Financial review

Salient features

Material matters affecting the financial performance

Restructuring of ARM BBEE Trust

During F2021, ARM and Harmony Gold Mining Company Limited (Harmony) (together the lenders) negotiated new loan agreements with the ARM BBEE Trust (Trust) which resulted in the restructuring of the previous interest- bearing loans.

Proceeds from the new loans were used as full and final settlement of the old loans. The new loans are interest free and are fully repayable on or before 30 June 2035. The lenders reserve the right to charge interest in the future.

Included in headline earnings, is a fair value gain of R47 million on the new loan advanced to the ARM BBEE Trust by Harmony.

Refer to note 29 in the annual financial statements.

Resolution of ARM Coal receivable

ARM Coal is an entity jointly controlled by ARM Limited (51%) and Glencore Operations South Africa Proprietary Limited (GOSA) (49%). At the date of the previous report (30 June 2020), ARM Coal had recorded an amount payable by GOSA to ARM Coal of R452 million (ARM's attributable portion: R230 million) as a long-term receivable. ARM Coal was unable to provide sufficient evidence to validate this receivable in its accounting records.

ARM has completed the investigation, the results of which concluded that all the items included in the ARM Coal long-term receivable were indeed receivables, however, R283 million should have been classified as trade and other receivables and R53 million should have been included in the long-term borrowings rather than being accounted for as long-term receivables in the statement of financial position.

Management accounted for it as a prior period error in terms of IAS 8, which necessitated the restatement of the prior period.

Impairment of ARM Ferrous assets

At 30 June 2021, impairment losses totaling R857 million (after tax) were recognised by Assmang Proprietary Limited (Assmang). ARM's attributable share of the impairment losses amounts to R428 million and is as follows:

• Assmang equity investment in Sakura Ferroalloys of R169 million (with no tax effect)
• Fixed assets of Cato Ridge Works of R185 million (after tax)
• Exploration assets in Tshenolo Mining Company that were aimed at increasing the Beeshoek Mine life-of-mine of R26 million (with no tax effect)
• Assmang equity investment in Cato Ridge Alloys of R48 million (with no tax effect).

The impairment losses were recognised directly in the Assmang joint venture. The impairments were largely a combination of declining long-term commodity prices, strengthening of the rand against the US dollar and lower sales volumes.

Financial performance

ARM is pleased to report record headline earnings of R13 064 million in F2021, a 136% increase compared

Refer to note 29 in the annual financial statements.

to the F2020 headline earnings of R5 534 million. Our diversified portfolio of commodities again stood us in good stead as significantly higher US dollar prices for PGMs and iron ore more than offset the negative impact of a stronger rand against the US dollar. Increased US dollar prices were further augmented by higher sales volumes delivered for iron ore, manganese ore and PGMs.

The average realised rand strengthened by 1.8% versus the US dollar to R15.39/US$ compared to R15.68//US$ in F2020. For reporting purposes, the closing exchange rate was R14.27/US$ (30 June 2020: R17.36/US$).

*

Adjusted headline earnings exclude re-measurement and fair value gains and losses as summarised in note 29 to the financial statements. The adjusted headline earnings are included for illustrative purposes and are the responsibility of the board of directors. They should be considered in addition to, and not as a substitute for, or superior to, measures of financial performance, financial position or cash flows reported in line with IFRS.

GROUP STATEMENT OF PROFIT OR LOSS

for the year ended 30 June 2021

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	F2021 Rm	F2020 Rm
Revenue	21 457	12 386
Sales	19 657	11 653	Impact of higher realised US dollar PGM prices, particularly rhodium.
Cost of sales	(7 900)	(7 492)
Gross profit	11 757	4 161
Other operating income	2 378	1 160	Year-on-year movement mainly due to higher management fee received from Assmang following revised fee arrangements.
Other operating expenses	(2 717)	(2 050)
Profit from operations before capital items	11 418	3 271
Income from investments	487	446
Finance costs	(329)	(397)
(Loss)/income from associate	(260)	33	Year-on-year movement due to lower coal sales volumes, partially offset by re-measurement gains on loans.
Income from joint venture	7 498	4 450	F2021 includes attributable impairments of R185 million on property, plant and equipment of Cato Ridge Works, R169 million on the investment in Sakura, R48 million on the investment in Cato Ridge Alloys and R26 million on exploration assets.
Profit before taxation and capital items	18 814	7 803
Capital items before tax	(9)	(1 693)
Profit before taxation	18 805	6 110
Taxation	(3 333)	(1 076)
Profit for the year	15 472	5 034
Attributable to:
Equity holders of ARM
Profit for the year	12 626	3 965
Basic earnings for the year	12 626	3 965
Non-controlling interest
Profit for the year	2 846	1 069	Year-on-year movement due to increase in profit attributable to minority shareholders at Two Rivers and Modikwa mines.
	2 846	1 069
Profit for the year	15 472	5 034
Earnings per share
Basic earnings per share (cents)	6 464	2 042
Diluted basic earnings per share (cents)	6 399	2 011

Financial position

At 30 June 2021, ARM’s net cash was R8 202 million (30 June 2020: R3 737 million restated), an improvement of R4 465 million.

This amount excludes attributable cash and cash equivalents held at ARM Ferrous (50% of Assmang) of R4 099 million (F2020: R3 208 million). There was no debt at ARM Ferrous in either of these reporting periods.

GROUP STATEMENT OF FINANCIAL POSITION

at 30 June 2021

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	30 June 2021 Rm	Restated 30 June 2020 Rm
ASSETS
Non-current assets
Property, plant and equipment	8 244	7 211
Investment properties	24	24
Intangible assets	76	83
Deferred tax assets	274	–
Loans and long-term receivables	40	48	F2020 long-term receivables were restated due to reclassification of the ARM Coal long-term receivable.
Non-current financial asset	193	230
Investment in associate	534	795	Year-on-year movement due to loss for the year recognised at PCB operations in F2021.
Investment in joint venture	20 938	17 545
Other investments	4 210	5 635	Year-on-year movement mainly due to revaluation of the Harmony investment.
	34 533	31 571
Current assets
Inventories	467	568
Trade and other receivables	7 825	3 306	Year-on-year movement due to higher revenue and resulting receivables at Two Rivers and Modikwa mines.
Taxation	70	132
Financial assets	523	1 309	Year-on-year movement due to net transfer of financial assets to cash and cash equivalents upon maturity.
Cash and cash equivalents	9 671	5 715
	18 556	11 030
Total assets	53 089	42 601
EQUITY AND LIABILITIES
Capital and reserves
Ordinary share capital	11	11
Share premium	5 212	4 950
Treasury shares	(2 405)	(2 405)
Other reserves	2 915	4 367	Year-on-year movement mainly due to revaluation of the Harmony investment.
Retained earnings	34 461	25 157
Equity attributable to equity holders of ARM	40 194	32 080
Non-controlling interest	3 582	2 028
Total equity	43 776	34 108
Non-current liabilities
Long-term borrowings	1 105	1 565	Post-restructuring, the ARM BBEE Trust loan from Harmony is interest free and the repayment date is extended to 30 June 2035. Harmony reserves the right to charge interest in the future.
Deferred tax liabilities	2 968	2 085
Long-term provisions	1 883	1 953
	5 956	5 603
Current liabilities
Trade and other payables	1 940	1 637
Short-term provisions	898	737
Taxation	155	103
Overdrafts and short-term borrowings
– interest bearing	57	413
– non-interest bearing	307	–
	3 357	2 890
Total equity and liabilities	53 089	42 601

Cash flow analysis

Cash generated from operations increased by R3 936 million to R7 802 million (F2020: R3 866 million) after a R5 305 million increase in working capital requirements (F2020: R1 189 million). This was mainly due to the increase in trade and other receivables, which in turn was due to higher revenue in the reporting period.

Dividends received by ARM Corporate from Modikwa, Two Rivers and Assmang amounted to R289 million, R1 431 million and R4 000 million, respectively (F2020: Rnil from Modikwa, R664 million from Two Rivers and R3 750 million from Assmang). The dividends received from Modikwa and Two Rivers are eliminated on consolidation.

A dividend of R82 million was received from Harmony (F2020: Rnil).

In F2021, R3 322 million in dividends was paid to ARM shareholders (representing the F2020 final dividend of R7.00 per share and the 1H F2021 interim dividend of R10.00 per share) (F2020: R2 717 million was paid representing the F2019 final dividend of R9.00 per share and the 1H F2020 interim dividend of R5.00 per share). Net cash outflow from investing activities was R838 million (F2020: R2 343 million outflow) and includes a net transfer from investments in financial assets of R816 million (F2020: R1 539million transfer to investments in financial assets).

Borrowings of R264 million were raised and borrowings of R648 million (F2020: R264 million) were repaid during the period, resulting in gross debt of R1 469 million at 30 June 2021 (30 June 2020: R1 978 million restated). Modikwa Mine fully repaid its partner loans in F2021.

GROUP STATEMENT OF CASH FLOWS

for the year ended 30 June 2021

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	F2021 Rm	F2020 Rm
CASH FLOW FROM OPERATING ACTIVITIES
Cash receipts from customers	17 189	12 499
Cash paid to suppliers and employees	(9 387)	(8 633)
Cash generated from operations	7 802	3 866
Interest received	358	373
Interest paid	(45)	(79)
Taxation paid	(2 291)	(800)
	5 824	3 360
Dividends received from joint venture	4 000	3 750	Impact of higher realised US dollar PGM prices, particularly rhodium.
Dividends received from investments – Harmony	82	–
Dividends received from other	–	2
Dividend paid to non-controlling interest –
Impala Platinum	(1 219)	(566)
Dividend paid to shareholders	(3 322)	(2 717)	F2021 interim dividend of R1 958 million and F2020 final dividend of R1 364 million.
Net cash inflow from operating activities	5 365	3 829
CASH FLOW FROM INVESTING ACTIVITIES
Additions to property, plant and equipment
to maintain operations	(1 224)	(651)
Additions to property, plant and equipment
to expand operations	(433)	(154)	Relates mainly to new tailings dam and plant expansion at Two Rivers Mine.
Proceeds on disposal of property, plant and
equipment	3	1
Investments in financial assets	(308)	(1 539)
Proceeds from financial assets matured	1 124	–
Net cash outflow from investing activities	(838)	(2 343)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from exercise of share options	44	4
Share buy-back	–	(57)	622 843 shares bought back at an average price of R90.86 per share in F2020.
Long-term borrowings raised	264	–	Relates mainly to the new interest free loan advanced to ARM BBEE Trust by Harmony, the proceeds of which were used to settle the old loan. Harmony reserves the right to charge interest in the future.
Long-term borrowings repaid	(461)	(216)	Relates to settling of old ARM BBEE Trust loan owing to Harmony and settling of Modikwa partner loan.
Short-term borrowings raised	–	43
Short-term borrowings repaid	(187)	(48)
Net cash outflow from financing activities	(340)	(274)
Net increase in cash and cash equivalents	4 187	1 212
Cash and cash equivalents at beginning of year	5 512	4 239
Foreign currency translation on cash balance	(44)	61
Cash and cash equivalents at end of year	9 655	5 512
Made up as follows:
– Available	8 849	4 767
– Cash set aside for specific use	806	745
	9 655	5 512
Overdrafts	16	203
Cash and cash equivalents per statement of financial position	9 671	5 715
Cash generated from operations per share (cents)	3 994	1 991

Dividend guiding principles and declaration

In line with the board-approved dividend guiding principle, ARM aims to pay ordinary dividends to shareholders equal to approximately 40 to 70% of annual dividends received from its group companies.

Dividends remain at the discretion of the board of directors which considers the company's capital allocation guiding principles as well as other relevant factors such as financial performance, commodities outlook, investment opportunities, gearing levels as well as solvency and liquidity requirements of the Companies Act.

ARM aims to pay an interim and final dividend. The weighting between the interim and final dividend is likely to result in the final dividend being higher than the interim dividend. ARM does not borrow funds to pay dividends.

For F2021, the board has approved and declared a final dividend of 2 000 cents per share (gross) (F2020: 700 cents per share). The amount to be paid is approximately R4 489 million.

Capital allocation (on a segmental basis)

¹ Allocation of capital on a segmental basis, including ARM Ferrous.
² Includes only dividends paid to ARM shareholders.

Funds allocated to investing in existing business

Segmental capital expenditure was R4 105 million (F2020: R3 506 million) and included R426 million of capitalised waste stripping at the iron ore operations (F2020: R394 million). Capital expenditure for the divisions is shown below and discussed in each division's operational performance review.

CAPITAL EXPENDITURE BY OPERATION/DIVISION (ATTRIBUTABLE BASIS)

	F2021 Rm	F2020 Rm	% change
ARM Ferrous	2 221	2 173	2
Iron ore division	1 198	1 111	8
Manganese division	1 124	1 157	(3)
Consolidation adjustment	(101)	(95)	(6)
ARM Platinum	1 611	1 132	42
Two Rivers Mine	1 281	813	58
Modikwa Mine	330	319	3
Nkomati Mine	–	–
ARM Coal (Goedgevonden Mine)	263	197	33
ARM Corporate	10	4	150
Total	4 105	3 506	17

Net cash outflow from investing activities was R838 million (F2020: R2 343 million) and included a net transfer from investments in financial assets of R816 million now matured and reported as cash and cash equivalents (F2020: R1 539 million transfer to investments in financial assets).

The consolidated ARM total assets of R53 billion (F2020: R43 billion) include ARM's investment in Harmony which was R3 940 million as at 30 June 2021 (30 June 2020: R5 366 million). Harmony's share price was R52.76 per share at 30 June 2021 (30 June 2020: R71.86 per share).

Funds allocated to debt repayment

Borrowings of R264 million were raised and borrowings of R648 million (F2020: R264 million) were repaid in the period, reducing gross debt to R1 469 million (30 June 2020: R1 978 million restated).

There was no debt at ARM Ferrous in either of the reporting periods.

Funds allocated to dividend payments

A final dividend of 2 000 cents per share was declared for F2021 in addition to an interim dividend of 1 000 cents per share paid in April 2021, bringing the cumulative dividend for F2021 to 3 000 cents per share.

Dividends paid to ARM shareholders in F2021 include R1 364 million in October 2020 as a final dividend for F2020 and R1 958 million in April 2021 as an interim dividend for F2021, bringing the total dividend paid in F2021 to R3 322 million.

Events after reporting date

Subsequent to year end, ARM received a dividend from Assmang of R3 500 million.

Harmony declared a final dividend of 27 cents per share, bringing their total dividend for F2021 to 137 cents per share. At 30 June 2021 and at the date of this report, ARM owned 74 665 545 Harmony shares.

ARM declared a dividend of R20.00 per share.

The ARM Corporate Revolving Credit Facility was extended subsequent to year end and is available until September 2022 (refer note 11 and 18).

Please refer to events after reporting date included on here on the directors' report.

No other significant events have occurred subsequent to the reporting date that could materially affect the reported results.

Tsundzukani Mhlanga

Finance director