Financial statements > Group financial statements > Notes to the Group Financial Statements

notes to the group financial statements
for the year ended 31 December 2015

   2015 
R'000 
2014 
R'000 

21.

NET FINANCE COSTS 

Interest expense  68 577  48 160 
Non-current borrowings interest  9 626  – 
Current borrowings interest  79 402  53 079 
Interest capitalised  (20 451) (4 919)
Interest income  (2 085) (2 453)
Net finance costs  66 492  45 707 
         

22. 

TAXATION 

South African normal taxation: 
Current 
Current year charge  38 104  83 596 
Prior year underprovision  1 978 
Deferred 
Current year charge  25 664  70 786 
Prior year (over)/underprovision  (472) 109 
65 274  154 498 

South African income tax is levied on the company and its subsidiaries and not the group. 

Tax rate reconciliation 
Normal rate of taxation  (%) 28,0  28,0 
Adjusted for: 
Items of a capital nature  (%) 0,5  0,6 
Share-based payment costs on 2015 BEE transaction   (%) 5,7  – 
Bargain purchase gain  (%) (6,3) – 
Prior year adjustment  (%) 0,6  – 
Effective rate of taxation  (%) 28,5  28,6 
       

23.

EARNINGS PER SHARE

23.1

Weighted average number of shares 

Basic earnings per share, headline earnings per share and normalised earnings per share are calculated using the weighted average number of ordinary shares in issue during the year. For purposes of calculating diluted earnings per share, headline earnings per share and normalised earnings per share, the weighted average number of shares in issue is adjusted for the dilutive effect of employee share options.  
    Reconciliation of denominators used for basic and diluted earnings per share, headline earnings per share and basic normalised earnings per share December 
2015 
Number of
shares 
December 
2014 
Number of
shares 
Basic EPS – weighted average number of shares  319 596 836  319 515 636 
Share options  7 666 904  6 860 351 
Diluted EPS – weighted average number of shares  327 263 740  326 375 987 
 
   2015 
R'000 
2014 
R'000 
 

23.2 

Earnings/(loss) per share 

Basic (cents) 51  120 
Diluted (cents) 50  118 
        

23.3

Headline earnings per share 

Net profit for the year  163 714  384 928 
Adjustments  (44 453) (26 573)
– Loss on disposal of property, plant and equipment  10 538  6 498 
– Impairment reversal   –  (43 405)
– Bargain purchase gain  (51 868) – 
– Tax effect  (3 123) 10 334 
 
Headline earnings  119 261  358 355 
Headline earnings per share 
Basic (cents) 37  112 
Diluted  (cents) 36  110 
        

23.4

Normalised earnings per share 

Headline earnings  119 261  358 355 
Adjusted for (net of tax): 
Share-based payment costs on 2015 BEE transaction  20 000  – 
Transaction costs*  5 455  7 450 
Post-retirement medical aid past service costs adjustments  4 857  (11 272)
Equity-settled share-based payment: Isizinda  27 224  – 
Normalised earnings  176 797  354 533 
* This relates to the aggregate transaction costs incurred during the year in respect of various corporate acquisitions, BEE ownership and investment activities.  
Normalised earnings per share  
Basic (cents) 55  111 
Diluted (cents) 54  109 
        
 2015 
R'000 
2014 
R'000 

24.

DIVIDENDS PER SHARE

Dividends per share declared 
Interim dividend: 8 cents on 319 596 836 ordinary shares (2014: nil) 25 568  – 
Final dividend: nil (2014: 25 cents)   –  79 899 
Total  25 568  79 899 
       

25.

CASH GENERATED BEFORE WORKING CAPITAL CHANGES 

Operating profit  295 480  585 133 
Adjusted for: 
Depreciation  140 321  109 952 
Amortisation of intangible assets  8 340  8 308 
Impairment reversal  –   (43 405)
Loss on disposal of property, plant and equipment  10 538  6 498 
Net movement in retirement benefit asset and obligations  16 902  19 431 
Value of employee services  16 777  15 156 
Share-based payment costs on A ordinary shares redeemed  –   3 624 
Movements in derivatives  63 715  27 543 
Foreign exchange gains on cash and cash equivalents  (7 205) –  
Equity-settled share-based payment: Isizinda  27 224  –  
Share-based payment costs on 2015 BEE transaction  20 000  –  
Bargain purchase gain  (51 868) –  
540 224  732 240 
       

26. 

CHANGES IN WORKING CAPITAL 

Decrease/(increase) in inventories  215 327  (152 359)
Increase in trade and other receivables  (336 481) (65 290)
(Decrease)/increase in trade and other payables  (158 617) 138 795 
(279 771) (78 854)
       

27.

RETIREMENT BENEFITS

27.1

Retirement Benefit Schemes 

The group contributes towards retirement benefits for substantially all permanent employees who are required to be a member of one of the retirement benefit plans, either pension fund or provident fund, elected by the group. These schemes are governed by the relevant fund legislation. Their assets consist primarily of listed shares, fixed income securities, property investments and money market instruments and are held separately from those of the group. The scheme assets are administered by boards of trustees, each of which includes elected representatives.

(a) Provident fund 

The group's contributions to the Metal Industries Provident Fund scheme, a defined contribution plan, amounted to R12 944 000 (2014: R10 201 000) and were expensed during the year. 

(b) Hulamin Pension Fund

During 2012, members and pensioners accepted an offer made by the fund to convert the benefits of all in-service members from defined benefit to defined contribution and to transfer the liabilities for the payment of pensions to an insurer. The group has no further exposure to actuarial or investment risk relating to the defined contribution section of the fund.

In addition to an enhancement of benefits granted by the fund to members and pensioners on conversion, the fund also provided certain members with a further benefit which targeted (but provided no guarantee of), at the date of conversion, equivalent benefits on retirement in terms of the defined contribution basis as would have been obtained had the member remained on the defined benefit basis (the "retirement benefit equalisation value"). 

The assets relating to the retirement benefit equalisation value are held in the employer surplus account and there is no cross-subsidisation between the retirement benefit equalisation value and the assets held by the fund in terms of the defined contribution section of the fund. In addition to the assets relating to the retirement benefit equalisation value, assets relating to the surplus apportionment to the company are held in the employer surplus account.

The company provides no guarantee in terms of the investment returns that are earned on members' retirement benefit equalisation values. The retirement benefit equalisation value benefit accrues with service and is therefore accounted for as a defined benefit plan in terms of IAS 19 (revised). The group holds no actuarial or investment risk relating to the retirement benefit equalisation value benefit. 

An actuarial valuation of the group's defined benefit obligation (in relation to the retirement benefit equalisation value) and assets in the employer surplus account was performed in accordance with IAS 19 (revised) at 31 December 2015. 

R'000  R'000 

(b) Hulamin Pension Fund

Amounts recognised in the balance sheet are as follows: 
Fair value of plan assets (represents amounts held in employer surplus account) 152 524  147 181 
Present value of funded obligations  (10 232) (8 327)
Pension fund asset at end of year  142 292  138 854 
Movement in the defined benefit obligation is as follows: 
Defined benefit obligation at beginning of year  8 327  4 708 
Current service cost  3 331  3 138 
Interest cost  1 011  688 
Remeasurements: 
Actuarial (gains)/losses arising from changes in financial assumptions  (1 980) 453 
Actuarial gains arising from experience adjustments  (121) (434)
Benefits paid  (336) (226)
Defined benefit obligation at end of year  10 232  8 327 
Movement in the fair value of plan assets (amounts held in employer surplus account) is as follows: 
Fair value of plan assets at beginning of year  147 181  166 176 
Actual return on plan assets  14 046  12 677 
Interest income  12 569  13 391 
Remeasurements: 
Return on plan assets, excluding amounts included in interest income  1 477  (714)
Benefits paid  (336) (226)
Contribution funded from employer reserves  (8 367) (31 446)
Fair value of plan assets at end of year  152 524  147 181 
The fair value of plan assets comprises the employer surplus account which comprises: 
Quoted market price in an active market: 
Market risk portfolio  55 867  52 139 
Conservative portfolio  53 
Money market and cash  24 585  23 729 
Other assets: 
Loan to employer company (note 17) 72 019  71 306 
152 524  147 181 
Balances in respect of the retirement benefit equalisation value included in the fair value of plan assets at end of year  55 921  52 027 
The amounts recognised in the income statement are as follows: 
Defined benefit plan (retirement benefit equalisation value) (8 227) (9 565)
Current service cost  3 331  3 138 
Net interest income  (11 558) (12 703)
Defined contribution plan  37 362  32 301 
Employer contribution from reserves (utilisation of employer surplus account) 8 367  31 446 
Employer cash contribution  28 995  855 
 
29 135  22 736 
Amounts recognised in other comprehensive income are as follows: 
Actuarial (gains)/losses arising from changes in financial assumptions  (1 980) 453 
Actuarial gains arising from experience adjustments  (121) (434)
Return on plan assets, excluding amounts included in interest income  (1 477) 714 
The average duration of the benefit obligation at 31 December 2015 is 23,5 years (2014: 24,7 years). 
Principal actuarial assumptions at the end of the reporting period are as follows: 
Discount rate (%) 10,85  8,80 
Future inflation rate (%) 7,40  6,15 
Sensitivity of discount rate: 
1% increase in discount rate – effect on current service cost  (551) (669)
1% increase in discount rate – effect on the obligation  (1 931) (1 673)
1% decrease in discount rate – effect on current service cost  700  861 
1% decrease in discount rate – effect on the obligation  2 449  2 153 
 

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice this is unlikely to occur and changes in some of the assumptions may be correlated. When calculating the sensitivity the same method has been applied as when calculating the liability recognised within the balance sheet. The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous year.

27.2

Post-Retirement Medical Aid Benefits 

The group has undertaken to contribute to the medical aid costs after retirement of employees engaged prior to 30 June 1996. The obligation is unfunded. 

    Amounts recognised in the balance sheet are as follows:    
Present value of unfunded obligations  195 606  203 445 
Liability in the balance sheet  195 606  203 445 
The liability can be reconciled as follows: 
Balance at beginning of year  203 445  196 870 
Total expense accrued  27 209  4 030 
Remeasurements: 
Actuarial (gains)/losses arising from changes in financial assumptions  (20 740) 7 150 
Actuarial (gains)/losses arising from experience adjustments  (1 610) 4 302 
Benefit payments  (12 698) (8 907)
Balance at end of year  195 606  203 445 
Amounts recognised in the income statement are as follows: 
Interest costs  17 741  17 411 
Current service costs  2 722  2 979 
Past service costs credit adjustment (note i) 7 039  (12 030)
Settlement gains (note ii) (293) (4 330)
27 209  4 030 
Amounts recognised in other comprehensive income are as follows: 
Remeasurements: 
Actuarial (gains)/losses arising from changes in financial assumptions  (20 740) 7 150 
Actuarial (gains)/losses arising from experience adjustments  (1 610) 4 302 

Principal risks 
Through its post-retirement medical aid subsidy benefit, the group is exposed to a number of risks, principally changes in:

  • Financial assumptions:
    • Discount rate, which is set having regard to the market yield on suitable government bonds taking into account the estimated duration of the liability
    • Long-term price inflation rate, which is measured by the relationship between the yields of conventional and inflation-linked government bonds, taking into account the estimated duration of the liability 
    • Medical inflation rate.
  • Demographic assumptions: 
    • Withdrawal, pre-retirement mortality and ill-health retirement rates
    • Post-retirement mortality 
    • Family statistics.

The demographic assumptions used in the valuation of the liability are consistent with those of the prior year.

    Changes in the principal financial assumptions are detailed below. 2015 
2014 
Principal financial assumptions: 
Discount rate  10,85  8,80 
Future company subsidy rate – in service  8,85  7,90 
Future company medical subsidy increase – pensioners  9,15  7,15 
        
    Changes in the principal financial assumptions are detailed below. 2015 
R'000 
2014 
R'000 
        
Sensitivity of future company subsidy rate: 
1% increase in future company subsidy rate – effect on the aggregate of the service and interest costs  3 520  3 254 
1% increase in future company subsidy rate – effect on the obligation  26 993  29 428 
1% decrease in future company subsidy rate – effect on the aggregate of the service and interest costs  (2 904) (2 656)
1% decrease in future company subsidy rate – effect on the obligation  (22 424) (24 224)
Sensitivity of discount rate: 
1% increase in discount rate – effect on current service cost  (1 127) (471)
1% increase in discount rate – effect on the obligation  (21 901) (23 764)
1% decrease in discount rate – effect on current service cost  1 283  607 
1% decrease in discount rate – effect on the obligation  26 758  29 327 

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice this is unlikely to occur and changes in some of the assumptions may be correlated. When calculating the sensitivity the same method has been applied as when calculating the liability recognised within the balance sheet. The methods
and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous year.  

The average duration of the benefit obligation at 31 December 2015 is 13,7 years (2014: 14,1 years). This number is analysed as follows: 

– Active members 20,1 years (2014: 20,8 years)
– Retired members 9,8 years (2014: 10,0 years)
Estimated benefits payable by the group in the next financial year  9 730  9 115 
        

27.3

Retirement gratuities 

The group has in the past made discretionary payments, on retirement, to eligible employees who have remained in service until retirement age, and have completed a minimum service period. 

The obligation is unfunded. 
Amounts recognised in the balance sheet are as follows: 
Present value of unfunded obligations  32 391  32 924 
Liability in the balance sheet  32 391  32 924 
The liability can be reconciled as follows: 
Balance at beginning of year  32 924  28 956 
Total expense accrued  4 749  4 310 
Remeasurements: 
Actuarial (gains)/losses arising from changes in financial assumptions  (2 893) 358 
Actuarial losses arising from experience adjustments  109  1 181 
Gratuity payments  (2 498) (1 881)
Balance at end of year  32 391  32 924 
Amounts recognised in the income statement are as follows: 
Interest costs  2 833  2 545 
Service costs  1 916  1 765 
4 749  4 310 
Amounts recognised in other comprehensive income are as follows: 
Actuarial (losses)/gains arising from changes in financial assumptions  (2 893) 358 
Actuarial gains arising from experience adjustments  109  1 181 

Principal risks 
Through its retirement gratuity benefit, the group is exposed to a number of risks, principally changes in:

  • Financial assumptions:
    • Discount rate, which is set having regard to the market yield on suitable government bonds taking into account the estimated duration of the liability
    • Long-term price inflation rate, which is measured by the relationship between the yields of conventional and inflation-linked government bonds, taking into account the estimated duration of the liability
    • Salary inflation in excess of price inflation 
  • Demographic assumptions: 
    • Withdrawal, pre-retirement mortality and ill-health mortality rates
    • Post-retirement mortality 
    • Family statistics. 

The demographic assumptions used in the valuation of the liability are consistent with those of the prior year.

     2015 
R'000 
2014 
R'000 
Changes in the principal financial assumptions are detailed below: 
Principal financial assumptions: 
Discount rate (%) 10,85  8,60 
Future salary inflation rate (%) 7,75  7,40 
Sensitivity of future salary inflation rate: 
1% increase in future salary inflation rate – effect on the aggregate of the service and interest costs  735  674 
1% increase in future salary inflation rate – effect on the obligation  3 798  4 007 
1% decrease in future salary inflation rate – effect on the aggregate of the service and interest costs  (631) (576)
1% decrease in future salary inflation rate – effect on the obligation  (3 310) (3 482)

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice this is unlikely to occur and changes in some of the assumptions may be correlated. When calculating the sensitivity the same method has been applied as when calculating the liability recognised within the balance sheet. The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous year.  

The average duration of the benefit obligation at 31 December 2015 is 12,2 years (2014: 13,6 years). 

Estimated retirement gratuities, payable by the group during the next financial year, are R890 000. 

 2015 
R'000 
2014 
R'000 

28.

LEASE COMMITMENTS 

Operating lease commitments, amounts due: 
Not later than one year  18 742  14 463 
Later than one year and not later than five years  22 292  25 433 
41 034  39 896 
In respect of: 
Property  4 921  499 
Plant and machinery  36 113  39 397 
41 034  39 896 

The group leases forklift trucks and offices under non-cancellable operating lease agreements. 

The leases have varying terms, escalation clauses and renewal rights.

29.

CAPITAL EXPENDITURE COMMITMENTS

Capital expenditure contracted for at the end of the reporting period but not yet incurred is as follows: 

Property, plant and equipment  202 632  226 759 

Capital expenditure will be funded by a combination of external borrowings and cash flows from operations. 

30.

CONTINGENT LIABILITIES 

The group has no contingent liabilities as at 31 December 2015 (2014: nil).