 Income tax (expense)/benefit
7.4 Reconciliation of tax rates
7.5 Deferred tax
7.6 Notes to the statements of cash flows relating to taxation
7.7 Tax effect of other comprehensive income

CHAPTER 8: BUSINESS ENVIRONMENT AND PORTFOLIO CHANGES
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8.1 Accounting policies relating to business environment and portfolio changes
8.2 Significant judgements and assumptions made by management in applying the related accounting policies
8.3 Disposals of subsidiaries
8.4 Impairment charges of non-current assets

CHAPTER 9: ASSOCIATES AND JOINT ARRANGEMENTS
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9.1 Accounting policies relating to investments in associates and joint arrangements
9.2 Significant judgements and assumptions made by management in applying the related accounting policies
9.3 Income from investments in associates and joint ventures
9.4 Investments in associates and joint arrangements
9.5 Movement analysis of investments in associates and joint ventures
9.6 Summarised financial information of associates and joint ventures
9.7 Reconciliation of carrying amounts of investments in associates and joint ventures

CHAPTER 10: ASSETS
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10.1 Property, plant and equipment
10.2 Intangible assets
10.3 Financial assets
10.4 Other assets

CHAPTER 11: LEASES
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11.1 Accounting policies relating to leases
11.2 Judgements and assumptions made by management in applying the related accounting policies
11.3 Right-of-use assets
11.4 Lease liabilities

CHAPTER 12: FUNDING
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12.1 Debt
12.2 Equity

CHAPTER 13: PROVISIONS AND CONTINGENCIES
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13.1 Accounting policies relating to provisions and contingencies
13.2 Significant judgements and assumptions made by management in applying the related accounting policies
13.3 Provisions
13.4 Contingent liabilities and contingent assets

CHAPTER 14: PEOPLE
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14.1 Accounting policies relating to employee benefits
14.2 Significant judgements and assumptions made by management in applying the related accounting policies
14.3 Employee benefits
14.4 Retirement employee obligations
14.5 Directors' and prescribed officers' remuneration

CHAPTER 15: RELATED PARTIES
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15.1 Related-party transactions

CHAPTER 16: FINANCIAL INSTRUMENTS
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16.1 Accounting policies relating to financial instruments
16.2 Judgements and assumptions made by management in applying the related accounting policies
16.3 Financial instruments

CHAPTER 17: SUBSIDIARIES
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17.1 Accounting policies relating to subsidiaries
17.2 Significant judgements and assumptions made by management in applying the related accounting policies
17.3 Transactions with subsidiaries
17.4 Summary of investments in subsidiaries
17.5 Summary of indebtedness by/(to) subsidiaries
17.6 Detailed analysis of investments in subsidiaries
17.7 Non-controlling interests

CHAPTER 18: COMPLIANCE
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18.1 Basis of preparation
18.2 Adoption of new, amended and revised standards and interpretations
18.3 Events after the reporting period

CHAPTER 19: ANNEXURES
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Annexure 1 Shareholder analysis
Annexure 2 Definitions
Annexure 3 Administration
Annexure 4 Shareholders' diary

ACRONYMS
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Acronyms