Integrated report 2020
Exxaro report selector 2020
Exxaro Resources Limited
Group and company annual financial statements for the year ended 31 December 2020
REPORT SELECTOR
2.5 |
INDEPENDENT AUDITOR'S REPORT |
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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 2020, 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 (IFRS) and the requirements of the Companies Act of South Africa. What we have audited Exxaro Resources Limited's consolidated and separate financial statements 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. Independence 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 corresponding sections of the International Ethics Standards Board for Accountants' International Code of Ethics for Professional Accountants (including International Independence Standards). OUR AUDIT APPROACH Overview 
Overall group materiality
Group audit scope
Key audit matters
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. Materiality 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 consolidated 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.
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 components were identified based on scoping benchmarks such as their contribution to key financial statement line items which included consolidated profit before tax, consolidated revenue and consolidated total assets and the risks associated with the business unit. Based on our scoping assessment, we conducted full scope audits on 6 components and audits of material financial statement line items at 24 components. For the components that we considered to be financially inconsequential, we performed analytical procedures in order to obtain sufficient appropriate audit evidence in respect of the consolidated financial statements. The group engagement team performed audit procedures over the separate financial statements, the consolidation process, financial statement disclosures and significant accounting positions taken by the group. 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, and 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 has 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 Environmental rehabilitation provision This key audit matter relates to the consolidated financial statements only. Refer to notes 8.4, 13.1, 13.2 and 13.3 to the consolidated financial statements. As of 31 December 2020, the group's environmental rehabilitation provision amounted to R2 762 million, which includes R724 million disclosed within non-current liabilities held-for-sale. In determining the present value of the total environmental rehabilitation provision, management apply significant judgement and make assumptions relating to:
We considered the determination of the environmental rehabilitation provision to be a matter of most significance to the current year audit due to the following:
How our audit addressed the key audit matter Our audit addressed this key audit matter as follows: Through our discussions with management and inspection of underlying calculations, we gained an understanding of the methodology applied by management in determining the environmental rehabilitation provision. Making use of our sustainability and climate change expertise, we performed the following procedures:
We independently recalculated management's inflation rates and discount rates applied with reference to relevant third-party sources. Where inflation rates and discount rates determined by us differed from that used by management, the impact of such differences was assessed to be immaterial. We agreed the expected date of closure of mining activities to the respective life of mine certificates as signed off by the group's competent person. No exceptions were noted. We tested the mathematical accuracy of the model used by management by performing an independent recalculation and comparing the results of our calculation with management's calculations. We noted no material differences. Key audit matter Acquisition of the remaining 50% interest in Cennergi This key audit matter relates to the consolidated financial statements only. Refer to notes 8.1.1, 8.2 and 8.3 to the consolidated financial statements. With effect from 1 April 2020, the company acquired Khopoli Investments Limited's 50% share of the issued share capital of Cennergi Proprietary Limited (Cennergi), resulting in the company obtaining sole control over Cennergi. The transaction has been accounted for as a business combination achieved in stages (step-up acquisition) in terms of IFRS 3 Business Combinations (IFRS 3). In applying the requirements of IFRS 3, management applied significant judgement and estimation in determining the fair value of material assets acquired. The valuation techniques and key assumptions applied are further disclosed in note 8.2 to the consolidated and separate financial statements. We considered the acquisition of the remaining 50% interest in Cennergi to be a matter of most significance to our current year audit due to the significant judgement and estimation applied by management in determining the fair value of the material assets acquired. How our audit addressed the key audit matter Our audit addressed this key audit matter as follows: We evaluated the accounting treatment for the acquisition against the requirements of IFRS 3 and the group's accounting policies by inspection of the underlying acquisition agreements. Based on our evaluation, we accepted the application of IFRS 3 and the group's accounting policies. Through discussions with management we obtained an understanding of management's process for identifying all separately identifiable assets acquired and liabilities assumed and inspected management's documented process. Making use of our internal valuation expertise, we assessed the completeness and appropriateness of the assets and liabilities acquired through inspection of the board of directors and executive committee minutes of meetings to understand the rationale for the acquisition and performing a critical evaluation of the underlying acquisition agreements. Based on work performed, no exceptions were noted. Through discussions with management's experts and inspection of the expert's Curriculum Vitae (CVs), we assessed the professional competence, objectivity and capabilities of management's external valuations expert involved in determining the fair value of the tangible and intangible assets acquired. We noted no aspects requiring further consideration. Making use of our internal valuation expertise we assessed the adequacy and appropriateness of the identification of the intangible assets and the valuation assumptions and methodologies used by management's expert to value the intangible assets. We assessed the appropriateness of the key assumptions used in determining the fair value of all other assets acquired and liabilities assumed with specific focus on the depreciated replacement cost values and remaining useful lives assumed in the valuation of property, plant and equipment. Based on the work performed, we accepted the key assumptions applied by management. Key audit matter Impairment of investment in ECC This key audit matter relates to the consolidated and separate financial statements. Refer to notes 8.1.2, 8.1.3, 8.2, 8.4 and 8.5 to the consolidated and separate financial statements. During the 2020 financial year, the ECC operation was identified as non-core to the future objectives of the group and as a result, the group embarked on a divestment process of the company's total equity interests in ECC. On 31 December 2020, the ECC operation met all the criteria to be classified as a non-current asset held-for-sale in terms of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. As a result of the classification of the ECC operation as a non-current asset held-for-sale the ECC operation was measured at the lower of its carrying amount and fair value less costs of disposal at reporting date. As disclosed in note 8.2, in applying the requirements of International Accounting Standard (IAS) 36 Impairment of Assets (IAS 36), management identified impairment indicators and performed an impairment assessment of its coal operations which resulted in an impairment of the ECC cash-generating unit (CGU) being recognised in the consolidated and separate financial statements amounting to R1 378 million and R1 520 million, respectively. This assessment involved judgement and estimation in the determination of the recoverable amount which included the estimation of cash flows and discount rates used. The recoverable amount of the ECC operation was determined to be the fair value less costs of disposal, which represents the discounted value of the offer price negotiated with the proposed buyer to the sales transaction. We considered the impairment assessment of the ECC CGU and investment in ECC held at company level to be a matter of most significance to our current year audit due to the magnitude of the impairment charge to the consolidated and separate financial statements, as well as the fact that the potential sale of the ECC operation is a significant transaction which occurred during the period and is outside of the normal course of business. How our audit addressed the key audit matter Our audit addressed this key audit matter as follows: Through discussions with management we obtained an understanding of the process followed by them in performing their impairment assessment for the ECC CGU and the investment in ECC at a company level. We assessed the appropriateness of management's assumption on the use of the fair value less costs of disposal as the recoverable amount for the CGU and investment in ECC by independently calculating the value in use of the CGU, which was found to be lower than the fair value less costs of disposal. We recalculated the fair value less costs of disposal through inspection of the proposed offer agreement from the proposed buyer, and taking into consideration the terms of the offer. No material exceptions were noted. We compared our recalculated fair value less costs of disposal to the carrying value of the ECC CGU at group level, as well as the carrying value of the investment held at company level. No material exceptions were noted. We stress tested the calculations determined by management for reasonable changes to key estimates. The impact of such differences was assessed as inconsequential. OTHER INFORMATION The directors are responsible for the other information. The other information comprises the information included in the document titled "Exxaro Resources Limited group and company annual financial statements for the year ended 31 December 2020", which includes the report of the directors, the audit committee report and the certificate by the group company secretary as required by the Companies Act of South Africa, and in the document titled "Exxaro Resources Limited Integrated Report 2020". The other information does not include the consolidated or the 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, actions taken to eliminate threats or safeguards applied. 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 10 years. Furthermore, in accordance with our responsibilities in terms of sections 44(2) and 44(3) of the Auditing Profession Act, we report that we have identified a reportable irregularity in terms of the Auditing Profession Act. We have reported such matter to the Independent Regulatory Board for Auditors. The matter pertaining to the reportable irregularity has been described in note 15.2 to the consolidated and separate financial statements. PricewaterhouseCoopers Inc. 19 April 2021 |
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