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
8.3 |
BUSINESS COMBINATION: ACQUISITION OF CONTROLLING INTEREST IN CENNERGI |
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Exxaro and Tata Power, through its wholly owned subsidiary Khopoli, formed a 50:50 JV to create Cennergi in March 2012. Exxaro has recognised its existing 50% interest in the JV as an equity-accounted investment. Cennergi is a company established and registered in South Africa operating in the renewable energy sector. Its business is the investigation of feasibility, development, ownership, operation, maintenance, acquisition and management of renewable energy projects in certain permitted territories. Cennergi owns two wind farms which were originally bid as part of Window 2 of the Department of Energy’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) namely:
Each of the wind farms has been set up in separate project companies (SPVs) of which Cennergi holds the controlling interest as illustrated in the diagram below: 
Cennergi forms part of the energy reportable segment. 8.3.2 Overview of the transaction Tata Power decided to dispose of its 50% interest in Cennergi creating an opportunity for Exxaro to act on its ambitions of growing its presence in the energy sector, by acquiring the 50% interest owned by Khopoli. The acquisition contributes towards aligning the long-term environmental, sustainability, growth strategy and expansion of Exxaro into renewable energies and aligns the strategic intent of Exxaro of forming a second core business next to coal. Therefore, with effect from 1 April 2020, Exxaro acquired Khopoli’s 50% share of the issued share capital of Cennergi, resulting in Exxaro 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. Given the existing relationship with Cennergi, the related cost associated with the acquisition of the remaining 50% interest was minimal, with an amount of R2.4 million being expensed through operating expenses. The fair value of the 100% controlling interest acquired and its attribution to the net identifiable assets acquired and resultant goodwill is summarised below:
The accounting for the acquisition of Cennergi in terms of IFRS 3 was provisionally reported on for the six-month period ended 30 June 2020. Subsequently, the following changes to the purchase price allocation were made:
The reviewed condensed group interim financial statements as at and for the six-month period ending 30 June 2021 will be re-presented for these changes. At 31 December 2020, the accounting for the acquisition of Cennergi has been concluded. 8.3.2.1 Purchase consideration for newly acquired 50% interest The purchase consideration for the additional 50% interest acquired in Cennergi has been fully settled in cash. The purchase consideration represents the consideration transferred at its acquisition-date fair value. This is summarised into its components as follows:
8.3.2.2 Fair value of pre-existing 50% interest The pre-existing 50% interest in Cennergi forms part of the 100% controlling interest that Exxaro holds as of the acquisition date and is therefore fair valued immediately preceding the acquisition date. The gain resulting from remeasuring the pre-existing interest was recognised in profit or loss and is ultimately treated as a deemed disposal of the pre-existing interest. The deemed disposal and fair value recognition is summarised as follows:
8.3.2.3 Goodwill Goodwill represents the residual value between the fair value of the 100% controlling interest acquired, the net identifiable assets recognised and NCIs recognised. The value of goodwill is attributed to the value of other items at acquisition date which are not separately identifiable to achieve recognition as intangible assets. The goodwill recognised is attributed mainly to:
The goodwill is not deductible for tax purposes. An impairment assessment was performed on 31 December 2020 for the goodwill acquired. The assessment resulted in no
impairment charge for the year. 8.3.2.4 Identifiable assets acquired and liabilities assumed The fair value of the identifiable assets acquired and liabilities assumed of Cennergi as at the acquisition date are summarised as follows:
8.3.2.5 Non-controlling interests The arrangements in place with the minority shareholders of Tsitsikamma SPV and Amakhala SPV represent fully vested share-based payment arrangements under IFRS 2. The arrangements are 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 has been settled. For purposes of the acquisition, Cennergi, as the acquiree, has 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 have vested and therefore the share-based payment transactions of Cennergi are accounted for as part of the NCIs in the Cennergi group acquisition and are measured at their market-based measure in terms of IFRS 2. 8.3.3 Performance contribution to Exxaro’s results
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