Notes to the financial information

for the six months ended 31 December 2018

1. General information

Impala Platinum Holdings Limited (“Implats”, “the Company” or “the Group”) is one of the world’s foremost producers of platinum and associated platinum group metals (PGMs). Implats is currently structured around five main operations with a total of 20 underground shafts. The mining operations are located on the Bushveld Complex in South Africa and the Great Dyke in Zimbabwe, the two most significant PGM-bearing ore bodies in the world.

The Company has its listing on the securities exchange operated by JSE Limited in South Africa, the Frankfurt Stock Exchange (2022 US$ convertible bonds) and a level 1 American Depositary Receipt programme in the United States of America.

On 1 July 2018 Impala Platinum and Impala Refining Services (IRS), subsidiaries of the Group, entered into a sale of business agreement in terms of which IRS becomes a division of Impala and Impala acquired the metal purchase and toll refining operations of IRS as a going concern, utilising the group roll‐over relief provisions of sections 45 and 47 of the Income Tax Act No. 58 of 1962.

This transaction had no financial impact on the Group’s consolidated financial statements.

The condensed consolidated interim financial information was approved for issue on 28 February 2019 by the board of directors.

2. Basis of preparation

The condensed consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standard (IFRS), IAS 34 Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council, requirements of the Companies Act, 71 of 2008, and the Listings Requirements of the JSE Limited.

The condensed consolidated interim financial statements should be read in conjunction with the annual consolidated financial statements for the year ended 30 June 2018, which have been prepared in accordance with IFRS, and the commentary included in the interim results.

The condensed consolidated interim financial statements have been prepared under the historical cost convention except for certain financial assets, financial liabilities and derivative financial instruments which are measured at fair value and some equity and liabilities for share-based payment arrangements which are measured using a binomial option model.

The condensed consolidated interim financial information is presented in South African rand, which is the Company’s functional currency.

The following US dollar exchange rates were used when preparing these condensed consolidated interim financial statements:

  • Closing rate: R14.38 (December 2017: R12.38) (June 2018: R13.73)
  • Average rate: R14.18 (December 2017: R13.40) (June 2018: R12.85)

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.

3. Accounting policies

The principal accounting policies used by the Group are consistent with those of the previous year, except for changes due to the adoption of new or revised IFRSs, for which the first time disclosure is more comprehensive than would otherwise be done on interim and includes the once-off transition impact. Further, the transition impact and accounting policies have been disclosed in the relevant notes.

The following standards became effective on 1 January 2018 and were adopted by the Group on 1 July 2018:

  • IFRS 15 – Revenue from Contracts with Customers, refer note 9;
  • IFRS 9 – Financial Instruments, refer note 15.

4. SEGMENT INFORMATION

The Group distinguishes its segments between the mining operations (Mining), processing and refining (Impala Refining Services), chrome processing (Impala Chrome) and “all other segments”.

Management has defined the operating segments based on the business activities and management structure within the Group.

Capital expenditure comprises additions to property, plant and equipment (note 5).

The reportable segments’ measure of profit or loss is profit after tax. This is reconciled to the consolidated profit after tax.

Impala mining segment’s two largest sales customers amounted to 11% and 9% of total revenue (December 2017: 13% and 8%) (June 2018: 11% and 8%).

(Rm)   Six months ended
31 December 2018
(Reviewed)
  Six months ended
31 December 2017
(Reviewed)
  Year ended
30 June 2018
(Audited)
  Revenue  Profit/(loss) 
after tax 
  Revenue  Profit/(loss) 
after tax 
  Revenue  Profit/(loss) 
after tax 
Mining                  
–  Impala   10 783 1 055   6 685 (1 060)   13 255 (12 332)
–  Zimplats   4 139 991   3 834 277   7 485 40
–  Marula   1 511 116   1 242 (39)   2 357 (30)
Impala Refining Services   12 601 967   10 657 719   22 044 1 210
Impala Chrome   151 24   60 (2)   226 47
All other segments   (322)   (22)   (117)
Inter-segment revenue   (5 664)   (5 198)   (9 513)
Total segmental revenue/profit/(loss) after tax   23 521 2 831   17 280 (127)   35 854 (11 182)
Reconciliation:                  
Share of profit of equity accounted entities     203     188     383
Unrealised profit in stock consolidation adjustment     (347)     (274)     (211)
IRS preproduction (reversed)/realised on Group     (259)     43     217
Net realisable value adjustment made on consolidation     30     6    
Total consolidated profit/(loss) after tax     2 458     (164)     (10 793)

(Rm)   Six months ended
31 December 2018
(Reviewed)
  Six months ended
31 December 2017
(Reviewed)
  Year ended
30 June 2018
(Audited)
  Capital 
expenditure 
Total 
assets 
  Capital 
expenditure 
Total 
assets 
  Capital 
expenditure 
Total 
assets 
Mining                  
–  Impala   1 017 23 205   1 442 37 688   2 766 29 936
–  Zimplats   657 21 566   432 17 973   1 739 20 612
–  Marula   32 3 562   29 3 668   101 3 796
Impala Refining Services   17 346   7 562   8 334
Impala Chrome   152   153   150
All other segments   33 861   34 379   34 778
Total   1 706 99 692   1 903 101 423   4 606 97 606
Intercompany accounts eliminated     (34 779)     (32 168)     (34 869)
Investment in equity-accounted entities     4 557     3 797     4 317
Unrealised profit in stock, NRV and other adjustments to inventory     (1 193)     (822)     (886)
Total consolidated assets     68 277     72 230     66 168

Disaggregation of revenue by category, per segment:

    Six months ended 31 December 2018 (Reviewed)
(Rm)   Impala Zimplats Marula IRS Impala
Chrome
Inter-
segment
revenue
Total
Revenue from:                
Platinum   4 548 1 383 451 4 541 (1 834) 9 089
Palladium   3 123 1 438 591 4 018 (2 029) 7 141
Rhodium   1 837 353 286 1 688 (639) 3 525
Nickel   237 354 18 891 (372) 1 128
Other metals   1 038 611 165 1 225 151 (788) 2 402
Treatment income   238 (2) 236
Revenue   10 783 4 139 1 511 12 601 151 (5 664) 23 521
  Six months ended 31 December 2017 (Reviewed)
(Rm) Impala Zimplats Marula IRS Impala
Chrome
Inter-
segment
revenue
Total
Revenue from:              
Platinum 3 382 1 499 470 4 781 (1 911) 8 221
Palladium 1 747 1 379 530 3 221 (2 258) 4 619
Rhodium 784 231 172 727 (346) 1 568
Nickel 260 319 15 666 (389) 871
Other metals 512 406 55 806 60 (261) 1 578
Treatment income 456 (33) 423
Revenue 6 685 3 834 1 242 10 657 60 (5 198) 17 280
  Year ended 30 June 2018 (Audited)
Revenue from:              
Platinum 6 730 2 870 864 9 500 (3 537) 16 427
Palladium 3 194 2 575 957 6 778 (3 858) 9 646
Rhodium 1 814 552 386 1 854 (843) 3 763
Nickel 506 685 31 1 441 (800) 1 863
Other metals 1 011 803 119 1 719 226 (441) 3 437
Treatment income 752 (34) 718
Revenue 13 255 7 485 2 357 22 044 226 (9 513) 35 854

5. PROPERTY, PLANT AND EQUIPMENT

(Rm)   Six months ended 
31 December 2018 
(Reviewed)
  Six months ended 
31 December 2017 
(Reviewed)
  Year ended 
30 June 2018 
(Audited)
Opening net book amount   36 045   47 798   47 798
Additions   1 706   1 903   4 606
Interest capitalised   21     61
Disposals   (6)   (5)   (26)
Depreciation   (1 800)   (1 927)   (3 838)
Impairment     (30)   (13 244)
Rehabilitation adjustment   (18)   4   (34)
Exchange adjustment on translation   716   (700)   722
Closing net book amount   36 664   47 043   36 045
Capital commitments            
Commitments contracted for   1 703   1 685   1 703
Approved expenditure not yet contracted   7 143   7 946   8 071
    8 846   9 631   9 774
Less than one year   4 326   4 669   4 017
Between one and five years   4 520   4 962   5 757
    8 846   9 631   9 774

This expenditure will be funded from internal cash flows and, if necessary, from borrowings.

6. INVESTMENT IN EQUITY-ACCOUNTED ENTITIES

(Rm)   Six months ended 
31 December 2018 
(Reviewed)
  Six months ended 
31 December 2017 
(Reviewed)
  Year ended 
30 June 2018 
(Audited)
Summary – Balances            
Joint venture            
Mimosa   2 367   1 931   2 268
Associates            
Two Rivers   1 641   1 361   1 528
Makgomo Chrome   101   69   78
Friedshelf   38   28   33
Waterberg   410   408   410
Total investment in equity accounted entities   4 557   3 797   4 317
Summary movement            
Beginning of the period   4 317   3 316   3 316
Addition – Waterberg     408   408
Shareholder funding – Waterberg   11     17
Share of profit   248   240   473
Share of other comprehensive income   111   (106)   108
Gain – Two Rivers change of interest       248
Dividends received   (130)   (61)   (253)
End of the period   4 557   3 797   4 317
Share of equity-accounted entities is made up as follows:            
Share of profit   248   240   473
Movement in unrealised profit in stock   (45)   (52)   (90)
Total share of profit of equity-accounted entities   203   188   383

7. INVENTORIES

(Rm)   Six months ended 
31 December 2018 
(Reviewed)
  Six months ended 
31 December 2017 
(Reviewed)
  Year ended 
30 June 2018 
(Audited)
Mined metal            
Refined metal   931   708   1 381
In-process metal   5 377   4 526   4 585
Purchased metal#            
Refined metal   1 497   1 269   776
In-process metal   3 208   3 882   4 120
Total metal inventories   11 013   10 385   10 862
Stores and materials inventories   975   762   883
    11 988   11 147   11 745
# Refer note 15: During the current year, the fair value exposure on purchased metal and resultant stock has been designated as a hedged item on adoption of IFRS 9 and is included in the calculation of the cost of inventories. The fair value exposure relates to adjustments made to commodity prices and US$ exchange rates from the date of delivery until the final pricing date as per the relevant contract.

The net realisable value (NRV) adjustment included in inventory at the end of December 2018 comprised R39 million (December 2017: R82 million) (June 2018: R250 million) for refined mined metal and R180 million (December 2017: R1 124 million) (June 2018: R1 268 million) for in-process metal.

Included in refined metal is ruthenium on lease to third parties of 45 000 (December 2017: 40 000) (June 2018: 45 000) ounces.

Purchased metal consists of IRS inventory. Inventory includes 50 000 ounces of platinum and 35 000 ounces of palladium, which were forward sold and which will be delivered to the counterparty on 29 March, 30 April and 31 May 2019.

Change in engineering estimate

Changes in engineering estimates of metal contained in-process resulted in a R389 million (December 2017: R431 million) (June 2018: R435 million) (pre-tax) increase of in-process metal.

Change in accounting estimate

Due to the increase in the value of nickel, relative to total revenue for the Group, management has changed the classification of nickel from a by-product to a main product with effect from 1 July 2018. In terms of IFRS by-products, by nature, should be immaterial. Total by-product revenue, including nickel, would be in excess of 10% of total revenue and therefore, should no longer be considered immaterial and a by-product.

Following the reclassification of nickel as a main-product, the metal inventory cost allocation methodology was re-assessed and amended to allocate production costs, net of by-product revenue, based on relative sales value. In the previous years, production costs, net of by-product revenue was allocated on the basis of ounces. However, given that nickel is measured in tonnes, a different basis of cost allocation was required.

This change in cost allocation methodology resulted in an overall increase in inventory value of R272 million.

8. BORROWINGS

(Rm)   Six months ended 
31 December 2018 
(Reviewed)
  Six months ended 
31 December 2017 
(Reviewed)
  Year ended 
30 June 2018 
(Audited)
Standard Bank Limited – BEE partners Marula   887   887   887
Standard Bank Limited – Zimplats term loan   898   1 053   1 167
Convertible bonds – ZAR (2018)     308  
Convertible bonds – US$ (2018)     364  
Convertible bonds – ZAR (2022)   2 697   2 571   2 631
Convertible bonds – US$ (2022)   3 062   2 524   2 858
Revolving credit facility       1 510
Finance leases   1 274   1 321   1 299
    8 818   9 028   10 352
Current   1 313   1 418   2 427
Non-current   7 505   7 610   7 925
Beginning of the period   10 352   9 461   9 461
Proceeds       1 500
Interest accrued   465   455   928
Interest repayments   (332)   (334)   (689)
Capital repayments   (1 855)   (341)   (999)
Exchange adjustment   188   (213)   151
End of the period   8 818   9 028   10 352
Committed facilities            
South African banks   4 000   4 000   4 000
Foreign banks   489   421   466
    4 489   4 421   4 466

All of the facilities remain undrawn. Of these facilities, R4.0 billion expires on 30 June 2021.

9. REVENUE

(Rm)   Six months ended
31 December 2018
(Reviewed)
  Six months ended
31 December 2017
(Reviewed)
  Year ended 
30 June 2018 
(Audited)
Disaggregation of of revenue by category            
Sales of goods            
Precious metals            
Platinum   9 089   8 221   16 427
Palladium   7 141   4 619   9 646
Rhodium   3 525   1 568   3 763
Ruthenium   501   138   477
Iridium   667   410   798
Gold   657   576   1 148
Silver   15   11   22
    21 595   15 543   32 281
Base metals            
Nickel   1 128   871   1 863
Copper   259   268   537
Cobalt   50   33   86
Chrome   253   142   369
    1 690   1 314   2 855
Revenue from services            
Toll refining   236   423   718
    23 521   17 280   35 854

Note 4 contains additional disclosure of revenue per operating segment

9.1

TRANSITION

Adoption of IFRS 15 – Revenue from Contracts with Customers

This standard replaces IAS 18, Revenue.

In accordance with the transition provisions in IFRS 15, the new rules were adopted retrospectively, to open, unfulfilled customer contracts on 1 July 2017, and the effect of the adoption reflected in current year opening retained earnings. The financial impact of the application of the revenue recognition adjustments to opening retained earnings was Rnil.

The Group’s accounting policy has been revised to align with IFRS 15, and additional disclosures have been introduced, particularly on the disaggregation of revenue as per this note.



9.2

ACCOUNTING POLICY

Revenue

Sales revenue

The Group generates revenue from the mining, concentrating, refining and the sale of platinum group metals (PGMs) and associated base metal. Revenue is measured based on the consideration specified in the customer contract.

The Group recognises revenue on inventory sold to a customer on delivery to the contractually agreed upon delivery point. This is the point at which the performance obligation is satisfied and a receivable is recognised as the consideration is unconditional and only the passage of time is required before payment is due. No element of financing is present due to the short term nature of Group contracts and credit terms are consistent with market practice. The total sales consideration in the sales contract is allocated to each product based on the contractually agreed-upon metal prices. Metal sales prices are determined based on observable spot prices when revenue is recognised.

Toll income

The Group derives toll income revenue from processing and refining of metal concentrate and matte. Income is recognised when the refined metals have been produced, are contractually due to be returned to the customer and have passed through the value creating stages of production. Total income is measured at the transaction price agreed under the contract.

Due to the nature of the Group’s revenue streams and contractual terms with customers, no significant judgement in respect of accounting for contracts with customers was necessary.


10. COST OF SALES

(Rm)   Six months ended 
31 December 2018 
(Reviewed)
  Six months ended  
31 December 2017  
(Restated  
reviewed)*
  Year ended  
30 June 2018  
(Restated  
audited)*
Production costs            
On-mine operations   8 850   8 706   16 392
Processing operations   2 766   2 374   5 340
Refining and selling   800   741   1 522
Depreciation of operating assets   1 800   1 927   3 838
Other costs            
Metals purchased   5 399   4 896   9 651
Corporate costs   433   347   710
Royalty expense*   305   179   350
Change in metal inventories   (202)   (2 900)   (3 404)
Chrome operation – cost of sales   99   64   146
Other   39   30   172
    20 289   16 724   34 717
* Royalty expense, previously presented separately in the “Consolidated statement of profit or loss and other comprehensive income” and the movement in the rehabilitation provision previously presented in “other operating expenses” were reclassified to cost of of sales. These items have been reclassified due to their nature, which is directly related to cost of production. Refer note 16.

11. CASH GENERATED FROM/(UTILISED BY) OPERATIONS

(Rm)   Six months ended 
31 December 2018 
(Reviewed)
  Six months ended 
31 December 2017 
(Reviewed)
  Year ended 
30 June 2018 
(Audited)
Profit/(loss) before tax   3 353   193   (13 042)
Adjustments for:            
Depreciation   1 800   1 927   3 838
Finance cost   533   535   1 051
Impairment     30   13 629
Other*   (99)   (272)   (777)
    5 587   2 413   4 699
Changes in working capital:            
Inventory*   (264)   (2 958)   (3 521)
Receivables/payables   1 380   296   1 186
Cash generated from/(utilised by) operations   6 703   (249)   2 364
* Non-cash adjustments relating to inventory of R506 million (December 2017) and R726 million (June 2018), previously included in “other”, were moved to inventory.

12. HEADLINE EARNINGS

Headline earnings attributable to equity holders of the Company arises from operations as follows:

(Rm)   Six months ended 
31 December 2018 
(Reviewed)
  Six months ended 
31 December 2017 
(Reviewed)
  Year ended 
30 June 2018 
(Audited)
Profit/(loss) attributable to owners of the Company   2 306   (163)   (10 679)
Remeasurement adjustments:            
–  Profit on disposal of property, plant and equipment   (49)   (8)  
–  Impairment     30   13 629
–  Gain on change in interest – Two Rivers       (248)
–  Insurance compensation   (60)    
–  Total non-controlling interest effects of adjustments     (4)   (159)
–  Total tax effects of adjustments   31   (5)   (3 771)
Headline earnings   2 228   (150)   (1 228)
Adjusted for:            
Interest on potential dilutive ZAR convertible bonds (after tax at 28%)   122    
Headline earnings used in the calculation of diluted earnings per share   2 350   (150)   (1 228)
Weighted average number of ordinary shares in issue (million)   718.54   718.54   718.54
Dilutive potential ordinary shares relating to Long-term Incentive Plan   2.11   2.76   3.57
Dilutive potential ordinary shares relating to ZAR convertible bonds   64.99    
Weighted average number of diluted ordinary shares (million)   785.64   721.30   722.11
Headline earnings per share (cents)            
Basic   310   (21)   (171)
Diluted   299   (21)   (171)

13. CONTINGENT LIABILITIES AND GUARANTEES

As at the end of December 2018, the Group had contingent liabilities in respect of guarantees. No material liabilities are expected to arise from other matters in the ordinary course of business. Guarantees of R105 million (December 2017: R114 million) (June 2018: R109 million) have been issued to Friedshelf by the Group. Guarantees of R1 477 million (December 2017: R1 396 million) (June 2018: R1 477 million) have been issued by third parties and financial institutions on behalf of the Group consisting mainly of guarantees to the Department of Mineral Resources in respect of future environmental rehabilitation amounting to R1 355 million (December 2017: R1 277 million) (June 2018: R1 355 million).

At 31 December 2018, the Group had certain unresolved tax matters. SARS has issued additional assessments relating to the matters covering the 2013 year of assessment. The Group is in the process of preparing an objection to this assessment after consultation with external tax and legal advisors. The Group believes that no provision is required at this stage.

14. RELATED PARTY TRANSACTIONS

  • The Group entered into PGM purchase transactions of R1 763 million (December 2017:R1 831 million) (June 2018: R3 749 million) with Two Rivers, an associate company, resulting in a payable of R1 286 million (December 2017: R1 041 million) (June 2018: R1 145 million). It received refining fees to the value of R17 million (December 2017: R17 million) (June 2018: R33 million).
  • The Group previously entered into sale and leaseback transactions with Friedshelf, an associate company. At the end of the period, R1 175 million (December 2017: R1 206 million) (June 2018: R1 192 million) was outstanding in terms of the lease liability. During the period, interest of R61 million (December 2017: R63 million) (June 2018: R125 million) was charged and a R78 million (December 2017: R72 million) (June 2018: R148 million) repayment was made. The finance leases have an effective interest rate of 10.2%.
  • The Group entered into PGM purchase transactions of R 1 708 million (December 2017: R1 561 million) (June 2018: R3 372 million) with Mimosa, a joint venture, resulting in a payable of R1 091 million (December 2017: R920 million) (June 2018: R965 million). It also has advances receivable of R806 million (December 2017: R776 million) (June 2018: R765 million) that yielded interest of R8 million (December 2017: R4 million) (June 2018: R11 million). The Group received refining fees of R157 million (December 2017: R146 million) (June 2018: R285 million).
  • Key management compensation (fixed and variable) was R47 million (December 2017: R31 million) (June 2018: R67 million).

15. FINANCIAL INSTRUMENTS

(Rm)   Six months ended 
31 December 2018 
(Reviewed)
  Six months ended 
31 December 2017 
(Reviewed)
  Year ended 
30 June 2018 
(Audited)
 
Financial assets – carrying amount              
Financial assets at amortised cost   8 690   6 478   6 368  
   Trade and other receivables   2 172   2 118   2 506  
   Cash and cash equivalents   6 355   4 208   3 705  
   Other financial assets   163   152   157  
Financial assets at fair value through profit or loss#2   213     21  
Available-for-sale financial assets1     192   198  
Financial assets at fair value through other comprehensive income1   260      
    9 163   6 670   6 587  
Financial liabilities – carrying amount              
Financial liabilities at amortised cost   12 546   14 815   16 967  
   Borrowings   8 818   9 028   10 352  
   Other financial liabilities   44   73   69  
   Trade payables   3 675   5 703   6 535  
   Other payables   9   11   11  
Financial liabilities at fair value through profit and loss2   3 813   676   50  
   Trade payables – metal purchases   3 507      
   Other financial liabilities   306   676   50  
    16 359   15 491   17 017  
* Financial assets at fair value through profit or loss are included as other financial assets on the statement of financial position
1 Level 1 of the fair value hierarchy – Quoted prices in active markets for the same instrument
2 Level 2 of the fair value hierarchy – Significant inputs are based on observable market data with the rand-dollar exchange rate of R14.38/US$ and metal prices being the the most significant. These instruments are valued on a discounted cash-flow basis.

The carrying amounts of financial assets and liabilities approximate their fair values with the exception of the US$ convertible bond (carrying amount R3 062 million) which has a fair value of approximately R2 714 million, and the ZAR Convertible bond (carrying amount R2 697 million) which has a fair value of approximately R2 407 million. These fair values are categorised within Level 3 of the fair value hierarchy. A discounted cash-flow valuation technique was used, using a 12% discount rate on the US$ Convertible bond and 16.4% discount rate on the ZAR Convertible bond.

Cash and cash equivalents include Zimbabwean bond notes of $88 million (R1 265 million). Bond notes were disclosed as part of cash and cash equivalents since it conforms to this definition. At the reporting date bond notes were pegged at a 1:1 value compared to the US$ and all of the bond notes will be utilised to settle current obligations in the form of statutory payments, local taxes and other local creditors. Subsequent to the reporting period, the central bank of Zimbabwe established an interbank foreign-exchange market in which the bond notes will be denominated as electronic money known as RTGS dollars, and will be traded at a floating exchange rate.

15.1

Fair value hedge accounting

Market risk

The Group’s activities expose it to a variety of financial risks, including foreign currency exposure, and commodity price risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potentially adverse effects on the Group’s financial performance. The Group, from time to time, uses derivative financial instruments to hedge certain risk exposures.

In the current year, management adopted a hedging strategy and accounting policy to manage the fair value risk (commodity price and foreign currency exchange risk) to which purchased metal, the hedged instrument, is exposed. The financial instrument used to hedge this risk is trade payables, related to metal purchases, measured at fair value through profit or loss. The fair value movements on this financial liability have been designated to hedge the price and foreign currency exchange risk on purchased metal inventory.

To the extent that the hedging relationship is effective, that is, when the fair value gains and losses on both the hedged item and hedged instrument are offset against each other, the gains and losses on trade payables (R121 million loss) and purchased metal inventory (R121 million gain) respectively are recognised in profit or loss in other income and expenses. Due to the high correlation between the fair value movements in trade payables and inventory, no source of hedge ineffectiveness is expected to affect this hedging relationship during its term.



TRANSITION

15.2

Adoption of IFRS 9 – Financial Instruments

This standard replaces IAS 39 – Financial Instruments.

The adoption of IFRS 9 Financial Instruments from 1 July 2018 resulted in changes in accounting policies and resulted in an adjustment to opening “other reserves”. The adjustment of R94 million is as result of the valuation of the equity investment in Rand Mutual Assurance (RMA) which was previously measured at cost (Rnil) in accordance with IAS 39 and has now been measured at fair value through other comprehensive income. The Group has not restated comparatives on transition because the Group was not able to meet the requirement in the standard to do so without the use of hindsight. IFRS 9 adoption has impacted both the classification and impairment requirements of financial assets. The Group now classifies former loans and receivables and held-to-maturity financial assets as measured at amortised cost. Derivative financial instruments and availabe-for-sale financial assets have now been classified as measured at fair value through profit and loss (FVTPL) and fair value through other comprehensive income (FVOCI) respectively.

The following table indicates the reclassifications and adjustments recognised for each individual line item as per the statement of financial position as at 1 July 2018:

    IAS 39 classifications     IFRS 9 classifications  
    Balance
at
30 June
2018
Re-
classifi-
cation
Amortised
cost
    Fair
value
through
profit
and loss
Fair
value
through
other
compre-
hensive
income*
  Balance
at 1 July
2018
 
Financial assets                      
Available-for-sale financial assets*   198 (198)     292   292  
Other financial assets   178 (178) 157     21   178  
   Derivative financial asset#   21 (21)     21   21  
   Held-to-maturity financial asset@   73 (73) 73       73  
   Loans carried at amortised cost@   84 (84) 84       84  
Trade and other receivables@   2 506 (2 506) 2 506       2 506  
Cash and cash equivalents   3 705 (3 705) 3 705       3 705  
Total financial assets   6 587 (6 587) 6 368     21 292   6 681  
# Continues to be measured subsequently at fair value through profit or loss.
@ Continues to be measured subsequently at amortised cost.
* Includes R94 million investment in equity instrument (RMA) that was previously measured at Rnil

The reclassification detailed in the table on the previous page was informed by the following Implats business models and financial asset characteristics:

Reclassify equity instruments previously classified as available-for-sale to FVOCI

The Group elected to present changes in the fair value of all its equity investments previously classified as available-for-sale in other comprehensive income. The cumulative fair value gains and losses on these instruments were not reclassified and will continue to be recognised in “other reserves” in equity. These gains and losses on these investments will not be reclassified to profit or loss upon derecognition.

Reclassification to amortised cost

Held-to-maturity financial assets and loans and receivables (including cash and cash equivalents) carried at amortised cost were reclassified to financial assets at amortised cost. The Group intends to hold the assets to maturity, to collect contractual cash flows that consists solely of payments of principal and interest on the outstanding amount.

Impairment of financial assets

The Group has five types of financial assets that are subject to IFRS 9’s new expected credit loss model (ECL):

  • Trade receivables for sales of inventory and tolling refining services;
  • Other receivables, which consist mainly of employee receivables;
  • Interest-free housing loans to employees;
  • Debt investments carried at amortised cost, and
  • Cash and cash equivalents.

The Group was required to revise its impairment methodology under IFRS 9 for each of these classes of assets. The group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables.

The expected credit loss model was applied to the outstanding trade receivable balances at 1 July 2018 which resulted in a negligible amount of impairment. All trade receivable balances have been recovered in full for the past 5 years.

The 12 month expected credit loss model has been applied to the following financial assets as credit risk is considered to be low:

  • Housing loans
  • Employee receivables;
  • Debt instruments held at a financial institution.
  • Cash and cash equivalents.

Employee housing loans consist of housing loans advanced to Implats employees in terms of Implats housing scheme. These loans are secured by a second bond over residential properties. An impairment rate of 0.5% was applied to housing loans. This impairment assumption is based on historical default rates on the overdue loans, employees showing signs of financial distress and expected changes in macro economic circumstances that could affect employees.

Employee receivables consist of short term advance. These receivables are generally recovered within 30 day and due to their short term nature are consider to have a low credit risk.

Debt investments at amortised cost are considered to have low credit risk and are mostly held with investment grade entities and the loss assessments was therefore limited to 12 months expected losses.

The Group’s cash and cash equivalents are also subject to the impairment requirements of IFRS 9. The Group’s cash is held at investment grade financial institutions, which are considered to have a low credit risk and the expected credit losses was immaterial.

The outcome of the 12 month expected credit loss model assessments on the above financial assets was immaterial at 1 July 2018, therefore no adjustment was made to opening retained earnings.

At 31 December 2018 the expected credit loss was reassessed and no provisions were required.

Financial liabilities

All non-derivative financial liabilities will continue to be measured at amortised cost with the exception of metal purchase trade payables. On adoption of IFRS 9, the Group elected to classify and measure trade payables relating to metal purchases at fair value through profit or loss. Derivative financial liabilities will also continue to be measured at fair value through profit or loss.



15.3

ACCOUNTING POLICY

Financial Instruments

Financial assets and financial liabilities are recognised when a Group entity becomes a party to the contract. Financial assets and financial liabilities are initially measured at fair value. Transaction costs directly attributable to the acquisition or issue of financial assets and financial liabilities other than financial assets and financial liabilities at fair value through profit or loss are added to, or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets and financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

15.3.1 Financial assets

Classification

The Group classifies its financial assets in the following categories on the basis of both the Group’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets:

  • financial assets at fair value through profit or loss,
  • financial assets at amortised cost and
  • financial assets at fair value through other comprehensive income.

Purchases and sales of investments are recognised on the trade date, being the date on which the Group commits to purchase or sell the asset. A financial asset is derecognised when the contractual rights to the cash flows from the financial asset expire, or when the Group transfers the contractual rights to receive the cash flows of the financial asset, or retains the contractual rights to receive the cash flows of the financial asset, but assumes a contractual obligation to pay the cash flows to one or more recipients.

15.3.1.1 Debt instruments

Subsequent measurement of debt instruments depends on the Group’s business model for managing the asset and the cash flow characteristics of the asset. There is currently only one measurement category to which the Group classifies its debt instruments:

Financial asset measured at amortised cost

Assets that are held for collecting contractual cash flows where those cash flows are comprised solely of payments of principal and interest are measured at amortised cost. Interest income from these financial assets is included in finance income on the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss and presented in other gains/(losses), together with foreign exchange gains and losses. Impairment losses are presented separately in the statement of profit or loss. These assets are included in current assets, except for those with maturities greater than 12 months after the reporting date which are classified as non-current assets.

15.3.1.2 Equity instruments

Implats subsequently measures all equity investments at fair value.

Financial asset measured at fair value through other comprehensive income

Where the Group’s management has elected to present fair value gains and losses on equity investments in OCI, there is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment. Dividends from such investments continue to be recognised in profit or loss as other income when the Group’s right to receive payments is established.

15.3.1.3 Other financial assets

Financial assets measured at fair value through profit and loss

Financial assets that are not measured at amortised cost or at fair value through other comprehensive income are classified as measured at fair value through profit and loss. These include the cross-currency interest rate swap (CCIRS).

The cash flow received and paid in terms of the CCIRS interest rate swap is included in finance cost paid and received in the statement of cash flows.

15.3.2 Impairment of financial assets

The expected credit losses associated with its debt instruments carried at amortised cost are assessed by the Group on a forward looking basis. The impairment methodology applied is determined by whether there has been a significant increase in credit risk.

For trade receivables, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables. Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery, among others, include the failure of a debtor to engage in a repayment agreement with the Group.

The 12 month ECL model is applied to other receivables and financial assets at amortised cost. The expected credit loss allowance recognised during the period is therefore limited to 12 months expected losses. These instruments are considered to be low credit risk when they have a low risk of default and the issuer has a strong capacity to meet its contractual cash flow obligations in the near term.

When financial assets at amortised cost (other than trade receivables) have an increase in credit risk, the lifetime ECL model, which is the result of all possible default events over the expected life of the financial instrument, is used to impair the asset.

The calculation of the loss allowances for financial assets are based on assumptions about risk of default and expected loss rates. The Group applies judgement in making these assumptions and selecting the inputs to the impairment calculation, based on the Group’s historical information, existing market conditions and forward looking estimates at the end of each reporting period.

15.3.3 Financial liabilities

All financial liabilities are subsequently measured at amortised cost, except for financial liabilities at fair value through profit or loss. These liabilities, including derivatives that are liabilities, are subsequently measured at fair value.

The Group has also made an irrevocable election to measure trade payables relating to metal purchases at fair value through profit or loss. Trade payables contracts host two embedded derivatives, namely fluctuations in PGM prices, and foreign currency exchange rates. This financial liability is used as a hedging instrument in the fair value hedge of a recognised asset, being purchased inventory.

15.3.4 Financial instruments used for hedge accounting

The Group uses the fair value movements in metal purchase trade payables measured at fair value through profit or loss, to manage the exposure of purchased metal inventory to fluctuations in foreign currency exchange rates and commodity prices.

At inception of a qualifying hedging relationship, the Group documents the relationship between hedging instrument, being trade payables, and inventory, the hedged item, as well as its risk management objective and strategy for undertaking the hedging transaction. At hedge inception and on an on-going basis, the Group assesses whether the instrument used in hedging transaction is expected to be, and has been, highly effective in offsetting changes in the fair value of inventory. The fair value of the trade payable used for hedging purposes is disclosed in this note.

The method of recognising the resulting gain or loss arising on remeasurement of the financial instrument used for hedging is dependent on the nature of the item being hedged, which is fair value movements on inventory. The Group has designated trade payables measured at fair value through profit or loss as a fair value hedge of inventory. Changes in the fair value of this financial liability that are effective to the hedging relationship are recorded in the income statement in other income and expenses, along with changes in the fair value of inventory that are attributable to the hedged risk.

Hedge accounting is discontinued from the date when the qualifying criteria are no longer met. This is when the commodity prices on the trade payables designated as the hedging instrument is reliably determined. Subsequent gains and losses from foreign currency fluctuations will be recognised in other operating income and expenses.


16. CHANGES IN CLASSIFICATION IN THE STATEMENT OF PROFIT OR LOSS

    Six months ended
31 December 2017
(Reviewed)
  Year ended
31 December 2017
(Reviewed)
 
(Rm)   Prior period 
classi- 
fication
Reclassi- 
fication 
New classi- 
fication 
  Prior period 
classi- 
fication
Reclassi- 
fication 
New classi- 
fication 
 
Cost of sales   (16 547) (177) (16 724)   (34 277) (440) (34 717)  
Royalty expense*   (179) 179   (350) 350  
Other operating income*   25 (25)   180 (180)  
Other operating expenses*   (343) 343   (944) 944  
Other income   352 23 375   1 404 180 1 584  
Other expense   (468) (343) (811)   (300) (854) (1 154)  
Total   (17 160) (17 160)   (34 287) (34 287)  
* Royalty expense, other operating income and other operating expenses have been reallocated in the table above to cost of sales, other income and other expense respectively.

Both the royalty expense of R179 million (June 2018: R350 million), which was previously disclosed separately in the “Consolidated statement of profit or loss and other comprehensive income” and the movement in the rehabilitation provision, an income of R2 million (June 2018: R90 million expense), previously included in other operating expenses was reclassified to cost of sales.

These items were reclassified due to their nature, which is directly related to cost of production.

The residual other operating income and expense items were not directly related to cost of production and were therefore reclassified to other income and other expenses respectively.