Annual Report • Mar 8, 2021
Annual Report
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Report and Financial Statements For the year ended 31 December 2020
Company Registration No. 04658814
| Contents | Pages |
|---|---|
| Officers and professional advisers | 1 |
| Strategic report | 2-3 |
| Directors' report | 4-5 |
| Independent auditor's report | 6-12 |
| Income statement | 13 |
| Balance sheet | 14 |
| Statement of changes in equity | 15 |
| Notes to the financial statements | 16-33 |
A MacPherson C Davage S Pearce E Klonarides R Price M Walker A Field Z Quattrocchi
Anglo American Corporate Secretary Limited
20 Carlton House Terrace London SW1Y 5AN United Kingdom
Barclays Bank PLC 1 Churchill Place London E14 5HP
PricewaterhouseCoopers LLP 1 Embankment Place London WC2N 6RH
Anglo American Capital plc (the "Company") is a wholly-owned subsidiary of Anglo American plc ("AA plc") (the "Parent").
The Company is a finance company participating in the finance arrangements of the Anglo American gro up o f companies (the "Group"). The Company supports the Group, managing the Group cash and financing positi on through capital planning and debt issuances, cash pooling in various currencies acro ss th e Gro up en ti ti es, managing excess cash through liquidity funds and US Treasury funds and working with the Group to help manage cash flows around large capital expenditure requirements and dividend payments. There have not been any significant changes in the Company's principal activities during the year and the directors do not envisage any significant changes in the Company's activities in the foreseeable future.
As shown in note 4 on page 21, the Company's net finance income decreased by \$169 million to \$338 mi l l i o n (2019: \$104 million increased to \$506 million) primarily as a result of a decrease in net interest recei ved fro m other Group companies due to a decrease in interest rates. In the current year, a loss allowance of \$247m (2019: \$364m loss reversal) has been recognised on one intercompany loan. This has resulted in the Company recognising a profit after tax of \$74 million (2019: \$848 million) for the year ended 31 December 2020.
The balance sheet shows that the Company is in a net asset position of \$7,028 million (2019: \$6,954 million).
In response to Covid-19, the Company signed a new \$2.0 billion revolving credit facility in Apri l 2020 wi th an initial maturity date of April 2021. The Company has, at its sole discretion, two options to extend the facility fo r a further 6 months to October 2021 and April 2022.
The principal risks to the Company's business are liquidity risk, changes in interest rates an d mo vemen ts i n foreign exchange rates. An explanation of these risks and how they are managed is referred to i n n o te 10 on pages 28-32.
The Company is also exposed to intercompany credit risk as losses may be suffered should an intercomp an y counterparty be unable to service its debt obligations. This intercompany credit risk arises from a range of risks to which the rest of the Group is exposed. Group risks and the processes to manage them are discussed in the Group's Annual Report, which does not form part of this report. Refer to note 15.
The profit after taxation for the year is \$74 million (2019: \$848 million). Dividends of \$nil were paid to the ordinary shareholder during the year (2019: \$nil). A 3% preference dividend of \$1,927 was paid to the preference shareholder during the year (2019: \$1,848).
The Anglo American Capital plc Board is cognisant of its legal duty to act in good faith and to promote the success of the Company for the benefit of its shareholders and with regard to the interests of stakeholders and other factors. These include the likely consequences of any decisions we make in the long term; th e n eed to foster the relationships we have with all our stakeholders and the desire to maintain a reputation for high standards of business conduct.
Stakeholder considerations are integral to discussions at Board meetings and the decisions we make take in to account any potential impacts on them and the environment. Like any business, we are aware that some of th e decisions we make may have an adverse impact on certain stakeholders.
By listening to, understanding and engaging with our stakeholders, the Board endeavours to l i ve up to th ei r expectations, by staying true to the Purpose and making decisions in accordance with our Values.
The Board recognises the role of the Company business in society and within the Anglo American Group. Th e Group's purpose is summarised as 'to re-imagine mining to improve people's lives', and the Company is focused on contributing to the achievement of this purpose.
The Group's Values: Safety; Care and Respect; Integrity; Accountability; Collaboration; and Innovati on g ui d e our behaviour, shape our culture, and are fundamental to creating enduring benefit for all our employees, shareholders, and stakeholders in a way that demonstrably improves people's lives.
The purpose of the Company is to support the Group's financing activities as mentioned in the Strategic Report and is aligned to the Group's core Values.
Healthy stakeholder relationships help us to better communicate how our business decisions, activities and performance are likely to affect or be of significant interest to our stakeholders, and provide the opportuni ty to co-create effective and lasting solutions to business and other challenges.
The Company's stakeholders include Group companies, banks and credit institutions, Governments, in addition to our shareholders.
The Board took a range of factors and stakeholder considerations into account when making decisions i n th e year. Decisions are made within the context of the long term factors that may impact the Company and its stakeholders.
The Company aims to be a valued and trusted partner to all members of the Group's industry. This includes the suppliers and customers that we operate with.
Approved by the Board of Directors on 5 March 2021 and signed on its behalf by:
Aaron Field Director 5 March 2021
The directors present their report and the audited financial statements of the Company for the ye a r e n d ed 3 1 De ce mb er 2020.
The following served as directors throughout the year up to the date this report was approved:
A MacPherson C Davage S Pearce E Klonarides R Price M Walker A Field Z Quattrocchi
During the year none of the directors held any beneficial interests in the shares of the Company (2019: none).
The results and dividends can be found in the Strategic Report on page 2 and forms part of this report by cross-reference.
There have been no political donations during the year (2019: nil).
Details of financial risk management objectives and policies can be found in the Strategic Report and form part of this report by cross-reference.
The directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis of a ccounting in preparing the annual financial statements.
The Company's ability to continue as a going concern is assessed in conjunction with the Group, as its viability is dependent on the ability of other Group companies to settle their intercompany balances with the Company. The Company's ca sh flo w forecasts for the period to the end of March 2022 under base and downside scenarios, with considerations given to the uncertainty of the impact of Covid-19 pandemic on the wider macroeconomic environment and trading performa n ce, sh o w that the Company maintains sufficient liquidity throughout the period of assessment without the use of mitigating actions.
The directors have also received support from the ultimate parent entity for use to the extent that it is necessary including but not limited to not seeking repayment of amounts advanced to the Company by the Parent and/or subsidiaries o f th e An g lo American Group unless alternative financing has been secured by the Company. This support will remain in p la ce fo r th e foreseeable future, including the period of 12 months from authorisation of the Company's financial statements.
There have not been any significant changes in the Company's principal activities during the year and the directo rs d o n o t envisage any significant changes in the Company's activities in the foreseeable future.
There are no subsequent events.
The description of the Company's internal control and risk management systems in relation to the financial reporting process are disclosed in the Group's Annual Report, which includes the Company.
Due to the nature of the debt issued, which is listed on the London Stock Exchange, the Company is exempt from the provisions of UK Corporate Governance Code and the Disclosure and Transparency Rules (DTR) of the Financial Co n d u ct Authority with the exception of DTR 7.2.5. The directors are therefore satisfied that there is no requirement for an audit committee or to publish a corporate governance statement.
To the extent permitted by law and the Articles, the Company has made qualifying third -party indemnity provisio n s fo r th e benefit of its directors during the year, which remain in force at the date of this report. Copies of these indemnities are o pen for inspection at the Company's registered office.
The directors are responsible for preparing the Strategic report and Directors' report and the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the financial statements in accordance with United Kingdom Accounting Standards, comprising FRS 101 ''Reduced Disclosure Framework'', and applicable law (United Kingdom Generally Accepted Accounting Practice).
Under company law the directors must not approve the financial statements unless they are satisfied that th ey g ive a tru e and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the directors are required to:
The directors are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation.
Each of the persons who is a director at the date of approval of this report confirms that:
This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006.
At the Company 2020 AGM, shareholders approved the appointment of PricewaterhouseCoopers LLP (PwC) as the Company's new Statutory Auditors. Resolutions to authorise the Board to re-appoint and determine the remuneration of PwC will be proposed at the Company's AGM on 5 March 2021.
Approved by the Board of Directors on 5 March 2021 and signed on its behalf by:
Aaron Field Director 5 March 2021
In our opinion, Anglo American Capital plc's financial statements:
We have audited the financial statements, included within the Report and Financial Statements (the "Annual Report"), which comprise: the balance sheet as at 31 December 2020; the income statement and the statement of changes i n equity for the year then ended; and the notes to the financial statements, which include a d escription of the significant accounting policies.
Our opinion is consistent with our reporting to the Board of Directors.
We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") an d ap plicabl e law. Our responsibilities under ISAs (UK) are further described in the Auditors' responsibilities fo r th e aud it o f th e financial statements section of our report. We believe that the audit evidence we have o btained i s suffici ent an d appropriate to provide a basis for our opinion.
We remained independent of the Company in accordance with the ethical requirements that are relevant to our audi t of the financial statements in the UK, which includes the FRC's Ethical Standard, as applicable to listed p ublic interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC's Ethical Standard were not provided to the group headed by Anglo American plc, of which the Company is a member.
Other than those disclosed in note 3 to the financial statements, we have provided no non-audit services to the Group in the period under audit.
The context of our audit is set by 2020 being our first year as external auditors of Anglo American Capital plc. As part of our audit transition, we performed specific procedures over opening balances by shadowing the p ri or year aud it undertaken by the predecessorauditor, reviewing the predecessor auditor working papers, an d re -evaluating th e predecessor auditor's conclusions in respect of key accounting judgements in the opening balance sheet at 1 January 2020.
We performed process walkthroughs to understand and evaluate the key financial processes and controls within th e entity. Following this work, we performed early audit procedures in advance of the year-end (otherwise known as o ur pre year-end audit work) to enable early consideration of as many key accounting judgements as possible before th e year-end and to identify any specific areas where additional audit attention might be req uired at year -end. As we undertook each phase of our first year audit, we regularly updated our risk assessment to reflect audi t f i ndings, including our assessment of the entity's control environment and the impact on our planned audit approach.
As a result of the impact of Covid-19, government lockdowns impacted the way we conducted our work, with p art o f our audit transition and the duration of our 2020 audit being performed remotely and additional work being performed to address the requirements of ISA (UK) 500 Audit Evidence. The impacts of the pandemic, bo th fro m a fi n ancial reporting perspective and as it related to delivering the audit largely remotely, were continuously re-evaluated throughout the year, including the impact of the pandemic on our risk assessment which was regularly up dated to reflect our audit findings from each stage of our work.
As part of designing our audit, we determined materiality and assessed the risks of material mi sstatement i n th e financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design p rocedures i n line with our responsibilities, outlined in the Auditors' responsibilities for the audit of the financial statements section, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
Based on our understanding of the Company and industry, we identified that the principal risks o f n on-compli ance with laws and regulations related to international tax regulations and anti -bribery and corrupti on l aws, and we considered the extent to which non-compliance might have a material effect on the financial statements. W e al so considered those laws and regulations that have a direct impact on the preparation of the financial statements such as the Companies Act 2006. We evaluated management's incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to posting inappropriate journal entries and management bias included within significant accounting judgements an d estimates. Audit procedures performed by the engagement team included:
There are inherent limitations in the audit procedures described above. We are l ess l ikel y to become aware of instances of non-compliance with laws and regulations that are not closely rel ated to events an d transacti ons reflected in the financial statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate conceal ment by, fo r examp le, forgery or intentional misrepresentations, or through collusion.
Key audit matters are those matters that, in the auditors' professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
| Key audit matter | How our audit addressed the key audit matter |
|---|---|
| Assessment of impairment or impairment reversals related to receivables from fellow Group undertakings and other Group companies |
|
| As a financing company, the Company participates in the financing arrangements of the Anglo American group of companies (the "Group"). At 31 December 2020, the Company has gross receivable balances of \$32,676 million (2019: \$32,390 million) related to amounts due from fellow Group undertakings and other Group companies. |
We understood and evaluated management's processes and controls in respect of identifying and assessing for indicators of impairment and impairment reversal related to receivables from fellow Group undertakings and other Group companies. We evaluated and challenged management's assessment and judgements in respect of impairment/impairment reversal indicators, including ensuring consideration of events and |
| The Company is exposed to credit risk should a Group undertaking or other Group company not be able to service its debt obligations. At 31 December 2020, a loss allowance of \$649 million (2019: \$411 million) related to the impairment of three intercompany loans |
conditions across the Group, such as whether broader non financial asset impairments recorded in the Group financial statements and impact of Covid-19 had been considered in management's analysis and conclusions. |
| has been recorded. The determination as to whether an impairment or impairment reversal is required can be judgemental. In accordance with IFRS 9, where indicators of impairment or impairment reversal are identified, |
Where indicators were identified, we challenged management's assessment as to whether the counterparty had sufficient liquid net assets or the ability to repay the loan on demand and therefore if a loss allowance was required and the level of the allowance. |
| management must determine the recoverable amount of the receivable based on an assessment of the financial position of the Group undertaking or other Group company and consideration of past evidence of default and future company specific and wider macroeconomic factors. |
Where no indicators of a change in credit risk were identified, we reviewed management's expected credit loss calculation which included verifying the integrity of formulae and the mathematical accuracy of management's model. Furthermore, we independently assessed the key assumptions which underpin the model including the probability and amount at risk of defaultby the counterparty |
| Furthermore, irrespective as to whether an indicator for impairment or impairment reversal is identified, management is required to update its assessment of expected credit losses at each reporting date to assess if a further loss allowance or reversal is required |
and performed our own independent sensitivities to form an independent view of the appropriateness of management's calculation. As a result of our procedures, we determined that the loss |
| allowance recorded is appropriate and that adequate disclosures have been made in the financial statements. |
|
|---|---|
| Covid-19 | |
| As set out in the Strategic report, management has considered the impact of Covid-19 on the Company, alongside the actions that have been taken in response to the pandemic. As the Company is a financing company and does not trade, there is no direct impact on the entity. |
Our procedures in respect of the recoverability of amounts due from fellow Group undertakings and other Group companies is set out in the related key audit matter above. Our procedures and conclusions in respect of going concern are set out separately within the Conclusions relating to going concern section of this report. |
| Notwithstanding this, as a result of the pandemic there is a heightened level of uncertainty in accounting judgements and estimates. The most significant is in relation to the assessment of impairment or impairment reversals related to receivables from fellow Group undertakings and other Group companies. Management has also considered the potential impact |
We considered whether changes to working practices brought about by Covid-19 had an adverse impact on the effectiveness of management's business process. Our work did not identify any changes which had a significant impact on our audit approach other than needing to perform most of our work remotely. |
| of Covid-19 in undertaking their assessment of going concern and the funding requirements of the Company and broader Anglo American group. |
We considered the appropriateness of disclosures in the financial statements in relation to the impact of the pandemic on the relevant accounting estimates and going concern and deemed these to be appropriate. |
| In addition to the impact on financial reporting, management has adjusted its ways of working in response to the pandemic including a large number of employees working remotely. This has resulted in change to the Company's financial reporting processes and the control environment. |
We tailored the scope of our audit to ensure that we performed enough work to be able to g i ve an o pinion o n th e financial statements as a whole, taking into account the structure of the Company, the accounting p rocesses and controls, and the industry in which it operates.
As part of designing our audit, we determined materiality and assessed the risk o f material mi sstatement i n th e financial statements. In particular, we considered where the directors had made subjective accounting j udgements and estimates. Our detailed audit procedures were tailored to test material financial statement line i tems, together with the relevant financial statement disclosures.
The scope of our audit was influenced by our application of materiality. We set certain quantitative th resholds fo r materiality. These, together with qualitative considerations, helped us to determine the scope o f o ur aud it an d the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures an d in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
| Overall Company materiality |
US\$72 million |
|---|---|
| How we determined it |
1% of net assets |
| Rationale for benchmark applied |
We considered the nature of the business and activities of Anglo American Capital plc (being a financing Company participating in the finance arrangements of the Anglo American group of companies) and determined that net assets is the most appropriate basis for the calculation of overall materiality. |
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality. Specifically, we use performance materi ality in determining the scope of our audit and the nature and extent of our tes ting o f account bal ances, classes o f transactions and disclosures, for example in determining sample sizes. Our performance materiali ty was 75% o f overall materiality, amounting to US\$54 million for the Company financial statements.
In determining the performance materiality, we considered a number of factors - the history of mi sstatements, risk assessment and aggregation risk and the effectiveness of controls - and concluded that an amount at the upper en d of our normal range was appropriate.
We agreed with the Board of Directors that we would report to them misstatements identified during our audit abo ve US\$3.6 million as well as misstatements below that amount that, in our view, warranted reporting fo r q ualitati ve reasons.
Our evaluation of the directors' assessment of the Company's ability to continue to adopt the going concern basis of accounting included:
Based on the work we have performed, we have not identified any material un certainties relating to events o r conditions that, individually or collectively, may cast significant doubt on the Company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to th e Company's ability to continue as a going concern.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
The other information comprises all of the information in the Annual Report other than the financial statements an d our auditors' report thereon. The directors are responsible for the other information. Our o pinion o n th e fi nancial statements does not cover the other information and, accordingly, we do not express an audit opinion o r, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or o ur knowl edge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to concl ude whether th ere i s a material misstatement of the financial statements or a material misstatement of the other information. 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 based on these responsibilities.
With respect to the Strategic report and Directors' report, we also considered whether the disclosures required by th e UK Companies Act 2006 have been included.
Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certai n opinions and matters as described below.
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategi c report and Directors' report for the year ended 31 December 2020 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements.
In light of the knowledge and understanding of the Company and its environment obtained in the course of the aud it, we did not identify any material misstatements in the Strategic report and Directors' report.
As explained more fully in the Directors' responsibilities statement, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true an d fair view. The directors are also responsible for such internal control as they determine is necessary to enable th e preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing 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 Company or to cease operations, or h ave n o reali stic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are fre e fro m material misstatement, whether due to fraud or error, and to issue an auditors' report th at i ncludes o ur o pinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted i n accordance with ISAs (UK) 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 i nfluence th e economic decisions of users taken on the basis of these financial statements.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a conclusion abo ut th e p opulation from which the sample is selected.
A further description of our responsibilities for the audit of the financial statements is located on the FRC's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors' report.
This report, including the opinions, has been prepared for and only fo r th e Company's di rectors as a bo d y i n accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. W e do n ot, i n g i ving these opinions, accept or assume responsibility for any other purpose or to any other person to whom thi s report i s shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Under the Companies Act 2006 we are required to report to you if, in our opinion:
We have no exceptions to report arising from this responsibility.
Following the recommendation of the Board of Directors, we were appointed by the directors on 27 February2020 to audit the financial statements for the year ended 31 December 2020 and subsequent fi nancial periods. Th is i s therefore our first year of uninterrupted engagement.
Frances Cucinotta (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 5 March 2021
Company Registration No. 04658814
For the year ended 31 December 2020
| US\$'000 | Note | 2020 | 2019 |
|---|---|---|---|
| Administrative expenses | (5,988) | (6,841) | |
| Operating loss | 3 | (5,988) | (6,841) |
| Finance income | 4 | 1,079,959 | 1,585,708 |
| Finance expense | 4 | (742,344) | (1,079,499) |
| Loss (allowance) / reversals | 5 | (246,910) | 364,998 |
| Profit on ordinary activities before taxation | 84,717 | 864,366 | |
| Tax on profit on ordinary activities | 6 | (10,663) | (16,069) |
| Profit for the year | 74,054 | 848,297 |
All results derive from continuing operations.
There are no recognised gains and losses for the year other than the gain shown above. Therefore, no separate Statement of other comprehensive income has been presented.
Company Registration No. 04658814
As at 31 December 2020
| US\$'000 | Note | 2020 | 2019 |
|---|---|---|---|
| Non-current assets | |||
| Derivative financial assets | 8,9 | 636,168 | 345,747 |
| Receivables – due after one year | 7 | 40,200 | 40,200 |
| 676,368 | 385,947 | ||
| Current assets | |||
| Derivative financial assets | 8,9 | 8,891 | 14,655 |
| Receivables – due within one year | 7 | 31,986,927 | 31,982,865 |
| Cash and cash equivalents | 9 | 5,271,753 | 3,749,579 |
| 37,267,571 | 35,747,099 | ||
| Creditors: amounts falling due within one year | |||
| Derivative financial liabilities | 8,9 | (39,591) | (85,037) |
| Short-term borrowings | 10 | (20,381,120) | (19,875,201) |
| Other creditors | (6,588) | (6,698) | |
| (20,427,299) | (19,966,936) | ||
| Net current assets | 16,840,272 | 15,780,163 | |
| Total assets less current liabilities | 17,516,640 | 16,166,110 | |
| Creditors: amounts falling due after more than one | |||
| year | |||
| Deferred tax Derivative financial liabilities |
11 8,9 |
(4,322) (191,812) |
(20,105) (519,826) |
| Medium and long-term borrowings | 10 | (10,292,392) | (8,672,119) |
| (10,488,526) | (9,212,050) | ||
| Net assets | 7,028,114 | 6,954,060 | |
| Capital and reserves | |||
| Called-up share capital | 13 | 6 | 6 |
| Share premium account | 4,519,995 | 4,519,995 | |
| Capital contribution Retained earnings |
1,000 2,507,113 |
1,000 2,433,059 |
|
| Total shareholder's funds | 7,028,114 | 6,954,060 |
The financial statements of Anglo American Capital plc were approved by the Board of Directors and authorised for issue on 5 March 2021. They were signed on its behalf by:
Company Registration No. 04658814
For the year ended 31 December 2020
| US\$'000 | Called up share capital |
Share premium |
Capital contribution |
Retained earnings |
Total |
|---|---|---|---|---|---|
| Balance at 1 January 2019 | 6 | 4,519,995 | 1,000 | 1,584,762 | 6,105,763 |
| Profit for the year | - | - | - | 848,297 | 848,297 |
| Dividends | - | - | - | - | - |
| Balance at 31 December 2019 | 6 | 4,519,995 | 1,000 | 2,433,059 | 6,954,060 |
| Profit for the year | - | - | - | 74,054 | 74,054 |
| Dividends | - | - | - | - | - |
| Balance at 31 December 2020 | 6 | 4,519,995 | 1,000 | 2,507,113 | 7,028,114 |
For the year ended 31 December 2020
The principal accounting policies are summarised below.
Anglo American Capital plc is a public company, limited by shares and a wholly-owned subsidiary of Anglo American plc. The Company is incorporated and domiciled in the United Kingdom and registered i n En g l and and Wales under the Companies Act 2006.The address of the registered office is given on page 1. The n ature of the Company's operations and its principal activities are set out in the Strategic report on page 2.
The Company meets the definition of a qualifying entity under FRS 100 'Application of Financial Reporting Requirements' issued by the Financial Reporting Council (FRC). These financial statements were prepared i n accordance with Financial Reporting Standard 101 Reduced Disclosure Framework .
As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to the presentation of comparative information in respect of certain assets, presentation of a cash-flow statement, standards not yet effective and related party transactions. Where required, equivalent disclosures are given in the consolidated financial statements of Anglo American plc. Th e consolidated financial statements of Anglo American plc are available to the public and can be obtained as set out in note 15.
The accounting policies applied are consistent with those adopted and disclosed i n th e Co mp an y fi n ancial statements for the year ended 31 December 2019.
The directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing the annual financial statements.
The Company's ability to continue as a going concern is assessed in conjunction with the Group, as its viability is dependent on the ability of other Group companies to settle their intercompany balances with the Compan y. The Company's cash flow forecasts for th e period to the end of March 2022 under base and downside scenarios, with considerations given to the uncertainty of the impact of Covid-19 pandemic on the wider macroeconomic environment and trading performance, show that the Company maintains suffi ci ent l i q ui dity throughout the period of assessment without the use of mitigating actions.
The directors have also received support from the ultimate parent entity for use to the extent that it is necessary including but not limited to not seeking repayment of amounts advanced to the Company by the Parent and/or subsidiaries of the Anglo American Group unless alternative financing has been secured by th e Company. This support will remain in place for the foreseeable future, including the period of 12 mo n th s fro m authorisation of the Company's financial statements.
For the year ended 31 December 2020
Under IAS 32 "Financial Instruments: Presentation", where the terms of issuance require the issuer to red eem preference shares for a fixed or determinable amount at a fixed or determinable future date, or where the holder has the option of redemption, these shares are classified as liabilities and the dividends pai d o n th ese shares classified as a finance cost. When preference shares are non-redeemable, the appropriate classification is determined by the other rights that attach to them which are not at the discretion of the directors. The Company's preference shares entitle the holders to a fixed cumulative dividend of 3% per annum and these shares are, therefore, considered financial liabilities.
Transactions in currencies other than the functional currency during the year have been translated and included in the financial statements at the rates of exchange prevailing at the time those transactions were executed. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date have been translated at the rates of exchange prevailing at th at date. Gains and losses arising on retranslati on are included in the income statement for the period and are classified in the income statement according to the nature of the monetary item giving rise to them. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.
Current tax, including UK Corporation tax and foreign tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantiv ely enacted at the balance sh eet date. The current tax payable is based on taxable profit for the year. Taxable profit differs from profit on ordinary activities before taxation as reported in the income statement because it excludes items of income and expense that are taxable or deductible in other years and it further excludes items that are not taxable or deductible.
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax l i abi l i ti es are generally recognised for all taxable temporary differences and deferred tax assets are recognised to th e extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.
For the year ended 31 December 2020
In order to hedge exposure to foreign exchange and interest rate risk for economic and fair value hedge relationships respectively, the Company enters into forward and swap contracts. The Company d o es n ot use derivative financial instruments for speculative purposes.
All derivatives are held at fair value through profit and loss in the balance sheet within 'Derivative financial assets' or 'Derivative financial liabilities'. Derivatives are classified as current or non-current depending o n th e contractual maturity of the derivative.
For an effective hedge of an exposure to changes in fair value, the hedged item is adjusted for changes in fai r value attributable to the risk being hedged. Hedge effectiven ess is determined at the inception of the hedge relationship, and through periodic prospective effectiveness assessments to ensure that an economic relationship exists between the hedged item and hedging instrument.
The Company's only hedging instruments are interest rate swaps that have similar critical terms to the rel ated debt instruments, such as payment dates, maturities and notional amounts. As all critical terms matched during the year, there was no material hedge ineffectiveness. The Company also uses cross currency swaps to manage foreign exchange risk associated with borrowings denominated in foreign currencies. Th ese are n o t designated in an accounting hedge as there is a natural offset against foreign exchange movements on associated borrowings.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, exercised, revoked, or no longer qualifies for hedge accounting.
Changes in the fair value of any derivative instruments that are not designated in a hedge r elationship are recognised immediately in the income statement. Changes in the fair value of the hedged debt are offset against fair value changes in the interest rate swap and recognised in the income statement.
Interest Rate Benchmark Reform: Amendments to IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures.
The Company uses interest rate derivatives to swap the majority of its Euro, Sterling and US dollar bonds from fixed interest rates to EURIBOR, GBP LIBOR and USD LIBOR respectively. Any non-USD interest rate derivatives are swapped to USD LIBOR using cross currency interest rate swaps which are not designated into hedges. The interest rate derivatives are designated into fair value hedges.
EURIBOR and LIBOR are expected to be replaced by alternative risk-free rates by the end of 2021 as part of inter-bank offer rate (IBOR) reform. Phase 2 IBOR amendments to IFRS 9 Financi al Instruments, IAS 39 Hedge Accounting, IFRS 7 Financial Instruments Disclosures, were published in August 2020, which are effective from 1 January 2021. The Company has not early adopted the amendment, standard or interpretation that has been issued but is not yet effective.
The Company is continuing preparation for transition to incorporate alternative risk-free rates where the current interest benchmarks used by the Company are EURIBOR and LIBOR. The Company is monitoring the market and discussing the potential changes with its counterparties in order to effectively transition to alternative ri sk free rates. The published amendments to IFRS 7 and IFRS 9 modify specific hedge accounting requi remen ts and allow it to be assumed that the interest rate benchmark is not altered as a result of the uncertainties of IBOR reform when performing hedge effectiveness testing.
The Company early adopted Phase 1 amendments in 2020 and will continue to apply the Phase 1 amendments to IFRS 9 until the uncertainty arising from the interest rate benchmark reforms with respect to the timing and the amount of the underlying cash flows that the Company is exposed to ends. The Company is currently assessing alternative interest rate derivative contracts and the reliance upon replacement rates where relevant.
Refer to note 10 for the Company's Euro, Sterling and US dollar bonds which in turn reflects the nominal amount of the hedging instruments.
For the year ended 31 December 2020
Interest bearing borrowings and overdrafts are initially recognised at fair value, net of directly attributable transaction costs. Finance charges, including premiums payable on settlement or redemption and direct i ssue costs are recognised in the income statement using the effective interest method. They are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.
Interest income and expense are recognised when it is probable that the economic benefits wil l fl o w an d th e amount of revenue or expense can be measured reliably. Interest is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactl y d i sco un ts estimated future cash flow through the expected life of the financial instruments to the initial carrying amount.
Cash and cash equivalents comprise cash in hand, together with short-term, highly liquid investments th at are readily convertible to a known amount of cash and that are subject to an insignificant risk of changes in val ue. Bank overdrafts are shown within short-term borrowings in current liabilities on the balance sh eet. Cash an d cash equivalents are measured at amortised cost except for highly liquid money market fund investments which are held at fair value through profit and loss as they are redeemed through the sale of units in the fun d s and not solely through the recovery of principal and interest.
Financial assets and liabilities are classified into the following measurement categories: receivables at amortised cost, debt instruments at amortised cost fair valued for interest rate risks and derivatives at fair value through profit and loss. Financial assets are classified as at amortised cost only if the asset is held within a business model whose objective is to collect the contractual cash flows and the contractual terms of th e asset give rise to cash flows that are solely payments of principal and interest.
At subsequent reporting dates, financial assets at amortised cost are measured at amortised cost less any loss allowances.
The Company monitors all financial assets that are subject to loss allowance requirements to assess wh eth er there has been a significant increase in credit risk since initial recognition. If there has been a significant increase in credit risk, the Company will measure the loss allowance based on l ifetime rather than 12-month probability of default (PD). The Company has adopted the practical expedient that any financial assets with 'low' credit risk at the reporting date are deemed not to have had a significant increase in credit risk.
A financial asset is credit-impaired when one or more events that have a detrimental impact on th e esti mated future cash flows of that financial asset have occurred. In assessing whether the credit risk on a financial asset has increased significantly since initial recognition, the Company computes the risk of a default o ccurri n g o n the financial instrument at the reporting date based on the repayment terms of the instrument, changes i n th e country risk premium and any other factors which may indicate an increased probability of default.
For the year ended 31 December 2020
In the application of the Company's accounting policies, which are described above, the directors are requi red to make judgements (other than those involving estimations) that have a signi ficant impact on the amounts recognised and to make estimates and assumptions about the carrying amounts of the assets and liabilities that are not readily apparent from other sources. The directors do not consider estimates to be material to th e financial statements and therefore have not included a sensitivity analysis. The critical judgements th at co ul d have a significant impact on the results of the Company are set out below and should be read in co n j un cti on with the information provided in the Notes to the financial statements.
The Company recognises a loss allowance for expected credit losses on financial assets that are measured at amortised cost. The amount of expected credit losses is upd ated at each reporting date to reflect ch an g es i n credit risk since initial recognition of the respective financial instrument.
The Company applies the expected credit loss model to assess any loss allowances on financial assets. Th e expected credit losses (ECL) on receivables are estimated by reference to past default experience an d cred i t rating, adjusted for current observable data.
Critical to the determination of ECL is the definition of default. The definition of default is used in measuring th e amount of ECL of whether the loss allowance is based on 12 month or lifetime ECL, as default is a componen t of the probability of default (PD) which affects both the measurement of ECL's and the indication of a significant increase in credit risk.
The Company considers whether the borrower has insufficient liquid assets to repay the loan on demand either in part or in full and whether this constitutes an event of default. This represents a judgement made by the directors.
Financial assets measured at amortised cost include amounts due from Group companies (refer to n o te 7) o f \$33 billion. Within this, amounts considered to have low credit risk totalled \$32 billion and a stage 1 assessment, being the 12 months ECL, has been calculated and showed an unadjusted po tential loss of \$17m. The remaining balance of \$1 billion is deemed to be of high credit risk and a stage 3 assessment, bei n g a lifetime ECL, has been calculated and showed an unadjusted loss of \$1 million. If the ECL increased by 10% this would result in an additional \$3 million unadjusted potential loss.
A loss allowance charge of \$247 million was recognised in the current year income statement in respect o f an amount due from Group undertaking as the borrower was not considered to have sufficient liquid assets to repay the loan on demand. In the prior year, a loss allowance reversal of \$365 million in respect of an amo un t due from Group undertaking was recognised driven by the improved financial position of the borrower.
The Company reports in US dollars, the currency in which its business is primarily conducted (US dollar functional currency).
The Company operates in one business sector and generates all income in the United Kingdom.
For the year ended 31 December 2020
The Company has no employees (2019: none). No directors received any remuneration for their services to the Company (2019: \$nil). All directors remuneration was borne by another Group company, Anglo American Services (UK) Limited. The directors do not believe it is practicable to apportion their total remuneration between their services as the directors of the Company and as directors of fellow group companies.
Operating loss is stated after charging:
| US\$'000 | 2020 | 2019 |
|---|---|---|
| Auditor's remuneration for audit of Anglo American Capital plc Audit fee |
(162) | (20) |
| Management fees | (5,826) | (6,821) |
| (5,988) | (6,841) |
In 2019, a portion of the Company's audit fee was borne by its ultimate parent company and included in the consolidated financial statements of Anglo American plc. The fees were not recharged. Non -audit fees for 2020 and 2019 in relation to other assurance services are borne by the ultimate parent company and included in th e consolidated financial statements of Anglo American plc. No non-audit fees were recharged to the entity in 2020 (2019: \$nil).
| US\$'000 | 2020 | 2019 |
|---|---|---|
| Finance income | ||
| Interest income on cash and cash equivalents | 18,080 | 55,593 |
| Interest income from Group companies | 1,061,879 | 1,530,115 |
| Finance Income | 1,079,959 | 1,585,708 |
| Finance expense | ||
| Interest and other finance expense | (367,458) | (442,101) |
| Interest expense for Group companies | ||
| Anglo American plc | (3,483) | (8,373) |
| Other Group companies | (341,881) | (593,259) |
| Foreign exchange losses | (21,694) | (23,609) |
| Net fair value losses on derivatives and other movements | (7,828) | (12,157) |
| Finance expense | (742,344) | (1,079,499) |
| Net finance income | 337,615 | 506,209 |
Interest income recognised at amortised cost is \$1,062 million (2019: \$1,530 million) and interest exp en se at amortised cost and fair value through profit and loss is \$713 million (2019: \$1,044 million). Interest inco me on cash in 2020 includes \$18 million (2019: \$55 million) recognised at fair value through profit and loss.
Net fair value losses on derivatives presented above, includes a net fair value loss of \$31 million in resp ect o f bond buybacks completed in the year, offset by net gains on derivatives hedging net debt and fai r val ue an d currency movements on the related borrowings of \$23 million (2019: loss of \$6 million) (Refer to note 8).
For the year ended 31 December 2020
| US\$'000 | 2020 | 2019 |
|---|---|---|
| Loss allowance recognised during the year | (246,910) | - |
| Loss allowance reversals recognised during the year | - | 364,998 |
| Net loss allowance (recognised)/reversed | (246,910) | 364,998 |
As one of the Group's main financing entities, the Company provides funding to a large number of other Group companies and assets are comprised of loans receivable from Group undertakings, highly liquid investments in liquidity funds and US Treasury funds (Cash and cash equivalents) and derivative positions (Oth er fi n an cial assets) at 31 December 2020. For the loan receivables from Group companies a review has been conducted to assess the borrower's ability to repay the debts due as at 31 December 2020.
A loss allowance charge of \$247 million was reco gnised in the current year income statement in respect o f an amount due from Group undertaking as the borrower was not considered to have sufficient liquid assets to repay the loan on demand. In the prior year, a loss allowance reversal of \$365 million in respect of an amo un t due from Group undertaking was recognised driven by the improved financial position of the borrower.
| US\$'000 | 2020 | 2019 |
|---|---|---|
| Current and Deferred tax | ||
| Current tax charge on profits for the year | (26,446) | (34,509) |
| Deferred tax credit for the year | 15,783 | 18,440 |
| Total tax charge on profit on ordinary activities | (10,663) | (16,069) |
| US\$'000 | 2020 | 2019 |
|---|---|---|
| Profit on ordinary activities before tax | 84,717 | 864,366 |
| Estimated amount of tax on ordinary activities (calculated at standard rate of corporation tax in the UK of 19% (2019: 19%)) |
(16,096) | (164,230) |
| Effects of: | ||
| Income not taxable | - | 69,350 |
| Expenses not deductible for tax purposes | (46,913) | (1,786) |
| Transfer pricing adjustments | 675 | 1,222 |
| Tax rate changes | (2,365) | - |
| Group and other relief received for nil consideration | 35,889 | 60,935 |
| Deferred withholding tax liability on accrued interest | 18,147 | 18,440 |
| Total tax charge for the year | (10,663) | (16,069) |
On 17th March 2020, a Budget resolution was passed which substantively enacted an increase in the rate of UK corporation tax to 19% from 1 April 2020. Deferred tax has therefore been recogn ised at the 19% rate where appropriate.
For the year ended 31 December 2020
| US\$'000 | 2020 | 2019 |
|---|---|---|
| Amounts due from Joint ventures and Associates - due after one year | 40,200 | 40,200 |
| Amounts due from Joint ventures and Associates - due within one year | 49,930 | 151,220 |
| Amounts due from fellow Group undertakings – due within one year | 32,585,402 | 32,238,553 |
| Accumulated loss allowance (1) | (649,126) | (411,385) |
| Interest receivable | 721 | 4,477 |
| 32,027,127 | 32,023,065 |
(1) Recognised in accumulated loss allowance are amounts relating to foreign exchange gains of \$9 million (2019: loss of \$13 million).
Amounts due from fellow Group undertakings are repayable within 12 months period, unsecured and are entitled to a relevant LIBOR rate plus a margin calculated based on the credit rating of the counterparty and the terms of the current account or loan.
The accumulated loss allowance is recognised against three intercompany loans, which have a gross carryi ng value of \$649 million (2019: \$411 million). The accumulated loss allowance represents the expected life-time credit loss of the receivables. Included in the receivables balance is \$40.2 million (2019: \$40.2 million) due from a joint venture that is due in 2027. As such it is shown as non-current on the balance sheet.
The Company utilises derivative instruments to manage certain market risk exposures however it may ch o o se not to designate certain derivatives as hedges for accounting purposes. Such derivatives are classified as 'Derivatives not designated in hedge relationships' and fair value movements are recorded in the income statement. The use of derivative instruments is subject to limits and the positions are regularly monitored an d reported to senior management.
Interest rate swaps taken out to swap the Company's majority of fixed rate borrowings to floating rate (in accordance with the Group's policy) have been designated as fair value hedges. The carrying value of the hedged debt is adjusted at each balance sheet date to reflect the impact on its fair value of changes in market interest rates. At 31 December 2020, this adjustment was to increase the carrying value of borrowings by \$458 million (2019: \$264 million increase). Changes in the fair value of the hedged debt are offset against fai r val ue changes in the interest rate swap and recognised in the income statement. Recognised in the income statement is a loss on fair value hedged items of \$194 mil lion (2019: \$234 million loss), offset by a gain on fai r value hedging instruments of \$188 million (2019: \$236 million gain).
The Company may choose not to designate certain derivatives as hedges. This may occur where the Company is economically hedged but IFRS 9 hedge accounting cannot be achieved or where gai ns and losses o n bo th the derivative and hedged item naturally offset in the income statement, as is the case for certain cross currency swaps of non-US dollar debt. A fair value gain of \$462 million in respect of these cross currency swaps has been recognised in the income statement (2019: loss of \$56 million) and is presented net of foreig n exchange losses on the related borrowings of \$435 million (2019: \$43 million gain). Fair value changes on held for trading derivatives are recognised in the income statement.
Refer to note 1 for the Company's accounting policies on derivative financial ins truments and hedge accounting.
For the year ended 31 December 2020
The fair values of the open derivative positions as at 31 December 2020 are as follows:
| US\$'000 | Asset | Liability |
|---|---|---|
| Current | ||
| Fair value hedge(1) | ||
| Interest rate swaps | 7,876 | - |
| Derivatives not designated in hedge relationships (2) | ||
| Cross currency swaps | - | (18,708) |
| Foreign currency forwards | 1,015 | (20,883) |
| Total current derivatives | 8,891 | (39,591) |
| Non-current | ||
| Fair value hedge(1) | ||
| Interest rate swaps | 561,853 | (26,318) |
| Derivatives not designated in hedge relationships (2) | ||
| Cross currency swaps(3) | 74,315 | (165,494) |
(1) Recognised in the income statement is a loss on fair value hedged items of \$194 million, offset by a gain on fair value hedging instruments of \$188 million.
(2) Recognised in the income statement is a net \$1 million loss relating to derivatives held at fair value through profit and lo ss and the impact of bond buybacks in the year.
(3) Included within the fair value of the derivative assets and liabilities above is the credit and debit valu a tio n a d ju stmen ts recorded to reflect in the fair value of financial assets and liabilities the effect of our counterparty's credit quality a n d An glo American's own credit quality respectively based on observed credit spreads. These adjustments are calculated in to ta l fo r each counterparty based on the net expected exposure. In many cases this includes exposures on a n u mb e r o f d iffe re n t types of derivative instruments. As at 31 December 2020 the credit valuation adjustment was \$3 million.
For the year ended 31 December 2020
The fair values of the open derivative positions as at 31 December 2019 were as follows:
| US\$'000 | Asset | Liability |
|---|---|---|
| Current | ||
| Fair value hedge(1) | ||
| Interest rate swaps | 7,057 | |
| Derivatives not designated in hedge relationships (2) | - | |
| Cross currency swaps | 1,822 | (65,848) |
| Foreign currency forwards | 5,776 | (19,189) |
| Total current derivatives | 14,655 | (85,037) |
| Non-current | ||
| Fair value hedge(1) | ||
| Interest rate swaps | 345,747 | |
| Derivatives not designated in hedge relationships (2) | - | |
| Cross currency swaps(3) | - | (519,826) |
(1) Recognised in the income statement was a loss on fair value hedged items of \$234 million, offset by a gain on fa ir va lu e hedging instruments of \$236 million.
(2) Recognised in the income statement was a net \$14 million loss relating to derivatives held at fair value through pro fit a n d loss.
(3) Included within the fair value of the derivative assets and liabilities above is the cred it and debit valuation adjustments recorded to reflect in the fair value of financial assets and liabilities the effect of our counterparty's credit quality a n d An glo American's own credit quality respectively based on observed credit spreads. These adjustments are calculated in to ta l fo r each counterparty based on the net expected exposure. In many cases this includes exposures on a n u mb e r o f d iffe re n t types of derivative instruments. As at 31 December 2019 the debit valuation adjustment was \$1 million.
For the year ended 31 December 2020
For financial assets and liabilities which are traded on an active market, fair value is determined by reference to market value. For non-traded financial assets and liabilities, fair value is calculated using discounted cash flows, considered to be reasonable and consistent with those that would be used by a market participan t, an d based on observable market data where available (for example forward exchange or interest rate curve), unless carrying value is considered to approximate fair value.
The values of financial instruments for the year ended 31 December 2020 are as follows:
| US\$'000 | At fair value through profit and loss |
Financial assets at amortised cost |
Designated into hedges |
Financial liabilities at amortised cost |
Total |
|---|---|---|---|---|---|
| Financial assets | |||||
| Derivative financial assets | 75,330 | - | 569,729 | - | 645,059 |
| Receivables | 721 | 32,026,406 | - | - | 32,027,127 |
| Cash and cash equivalents | 5,252,418 | 19,335 | - | - | 5,271,753 |
| 5,328,469 | 32,045,741 | 569,729 | - | 37,943,939 | |
| Financial liabilities | |||||
| Derivative financial liabilities | (205,085) | - | (26,318) | - | (231,403) |
| Borrowings | - | - | (8,908,432) | (21,765,080) | (30,673,512) |
| Other creditors | - | - | - | (6,588) | (6,588) |
| (205,085) | - | (8,934,750) | (21,771,668) | (30,911,503) | |
| Net financial assets/(liabilities) | 5,123,384 | 32,045,741 | (8,365,021) | (21,771,668) | 7,032,436 |
The values of financial instruments for the year ended 31 December 2019 were as follows:
| US\$'000 | At fair value through profit and loss |
Financial assets at amortised cost |
Designated into hedges |
Financial liabilities at amortised cost |
Total |
|---|---|---|---|---|---|
| Financial assets | |||||
| Derivative financial assets | 7,598 | - | 352,804 | - | 360,402 |
| Receivables | 4,477 | 32,018,588 | - | - | 32,023,065 |
| Cash and cash equivalents | 3,564,487 | 185,092 | - | - | 3,749,579 |
| 3,576,562 | 32,203,680 | 352,804 | - | 36,133,046 | |
| Financial liabilities | |||||
| Derivative financial liabilities | (604,863) | - | - | - | (604,863) |
| Borrowings | - | - | (9,270,329) | (19,276,991) | (28,547,320) |
| Other creditors | - | - | - | (6,698) | (6,698) |
| (604,863) | - | (9,270,329) | (19,283,689) | (29,158,881) | |
| Net financial assets/(liabilities) | 2,971,699 | 32,203,680 | (8,917,525) | (19,283,689) | 6,974,165 |
For the year ended 31 December 2020
Cash and cash equivalents includes cash held in the Company bank accounts and cash equi val ents h el d i n short-term Liqudity and Treasury funds. These funds are selected to ensure compliance with the minimum credit rating requirements and counterparty expo sure limits set out in the Company's Treasury policy.
The fair values of financial assets and financial liabilities are determined as follows:
The Group offsets financial assets and liabilities and presents them on a net basis in the Consolidated balance sheet only where there is a legally enforceable right to offset the recognised amounts, and the Group i n tend s to either settle the recognised amounts on a net basis or to realise the asset and settle the liability simultaneously.
At 31 December 2020, no over-the-counter derivatives entered into by the Company and recognised at fair value through profit and loss meet the requirements of IAS 32 Financial Instruments: Presentation, and therefore the gross carrying amounts equate to the net amount presented in the statement of financial position.
If certain credit events (such as default) were to occur additional derivative instruments would be settl ed o n a net basis under ISDA agreements. Interest rate and cross currency interest rate swaps in a liability position totalling \$210 million (2019: \$334 million asset position) would be offset against those in an asset position totalling \$645 million (2019: \$600 million liability position). In addition, certain intercompany loans are also subject to netting arrangement in certain credit events. Intercompany balance in an asset position totalling \$882 million (2019 \$494 million) would be offset against those in liability position totalling \$19,749 million (2019: \$19,277 million). These are however presented on a gross basis in the balance sheet as the Comp an y does not have a legally enforceable right to offset the amounts in the absence of a credit event occurring.
For the year ended 31 December 2020
The Board approves and monitors the risk management processes, including documented treasury p o l i ci es, counterparty limits and controlling and reporting structures. The types of risk exposure, the way in which such exposure is managed and quantification of the level of expo sure in the balance sheet at 31 December 2020 i s as follows:
The Company ensures that there are sufficient committed loan facilities (including refinancing, where necessary) in order to meet short-term business requirements, after taking into account its cash and cash equivalents.
The expected undiscounted cash flows of the Company's debt related and other financial liabilities, by remaining contractual maturity, based on conditions existing at the balance sheet date, are as follows:
| US\$'000 | Within 1 year or on demand |
Between 1-2 years |
Between 2-3 years |
Between 3-4 years |
Between 4-5 years |
After 5 years |
Total |
|---|---|---|---|---|---|---|---|
| At 31 December 2020 | |||||||
| Borrowings | (488,470) | (892,305) | (921,810) | (650,000) | (2,137,488) | (5,274,325) | (10,364,398) |
| Borrowings from Group companies (1) | (19,749,396) | - | - | - | - | - | (19,749,396) |
| Expected future interest payments | (382,857) | (371,488) | (338,009) | (308,050) | (248,487) | (1,055,151) | (2,704,042) |
| Derivatives hedging debt – net settled | 1,596 | 3,046 | 3,235 | 3,172 | 3,172 | 21,551 | 35,772 |
| Derivatives hedging debt – gross settled | |||||||
| - Gross inflows |
993,049 | 545,214 | 927,640 | - | - | - | 2,465,903 |
| - Gross outflows |
(1,050,232) | (599,267) | (1,044,549) | - | - | - | (2,694,048) |
| Other financial liabilities | - | - | - | - | - | (79) | (79) |
| Total | (20,676,310) | (1,314,800) | (1,373,493) | (954,878) | (2,382,803) | (6,308,004) | (33,010,288) |
| US\$'000 | Within 1 year or on demand |
Between 1-2 years |
Between 2-3 years |
Between 3-4 years |
Between 4-5 years |
After 5 years |
Total |
| At 31 December 2019 (2) | |||||||
| Borrowings | (469,976) | (923,648) | (1,740,975) | (840,975) | (650,000) | (4,277,699) | (8,903,273) |
| Borrowings from Group companies (1) | (19,276,912) | - | - | - | - | - | (19,276,912) |
| Expected future interest payments | (312,457) | (290,769) | (264,241) | (204,432) | (177,100) | (375,030) | (1,624,029) |
| Derivatives hedging debt – net settled | (3,787) | - | - | - | - | - | (3,787) |
| Derivatives hedging debt – gross settled | |||||||
| - Gross inflows |
1,031,001 | 467,516 | 876,917 | 869,513 | 23,047 | 1,688,240 | 4,956,234 |
| - Gross outflows |
(1,230,858) | (644,354) | (1,106,969) | (1,117,507) | (63,621) | (1,788,478) | (5,951,787) |
| Other financial liabilities | - | - | - | - | - | (79) | (79) |
(1) Where there are non US dollar denominated borrowings from Group companies, foreign currency forwards a re e n te r ed into to reduce the currency risk. The foreign currency forward derivative liability balance at 31 December 2020 is \$ 21 millio n (2019: \$19 million), all are due to mature with in one year.
(2) Restated to disclose the inflows and outflows on derivatives hedging net debt separately.
For the year ended 31 December 2020
On 10 February 2020, the Company extended the maturity of \$4.3 billion of its revolving credit facility by one year to March 2025 and \$0.2 billion of its revolving credit facility by two years to March 2025. The Company also extended the maturity of a \$0.2 billion bilateral facility by one year to March 2025.
In April 2020, the Company signed a new \$2.0 billion revolving credit facility with an initial maturity date of Apri l 2021. The Company has, at its sole discretion, two options to extend the facility for a further six months to October 2021 and April 2022.
There were no outstanding amounts drawn under these committed facilities as at 31 December 2020 (2019: \$Nil).
Credit risk is the risk that a counterparty to a financial instrument will cause a loss to the Company by failing to pay its obligation.
The Company's principal financial assets are cash and cash equivalents, receivables and derivative fi n an ci al instruments. The Group's maximum exposure to credit risk primarily arises from these financial assets an d i s as follows:
| US\$'000 | 2020 | 2019 |
|---|---|---|
| Cash and cash equivalents | 5,271,753 | 3,749,579 |
| Receivables | 32,027,127 | 32,023,065 |
| Derivative financial assets | 645,059 | 360,402 |
| Total | 37,943,939 | 36,133,046 |
The Company limits credit risk on liquid funds and derivative financial instruments through d iversifi cati o n o f exposures with a range of financial institutions approved by the Board. Counterparty limits are set for each financial institution with reference to credit ratings assigned by Standard & Poor's, Moody's and Fitch Rati n g s, shareholder equity (in case of relationship banks) and fund size (in case of asset managers).
Interest rate risk arises due to fluctuations in interest rates which impact on the value of short-term investments and financing activities. The Company's policy is to borrow funds at fixed rates of interest. The Company uses interest rate contracts to convert the majority of borrowings to floating rates of interest, and manage its exposure to interest rate movements on its debt, given the link with economic output and therefore the correlation over the longer term with commodity prices.
In respect of financial assets, the Company's policy is to invest cash at floating rates of interest and to maintain cash reserves in short-term investments to maintain liquidity. Various inter-bank offer rates (IBOR) are expected to be replaced by alternative risk-free rates by the end of 2021 as part of the IBOR reform. The Company is managing the transition to alternative risk-free rates with respect to its hedging arrangements an d any future transactions in the financial market.
For the year ended 31 December 2020
The exposure of the Company to interest rate and currency risk is in respect of financial assets as follows:
| US\$'000 | 2020 | 2019 |
|---|---|---|
| Cash and cash equivalents - US dollar | 5,241,969 | 3,744,135 |
| Cash and cash equivalents - Sterling | 29,784 | 5,444 |
| Total (excluding derivatives) | 5,271,753 | 3,749,579 |
| Derivatives | 645,059 | 360,402 |
| Total financial assets (excluding receivables) | 5,916,812 | 4,109,981 |
The effect of derivatives used to hedge interest and currency risk is as follows. The table shows the carrying value of external borrowings together with the fair value at the balance sheet date of the associated swaps; the maturity of which is analysed to match the maturity of the underlying bonds:
| US\$'000 | Within 1 year or on demand |
Between 1-2 years |
Between 2-5 years |
After 5 years |
Total |
|---|---|---|---|---|---|
| At 31 December 2020 | |||||
| Total borrowings (1) | (604,996) | (920,427) | (3,121,197) | (4,261,812) | (8,908,432) |
| Interest rate swaps | 7,876 | 45,230 | 194,142 | 296,163 | 543,411 |
| Currency derivatives | (21,572) | (44,335) | (110,559) | 66,579 | (109,887) |
| Total hedged borrowings | (618,692) | (919,532) | (3,037,614) | (3,899,070) | (8,474,908) |
| At 31 December 2019 | |||||
| Total borrowings | (598,289) | (934,445) | (3,332,999) | (4,404,675) | (9,270,408) |
| Interest rate swaps | 7,057 | 17,501 | 155,959 | 172,287 | 352,804 |
| Currency derivatives | (64,026) | (74,426) | (375,748) | (69,652) | (583,852) |
| Total hedged borrowings | (655,258) | (991,370) | (3,552,788) | (4,302,040) | (9,501,456) |
(1) Exclude an amount of \$2,015 million (2019: \$Nil million) of borrowings held at fixed rate.
For the year ended 31 December 2020
The Company uses cross currency interest rate swaps to swap foreign currency debt issues to US dollar. Th e exposure of the Company to interest rate and currency risk with respect to financial liabilities is as follows:
| US\$'000 | Total | Floating rate borrowings |
Fixed rate borrowings |
Effective interest rate % |
Weighted average for which rate is fixed in years |
|---|---|---|---|---|---|
| At 31 December 2020 | |||||
| US dollar | (7,202,007) | - | (7,202,007) | 4.32 | 7.78 |
| Sterling | (448,845) | - | (448,845) | 3.38 | 8.20 |
| Euro | (3,273,185) | - | (3,273,185) | 2.52 | 3.06 |
| Gross borrowings(1) (excluding hedges) |
(10,924,037) | - | (10,924,037) | 3.74 | 6.39 |
| Impact of Interest Rate Swaps(2) | - | (8,908,432) | 8,908,432 | ||
| Gross borrowings (after hedges) |
(10,924,037) | (8,908,432) | (2,015,605) | ||
| Borrowings from Group companies & Other creditors |
(19,749,475) | ||||
| Total Borrowings | (30,673,512) | ||||
| Derivatives | (231,402) | ||||
| Total financial liabilities | (30,904,914) |
| US\$'000 | Total | Floating rate borrowings |
Fixed rate borrowings |
Effective interest rate % |
Weighted average for which rate is fixed in years |
|---|---|---|---|---|---|
| At 31 December 2019 | |||||
| US dollar | (4,846,151) | - | (4,846,151) | 4.27 | 5.35 |
| Sterling | (410,844) | - | (410,844) | 3.38 | 9.20 |
| Euro | (4,013,413) | - | (4,013,413) | 2.61 | 3.36 |
| Gross borrowings (excluding hedges) |
(9,270,408) | - | (9,270,408) | 3.51 | 4.66 |
| Impact of Interest Rate Swaps(2) | - | (9,270,408) | 9,270,408 | ||
| Gross borrowings (after hedges) |
(9,270,408) | (9,270,408) | - | ||
| Borrowings from Group companies & Other creditors |
(19,276,912) | ||||
| Total Borrowings | (28,547,320) | ||||
| Derivatives | (604,863) | ||||
| Total financial liabilities | (29,152,183) |
For the year ended 31 December 2020
(1) At 31 December 2020 the following bonds were retained as fixed rate exposures; US\$750 million 5.375% due Ap r 2 0 25 , US\$750 million 5.625% due Apr 2030 and US\$500 million 3.95% due Sep 2050. At 31 December 2019, all bonds were swapped to floating rate USD exposures.
(2) Included within the hedging instrument is a notional balance of \$8,364 million (2019: 8,903 million) impacted by Interest Rate Benchmark Reform amendments.
Amounts payable to fellow Group undertakings are repayable within 12 months, unsecured and are entitl ed to a relevant LIBOR rate including a margin based on the weighted average of the Group's return on cash investments.
Based on the net foreign currency and interest rate risk exposures detailed above, and considering the effects of the hedging arrangements in place, management considers that earnings and equity are n ot materially sensitive to reasonable foreign exchange or interest rate movements in respect of the financial instruments held as at 31 December 2020 or 31 December 2019.
| US\$'000 | 2020 | 2019 |
|---|---|---|
| Opening balance | (20,105) | (38,545) |
| Movement in profit in current year | 15,783 | 18,440 |
| Closing balance | (4,322) | (20,105) |
The entire deferred tax liability of \$4 million (2019: \$20 million liability) relates to withholding tax on accrued interest arising on an intercompany loan.
| US\$'000 | 2020 | 2019 |
|---|---|---|
| Authorised: 50,000 3% cumulative preference shares of £1 each |
79 | 79 |
| Called up, allotted and fully paid: 50,000 3% cumulative preference shares of £1 each |
79 | 79 |
The 3% preference shares of £1 each entitle the holders to receive a cumulative preferential dividend at the rate of 3% per annum, on the paid-up capital. On a return of capital on winding up, the holders o f p referen ce shares have the right to the repayment of a sum equal to the nominal capital and any premiums p aid up or credited as paid up on the preference shares held by them, and accruals, if any, of the preferential dividend whether accrued or not up to the date of commencement of winding up.
For the year ended 31 December 2020
| US\$'000 | 2020 | 2019 |
|---|---|---|
| Authorised: | ||
| 1,000,000,000 ordinary shares of US\$1 each | 1,000,000 | 1,000,000 |
| 1,000,000 | 1,000,000 | |
| Called up, allotted and fully paid: | ||
| 5,700 ordinary shares of US\$1 each | 6 | 6 |
| 6 | 6 | |
At 31 December 2020, as identified in note 15, Anglo American plc is the Company's ultimate parent company. The Company has taken advantage of the exemption granted by Financial Reporting Standard 101 not to disclose transactions or balances between entities where 100% of the voting rights are co ntrolled by the Group.
The Company has granted loans to LLX Minas-Rio Logistica Comercial Exportadora S.A. (Joint Ven ture) an d Cerrejon Zona Norte S.A. (Associate) which had balances owing to the Company at 31 December 2020 of \$90 million (2019: \$191 million) and related interest income for the year ended 31 December 2020 of \$6 million (2019: \$15 million). There is no loss allowance recognised against these loans.
Additional information is included in Note 36 Related party transactions of the Group co n so li dated fi n ancial statements.
The immediate and ultimate parent company and controlling entity is Anglo American plc, a company incorporated in the United Kingdom and registered in England and Wales.
Anglo American plc is head of the largest and smallest group of undertakings of which the Company is a member and for which consolidated financial statements are prepared.
Copies of the consolidated financial statements of Anglo American plc, which include the results of the Company, are available from Anglo American plc at 20 Carlton House Terrace, London SW1Y 5AN and on th e Group website.
There are no subsequent events.
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