The consolidated financial statements of AMG Advanced Metallurgical Group N.V. (herein referred to as \u201cthe Company\u201d, \u201cAMG NV\u201d or \u201cAMG\u201d) for the year ended December 31, 2022, were authorized for issuance in accordance with a resolution of the Supervisory Board on March 15, 2023.
AMG is domiciled in the Netherlands. The address of the Company\u2019s registered office is WTC Amsterdam, Toren C, Strawinskylaan 1343, 1077 XX Amsterdam. The consolidated financial statements of the Company as of and for the year ended December 31, 2022, comprise the Company and the companies that comprise its subsidiaries (together referred to as the \u201cGroup\u201d) and the Company\u2019s interest in associates and jointly controlled entities.
AMG was incorporated in the Netherlands as a public limited liability company and its outstanding shares are listed on Euronext, Amsterdam, the Netherlands.
No entities in which the Company has less than a 50% interest are consolidated in the Company\u2019s financial statements.
The following table includes all material operating entities in which AMG has an ownership interest. The Company has filed on March 15, 2023 a complete list of entities in which AMG has an ownership interest with the Amsterdam Chamber of Commerce.\u00a0 Additionally, this list can be found on AMG's website.
Percentage held (directly or indirectly) by the Company | |||
Name | Country of incorporation | December 31, 2022 | December 31, 2021 |
ALD Thermal Treatment, Inc. | United States | 100 | 100 |
ALD Tratamientos Termicos S.A. de C.V. | Mexico | 100 | 100 |
ALD Vacuum Technologies GmbH | Germany | 100 | 100 |
AMG Aluminum UK Limited | United Kingdom | 100 | 100 |
AMG Brazil S.A. | Brazil | 100 | 100 |
AMG Vanadium LLC | United States | 100 | 100 |
GfE Gesellschaft f\u00fcr Elektrometallurgie GmbH | Germany | 100 | 100 |
GfE Metalle und Materialien GmbH | Germany | 100 | 100 |
Graphit Kropfm\u00fchl GmbH | Germany | 60 | 60 |
AMG Aluminum North America, LLC | United States | 100 | 100 |
AMG Chrome Limited | United Kingdom | 100 | 100 |
RW Silicium GmbH | Germany | 100 | 100 |
Soci\u00e9t\u00e9 Industrielle et Chimique de l\u2019Aisne S.A.S. | France | 100 | 100 |
VACUHEAT GmbH | Germany | 100 | 100 |
Graphit Kropfm\u00fchl GmbH, GK Bergbau GmbH, RW Silicium GmbH, AMG Mining GmbH, ALD Vacuum Technologies GmbH and\u00a0 VACUHEAT GmbH intent to exercise the exemption of Sec. 264 (3) HGB \"Handelsgesetzbuch\u201d.
(A)STATEMENT OF COMPLIANCE
EU law (IAS Regulation EC 1606/2002) requires that the annual consolidated financial statements of the Company for the year ending December 31, 2022, be prepared in accordance with accounting standards adopted and endorsed by the European Union (\u201cEU\u201d) further to the IAS Regulation (EC 1606/2002) (further referred to as \u201cIFRS, as endorsed by the EU\u201d).
The consolidated financial statements of AMG NV and its subsidiaries have been prepared in accordance with International Financial Reporting Standards (\u201cIFRS\u201d) as of December 31, 2022, as endorsed by the EU and article 2.362.9 of the Netherlands Civil Code.
(B)BASIS OF MEASUREMENT
The consolidated financial statements have been prepared on the historical cost basis except for the following items, which are measured on an alternative basis on each reporting date. The methods used to measure fair values are discussed further in note 3.
Derivative financial instruments | Fair value |
Non-derivative financial instruments at\u00a0 fair value through profit or loss | Fair value |
Non-derivative financial instruments, including restricted cash, at fair value through other comprehensive income | Fair value |
Net defined benefit (asset) liability\u00a0 | Fair value of plan assets less the present value of the defined benefit obligation, limited as explained in note 3 |
(C)MEASUREMENT OF FAIR VALUES
A number of the Company\u2019s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and\u00a0 liabilities. The Company has an established control framework with respect to the measurement of fair values. This includes overseeing all significant fair value measurements, including Level 3 fair values.
The Company regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the Company assesses the evidence obtained from the third parties to support the conclusion that these valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which the valuations should be classified.
Significant valuation issues are reported to the Company\u2019s audit committee.
When measuring the fair value of an asset or a liability, the Company uses observable market data as far as possible.
Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.
The Company recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.
Further information about the assumptions made in measuring fair values is included in the following notes:
\u2022note 12 \u2013 measurement of other investments
\u2022note 24 \u2013 share-based payments
\u2022note 29 \u2013 measurement of financial instruments
\u2022note 30 \u2013 business combination
(E)USE OF ESTIMATES AND JUDGMENTS
The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected.
Key uses of judgments
Information related to critical judgments made in applying accounting policies that have the most significant effects on the amounts recognized in the Company\u2019s consolidated financial statements are included in the following notes:
\u2022notes 3 and 5 \u2013 Revenue from contracts with customers: determination of revenue recognition from furnace construction contracts
\u2022notes 3 and 12 - other investments: whether the Company has significant influence over an equity-accounted investee
\u2022notes 3 and 31 \u2013 Leases: determination of the lease term for some lease contracts which include renewal options
Assumptions and estimation uncertainty
Information about assumptions and estimation uncertainties that may have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are included in the following notes:
\u2022note 9 \u2013 Income tax: recognition of income taxes and deferred tax assets
\u2022note 10 \u2013 Property, plant and equipment: determination of useful lives of mining-related assets
\u2022note 11 \u2013 Goodwill and other intangible assets: measurement of the recoverable amounts of assets and cash-generating units for purposes of impairment testing
\u2022note 12 \u2013 Other investments; the assumptions and model used to determine fair value
\u2022note 23 \u2013 Employee benefits: measurement of plan obligations and actuarial assumptions
\u2022note 24 \u2013 Share-based payments: the assumptions and model used to determine fair value
\u2022note 25 \u2013 Provisions: determination of amounts recorded based on expected payments and any regulatory framework
\u2022note 29 \u2013 Financial instruments: fair value determination based on present value of future cash flows
\u2022note 30 \u2013 Acquisition of subsidiary: fair value of the assets acquired and liabilities assumed
These consolidated financial statements as of December 31, 2022, present the consolidated financial position, results of operations and cash flows of the Company and its subsidiaries. The Company has consistently applied the following accounting policies to all periods presented in these consolidated financial statements.
(A)BASIS OF CONSOLIDATION
(i)Business combinations
The Company accounts for business combinations using the acquisition method once control is gained by the Company. Consideration transferred and separately identifiable net assets acquired in the acquisition are measured at fair value. Consideration transferred does not include amounts related to the settlement of pre-existing relationships, which are recognized in profit or loss. Any goodwill that arises is tested annually for impairment. In the event of a bargain purchase, any gain is recognized in the income statement immediately. Transaction costs are expensed as incurred, unless related to the issuance of debt or equity securities.
Contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration meets the definition of a financial instrument classified as equity, then it is not remeasured, and settlement is accounted for within equity. Other contingent consideration is remeasured at fair value at each reporting date, with subsequent changes in the fair value of the contingency being recognized through profit or loss.
(i)Subsidiaries
Subsidiaries are entities controlled by the Company. The Company controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.
(ii)Non-controlling interests
Non-controlling interests are measured at their proportionate share of the acquiree\u2019s identifiable net assets at the date of acquisition.
Changes in the Company\u2019s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
(iii)Loss of control
When the Company loses control over a subsidiary, it derecognizes the assets and liabilities of the subsidiary, and any related non-controlling interest and other components of equity. Any resulting gain or loss is recognized in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.
(iv)Interests in equity-accounted investees
The Company\u2019s interests in equity-accounted investees comprise interests in associates and joint ventures.
Associates are those entities in which the Company has significant influence, but not control or joint control, over the financial and operating policies. A joint venture is an arrangement in which the Company has joint control, whereby the Company has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities.
Interests in associates and joint ventures are accounted for using the equity method. They are initially recognized at cost, including transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Company\u2019s share of the profit or loss and OCI of equity-accounted investees in accordance with the Company's accounting policies, until the date on which significant influence or joint control ceases.
(v)Transactions eliminated on consolidation
Intergroup balances and transactions, and any unrealized income and expenses arising from intergroup transactions, are eliminated. Unrealized gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Company\u2019s interest in the investee. Unrealized losses are eliminated similarly, to the extent there is no evidence of impairment.
(B)FOREIGN CURRENCY
(i)Functional and presentation currency
These consolidated financial statements are presented in US dollars ($), which is the Company\u2019s functional and presentation currency.
All financial information is presented in US dollars and has been rounded to the nearest thousand, unless otherwise stated.
The local currency is the functional currency for the Company\u2019s significant operations outside the United States (US), except operations in the UK and Brazil, where the US dollar is used as the functional currency. The determination of functional currency is based on appropriate economic and management indicators.
(ii)Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of the Company\u2019s entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange at the reporting date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the functional currency at the exchange rate when the fair value was determined. Non-monetary items that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Foreign currency differences arising from the translation of monetary assets and liabilities denominated in a foreign currency are recognized in profit or loss.
Foreign currency differences arising from the translation of the following items are recognized in other comprehensive income:
\u2022Equity investments classified as fair value through other comprehensive income (except on impairment, in which case foreign currency differences that have been recognized in other comprehensive income are reclassified to profit or loss);
\u2022A financial liability designated as a hedge of the net investment in a foreign operation to the extent that the hedge is effective; and
\u2022Qualifying cash flow hedges to the extent that the hedges are effective.
(vi)Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to US dollars at exchange rates at the reporting date. The income and expenses of foreign operations are translated to US dollars at the average exchange rates calculated at the reporting date.
Foreign currency differences arising from the translation of foreign operations are recognized in other comprehensive income and accumulated in the foreign currency translation reserve, except to the extent that the translation difference is allocated to non-controlling interest. When a foreign operation is disposed of, in its entirety or partially such that control, significant influence, or joint control is lost, the cumulative amount in the translation reserve
related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. If the Company disposes of part of its interest in a subsidiary but retains control, then the relevant proportion of the cumulative amount is reattributed to non- controlling interest. When the Company disposes of only part of an associate or joint venture while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss.
(C)REVENUE FROM CONTRACTS WITH CUSTOMERS
(i)Goods sold
The Company\u2019s contracts for goods sold typically contain a single performance obligation. The timing of when a customer obtains control over goods sold varies depending on the individual terms of the sales agreement. In satisfying the Company\u2019s performance obligation to its customers, transfer of control typically occurs when title and risk of loss pass to the customer. In the case of export sales, control of the goods sold may pass when the product reaches a foreign port. Invoices are generally issued according to contractual terms and are usually payable within 30-90 days. The transaction price of goods sold is typically based on contractual terms or market pricing and is not subject to variable consideration.
(ii)Furnace construction contracts
Furnace construction contract revenue results from the design, engineering and construction of advanced vacuum furnace systems in the AMG Technologies segment. These furnaces are constructed based on specifically negotiated contracts with customers. Contract revenues includes the initial amount agreed in the contract plus any variations in contract work, claims and incentive payments, to the extent that it is probable that they will result in revenue and can be measured reliably. Invoices are generally issued according to contractual terms and are usually payable within 30-90 days.
The performance obligations in the Company\u2019s furnace construction contracts are mainly recognized over time. The Company\u2019s furnace construction contracts require the Company to develop highly specialized assets that meet the customer\u2019s specific needs. The assets do not have an alternative use to the Company, and the Company has a legal right to payment for its services rendered to date for all furnace construction arrangements. The Company recognizes contract revenue over time in proportion to the stage of completion of the contract. The stage of completion is assessed with reference to costs incurred to date and estimated total cost. Otherwise, contract revenue is recognized only to the extent of contract costs incurred that are likely to be recoverable.
Contract expenses are recognized as incurred unless they create an asset related to future contract activity. An expected loss on a contract is recognized immediately in profit or loss.
Amounts expected to be collected from customers for contract work performed is measured at costs incurred plus profits recognized to date, less progress billings and recognized losses.
In the statement of financial position, construction contracts in progress for which costs incurred plus recognized profits exceed progress billings and recognized losses are presented as trade and other receivables. Contracts for which progress billings and recognized losses exceed costs incurred plus recognized profits are presented as deferred revenues and included with advanced payments.
(i)Heat treatment services
The Company offers heat treatment services on a tolling basis using its internally developed furnace and process technology that is owned and operated by the AMG Technologies segment. The Company\u2019s performance obligations under these tolling contracts require the Company to apply this technology to the customer\u2019s materials at a contractually agreed upon cost per unit. The Company recognizes revenues for heat treatment services completed to date that the Company has a contractual right to invoice its customers for the related services.
(ii)Processing services
Within the AMG Clean Energy Materials segment, the Company performs services to convert spent refinery catalyst and other vanadium-bearing residues into ferrovanadium and a ferronickel-molybdenum alloy. These metals are reclaimed from spent catalyst using the Company's proprietary roasting and pyrometallurgical processes. The reclaimed metals are then sold to the carbon and stainless-steel industries. The Company\u2019s performance obligations under these contracts require the Company to process the materials and reclaim the metals at a contractually agreed upon cost per unit. The Company recognizes revenues at a point in time for processing services completed to date to the extent that the Company has a contractual right to invoice its customers for the related services. Processing fees can be subject to adjustments based on the market prices of the reclaimed metals for a period up to to three months after roasting. To account for this potential volatility in the processing fee revenue, the Company defers a portion of its processing fee revenue until the uncertainty related to the metal prices is resolved in accordance with the variable consideration policy noted below. The deferral is determined taking into account the historical volatility of the metal prices relative to the market price at the reporting date.
(iii)Commissions
If the Company acts in the capacity of an agent rather than as the principal in a transaction, then the revenue recognized is the net amount of commission made by the Company.
(iv)Warranty obligations
The Company typically provides warranties for general repairs of defects that existed at the time of sale, as required by law. These assurance-type warranties are not considered to be separate performance obligations and are accounted for under IAS 37 Provisions, Contingent Liabilities and Contingent Assets as described in our accounting policy for provisions.
(i)Variable consideration
If the consideration in a contract includes a variable amount, the Company estimates the amount of consideration to which it will be entitled in exchange for providing services or for transferring the goods to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognized will not occur when the associated uncertainty with the variable consideration is subsequently resolved.
(D)FINANCE INCOME AND COST
Finance income comprises interest income on funds invested, changes in the discount on provisions, foreign currency gains and gains on derivatives and hedging instruments. Interest income is recognized as it is earned, using the effective interest method.
Finance cost comprises interest expense on borrowings and interest rate caps and swaps, amendment fees on borrowings, amortization of loan issuance costs, interest expense on lease liabilities, commitment fees on borrowings, changes in the discount on provisions, interest on tax liabilities, foreign currency losses, losses on derivatives and hedging instruments, fees for letters of credit/guarantees, interest for accounts receivable factoring and any loss recorded on debt extinguishment. All transaction costs are recognized in profit or loss using the effective interest method when the costs are related to actual borrowings on the facility or using the straight-line method when they are related to the revolving credit facility.
(E)INCOME TAX EXPENSE
Income tax expense comprises current and deferred tax.
It is recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.
Interest and penalties related to income taxes, including uncertain tax treatments, are accounted for under IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
(i)Current tax
Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable or receivable in respect of previous years. The amount of current tax payable or receivable is the best estimate of the tax amount expected to be paid or received that reflects uncertainty related to income taxes, if any. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends.
Current tax assets and liabilities are offset only if allowable in the related tax jurisdiction.
(ii)Deferred tax
Deferred tax is recognized 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 is not recognized for:
\u2022temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;
\u2022temporary differences related to investments in subsidiaries, associates and joint ventures to the extent that the Company is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and
\u2022taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax assets are recognized for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Future taxable profits are determined based on business plans for individual subsidiaries in the Company and the reversal of temporary differences. If the amount of taxable temporary differences is insufficient to recognize a deferred tax asset in full, then future taxable profits, adjusted for reversals of existing temporary differences, are considered, based on the business plans for individual subsidiaries in the Company. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized; such reductions are reversed when the probability of future taxable profits improves.
Unrecognized deferred tax assets are reassessed at each reporting date and recognized to the extent that it has become probable that future taxable profits will be available against which they can be used.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.
The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Company expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset generally when they arise in the same tax jurisdiction.
(iv)Sales and other taxes
Revenues, expenses and assets are recognized net of the amount of sales tax except:
\u2022where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is recognized as part of the cost of acquisition of the asset or as part of the expense item as applicable; and
\u2022receivables and payables that are stated with the amount of sales tax included.
The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position.
Additional income taxes that arise from the distribution of dividends are recognized at the same time as the liability to pay the related dividend is recognized.
(F)GOVERNMENT GRANTS
Grants that compensate the Group for expenses incurred are recognized in profit or loss as other income on a systematic basis in the periods in which the expenses are recognized, unless the condition for receiving the grant are met after the related expenses have been recognized. In this case, the grant is recognized when it becomes receivable.
(G)FINANCIAL INSTRUMENTS
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
(i)Financial assets Initial recognition and measurement
Financial assets are classified, at initial recognition, as subsequently measured at amortized cost, fair value through other comprehensive income (OCI), or fair value through profit or loss.
The classification of financial assets at initial recognition depends on the financial asset\u2019s contractual cash flow characteristics and the Company\u2019s business model for managing them. The Company initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Company has applied the practical expedient are measured at the transaction price as disclosed in section (c) Revenue from contracts with customers.
In order for a financial asset to be classified and measured at amortized cost or fair value through OCI, it needs to give rise to cash flows that are \u2018solely payments of principal and interest (SPPI)\u2019 on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level. Financial assets with cash flows that are not SPPI are classified and measured at fair value through profit or loss, irrespective of the business model.
The Company\u2019s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. Financial assets classified and measured at amortized cost are held within a business model with the objective to hold financial assets in order to collect contractual cash flows while financial assets classified and measured at fair value through OCI are held within a business model with the objective of both holding to collect contractual cash flows and selling.
Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognized on the trade date, i.e., the date that the Company commits to purchase or sell the asset.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in four categories:
\u2022Financial assets at amortized cost (debt instruments)
\u2022Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments)
\u2022Financial assets at fair value through profit or loss
Financial assets at amortized cost (debt instruments)
Financial assets at amortized cost are subsequently measured using the effective interest method and are subject to impairment. Gains and losses are recognized in profit or loss when the asset is derecognized, modified or impaired.
The Company\u2019s financial assets at amortized cost includes trade receivables.
Financial assets designated at fair value through OCI (equity instruments)
Upon initial recognition, the Company can elect to classify irrevocably its equity investments as equity instruments designated at fair value through OCI when they meet the definition of equity under IAS 32 Financial Instruments: Presentation and are not held for trading. The classification is determined on an instrument-by-instrument basis.
Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognized as other income in profit or loss when the right of payment has been established, except when the Company benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments designated at fair value through OCI are not subject to impairment assessment.
The Company elected to classify its other investments (note 12) under this category.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognized in profit or loss.
This category includes the Company\u2019s derivative instruments that have not been designated for hedge accounting.
A derivative embedded in a hybrid contract, with a financial liability or non-financial host, is separated from the host and accounted for as a separate derivative if: the economic characteristics and risks are not closely related to the host; a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and the hybrid contract is not measured at fair
value through profit or loss. Embedded derivatives are measured at fair value with changes in fair value recognized in profit or loss. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the fair value through profit or loss category. The Company does not currently have any embedded derivatives that are accounted for separately from the host.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognized (i.e., removed from the Company\u2019s consolidated statement of financial position) when the rights to receive cash flows from the asset have expired or when the Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a \u2018pass-through\u2019 arrangement. In order for a pass-through arrangement to qualify for derecognition, the Company must have transferred substantially all the risks and rewards of the asset, or the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognize the transferred asset to the extent of its continuing involvement. In that case, the Company also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.
Impairment
The Company recognizes an allowance for expected credit losses (\u201cECL\u2019s\u201d) for all debt instruments not held at fair value through profit or loss. ECL\u2019s are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Company expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.
ECL's are recognized in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECL\u2019s are provided for credit losses that result from default events that are possible within the next 12 months (a
12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).
For trade receivables and contract assets, the Company applies a simplified approach in calculating ECL\u2019s. Therefore, the Company does not track changes in credit risk, but instead recognizes a loss allowance based on lifetime ECL\u2019s at each reporting date. The Company has established an allowance matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
The Company considers a financial asset to be in default when internal or external information indicates that the Company is unlikely to receive the outstanding contractual amounts in full before considering any credit enhancements held by the Company. A financial asset is written-off when there is no reasonable expectation of recovering the contractual cash flows.
(i)Financial liabilities Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.
All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
The Company\u2019s financial liabilities include trade and other payables, loans and borrowings, short-term bank debt and derivative financial instruments.
Subsequent measurement
For purposes of subsequent measurement, financial liabilities are classified in two categories:
\u2022Financial liabilities at fair value through profit or loss
\u2022Financial liabilities at amortized cost (loans and borrowings)
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.
Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by IFRS 9. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognized in profit or loss.
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of
recognition, and only if the criteria in IFRS 9 are satisfied. The Company has not designated any financial liability as at fair value through profit or loss.
Financial liabilities at amortized cost (loans and borrowings)
This is the category most relevant to the Company. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the effective interest rate method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the effective interest rate amortization process.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortization is included as finance costs in the income statement.
This category generally applies to interest-bearing loans and borrowings (note 21) and short-term bank debt (note 22).
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in profit or loss.
(i)Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realize the assets and settle the liabilities simultaneously.
(ii)Derivative financial instruments and hedge accounting
The Company uses derivative financial instruments, such as forward currency contracts, interest rate caps and swaps and forward commodity contracts, to hedge its foreign currency risks, interest rate risks and commodity price risks, respectively. Derivative instruments, which include physical contracts that do not meet the own use exemption, are initially recognized at fair value when the Company becomes a party to the contractual provisions of the instrument and are subsequently remeasured to fair value at the end of each reporting period. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
The Company designates derivatives as hedging instruments to hedge the variability in cash flows associated with highly probable forecast transactions arising from changes in foreign exchange rates, commodity prices and interest rates.
At inception of designated hedging relationships, the Company documents the risk management objective and strategy for undertaking the hedge. The Company also documents the
economic relationship between the hedged item and the hedging instrument, including whether the changes in cash flows of the hedged item and hedging instrument are expected to offset each other.
Cash flow hedges
When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and accumulated in the hedging reserve. The effective portion of changes in fair value of the derivative that is recognized in other comprehensive income is limited to the cumulative change in fair value of the hedged item, determined on a present value basis, from inception of the hedge.\u00a0 Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss.
The Company designates only the change in fair value of the spot element of forward exchange contracts as the hedging instrument in cash flow hedging relationships. The change in fair value of the forward element of forward exchange contracts is separately accounted for as a cost of hedging and recognized in a cost of hedging reserve within equity.
When the hedged forecast transaction subsequently results in the recognition of a non-financial item such as inventory, the amount accumulated in the hedging reserve and the cost of hedging reserve is included directly in the initial cost of the non-financial item when it is recognized.
For all other hedged forecast transactions, the amount accumulated in the hedging reserve and the cost of hedging reserve is reclassified to profit or loss in the same period or periods during which the hedged expected future cash flows affect profit or loss.
If the hedge no longer meets the criteria for hedge accounting or the hedging instrument is sold, expires, is terminated or is exercised, then hedge accounting is discontinued prospectively. When hedge accounting for cash flow hedges is discontinued, the amount that has been accumulated in the hedging reserve remains in equity until, for a hedge of a transaction resulting in the recognition of a non-financial item, it is included in the non-financial item\u2019s cost on its initial recognition or, for other cash flow hedges, it is reclassified to profit or loss in the same period or periods as the hedged expected future cash flows affect profit or loss.
If the hedged future cash flows are no longer expected to occur, then the amounts that have been accumulated in the hedging reserve and the cost of hedging reserve are immediately reclassified to profit or loss.
(H)SHARE CAPITAL
(i)Ordinary shares
Incremental costs directly attributable to the issue of ordinary shares, net of any tax effects, are recognized as a deduction from equity. Income tax relating to transaction costs of an equity transaction is accounted for in accordance with IAS 12.
(i)Repurchase and reissue of ordinary shares (treasury shares)
When shares recognized as equity are repurchased, the amount of the consideration paid, which includes directly attributable costs, net of any tax effects, is recognized as a deduction from equity. Repurchased shares are classified as treasury shares and are presented in the treasury share reserve. When treasury shares are sold or reissued subsequently, the amount received is recognized as an increase in equity, and the resulting surplus or deficit on the transaction is presented within share premium.
(I)EMPLOYEE BENEFITS
(i)Short-term benefits
Short-term employee benefits are expensed as the related service is provided. A liability is recognized for the amount expected to be paid if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
(ii)Share-based payment transactions
The grant date fair value of equity-settled share-based payment arrangements granted to employees is generally recognized as an expense, with a corresponding increase in equity, over the vesting period of the awards. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognized is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with market and non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.
(iii)Defined contribution plans
Obligations for contributions to defined contribution plans are expensed as the related service is provided. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in future payments is available.
(iv)Defined benefit plans
The Company\u2019s net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in the current and prior periods, discounting that amount and deducting the fair value of any plan assets.
The calculation of defined benefit obligations is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a potential asset for the Company, the recognized asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. To calculate the present value of economic benefits, consideration is given to any applicable minimum funding requirements.
Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in other comprehensive income. The Company determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognized in profit or loss.
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in profit or loss. The Company recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs.
(i)Other long-term employee benefits
The Company\u2019s net obligation in respect of long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value. Remeasurements are recognized in profit or loss in the period in which they arise.
(ii)Termination benefits
Termination benefits are expensed at the earlier of when the Company can no longer withdraw the offer of those benefits and when the Company recognizes costs for a restructuring. If benefits are not expected to be settled wholly within 12 months of the reporting date, then they are discounted.
(J)PROPERTY, PLANT AND EQUIPMENT
(i)Recognition and measurement
Items of property, plant and equipment are measured at cost, which includes capitalized borrowing costs, less accumulated depreciation and any accumulated impairment losses.
Costs associated with developing mine reserves are recognized in property, plant and equipment when they are established as commercially viable. These costs can include amounts that were previously recognized as intangible assets during the evaluation phase of the mine development.
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.
If significant parts of an item of property, plant and equipment have different useful lives, then they are accounted for as separate items (major components) of property, plant and equipment.
Any gain or loss on disposal of an item of property, plant and equipment is recognized in profit or loss.
(i)Subsequent expenditures
Subsequent expenditure is capitalized only if it is probable that the future economic benefits associated with the expenditure will flow to the Company.
(ii)Depreciation
Depreciation is calculated to write-off the cost of items of property, plant and equipment less their estimated residual values using the straight-line method over their estimated useful lives and is generally recognized in the income statement. Land is not depreciated.
The estimated useful lives of property, plant and equipment for current and comparative periods are as follows:
\u2022mining costs | 4-20 years |
\u2022buildings and improvements | 2-50 years |
\u2022machinery and equipment | 2-20 years |
\u2022furniture and fixtures | 2-15 years |
Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
The depreciation of mining costs is linked to production levels. Therefore, these assets are amortized using a units of production basis. The Company\u2019s mine in Brazil is currently the only mine asset being depreciated using this basis and approximates a 19-year remaining life of the mine based on updated geology studies. Other mining assets are depreciated on a straight-line basis ranging from 4-20 years, depending on useful life.
(K)GOODWILL AND OTHER INTANGIBLE ASSETS
(i)Goodwill
Goodwill arising on the acquisition of subsidiaries is measured at cost less accumulated impairment losses.
(ii)Research and development
Expenditure on research activities is recognized in profit or loss when incurred.
Development expenditures are capitalized if and only if the following criteria are met:
\u2022the expenditure can be measured reliably;
\u2022the product or process is technically and commercially feasible;
\u2022future economic benefits are probable; and
\u2022the Company intends to and has sufficient resources to complete development and to use or sell the asset.
Research and development costs that do not qualify as assets are shown within selling, general and administrative expenses in the income statement. Subsequent to initial recognition, development expenditure is measured at cost less accumulated amortization and any accumulated impairment losses.
(i)Mining assets
Mining assets which are included in intangible assets include exploration, evaluation and development expenditures. See significant accounting policies section (k) for additional information on the accounting for mining assets.
(ii)Other intangible assets
Other intangible assets, including software, customer relationships, patents and trademarks that are acquired by the Company and have finite useful lives are measured at cost less accumulated amortization and any accumulated impairment losses.
(iii)Subsequent expenditure
Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill, is recognized in the income statement as incurred.
(iv)Amortization
Amortization is calculated to write-off the cost of intangible assets less their estimated residual values using the straight- line method over their estimated useful lives, and is generally recognized in profit or loss. Goodwill is not amortized. Amortization methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
The estimated useful lives for current and comparative periods are based on expected futures sales for the related asset and are as follows:
\u2022customer relationships | 5-15 years |
\u2022development costs | 8-15 years |
\u2022machinery and equipment | 9-12 years |
\u2022mining assets | 2-20 years |
(L)INVENTORIES
Inventories are measured at the lower of cost and net realizable value. The cost of inventories is determined based on the average cost and specific identification methods, and includes expenditures incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of finished goods inventory and work in process, cost includes materials and labor as well as an appropriate share of production overhead based on normal operating capacity.
(M)MINING ASSETS
(i)Exploration, evaluation and development expenditures
Exploration and evaluation expenditures relate to costs incurred on the exploration and evaluation of potential mineral resources. These costs are recorded as intangible assets while exploration is in progress. When commercially recoverable reserves are determined, and such development receives the appropriate approvals, capitalized exploration and evaluation expenditures
are transferred to construction in progress. Upon completion of development and commencement of production, capitalized development costs as well as exploration and evaluation expenditures are transferred to mining assets in property, plant and equipment and depreciated over their estimated useful life.
(i)Deferred stripping costs
The Company is following IFRIC 20 for all surface mine accounting. The Interpretation only applies to stripping costs incurred during the production phase of a surface mine (production stripping costs). Costs incurred in undertaking stripping activities are considered to create two possible benefits: a) the production of inventory in the current period and/or b) improved access to ore to be mined in a future period. Where the benefits are realized in the form of inventory produced, the production stripping costs are to be accounted for in accordance with IAS 2. Where the benefit is improved access to ore that will be mined in the future, these costs are to be recognized as a non-current asset.
Production stripping costs are capitalized as part of an asset when the Company can demonstrate: a) it is probable that future economic benefit associated with the stripping activity will flow to the entity; b) the entity can identify the component of an ore body for which access has been improved; and c) the costs can be reliably measured. These costs are amortized over the life of the component ore body identified.
(N)LEASES
At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
(i)As a lessee
At commencement or on modification of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease component on the basis of its relative stand-alone prices.
The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Company by the end of the lease term or the cost of the right-of-use asset reflects that the Company will exercise a purchase option. In that case the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment.
In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for\u00a0 remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company\u2019s incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate.
The Company determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes adjustments to reflect the terms of the lease and type of the asset leased.
Lease payments included in the measurement of the lease liability comprise the following:
\u2022fixed payments, including in-substance fixed payments;
\u2022variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;
\u2022amounts expected to be payable under a residual value guarantee; and
\u2022the exercise price under a purchase option that the Company is reasonably certain to exercise, lease payments in an optional renewal period if the Company is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Company is reasonably certain not to terminate early.
The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Company\u2019s estimate of the amount expected to be payable under a residual value guarantee, if the Company changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
The Company presents right-of-use assets that do not meet the definition of investment property in property, plant and equipment and lease liabilities are presented as a separate line item in the statement of financial position.
Short-term leases and leases of low-value assets
The Company has elected not to recognize right-of-use assets and lease liabilities for leases of low-value assets and short- term leases. The Company recognizes the lease payments
associated with these leases as an expense on a straight-line basis over the lease term.
(O)ASSETS HELD FOR SALE
Non-current assets, or disposal groups comprising assets and liabilities, are classified as held for sale if it is highly probable that they will be recovered primarily through sale rather than through continuing use.
Such assets, or disposal groups, are generally measured at the lower of their carrying amount and fair value less costs to sell. Any impairment loss on a disposal group is allocated first to goodwill, and then to the remaining assets and liabilities on a pro rata basis, except that no loss is allocated to inventories, financial assets, deferred tax assets, employee benefit assets, investment property or biological assets, which continue to be measured in accordance with the Company\u2019s other accounting policies. Impairment losses on initial classification as held for sale or held for distribution and subsequent gains and losses on remeasurement are recognized in the income statement.
Once classified as held for sale, intangible assets and property, plant and equipment are no longer amortized or depreciated, and any equity-accounted investee is no longer equity accounted.
(P)IMPAIRMENT OF NON-FINANCIAL ASSETS
At each reporting date, the Company reviews the carrying amounts of its non-financial assets (other than inventories, contract assets and deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset\u2019s recoverable amount is estimated. Goodwill is tested annually for impairment.
For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or cash generating units. Goodwill arising from a business combination is allocated to cash generating units or groups of cash generating units that are expected to benefit from the synergies of the combination.
The recoverable amount of an asset or cash generating unit is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash generating unit.
An impairment loss is recognized if the carrying amount of an asset or cash generating unit exceeds its recoverable amount.
Impairment losses are recognized in the income statement. They are allocated first to reduce the carrying amount of any goodwill allocated to the cash generating unit, and then to reduce the carrying amounts of the other assets in the cash generating unit on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset\u2019s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
(Q)PROVISIONS
Provisions are recognized when:
\u2022the Company has a present obligation (legal or constructive) as a result of a past event;
\u2022it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and
\u2022a reliable estimate can be made for the amount of the obligation.
If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost.
(i)Environmental remediation costs and recoveries
Several subsidiaries of the Company are faced with a number of issues relating to environmental clean-up requirements, largely resulting from historical solid and hazardous waste handling and disposal practices at their facilities. In accordance with the Company\u2019s environmental policy and applicable legal requirements, provisions associated with environmental remediation obligations are accrued when such losses are deemed probable and reasonably estimable. Such accruals generally are recognized no later than the completion of the remedial feasibility study and are adjusted as further information develops or circumstances change.
A provision is made for shutdown, restoration and environmental rehabilitation costs in the financial period when the related environmental disturbance occurs, based on the estimated future costs using information available at the reporting date. The provision is discounted using a current market-based pre-tax discount rate and any change in the discount is included in finance cost. The provision is reviewed on an annual basis for changes to obligations, legislation or discount rates that may lead to changes in cost estimates or the expected timeline for payments.
Where the Company expects some or all of an environmental provision to be reimbursed, for example using a trust account, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement. The subsidiaries of the Company have been required, in several instances, to create trust funds for the environmental rehabilitation. Once established, the subsidiaries have a 100% interest in these funds. Rehabilitation and restoration trust funds holding monies committed for use in satisfying environmental obligations are included on a discounted basis within other non-current assets on the statement of financial position, only to the extent that a liability exists for these obligations.
Environmental expense recoveries are generally recognized in profit or loss upon final settlement with the Company\u2019s insurance carriers.
Additional environmental remediation costs and provisions may be required if the Company were to decide to close its sites. Several of the Company\u2019s restructuring programs have involved closure of sites. Remediation liabilities are recognized when the site closure has been announced. In the opinion of the Company, it is not possible to estimate reliably the costs that would be incurred on the eventual closure of its continuing sites, where there is no present obligation to remediate, because it is neither possible to determine a time limit beyond which the sites will no longer be operated, nor what remediation costs may be required on their eventual closure.
(i)Restructuring
A provision for restructuring is recognized when the Company has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced publicly. Provisions are not made for future operating costs. The timing of recording of portions of the restructuring provision is dependent on receiving social plan approval generally in European jurisdictions which require external approval. Changes in the estimate of costs related to restructuring plans are included in profit or loss in the period when the change is identified.
(ii)Warranty
A provision for warranty is recognized when the Company has determined that it has a basis for recording a warranty provision based on historical returns for warranty work. The estimate of warranty-related costs is updated and revised at each reporting date.
(iii)Partial retirement
The collective agreements for retirement indemnities on our French subsidiary and the corresponding commitments are updated and revised at each reporting date.
(iv)Cost estimates
As part of its process to provide reliable estimations of profitability for long-term contracts, the Company makes provisions for cost estimates for completed contracts. These provisions are developed on a contract by contract basis and are based on contractor estimates and are utilized or derecognized depending on actual performance of the contracts. The cost estimates are updated and revised at each reporting date.
(v)Restoration, rehabilitation and decommissioning costs
Restoration, rehabilitation and decommissioning costs arising from the installation of plant and other site preparation work, discounted to their net present value, are provided for and capitalized at the time such an obligation arises. The costs are charged to the income statement over the life of the operation through depreciation of the asset and the unwinding of the discount on the provision.
Mine rehabilitation costs will be incurred by the Company at the end of the operating life of some of the Company\u2019s facilities and mine properties. The Company assesses its mine rehabilitation provision at each reporting date. The ultimate rehabilitation costs are uncertain, and cost estimates can vary in response
to many factors, including estimates of the extent and costs of rehabilitation activities, technological changes, regulatory changes, cost increases as compared to the inflation rates, and changes in discount rates. The provision recorded at each reporting date represents management\u2019s best estimate of the present value of the future rehabilitation costs required.
Costs for restoration of subsequent site disturbance, which is created on an ongoing basis during production, are provided for at their net present values and charged to the income statement as extraction progresses.
(R)NEW AND AMENDED STANDARDS AND INTERPRETATIONS
The following new standards became effective for annual periods beginning after January 1, 2022; however, these amended standards and interpretations did not have a significant impact on the Company\u2019s consolidated financial statements.
\u2022Onerous contracts - Cost of Fulfilling a Contract (Amendments to IAS 37).
\u2022Annual Improvements to IFRS Standards 2018-2020.
\u2022Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16).
\u2022Reference to Conceptual Framework (Amendments to IFRS 3).
(S)STANDARDS ISSUED BUT NOT YET EFFECTIVE
A number of new standards are effective for annual periods beginning after January 1, 2022 and earlier application is permitted; however, the Company has not early adopted the new or amended standards in preparing these consolidated financial statements. The following amended standards and interpretations are not expected to have a significant impact on the Company\u2019s consolidated financial statements.
\u2022Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12).
\u2022Classification of Liabilities as Current or Non-current (Amendments to IAS 1).
\u2022IFRS 17 Insurance Contracts and amendments to IFRS 17 Insurance Contracts.
\u2022Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2).
For Management purposes, the Company is organized under three operating segments: AMG Clean Energy Materials, AMG Critical Minerals and AMG Critical Materials Technologies.\u00a0 AMG Clean Energy Materials is comprised of the Vanadium, Lithium and Tantalum business units. AMG Critical Minerals is comprised of the Graphite, Silicon and Antimony business units.\u00a0 AMG Critical Materials Technologies is comprised of the Engineering, Titanium Alloys and Chrome Metal business units.
The Management Board of the Company is the Chief Operating Decision Maker and monitors the operating results of its segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the consolidated financial statements. The Company\u2019s headquarters costs, financing (including finance cost and finance income) and assets are managed on a group basis and are allocated to operating segments. Transfer prices between operating segments are on an arm\u2019s length basis in a manner similar to transactions with third parties.
AMG Clean Energy Materials
AMG Clean Energy Materials combines our recycling and mining operations, producing materials for infrastructure and energy storage solutions while reducing the CO2 footprint of both suppliers and customers. Clean Energy Materials spans the vanadium, lithium, and tantalum value chains. AMG Clean Energy Materials has major production facilities in the US and Brazil.
AMG Critical Minerals
AMG Critical Minerals consists of our mineral processing operations in graphite, silicon metal and antimony. AMG Critical Minerals produces materials for the chemical, automotive, aluminum, and building material industries. AMG Critical Minerals has major production facilities in Germany and France.
AMG Critical Materials Technologies
AMG Critical Materials Technologies combines our leading vacuum furnace technology line with high-purity materials serving global leaders in the aerospace sector. This segment produces titanium aluminides, titanium alloys, and chrome metal for the aerospace market; designs, engineers, and produces advanced vacuum furnace systems; and operates vacuum heat treatment facilities, primarily for the transportation and energy industries (including solar and nuclear industries). AMG Critical Materials Technologies also provides vacuum case-hardening heat treatment services on a tolling basis. AMG Critical Materials Technologies has production facilities located in Germany, UK, France, Mexico, India, China and the US.
AMG Corporate headquarters costs and assets are allocated thirty percent to AMG Clean Energy Materials, twenty percent to AMG Critical Minerals, and fifty percent to AMG Critical Materials Technologies in 2022 and 2021 based on an estimation of services provided to the operating segments.
Year ended December 31, 2022 | AMG Clean Energy Materials | AMG | AMG Critical Materials Technologies | Eliminations(a) | Total |
Revenue | |||||
Revenue from external customers | 667,804 | 364,502 | 610,468 | \u2014 | 1,642,774 |
Intersegment revenue | 26,537 | \u2014 | 4,969 | (31,506) | \u2014 |
Total revenue | 694,341 | 364,502 | 615,437 | (31,506) | 1,642,774 |
Segment results | |||||
Depreciation and amortization | 20,663 | 6,790 | 17,846 | \u2014 | 45,299 |
Restructuring | \u2014 | (54) | 636 | \u2014 | 582 |
Asset impairment expense (reversal) | 15 | 11,261 | (679) | \u2014 | 10,597 |
Inventory adjustments | 1,195 | \u2014 | 4,038 | \u2014 | 5,233 |
Environmental expense | \u2014 | 44 | 89 | \u2014 | 133 |
Other expenses | \u2014 | (14,411) | \u2014 | \u2014 | (14,411) |
Other income | 153 | 59,924 | 3 | \u2014 | 60,080 |
Operating profit | 222,590 | 63,995 | 20,474 | \u2014 | 307,059 |
Statement of financial position | |||||
Segment assets | 982,983 | 276,145 | 584,183 | \u2014 | 1,843,311 |
Other investments | 29,324 | \u2014 | \u2014 | \u2014 | 29,324 |
Total assets | 1,012,307 | 276,145 | 584,183 | \u2014 | 1,872,635 |
Segment liabilities | 708,525 | 123,069 | 383,370 | \u2014 | 1,214,964 |
Employee benefits | 14,629 | 23,737 | 78,794 | \u2014 | 117,160 |
Provisions | 6,941 | 6,504 | 9,217 | \u2014 | 22,662 |
Total liabilities | 730,095 | 153,310 | 471,381 | \u2014 | 1,354,786 |
Other information | |||||
Capital expenditures for expansion \u2013 tangible assets | 156,579 | 1,474 | 16,347 | \u2014 | 174,400 |
Capital expenditures for maintenance \u2013 tangible assets | 6,817 | 2,547 | 6,213 | \u2014 | 15,577 |
Capital expenditures \u2013 intangible assets | 208 | 248 | 485 | \u2014 | 941 |
Year ended December 31, 2021 | AMG Clean Energy Materials | AMG | AMG Critical Materials Technologies | Eliminations (a) | Total |
Revenue | |||||
Revenue from external customers | 381,475 | 308,523 | 514,668 | \u2014 | 1,204,666 |
Intersegment revenue | 28,179 | 35 | 16,383 | (44,597) | \u2014 |
Total revenue | 409,654 | 308,558 | 531,051 | (44,597) | 1,204,666 |
Segment results | |||||
Depreciation and amortization | 16,106 | 8,440 | 19,139 | \u2014 | 43,685 |
Restructuring | 93 | 666 | (237) | \u2014 | 522 |
Asset impairment reversal | \u2014 | (711) | \u2014 | \u2014 | (711) |
Inventory adjustments | 1,031 | (302) | 1,200 | \u2014 | 1,929 |
Environmental expense | 11,651 | 60 | 230 | \u2014 | 11,941 |
Operating profit | 22,476 | 20,181 | 14,484 | \u2014 | 57,141 |
Statement of financial position | |||||
Segment assets | 861,622 | 237,465 | 570,800 | \u2014 | 1,669,887 |
Other investments | 29,830 | \u2014 | \u2014 | \u2014 | 29,830 |
Total assets | 891,452 | 237,465 | 570,800 | \u2014 | 1,699,717 |
Segment liabilities | 719,060 | 129,122 | 362,860 | \u2014 | 1,211,042 |
Employee benefits | 19,435 | 36,724 | 106,469 | \u2014 | 162,628 |
Provisions | 7,508 | 7,900 | 16,487 | \u2014 | 31,895 |
Total liabilities | 746,003 | 173,746 | 485,816 | \u2014 | 1,405,565 |
Other information | |||||
Capital expenditures for expansion \u2013 tangible assets | 153,115 | 1,177 | 8,284 | \u2014 | 162,576 |
Capital expenditures for maintenance \u2013 tangible assets | 4,922 | 3,842 | 5,436 | \u2014 | 14,200 |
Capital expenditures \u2013 intangible assets | 27 | 361 | 875 | \u2014 | 1,263 |
[a]Eliminations column includes intersegment trade eliminations. The intersegment revenue eliminates against the intersegment cost of sales.
GEOGRAPHICAL INFORMATION
Geographical information for the Company is provided below. Revenues are based on the shipping location of the customer while non-current assets are based on the physical location of the assets.
Year ended December 31, 2022 | Year ended December 31, 2021 | |||
Revenues | Non-current assets | Revenues | Non-current assets | |
United States | 391,206 | 417,173 | 280,097 | 354,453 |
China | 377,151 | 23,042 | 216,142 | 17,033 |
Germany | 216,475 | 216,853 | 190,478 | 201,268 |
Brazil | 62,652 | 140,739 | 50,109 | 123,215 |
Italy | 62,628 | \u2014 | 52,587 | \u2014 |
United Kingdom | 61,367 | 21,764 | 47,647 | 20,868 |
France | 61,027 | 15,421 | 43,851 | 15,522 |
Canada | 48,502 | \u2014 | 34,486 | \u2014 |
Japan | 43,025 | 2 | 33,390 | 3 |
Austria | 37,554 | \u2014 | 28,829 | \u2014 |
Thailand | 27,736 | 20 | 14,545 | 27 |
India | 27,582 | 92 | 20,186 | 49 |
Belgium | 22,712 | 38 | 16,882 | 58 |
Mexico | 22,295 | 3,094 | 16,293 | 3,000 |
South Korea | 18,917 | \u2014 | 20,128 | \u2014 |
Poland | 14,016 | \u2014 | 8,900 | \u2014 |
Turkey | 13,938 | \u2014 | 9,956 | \u2014 |
Australia | 12,162 | \u2014 | 6,485 | \u2014 |
Sweden | 11,223 | \u2014 | 8,089 | \u2014 |
Spain | 10,505 | 93 | 11,768 | 115 |
Czech Republic | 9,257 | \u2014 | 8,294 | \u2014 |
Netherlands | 8,166 | \u2014 | 6,734 | \u2014 |
Taiwan | 6,067 | \u2014 | 9,252 | \u2014 |
Switzerland | 5,402 | \u2014 | 6,875 | \u2014 |
Argentina | 4,051 | \u2014 | 2,909 | \u2014 |
Singapore | 1,502 | \u2014 | 3,718 | \u2014 |
Russia | 854 | 6 | 3,913 | 3 |
Kazakhstan | 290 | \u2014 | 1,579 | \u2014 |
Mozambique | \u2014 | 6,990 | 1 | 8,059 |
Other | 64,512 | 2,300 | 50,543 | 3,106 |
Total | 1,642,774 | 847,627 | 1,204,666 | 746,779 |
Revenue from sales of goods, furnace construction contracts, heat treatment services and processing services during the year ended December 31, 2022 was $1,642,774 (2021: $1,204,666). For revenue by segment and by geographical basis, see note 4.
The following tables show the Company\u2019s total revenues disaggregated based on the timing of revenue recognition:
Year ended December 31, 2022 | AMG Clean Energy Materials | AMG | AMG Critical Materials Technologies | Total |
Products transferred at a point in time | 667,804 | 364,502 | 455,542 | 1,487,848 |
Products and services transferred over time | \u2014 | \u2014 | 154,926 | 154,926 |
Total revenue | 667,804 | 364,502 | 610,468 | 1,642,774 |
###### | ||||
Year ended December 31, 2021 | AMG Clean Energy Materials | AMG | AMG Critical Materials Technologies | Total |
Products transferred at a point in time | 381,475 | 308,523 | 349,913 | 1,039,911 |
Products and services transferred over time | \u2014 | \u2014 | 164,755 | 164,755 |
Total revenue | 381,475 | 308,523 | 514,668 | 1,204,666 |
Contract balances
The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers:
2022 | 2021 | |
Trade receivables, net of allowance for doubtful accounts | 124,754 | 107,682 |
Gross amount due from customers for contract work (note 14) | 37,565 | 37,627 |
Advanced payments from customers | 51,054 | 35,091 |
Deferred revenue | 48,277 | 40,819 |
The contract assets primarily relate to the Company\u2019s rights to consideration for work completed but not billed at the reporting date for furnace construction contracts. The contract assets are transferred to receivables when the rights become unconditional.\u00a0 This usually occurs when the Company issues an invoice to the customer.
The contract liabilities primarily relate to the advance consideration received from customers. The advanced payments from customers above pertains to consideration received for furnace construction contracts. The remaining contract liabilities pertain to prepayments received from customers for spodumene sale contracts, spent catalyst processing fee contracts, and titanium aluminide contracts and are included in the deferred revenue balance.\u00a0
The Company recognized revenues of $48,043 (2021: $50,510) that were included in the balance of contract liabilities as of December 31, 2022. The amount of revenues recognized during the year that pertained to performance obligations that were satisfied in a previous year is $3,242 (2021: $4,010).
The transaction price allocated to the remaining performance obligations (unsatisfied or partially satisfied) as of December 31, 2022 and 2021 are as follows:
2022 | 2021 | |
Within one year | 96,564 | 111,093 |
Within two years | 7,128 | 6,052 |
2022 | 2021 | |
Energy contract settlements | 59,847 | \u2014 |
Other miscellaneous income | 233 | 415 |
Other income | 60,080 | 415 |
#### | ||
Customer contract settlements | (14,411) | \u2014 |
Other expense | (14,411) | \u2014 |
#### | ||
Environmental expenses | (133) | (11,941) |
#### | ||
Net other operating income (expense) | 45,536 | (11,526) |
Effective January 2023, AMG placed its silicon metal plant in Pocking, Germany, on care and maintenance due to external economic factors.\u00a0 Associated with this shutdown, AMG recorded income from the sale of an existing supply contract which positively impacted operating profit for the year. This income was offset partially by a settlement with a major customer and an impairment of existing assets. See notes 10 and 26.
Note | 2022 | 2021 | |
Raw materials and consumables | 760,035 | 601,338 | |
Employee benefits | 249,729 | 240,240 | |
Raw material processing and conversion costs | 225,048 | 178,129 | |
Depreciation and amortization | 10, 11 | 45,299 | 43,685 |
Maintenance | 32,366 | 25,723 | |
Consultancy | 29,377 | 24,492 | |
Asset impairment expense (reversal) | 10,597 | (711) | |
Other | 28,800 | 23,103 | |
Total cost of sales and selling, general and administrative expenses | 1,381,251 | 1,135,999 |
2022 | 2021 | |
Interest income on bank deposits | 2,787 | 680 |
Finance income on derivatives | 1,907 | \u2014 |
Interest income on fiscal contingency | 1,759 | \u2014 |
Discounting on long-term assets and provisions | 1,436 | 382 |
Interest income on tax refunds | 136 | 779 |
Other | 1,036 | 97 |
Finance income | 9,061 | 1,938 |
Interest expense on loans, borrowings and related derivative instruments | (20,773) | (19,943) |
Municipal bond interest | (5,679) | \u2014 |
Interest expense related to lease liabilities | (1,663) | (1,807) |
Discount on long-term assets, provisions and retirement obligations | (1,622) | (671) |
Interest expense on accounts receivable factoring | (1,490) | (719) |
Interest expense on taxes | (1,363) | (1,359) |
Guarantees | (1,064) | (880) |
Interest paid to suppliers | (968) | (1,460) |
Commitment/unutilized fees | (951) | (781) |
Other | (153) | (569) |
Foreign exchange loss | (4,276) | (7,351) |
Finance cost | (40,002) | (35,540) |
Net finance cost | (30,941) | (33,602) |
Significant components of income tax expense for the years ended:
CONSOLIDATED INCOME STATEMENT
2022 | 2021 | |
Current tax expense (benefit): | ||
Current year | 60,331 | 13,383 |
Adjustment for prior year | (404) | (504) |
Total current tax expense (benefit) for the year | 59,927 | 12,879 |
Deferred tax expense (benefit) | ||
Origination and reversal of temporary differences | 36,033 | 926 |
Changes in previously unrecognized tax losses, tax credits and unrecognized temporary differences | (4,704) | (2,918) |
Changes in previously recognized tax losses, tax credits and recognized temporary differences for changes in enacted tax rates and currency effects | (7,375) | (1,637) |
Derecognition of previously recognized tax losses, tax credits and temporary differences | 132 | 343 |
Adjustment for prior year | 84 | (886) |
Total deferred tax expense (benefit) | 24,170 | (4,172) |
Total income tax expense reported in consolidated income statement | 84,097 | 8,707 |
Consolidated statement of other comprehensive income | ||
Income tax related to items recognized in OCI in the year: | ||
Cash flow hedges, effective portion of changes in fair value | (1,304) | (2,713) |
Income tax expense on actuarial gains | (10,851) | (4,297) |
Income tax expense charged to OCI | (12,155) | (7,010) |
RECONCILIATION OF EFFECTIVE TAX RATE
A reconciliation of income tax expense applicable to accounting profit before income tax at the weighted average statutory income tax rate of 32.03% (2021: 21.50%) to the Company\u2019s effective income tax rate for the years ended is as follows:
2022 | 2021 | |
Profit before income tax from continuing operations | 274,868 | 22,486 |
Income tax using the Company\u2019s weighted average tax rate | 88,031 | 4,834 |
Non-deductible expenses | 4,382 | 6,145 |
Tax exempt income | (4,061) | (4,039) |
Current year losses and changes in temporary differences for which no deferred tax asset was recognized | 3,914 | 6,135 |
Recognition of previously unrecognized tax losses, tax credits and temporary differences of a prior year | (4,704) | (2,918) |
Derecognition of previously recognized tax losses, tax credits and temporary differences | 132 | 343 |
Changes in previously recognized tax losses, tax credits and recognized temporary and permanent differences for changes in enacted tax rates | 2,840 | 1,887 |
Changes in previously recognized tax losses, tax credits and recognized temporary and permanent differences for changes in currency effects | (6,756) | (3,524) |
Over provided in prior periods | (254) | (886) |
State and local taxes | 804 | 1,070 |
Other | (231) | (340) |
Income tax expense reported in consolidated income statement | 84,097 | 8,707 |
The weighted average statutory income tax rate is the average of the statutory income tax rates applicable in the countries in which the Company operates, weighted by the profit (loss) before income tax of the subsidiaries in the respective countries as included in the consolidated accounts. Several entities have losses for which no deferred tax assets have been recognized.
During the years ended December 31, 2022 and 2021, the income tax benefits related to the current year losses of certain entities located primarily in Africa, China, France, Germany, India, and the Netherlands were not recognized. In total, $3,914 and $6,135 were not recognized in 2022 and 2021, respectively, as it is probable that these amounts will not be realized.
During the years ended December 31, 2022 and 2021, certain income tax benefits related to previously unrecognized tax losses and temporary differences related to entities located in Germany, India, Thailand, US and other were recognized. In total, $4,704 and $2,918 were recognized in 2022 and 2021, respectively, through an increase to the net deferred tax asset.\u00a0
The main factors considered in assessing the realizability of deferred tax benefits were improved profitability, higher forecasted taxable profitability and the carryforward period of the tax losses. After assessing these factors, the Company determined that it is probable that the deferred tax benefit of the tax losses and temporary differences will be realized in the foreseeable future.
Also, during the year ended December 31, 2022, the net recognized deferred tax assets (liabilities) were adjusted for changes in the enacted tax rates in several local jurisdictions in the US. The net impact of the tax rate changes was an increase to income tax expense of $2,840 (2021: $1,887). The net recognized deferred tax assets (liabilities) were also adjusted to reflect changes in currency rates in Brazil. The impact of the currency rates was a decrease to income tax expense of $6,756 (2021: $3,524).
During the year 2022, an income tax benefit of $231 (2021: $340)\u00a0was recorded to Other in the effective tax rate reconciliation.
There were no income tax consequences associated with the payment of dividends in either 2022 or 2021 by AMG to its shareholders.
DEFERRED TAX ASSETS AND LIABILITIES
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In addition, deferred income tax assets\u00a0 include amounts related to net operating loss carryforwards, tax credits and interest limitation carryforwards.
Deferred tax assets are recognized to the extent it is probable that the temporary differences, unused tax losses, unused tax credits, and limitations on interest deductions will be realized. The realization of deferred tax assets is reviewed each reporting period and includes the consideration of historical operating results, projected future taxable income exclusive of reversing temporary differences and carryforwards, the scheduled reversal of deferred tax liabilities and tax planning.
RECOGNIZED DEFERRED TAX ASSETS AND LIABILITIES
Deferred tax assets and liabilities have been recognized in respect of the following roll forward:
2022 Activity | December 31, 2022 | ||||||
December 31, 2021 Net tax asset and liability | Deferred benefit (expense) | Other comprehensive | Currency translation adjustment/other | Net tax asset | Assets | Liabilities | |
Inventories | 283 | 199 | \u2014 | 73 | 555 | 1,060 | 505 |
Long-term contracts | (16,365) | (3,473) | \u2014 | 916 | (18,922) | \u2014 | 18,922 |
Prepaid and other current assets | (1) | (17,652) | \u2014 | (244) | (17,897) | 102 | 17,999 |
Property, plant, and equipment | (16,468) | (7,696) | \u2014 | 830 | (23,334) | 391 | 23,725 |
Deferred charges and non-current assets | (16,561) | 4,315 | (1,304) | (162) | (13,712) | 980 | 14,692 |
Accruals and reserves | 16,298 | (2,248) | \u2014 | (598) | 13,452 | 13,862 | 410 |
Environmental liabilities | 4,290 | (1,652) | \u2014 | (48) | 2,590 | 2,826 | 236 |
Retirement benefits | 32,344 | (1,147) | (10,851) | (1,780) | 18,566 | 18,601 | 35 |
Tax loss and tax credit carryforwards | 43,500 | 5,184 | \u2014 | (70) | 48,614 | 48,614 | \u2014 |
Total | 47,320 | (24,170) | (12,155) | (1,083) | 9,912 | 86,436 | 76,524 |
Set off of tax | (49,255) | (49,255) | |||||
Net tax assets and liabilities | 37,181 | 27,269 |
During the year ended December 31, 2022, the Company recorded deferred income tax expense of $1,304 (2021: $2,713) related to cash flow hedges and $10,851 (2021: $4,297) related to actuarial gains in defined benefit plans in other comprehensive income.
UNRECOGNIZED DEFERRED TAX ASSETS
The net deferred tax assets are fully recognized for each of the jurisdictions in which we operate with the exception of the following: (1) a German entity did not recognize the specific deferred tax asset recorded for the impact of assets impaired for book purposes; (2) Dutch companies and operating companies in Germany, China, France, Africa, India and other do not recognize deferred tax assets for their loss carryforward positions and other carryforwards because management has determined that there will not be sufficient and foreseeable taxable profits in these locations to realize the benefits of these carryforward positions.
Deferred tax assets for these entities have not been recognized in respect of tax loss carryforwards, tax attributes, and temporary differences as they may not be used to offset taxable profits generated elsewhere in the Company and they have arisen in subsidiaries that have a history of losses or limited profitability.
Deferred tax assets and liabilities have not been recognized in respect of the following items:
Assets | ||
2022 | 2021 | |
Deferred charges and non-current assets | 8,236 | 8,798 |
Tax loss and tax credit carryforwards | 44,065 | 36,866 |
Net tax assets \u2013 unrecognized | 52,301 | 45,664 |
In addition to the unrecognized federal deferred tax assets that are detailed above, there are $6,826 in unrecognized US state deferred tax assets.
At December 31, 2022, pre-tax net operating losses and tax credit carryforwards for which no deferred tax assets have been recognized on the balance sheet, expire as follows:
2023 | 1,429 |
2024 | 1,577 |
2025 | 1,620 |
2026 | 2,526 |
2027 | 3,128 |
2028-2031 | 10,793 |
Unlimited | 146,211 |
Total | 167,284 |
COST | Mining | Land, | Machinery and equipment | Furniture and fixtures | Construction in progress | Total |
Balance at January 1, 2021 | 47,157 | 276,513 | 487,687 | 40,107 | 158,787 | 1,010,251 |
Additions | 286 | 11,851 | 9,163 | 2,706 | 158,641 | 182,647 |
Capitalized borrowings | \u2014 | \u2014 | 6 | \u2014 | 15,571 | 15,577 |
Retirements and transfers | 206 | 672 | (3,916) | (1,276) | (6,704) | (11,018) |
Impairments | \u2014 | \u2014 | 691 | \u2014 | \u2014 | 691 |
Effect of movements in exchange rates | (1,071) | (10,538) | (14,338) | (2,383) | (1,765) | (30,095) |
Balance at December 31, 2021 | 46,578 | 278,498 | 479,293 | 39,154 | 324,530 | 1,168,053 |
Balance at January 1, 2022 | 46,578 | 278,498 | 479,293 | 39,154 | 324,530 | 1,168,053 |
Additions | 2,052 | 11,531 | 19,941 | 3,172 | 124,401 | 161,097 |
Capitalized borrowings | \u2014 | \u2014 | 477 | \u2014 | 11,741 | 12,218 |
Retirements and transfers | 7 | 132,697 | 217,428 | 615 | (361,110) | (10,363) |
Impairments | \u2014 | 398 | (1,043) | (46) | \u2014 | (691) |
Effect of movements in exchange rates | (1,161) | (8,473) | (11,096) | (1,950) | (1,669) | (24,349) |
Balance at December 31, 2022 | 47,476 | 414,651 | 705,000 | 40,945 | 97,893 | 1,305,965 |
##### | ||||||
DEPRECIATION #### | ||||||
Balance at January 1, 2021 | (19,144) | (83,114) | (331,950) | (24,117) | \u2014 | (458,325) |
Depreciation for the year | (1,844) | (11,743) | (23,037) | (4,532) | \u2014 | (41,156) |
Retirements and transfers | 63 | 689 | 7,531 | 1,823 | \u2014 | 10,106 |
Effect of movements in exchange rates | 587 | 3,101 | 9,905 | 1,353 | \u2014 | 14,946 |
Balance at December 31, 2021 | (20,338) | (91,067) | (337,551) | (25,473) | \u2014 | (474,429) |
Balance at January 1, 2022 | (20,338) | (91,067) | (337,551) | (25,473) | \u2014 | (474,429) |
Depreciation for the year | (1,711) | (13,678) | (23,282) | (4,056) | \u2014 | (42,727) |
Retirements and transfers | \u2014 | 2,057 | 3,770 | 1,226 | \u2014 | 7,053 |
Impairments | \u2014 | (1,996) | (7,623) | (187) | \u2014 | (9,806) |
Effect of movements in exchange rates | 705 | 2,357 | 7,332 | 1,161 | \u2014 | 11,555 |
Balance at December 31, 2022 | (21,344) | (102,327) | (357,354) | (27,329) | \u2014 | (508,354) |
Carrying amounts | ||||||
At January 1, 2021 | 28,013 | 193,399 | 155,737 | 15,990 | 158,787 | 551,926 |
At December 31, 2021 | 26,240 | 187,431 | 141,742 | 13,681 | 324,530 | 693,624 |
At January 1, 2022 | 26,240 | 187,431 | 141,742 | 13,681 | 324,530 | 693,624 |
At December 31, 2022 | 26,132 | 312,324 | 347,646 | 13,616 | 97,893 | 797,611 |
PROPERTY, PLANT AND EQUIPMENT UNDER CONSTRUCTION
During the years ended December 31, 2022 and 2021, the Company embarked on several different expansion projects as well as several required maintenance projects. The largest\u00a0 projects are the spodumene capacity expansion in Brazil and the\u00a0 lithium refinery plant construction in Bitterfeld, Germany. Costs incurred up to December 31, 2022, which are included in construction in progress, totaled $97,893 (2021: $324,530).
BORROWING COSTS
The Company capitalized borrowing costs of $12,218 (2021: $15,577) during 2022 which included $9,448 (2021: $15,138) of interest related to the municipal bond net of $250 (2021: $39) of
cash interest received from the restricted cash.\u00a0 The Company also capitalized $1,488 (2021: $274) of interest for the German lithium refinery and $1,532 of interest for other AMG facilities (2021: $204) from its term loan.
PROPERTY, PLANT AND EQUIPMENT ADDITIONS
At December 31, 2022, the Company had $161,097 in additions, including $17,342 in accounts payable, lease additions of $6,473 and a non-cash transfer of $622 from the provision for restoration costs related to asset retirement obligations. At December 31, 2021, the Company had $182,647 in additions, including $36,915 in accounts payable, lease additions of $7,294 and a non-cash transfer of $250 from the provision for restoration costs related to asset retirement obligations.
DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
Depreciation expense for the year ended December 31, 2022 was $42,727 (2021: $41,156). Depreciation expense is recorded in the following line items in the income statement:
2022 | 2021 | |
Cost of sales | 37,423 | 36,071 |
Selling, general and administrative expenses | 5,304 | 5,085 |
Total | 42,727 | 41,156 |
SALE OF PROPERTY, PLANT AND EQUIPMENT
Certain land, building and equipment were sold in the years ended December 31, 2022 and 2021. In those years, the Company received proceeds of $2,538 and $1,029, respectively. In 2022, the proceeds were more than the book value of the assets and a gain of $592 was recognized during the year (2021: $65).
IMPAIRMENT TESTING
IAS 36 requires that assets be carried at a value no greater than their recoverable amount. To meet this standard, the Company is required to test tangible assets for impairment when indicators of
impairment exist, or at least annually, for goodwill and intangible assets with indefinite useful lives. During the year ended December 31, 2022, the Company recorded a net expense of $10,497 in asset impairments on property, plant and equipment mainly related to our silicon metal plant in Pocking, Germany.\u00a0 The impairment was driven by the Company's decision to place the facility on care and maintenance effective January 1, 2023. The plant will restart and operate one furnace in March of 2023 solely for the purpose of fulfilling an existing contract commitment with one of our customers. Once the commitment is fulfilled, it is expected that the plant will resume its care and maintenance plan.\u00a0 This event is not expected to result in a positive cash flow, and we do not expect an impairment reversal. During the year ended December 31, 2021, the Company recorded a reversal of $691 in asset impairments on property, plant and equipment by one of our German subsidiaries related to prior year impairment.
SECURITY
COST | Goodwill | Customer | Capitalized | Mining | Other | Total goodwill |
Balance at January 1, 2021 | 39,162 | 11,861 | 5,137 | 7,363 | 33,356 | 96,879 |
Acquired through business combinations | 580 | \u2014 | \u2014 | \u2014 | 3,774 | 4,354 |
Additions | \u2014 | \u2014 | \u2014 | 156 | 1,107 | 1,263 |
Effect of movements in exchange rates | (762) | (730) | (386) | (505) | (2,183) | (4,566) |
Balance at December 31, 2021 | 38,980 | 11,131 | 4,751 | 7,014 | 36,054 | 97,930 |
Balance at January 1, 2022 | 38,980 | 11,131 | 4,751 | 7,014 | 36,054 | 97,930 |
Additions | \u2014 | \u2014 | \u2014 | 150 | 791 | 941 |
Effect of movements in exchange rates | (575) | (528) | (279) | (410) | (1,777) | (3,569) |
Balance at December 31, 2022 | 38,405 | 10,603 | 4,472 | 6,754 | 35,068 | 95,302 |
#### | ||||||
AMORTIZATION AND IMPAIRMENT ### | ||||||
Balance at January 1, 2021 | (9,548) | (9,912) | (3,726) | (3,314) | (27,172) | (53,672) |
Amortization | \u2014 | (396) | (166) | (310) | (1,657) | (2,529) |
Disposals, reversals and transfers | \u2014 | \u2014 | \u2014 | (54) | \u2014 | (54) |
Effect of movements in exchange rates | \u2014 | 600 | 287 | 263 | 1,859 | 3,009 |
Balance at December 31, 2021 | (9,548) | (9,708) | (3,605) | (3,415) | (26,970) | (53,246) |
Balance at January 1, 2022 | (9,548) | (9,708) | (3,605) | (3,415) | (26,970) | (53,246) |
Amortization | \u2014 | (379) | (147) | (276) | (1,770) | (2,572) |
Impairments | \u2014 | \u2014 | \u2014 | \u2014 | (100) | (100) |
Effect of movements in exchange rates | \u2014 | 439 | 210 | (53) | 1,424 | 2,020 |
Balance at December 31, 2022 | (9,548) | (9,648) | (3,542) | (3,744) | (27,416) | (53,898) |
Carrying amounts | ||||||
At January 1, 2021 | 29,614 | 1,949 | 1,411 | 4,049 | 6,184 | 43,207 |
At December 31, 2021 | 29,432 | 1,423 | 1,146 | 3,599 | 9,084 | 44,684 |
At January 1, 2022 | 29,432 | 1,423 | 1,146 | 3,599 | 9,084 | 44,684 |
At December 31, 2022 | 28,857 | 955 | 930 | 3,010 | 7,652 | 41,404 |
ADDITIONS FOR INTANGIBLE ASSETS
At December 31,\u00a0 2022, the Company had $941 (2021: $1,263) in additions, related to investments in intangible fixed assets.
AMORTIZATION OF INTANGIBLE ASSETS
Amortization expense for the year ended December 31, 2022 was $2,572 (2021: $2,529). Amortization expense is recorded in the following line items in the income statement:
2022 | 2021 | |
Cost of sales | 798 | 880 |
Selling, general and administrative expenses | 1,774 | 1,649 |
Total | 2,572 | 2,529 |
RESEARCH COSTS
Research and development expenses are included in selling, general and administrative expenses and were $4,224 and $4,202 in the years ended December 31, 2022 and 2021, respectively.
IMPAIRMENT TESTING FOR INTANGIBLE ASSETS
(i)Goodwill
For the purposes of impairment testing, goodwill has been allocated to the Company\u2019s cash-generating units as follows:
Segment | 2022 | 2021 | |
AMG Antimony | Critical Minerals | 9,702 | 9,702 |
AMG Chrome | Critical Materials Technologies | 1,510 | 1,510 |
AMG Engineering | Critical Materials Technologies | 13,520 | 14,093 |
AMG Titanium Alloys | Critical Materials Technologies | 4,125 | 4,127 |
Total | 28,857 | 29,432 |
Key assumptions
The calculations of value in use are most sensitive to the following assumptions:
\u2022Global metals pricing - Estimates are obtained from published indices. The estimates are evaluated and are generally used as a guideline for future pricing.
\u2022Discount rate - Discount rates reflect the current market assessment of the time value of money and the risks specific to the asset, based on a comparable peer group.
\u2022Expected future cash flows - Expected future cash flows are based on management\u2019s best estimates of future business conditions but cannot be guaranteed as the Company does not have fixed revenues or costs.
\u2022Growth rate - Growth rates are based on management\u2019s interpretation of published industry research in order to extrapolate cash flows beyond the business plan period. As most businesses follow economic trends, an inflationary factor of 1% was utilized for all entities.
It is possible that the key assumptions used in the business plan will differ from actual results. However, management does not believe that any reasonably possible changes to any of such key assumptions will cause the carrying amount to exceed the recoverable amount. The values assigned to the key assumptions represent management\u2019s assessment of future trends in the metallurgical industry and are based on both external sources and internal sources (historical data).
For the impairment tests for AMG Antimony, AMG Chrome, AMG Engineering and AMG Titanium Alloys' cash-generating units, the recoverable amounts are the value in use. The value in use was determined using the discounted cash flow method. In 2022 and 2021, the carrying amounts of the AMG Antimony, AMG Chrome, AMG Engineering and AMG Titanium Alloys\u2019 cash-generating units were determined to be lower than their recoverable amounts and no impairment losses were recognized.
The following table includes the pre-tax discount rates that were applied in determining the recoverable amount for each cash-generating unit:
2022 | 2021 | |
AMG Antimony | 10.61% | 10.97% |
AMG Chrome | 11.47% | 9.65% |
AMG Engineering | 12.75% | 10.81% |
AMG Titanium Alloys | 11.47% | 11.47% |
Sensitivities related to the value in use calculation for all cash-generating units would imply that a 1% increase in the discount rate or using a 0% growth rate would not have created an impairment.
(ii)Intangibles with finite lives
The determination of whether long-lived assets are impaired requires an estimate of the recoverable amount of the cash- generating unit or group of cash-generating units to which the long-lived assets have been allocated. The recoverable amount is defined as the higher of a cash-generating unit\u2019s fair value less costs of disposal and its value in use. For each of the cash-generating units which tested long-lived assets for recoverability, the recoverable amount was determined as the value in use or fair value less costs to sell as appropriate. The value in use requires the entity to estimate the future cash flows expected to arise from the cash-generating units or group of cash-generating units and to discount these cash flows with a risk adjusted discount rate. Expected future cash flows are based on management\u2019s best estimates of future business conditions but cannot be guaranteed as the Company does not have fixed revenues or costs. The risk adjusted discount rate is estimated using a comparison of peers but can vary based on changes in the debt or equity markets or risk premiums assigned to countries or industries.
As of December 31, 2022, the Company owned 11.3% (2021: 11.3%) ownership interest in a former customer, Global Advanced Metals Pty LTD. The investment is being designated as a financial instrument measured at fair value through other comprehensive income because the Company has not gained significant influence.
The investment had a value of $13,629 at December 31, 2022 (2021: $12,300). The fair value of this investment is estimated by management with reference to the relevant available information. The Company relied on the current financial results of the investment including the current financial statements and current year revenue estimates to determine a fair value for the investment. The Company did not have the relevant data to complete a discounted cash flow model. There was a lack of marketability discount applied of 17.5%. Changes in the valuation methodologies or assumptions could lead to different measurements of fair value. The Company recorded investment gains of $1,329 and $1,008 related to the investment during the years ended December 31, 2022 and 2021, respectively, which is included in other comprehensive income.
Also included in other investments are assets of $15,695 (2021: $17,530) which are designated to fund the non-qualified pension liability. These assets consist of debt securities, equity securities, and insurance contracts which are held at fair value. These assets have been designated as Level 1 and partially Level 3 financial instruments on the fair value hierarchy. The Level 3 investments consist of insurance contracts valued at $7,473 (2021: $6,451). These insurance contracts have been valued using unobservable inputs based on the best available information in the circumstances. The investments are held in a Rabbi Trust and are restricted for use in pension funding. The Company recorded an investment loss of ($1,596)\u00a0(2021: $1,601 gain) related to the investments during the year ended December 31, 2022, which is included in other comprehensive income. See notes 23 and 29 for additional information.
2022 | 2021 | |
Raw materials | 95,476 | 78,536 |
Work in process | 33,417 | 28,708 |
Finished goods | 132,688 | 99,861 |
Other | 15,730 | 11,215 |
Total | 277,311 | 218,320 |
Other inventory primarily includes spare parts that are maintained for operations.
In the year ended December 31, 2022, the net adjustment to net realizable value amounted to a write-down of $5,233 (2021: $1,929) and was included in cost of sales. The net realizable value write-downs were primarily related to inventory costing adjustments due to variability in metals pricing.
2022 | 2021 | |
Trade receivables, net of allowance for doubtful accounts | 124,754 | 107,682 |
Due from investment in affiliate | 229 | 126 |
Gross amount due from customers for contract work | 335,185 | 269,651 |
Less: progress payments received | (297,620) | (232,024) |
Net receivable from contract work (note 5) | 37,565 | 37,627 |
Total | 162,548 | 145,435 |
At December 31, 2022 and 2021, trade receivables include receivables from customers who have received direct shipments or services from the Company and receivables from customers who have utilized inventory on consignment. Amounts billed to furnace construction contracts customers are also included in the trade and other receivables line item in the statement of financial position. The carrying amount of trade receivables approximates their fair value due to their short-term nature. Trade receivables are generally non-interest bearing and are generally on 30-90 day terms.
At December 31, 2022, receivables in the amount of $82,043 (2021: $69,577) are pledged as collateral to secure the term loan credit facility of the Company (see note 21).
Other assets are comprised of the following:
2022 | 2021 | |
Energy contract settlement | 66,291 | \u2014 |
Prepaid inventory | 25,395 | 33,242 |
Prepaid taxes (indirect) | 17,745 | 20,290 |
Insurance | 7,772 | 6,154 |
Deposits | 3,263 | 2,640 |
Maintenance and subscriptions | 1,981 | 930 |
Environmental trusts | 1,924 | 3,200 |
Debt issuance cost | 1,850 | 2,484 |
Other miscellaneous assets | 4,225 | 4,597 |
Total | 130,446 | 73,537 |
Thereof: | ||
Current | 121,834 | 65,066 |
Non-current | 8,612 | 8,471 |
2022 | 2021 | |
Non-current | 5,875 | 85,023 |
Current | 1,045 | 8,411 |
Total | 6,920 | 93,434 |
As of December 31, the analysis of trade receivables that were past due but not impaired is as follows:
Total | Neither | Past due but not impaired | |||||
<30 | 30-60 | 60-90 | 90-120 | >120 | |||
2022 | 162,548 | 151,431 | 8,552 | 1,103 | 272 | 504 | 686 |
2021 | 145,435 | 134,519 | 7,515 | 1,621 | 665 | 110 | 1,005 |
At December 31, 2022, trade receivables are shown net of expected credit losses of $970 (2021: $1,268) arising from customer unwillingness or inability to pay. Bad debt charges in the amount of $80\u00a0and $435 were recorded in the years ended December 31, 2022 and December 31, 2021, respectively. These charges were recorded in selling, general and administrative expenses in the consolidated income statement. Refer to note 3(f) for additional details on the Company\u2019s policy for the calculation of expected credit losses.
Movements in the provision for impairment of receivables were as follows:
2022 | 2021 | |
At January 1 | 1,268 | 1,637 |
Charge for the year | 80 | 435 |
Amounts written-off | (315) | (538) |
Amounts recovered/collected | (17) | (155) |
Foreign currency adjustments | (46) | (111) |
At December 31 | 970 | 1,268 |
FACTORING OF RECEIVABLES
As of December 31, 2022 and 2021, the Company had total receivables factored and outstanding of $64,768, and $64,440, respectively. The Company maintains accounts receivable facilities with banks and credit insurance companies in Germany, France and the US. The Company sold receivables in the amount of $427,041 throughout the year which includes security deposits of $2,667 and cash proceeds of $289,086. During 2022, the Company incurred costs of $1,996 in conjunction with the sale of these receivables of which $1,490 were included in finance cost, $137 were recorded to selling, general and administrative expenses, and $369 were recorded to sales on the income statement. This activity is included in cash from operating activities during the year ended December 31, 2022.
2022 | 2021 | |
Bank balances | 338,242 | 298,388 |
Money market funds | 7,801 | 31,697 |
Time deposits | \u2014 | 7,792 |
Total cash | 346,043 | 337,877 |
At December 31, 2022\u00a0and\u00a02021, the Company had $7,801 and\u00a0 $31,697 respectively of highly liquid money market funds.
Bank balances earn interest at floating rates based on daily bank deposit rates. In 2021, one of our German subsidiaries utilized time deposits with a maturity of one month for the immediate cash needs of the Company.
SHARE CAPITAL
At December 31, 2022, the Company\u2019s authorized share capital was comprised of 65,000,000 ordinary shares (2021: 65,000,000) with a nominal share value of \u20ac0.02 (2021: \u20ac0.02) and 65,000,000 preference shares (2021: 65,000,000) with a nominal share value of \u20ac0.02 (2021: \u20ac0.02).
At December 31, 2022, the issued and outstanding share capital was comprised of 31,951,492 ordinary shares (2021: 31,878,334), with a nominal value of \u20ac0.02 (2021: \u20ac0.02) which were fully paid. In April 2021, the Company issued 3,136,742 ordinary shares for total proceeds of $118,722, net of issuance costs. The Company also re-issued 32,557 of treasury shares in connection with the settlement of share-based compensation for total proceeds of $4,905. No preference shares were outstanding at December 31, 2022 (2021: nil). The nominal value of the outstanding shares as of December 31, 2022, was $682 (2021: $723) as compared to the value using historical exchange rates which was $853 (2021: $853).
The preference shares carry equal voting rights as ordinary shares and are entitled, if distribution to shareholders is permitted, to a fixed dividend equal to EURIBOR for deposit loans of one year increased with maximum of 400 basis points as determined by the Management Board of the Company and subject to approval by the Supervisory Board. AMG\u2019s dividend policy is to evaluate liquidity needs for alternative uses including funding growth opportunities and funding dividend payments to shareholders. Payment of future dividends to shareholders will be at the discretion of the Management Board subject to the approval of the Supervisory Board after taking into account various factors and is subject to limitations based on the Company\u2019s revolving credit facility. Additionally, payment of future dividends or other distributions to shareholders may be made only if the Company\u2019s shareholders\u2019 equity exceeds the sum of the issued share capital plus the reserves required to be maintained by law.
A roll forward of the total shares outstanding is noted below:
Balance at January 1, 2021 | 28,457,498 |
Share issuance | 3,136,742 |
Shares repurchased | (32,557) |
Re-issuance of treasury shares | 32,557 |
Treasury shares delivered for share-based compensation | 276,551 |
Treasury shares delivered to Supervisory Board | 7,543 |
Balance at December 31, 2021 | 31,878,334 |
Shares repurchased | (41,953) |
Treasury shares delivered for share-based compensation | 107,737 |
Treasury shares delivered to Supervisory Board | 7,374 |
Balance at December 31, 2022 | 31,951,492 |
SHARES ISSUED OR DELIVERED FOR SHARE-BASED COMPENSATION
During the year ended December 31, 2022, 107,737 (2021: 276,551) shares were issued or delivered related to share- based compensation to management. Refer to note 24 for details regarding these plans.
TREASURY SHARES
The Company repurchased shares which are held in treasury for the delivery upon exercise of options and performance share programs and are accounted for as a reduction of shareholders\u2019 equity. On August 11, 2021, the Company retired 2,000,000 treasury shares in accordance with the terms of the share repurchase program.
A roll forward of the treasury share balance is noted below:
Balance at January 1, 2021 | 2,909,924 |
Shares repurchased | 32,557 |
Re-issuance of treasury shares | (32,557) |
Treasury shares retired | (2,000,000) |
Treasury shares delivered for share-based compensation | (276,551) |
Treasury shares delivered to Supervisory Board | (7,543) |
Balance at December 31, 2021 | 625,830 |
Shares repurchased | 41,953 |
Treasury shares delivered for share-based compensation | (107,737) |
Treasury shares delivered to Supervisory Board | (7,374) |
Balance at December 31, 2022 | 552,672 |
SUPERVISORY BOARD REMUNERATION
During the years ended December 31, 2022 and 2021, 7,374 and 7,543 shares were delivered, respectively, as compensation to its Supervisory Board members for services provided in 2022 and 2021. These shares were awarded as part of the remuneration policy approved by the Annual General Meeting.
OTHER RESERVES
Foreign currency translation reserve | Hedging reserve | Cost of hedging reserve | Capitalized development expenditures reserve | Defined benefit obligation reserve | Fair value reserve | Total | |
Balance at January 1, 2021 | (21,644) | 247 | 535 | 1,524 | (90,654) | (601) | (110,593) |
Currency translation differences | (6,218) | \u2014 | \u2014 | \u2014 | 3,998 | \u2014 | (2,220) |
Gain on FVOCI investments | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | 2,609 | 2,609 |
Movement on cash flow hedges | \u2014 | 1,591 | (239) | \u2014 | \u2014 | \u2014 | 1,352 |
Tax effect on net movement on cash flow hedges | \u2014 | (2,800) | 87 | \u2014 | \u2014 | \u2014 | (2,713) |
Actuarial gains on defined benefit plans | \u2014 | \u2014 | \u2014 | \u2014 | 19,819 | \u2014 | 19,819 |
Tax effect on net movement on defined benefit plans | \u2014 | \u2014 | \u2014 | \u2014 | (4,297) | \u2014 | (4,297) |
Transfer to retained deficit | \u2014 | \u2014 | \u2014 | (378) | \u2014 | \u2014 | (378) |
Balance at December 31, 2021 | (27,862) | (962) | 383 | 1,146 | (71,134) | 2,008 | (96,421) |
Balance at January 1, 2022 | (27,862) | (962) | 383 | 1,146 | (71,134) | 2,008 | (96,421) |
Currency translation differences | (4,284) | \u2014 | \u2014 | \u2014 | 2,653 | \u2014 | (1,631) |
Loss on FVOCI investments | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | (267) | (267) |
Movement on cash flow hedges | \u2014 | 29,332 | 520 | \u2014 | \u2014 | \u2014 | 29,852 |
Tax effect on net movement on cash flow hedges | \u2014 | (1,135) | (169) | \u2014 | \u2014 | \u2014 | (1,304) |
Actuarial gains on defined benefit plans | \u2014 | \u2014 | \u2014 | \u2014 | 35,969 | \u2014 | 35,969 |
Tax effect on net movement on defined benefit plans | \u2014 | \u2014 | \u2014 | \u2014 | (10,851) | \u2014 | (10,851) |
Transfer to retained deficit | \u2014 | \u2014 | \u2014 | (216) | \u2014 | \u2014 | (216) |
Balance at December 31, 2022 | (32,146) | 27,235 | 734 | 930 | (43,363) | 1,741 | (44,869) |
RESTRICTIONS ON DISTRIBUTIONS
Certain restrictions apply on equity of the Company due to Dutch legal requirements. Please see note 12 in the parent company financial statements for additional details.
DIVIDENDS
During AMG\u2019s 2021 Annual General Meeting, the Company amended the dividend policy. Given that AMG has cyclical elements in its product mix and that it desires to have a relatively consistent dividend pay-out, the Company revised its policy to allow for stable dividend pay-outs that will target gradual increases to historic dividend levels, provided that such pay-outs and possible increases are supported by AMG\u2019s liquidity and cash flow generation, and subject to prevailing statutory requirements.
The Company intends to propose a full year dividend for 2022 of \u20ac0.70 (2021: \u20ac0.40)\u00a0to the General Meeting of Shareholders for approval as part of the adoption of the 2022 Annual Accounts.
The interim dividend of \u20ac0.30 (2021:\u00a0\u20ac0.10) per ordinary AMG share, paid on August 10, 2022, will be deducted from this amount. The proposed final dividend per ordinary share therefore amounts
BASIC EARNINGS PER SHARE
Basic earnings per share amounts are calculated by dividing net profits for the year attributable to ordinary equity holders of the parent by the weighted average of ordinary shares outstanding during the year. As of December 31, 2022 and 2021, the calculation of basic earnings per share is performed using the weighted average shares outstanding for 2022 and 2021, respectively.
DILUTED EARNINGS PER SHARE
Diluted earnings per share are calculated by dividing the net profit attributable to the ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. The only category of potentially dilutive shares at December 31, 2022 and 2021 are AMG\u2019s share options and AMG\u2019s restricted share unit and performance share unit plans. The diluted earnings per share calculation includes the number of shares that could have been acquired at fair value given the exercise price attached to the outstanding options. The calculated number of shares is then compared with the number of shares that would have been issued assuming the exercise of the share options.
For the year ended December 31, 2022, there were 13 (2021: 25) shares related to outstanding stock options that could potentially further dilute basic EPS in future periods but were anti-dilutive in 2022 due to the strike price of the options relative to the average price of the Company's shares for the year.
Earnings | 2022 | 2021 |
Net profit attributable to equity holders for basic and diluted earnings per share | 187,589 | 13,771 |
Number of shares (in 000\u2019s) | ||
Weighted average number of ordinary shares for basic earnings per share | 31,932 | 30,958 |
Dilutive effect of stock options and other share-based compensation | 65 | 60 |
Dilutive effect of performance share units | 725 | 361 |
Weighted average number of ordinary shares adjusted for effect of dilution | 32,722 | 31,379 |
Basic earnings per share | 5.87 | 0.44 |
Diluted earnings per share | 5.73 | 0.44 |
As of December 31, 2022, non-controlling interests totaled $27,296 (2021: $25,718).
On March 30, 2015, the Company sold a 40% equity interest in a German subsidiary, Graphit Kropfm\u00fchl GmbH (\"AMG Graphite\"). This sale resulted in the Company owning 60% of this subsidiary and a non-controlling interest of 40%. The Company has maintained control of the subsidiary and continues to consolidate the financial results. The non-controlling interest has rights to the financial position and results of AMG Graphite in proportion with their ownership. The non-controlling interest also has protective rights which prevent fundamental changes to AMG Graphite as well as restrictions on the ability to transfer cash out of the subsidiary.
The summarized financial information of this subsidiary is provided below. This information is based on amounts before intercompany eliminations:
Summarized financial information as of December 31: | 2022 | 2021 |
Revenues | 74,503 | 74,034 |
Current assets | 67,140 | 64,317 |
Non-current assets | 35,054 | 39,316 |
Current liabilities | 26,303 | 25,056 |
Non-current liabilities | 12,613 | 17,049 |
Total equity | 63,278 | 61,528 |
Attributable to: | ||
Equity holders of parent | 38,946 | 37,949 |
Non-controlling interest | 24,332 | 23,579 |
This note provides information about the contractual terms of the Company\u2019s interest-bearing loans and borrowings. For more information about the Company\u2019s exposure to interest rate and foreign currency risk, see note 28.
Non-current | Interest rate | Maturity | 2022 | 2021 |
Term Loan B1 | LIBOR +3.5% | 11/30/2028 | 336,121 | 338,397 |
Municipal bond | 5.0% | 7/1/2049 | 319,244 | 319,476 |
Subsidiary debt | 2.2% - 8.5% | 1/2023 - 11/2028 | 5,905 | 17,511 |
Total | 661,270 | 675,384 |
Current | Interest rate | Maturity | 2022 | 2021 |
Term Loan B1 | LIBOR +3.5% | 11/30/2028 | 3,500 | 3,500 |
Subsidiary debt | 2.2% - 8.5% | 1/2023 - 11/2028 | 11,664 | 23,841 |
Total | 15,164 | 27,341 |
1 Effective under the 2021 Term Loan B, the interest rate is subject to a 0.50% LIBOR floor.\u00a0 As of December 31, 2022, the effective floating interest rate was 7.9%.
TERM LOAN AND REVOLVING CREDIT FACILITY
On November 30, 2021, the Company entered into a $350,000, 7-year senior secured term loan B facility (\u201cterm loan\u201d) and a $200,000 5-year senior secured revolving credit facility (\u201crevolver\u201d). The total facility amount of $550,000 replaced AMG\u2019s previous credit facility and extended the term loan maturity from 2025 to 2028 and revolver maturity from 2023 to 2026. Proceeds from the facility were used to repay AMG\u2019s previous credit facility in 2021.
As of December 31, 2022, the total outstanding principal on the term loan was $346,500 (2021: $350,000). As of December 31, 2022, available revolver capacity was $186,200 (2021: $170,000). Interest on the revolver is based on current LIBOR (or in the case of any loans denominated in euros, EURIBOR) plus a margin that is dependent on AMG\u2019s corporate credit rating. Additionally, the revolver, as a sustainability-linked loan, is subject to a margin adjustment based on annual CO2 intensity reduction targets. At December 31, 2022 the margin on the revolver was 2.70%. As part of obtaining the revolver the Company is responsible for maintaining Net Debt to EBITDA not to exceed 3.5:1.0. Interest on the term loan is based on current LIBOR plus a margin of 3.5% and is subject to a LIBOR floor of 0.50% as of December 31, 2022.
To mitigate interest rate risk, on November 30, 2021 the Company entered into interest rate swaps totaling $350,000 in connection with the execution of the term loan and revolver.\u00a0 This determination was made as part of the ongoing risk management process as these instruments mitigate the interest rate risk on the Company\u2019s credit facility. See note 29 for additional information on the interest rate hedging activities.
The credit facility is subject to several affirmative and negative covenants including, but not limited to, the following: Net Debt to EBITDA not to exceed 3.5:1.0. EBITDA and Net Debt are defined in the credit facility agreement. The definitions per the credit facility agreement may be different from management definitions. The credit facility limits the amount of cash that can be included in the calculation of Net Debt. AMG\u2019s current cash balance is significantly in excess of the credit facility limit. As a result, the Net Debt to EBITDA ratio as defined by the credit facility as of December 31, 2022 was 0.6:1.0 (2021: 1.6:1.0). As of December 31, 2022, the Company was in compliance with all of its debt covenants.
Mandatory repayment of the credit facility is required upon the occurrence of (i) a change of control or (ii) the sale of all or substantially all of the business and/or assets of the Company whether in a single transaction or a series of related transactions. If the Company were not in compliance with all covenants under the credit facility, the loan could become due in full or the Company could be subject to significant amendment fees.
In July 2017, the United Kingdom\u2019s Financial Conduct Authority, which regulates the London Interbank Offered Rate (LIBOR), announced it intends to phase out LIBOR by June 30, 2023.\u00a0 The Alternative Reference Rates Committee (\u2018ARRC\u2019), a group of private-market participants convened by the Federal Reserve Board and the Federal Reserve Bank of New York to help ensure
a successful transition from U.S. dollar LIBOR (\u2018USD-LIBOR\u2019) to a more robust reference rate, has proposed that the Secured Overnight Financing Rate (\u2018SOFR\u2019) represents the best alternative to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR.\u00a0 The Company\u2019s Credit Agreement and interest rate swaps include a hardwired transition process from LIBOR to SOFR, as the successor benchmark reference rate, the transition will occur before the cessation of LIBOR, on or before June 30, 2023.
Debt issuance costs
In connection with the term loan and revolver that were refinanced in 2021, the Company incurred issuance costs of $7,240, which were deducted from the proceeds of the debt from the term loan or paid by the Company. The amounts have been allocated to the term loans and revolver based on the amount which would have been incurred if the facilities were obtained separately.
The amount allocated to the term loans of $4,703 is shown net against the outstanding term loan balance and are amortized using the effective interest method. The Company recorded amortization expense of $710 (2021: $58)\u00a0during the year ended December 31, 2022 related to these costs. The balance of unamortized costs net against the book value of the term loan was $3,935 (2021: $4,645) as of December 31, 2022.
The amount allocated to the revolver of $2,537 is included in other assets because there were no borrowings outstanding. This amount is being amortized on a straight-line basis over the life of the facility. The Company has recorded amortization expense of $634 during 2022 related to these costs. The balance of unamortized costs recorded in other assets related to the revolving credit facility was $1,850 (2021: $2,484) as of December 31, 2022.
Additionally, the Company recorded amortization of $4,850 related to issuance cost from the previous credit facility in 2021 including $390 in fees incurred during the year.
Original issuance discount
The term loan included an original issue discount (OID) of 100 basis points, or $3,500 which is shown net against the outstanding term loan balance and is amortized using the effective interest method. The Company has recorded amortization expense of $514 (2021: $42) during the year ended December 31, 2022 related to this original issuance discount. The balance of unamortized costs recorded was $2,944 (2021: $3,458) as of December 31, 2022. Additionally, the Company recorded amortization of $964 related to original issuance discount from the previous credit facility in 2021.
MUNICIPAL BOND
On July 11, 2019, the Company entered into a $307,200 municipal bond in the US tax-exempt bond market generating proceeds of $325,000 as the bond was issued by AMG Vanadium LLC at a premium. The bond was issued through the Ohio Air Quality Development Authority for the purpose of constructing a new catalyst recycling facility in Ohio. The bonds have a coupon rate of 5.0% and mature on July 1, 2049. The bonds are fully guaranteed
by the Company. There are no financial covenants related to the bonds. The bonds are unsecured and subordinated to the term loan and revolver.
Under the terms of the loan agreement with the bondholders, the proceeds of the bonds are restricted for the purpose of financing a portion of the cost of the acquisition, construction and equipping of the new spent catalyst recycling facility; paying\u00a0 construction period interest on the bonds; and paying issuance costs of the bond, which are defined as any financial, legal, administrative and other fees incurred by the Company. The funds are held by a third- party trustee and invested in cash and highly liquid money market funds (notes 16 and 28). While the project is under construction, the Company has classified the proceeds of the bonds as restricted cash as a non-current asset in the statement of financial position.
The bonds have several redemption provisions. The Company has an optional redemption whereby it can redeem the bonds beginning on July 1, 2029 through the date of maturity for the par value plus accrued interest at the date of redemption. If upon completion of the project there are excess funds, then the loan agreement indicates that a mandatory redemption of the excess funds shall be used to redeem an equivalent amount of the outstanding bonds. Additionally, the Company will also be required to repay a pro rata amount of the original issue premium in the event of a mandatory redemption. The repayment of the premium is calculated as the number of remaining years until the ten-year call date (July 1, 2029) divided by ten years and multiplied by the amount of the original issue premium on the redeemed bonds.
The municipal bond also grants the holders of the bonds the right to tender their bonds for purchase by the Company upon a change in control of the Company at a purchase price of 101% of the principal amount of the bonds plus accrued interest.
Debt issuance costs
In connection with the issuance of the municipal bonds in July 2019, the Company incurred issuance costs of $4,981, which were deducted from the proceeds of the municipal bonds. These issuance costs are presented net against the outstanding municipal bond balance and are amortized using the effective interest method. The Company recorded amortization expense of $83 (2021: $77) during the year ended December 31, 2022 related to these costs. The balance of unamortized costs was $4,711 (2021: $4,794) as of December 31, 2022.
Bond issuance premium
The municipal bond included a premium of $17,800 which is shown with the outstanding municipal bond balance and is amortized using the effective interest method. The Company recorded amortization of $315 (2021: $300) during the year ended December 31, 2022. The balance of unamortized premium recorded was $16,755 (2021: $17,070) as of December 31, 2022.
SUBSIDIARY DEBT
As of December 31, 2022, a Brazilian subsidiary had $13,743 (2021: $37,274) of fixed and floating rate debt facilities outstanding. These arrangements are denominated in US dollar and Brazilian reais and mature from 2023 through 2025. During 2022, the company repaid $24,373 (2021: $3,203) on these loans and the balance was impacted by $842 (2021: $227) due to foreign exchange movements.
During 2020, a local bank approved a loan to a Chinese subsidiary with a borrowing capacity of \u00a528,000 for the construction of an aluminum master alloys facility in China. The facility matures in 2028 and has an interest rate of 4.9%. As of December 31, 2022, the outstanding balance for this loan was $3,826 (2021: $4,078).
DEBT REPAYMENTS
The Company made debt repayments of $27,873 (2021: $342,781) during 2022.
RECONCILIATION OF MOVEMENTS OF LIABILITIES TO CASH FLOWS ARISING FROM FINANCING ACTIVITIES
Total | |
Balance at January 1, 2021 | 696,654 |
Changes from financing cash flows: | |
Proceeds from loans and borrowings | 348,972 |
Payment of transaction costs related to debt | (5,093) |
Repayment of borrowings | (342,781) |
Total changes from financing cash flows | 1,098 |
The effect of changes in foreign exchange rates | (155) |
Amortization of transaction costs related to loans and borrowings | 5,128 |
Balance at December 31, 2021 | 702,725 |
Balance at January 1, 2022 | 702,725 |
Changes from financing cash flows: | |
Proceeds from loans and borrowings | 82 |
Repayment of borrowings | (27,873) |
Total changes from financing cash flows | (27,791) |
The effect of changes in foreign exchange rates | 509 |
Amortization of premiums, discounts and transaction costs related to loans and borrowings | 991 |
Balance at December 31, 2022 | 676,434 |
DEFINED CONTRIBUTION PLANS
Tax qualified defined contribution plans are offered which cover substantially all of the Company\u2019s salaried and hourly employees at US subsidiaries. All contributions, including a portion that represents a company match, are made in cash into mutual fund accounts in accordance with the participants\u2019 investment elections. The assets of the plans are held separately, under the control of trustees, from the assets of the subsidiaries. When employees leave the plans prior to vesting fully in the Company contributions, the contributions or fees payable by the Company are reduced by the forfeited contributions.
In Europe, the employees are members of state-managed retirement benefit plans operated by the governments in the countries where the employees work. The subsidiaries are required to contribute a specified percentage of payroll costs to the retirement benefit scheme to fund the benefits. The only obligation of the subsidiaries with respect to the retirement benefit plan is to make the specified contributions.
The total expense as of December 31, 2022, recognized in the consolidated income statement of $4,768 (2021: $3,685) represents contributions paid and payable to these plans.
DEFINED BENEFIT PLANS
North America plans
The Company offers tax-qualified, non-contributory defined benefit pension plans for salaried and hourly employees at US subsidiaries covered under collective bargaining agreements. The plans generally provide benefit payments using a formula based on an employee\u2019s compensation and length of service. These plans are funded in amounts at least equal to the minimum funding requirements of the US Employee Retirement Income Security Act.
A non-qualified additional supplemental executive retirement plans (SERPs) also cover four of the Company\u2019s current and former executive officers. Pursuant to the terms of the agreements, these officers earn additional retirement benefits for continued service with the Company. The amounts payable under the SERPs are guaranteed by AMG.
Actuarial assumptions
A majority of the North America plans are frozen to new entrants. As a result, the principal actuarial assumptions for these plans are the rate of discount and mortality rates. The rate of discount utilized as of December 31, 2022 (expressed as a weighted average) was 5.03% (2021: 2.53%). The SERP plan assumptions are developed using specific assumptions about the individual participants.
Assumptions regarding future mortality are based on published statistics and the mortality tables developed by the Society of Actuaries for private sector plans in the United States using MP-2021 as published in October 2021. The valuation was prepared on a going-plan basis. The valuation was based on members in the Plan as of the valuation date and did not take future members into account. No provisions for future expenses were made.
Medical cost trend rates are not applicable to these plans.
The best estimate of contributions to be paid to the plans for the year ending December 31, 2023 is $1,070.
European plans
The Company\u2019s European plans include qualified defined benefit plans in Germany, the UK and France. The plans in Germany and France are partially funded or unfunded while the UK plan is partially funded. Benefits under these plans are based on years of service and the employee\u2019s compensation. Benefits are paid either from plan assets or, in certain instances, directly by AMG. Substantially all plan assets are invested in listed stocks and bonds.
A non-qualified additional supplemental executive retirement plan (SERP) also covers one of the Company\u2019s current executive officers. Pursuant to the terms of the agreement, this officer earns additional retirement benefits for continued service with the Company. The amounts payable under the SERP are guaranteed by AMG.
Actuarial assumptions
Principal actuarial assumptions at the reporting date (expressed as weighted averages) are presented below.
2022 | 2021 | |
% per annum | % per annum | |
Salary increases | 1.40 | 1.12 |
Rate of discount at December 31 | 4.26 | 1.49 |
Pension payments increases | 2.58 | 2.57 |
Assumptions regarding future mortality are based on published statistics and mortality tables including the\u00a0RT 2018G and S3PxA mortality tables.
The best estimate of contributions to be paid to the primary plans for the year ending December 31, 2023 is $9,886.
Presented below are employee benefits disclosures for plans aggregated by geographical location into the North American and European groups.
2022 changes in the defined benefit obligation and fair value of plan assets:
North America | Europe | Total | |||||||
Fair Value of Plan Asset | Defined Benefit Obligation | Total | Fair Value of Plan Asset | Defined Benefit Obligation | Total | Fair Value of Plan Asset | Defined Benefit Obligation | Total | |
January 1, 2022 | 40,337 | (58,188) | (17,851) | 112,834 | (257,611) | (144,777) | 153,171 | (315,799) | (162,628) |
Service costs | \u2014 | (533) | (533) | \u2014 | (3,707) | (3,707) | \u2014 | (4,240) | (4,240) |
Net interest | 690 | (1,424) | (734) | 1,296 | (3,718) | (2,422) | 1,986 | (5,142) | (3,156) |
Subtotal included in profit or loss | 690 | (1,957) | (1,267) | 1,296 | (7,425) | (6,129) | 1,986 | (9,382) | (7,396) |
Benefits paid | (2,951) | 2,951 | \u2014 | (6,889) | 10,525 | 3,636 | (9,840) | 13,476 | 3,636 |
Amounts included in OCI (see following table) | (8,227) | 13,471 | 5,244 | (32,847) | 64,848 | 32,001 | (41,074) | 78,319 | 37,245 |
Contributions by employer | 701 | \u2014 | 701 | 2,830 | \u2014 | 2,830 | 3,531 | \u2014 | 3,531 |
Effect of movements in foreign exchange rates | \u2014 | \u2014 | \u2014 | (11,598) | 20,130 | 8,532 | (11,598) | 20,130 | 8,532 |
Change in the fair value of defined benefit plans that are in net asset position as of December 31, 2022(a) | (157) | \u2014 | (157) | 77 | \u2014 | 77 | (80) | \u2014 | (80) |
Net liability for defined benefits obligations at December 31, 2022 | 30,393 | (43,723) | (13,330) | 65,703 | (169,533) | (103,830) | 96,096 | (213,256) | (117,160) |
(a)$286 included in non-current assets in the Statement of Financial Positions.
2022 subtotal included in OCI:
North America | Europe | Total | |||||||
Fair Value of Plan Asset | Defined Benefit Obligation | Total | Fair Value of Plan Asset | Defined Benefit Obligation | Total | Fair Value of Plan Asset | Defined Benefit Obligation | Total | |
Return on plan assets (excluding amounts included in net interest expense) | (8,227) | \u2014 | (8,227) | (32,847) | \u2014 | (32,847) | (41,074) | \u2014 | (41,074) |
Assets ceiling | \u2014 | \u2014 | \u2014 | \u2014 | 5,318 | 5,318 | \u2014 | 5,318 | 5,318 |
Actuarial changes arising from changes in demographic assumptions | \u2014 | 1,284 | 1,284 | \u2014 | (423) | (423) | \u2014 | 861 | 861 |
Actuarial changes arising from changes in financial assumptions | \u2014 | 11,409 | 11,409 | \u2014 | 65,825 | 65,825 | \u2014 | 77,234 | 77,234 |
Experience adjustments | \u2014 | 778 | 778 | \u2014 | (5,872) | (5,872) | \u2014 | (5,094) | (5,094) |
Subtotal included in OCI | (8,227) | 13,471 | 5,244 | (32,847) | 64,848 | 32,001 | (41,074) | 78,319 | 37,245 |
2021 changes in the defined benefit obligation and fair value of plan assets:
North America | Europe | Total | |||||||
Fair Value of Plan Asset | Defined Benefit Obligation |
| Fair Value of Plan Asset | Defined Benefit Obligation |
| Fair Value of Plan Asset | Defined Benefit Obligation |
| |
January 1, 2021 | 40,749 | (60,699) | (19,950) | 114,866 | (292,074) | (177,208) | 155,615 | (352,773) | (197,158) |
Service costs | \u2014 | (586) | (586) | \u2014 | (3,727) | (3,727) | \u2014 | (4,313) | (4,313) |
Net interest | 710 | (1,274) | (564) | 646 | (2,599) | (1,953) | 1,356 | (3,873) | (2,517) |
Subtotal included in profit or loss | 710 | (1,860) | (1,150) | 646 | (6,326) | (5,680) | 1,356 | (8,186) | (6,830) |
Benefits paid | (2,938) | 2,938 | \u2014 | (6,134) | 10,075 | 3,941 | (9,072) | 13,013 | 3,941 |
Amounts included in OCI (see following table) | 60 | 1,433 | 1,493 | 1,007 | 17,123 | 18,130 | 1,067 | 18,556 | 19,623 |
Contributions by employer | 854 | \u2014 | 854 | 4,096 | \u2014 | 4,096 | 4,950 | \u2014 | 4,950 |
Effect of movements in foreign exchange rates | \u2014 | \u2014 | \u2014 | (1,536) | 13,591 | 12,055 | (1,536) | 13,591 | 12,055 |
Change in the fair value of defined benefit plans that are in net asset position as of December 31, 2021\u00a0(a) | 902 | \u2014 | 902 | (111) | \u2014 | (111) | 791 | \u2014 | 791 |
Net liability for defined benefits obligations at December 31, 2021 | 40,337 | (58,188) | (17,851) | 112,834 | (257,611) | (144,777) | 153,171 | (315,799) | (162,628) |
(a)$210\u00a0 included in non-current assets in the Statement of Financial Positions.
2021 subtotal included in OCI:
North America | Europe | Total | |||||||
Fair Value of Plan Asset | Defined Benefit Obligation | Total | Fair Value of Plan Asset | Defined Benefit Obligation | Total | Fair Value of Plan Asset | Defined Benefit Obligation | Total | |
Return on plan assets (excluding amounts included in net interest expense) | 60 | \u2014 | 60 | 1,007 | \u2014 | 1,007 | 1,067 | \u2014 | 1,067 |
Assets ceiling | \u2014 | \u2014 | \u2014 | \u2014 | (5,218) | (5,218) | \u2014 | (5,218) | (5,218) |
Actuarial changes arising from changes in demographic assumptions | \u2014 | (189) | (189) | \u2014 | 816 | 816 | \u2014 | 627 | 627 |
Actuarial changes arising from changes in financial assumptions | \u2014 | 2,208 | 2,208 | \u2014 | 21,760 | 21,760 | \u2014 | 23,968 | 23,968 |
Experience adjustments | \u2014 | (586) | (586) | \u2014 | (235) | (235) | \u2014 | (821) | (821) |
Subtotal included in OCI | 60 | 1,433 | 1,493 | 1,007 | 17,123 | 18,130 | 1,067 | 18,556 | 19,623 |
Plan assets consist of the following:
North America plans | European plans | Total | ||||
2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |
Equity securities and ownership of equity funds | 4,632 | 8,880 | 41,296 | 68,543 | 45,928 | 77,423 |
Fixed income | 25,083 | 30,629 | \u2014 | \u2014 | 25,083 | 30,629 |
Insurance contracts and other | 930 | 927 | 24,441 | 44,402 | 25,371 | 45,329 |
Total | 30,645 | 40,436 | 65,737 | 112,945 | 96,382 | 153,381 |
The assets of funded plans are generally held in separately administered trusts, either as specific assets or as a proportion of a general fund or insurance contracts. Assets are invested in different classes in order to maintain a balance between risk and return. Investments are diversified to limit the financial effect of the failure on any individual investment. For many of the funded plans, asset- liability matching strategies are not in place, however the fixed income assets are held in investments with varying term lengths.
The assets included in equity securities in the table above consists of securities held at market value. The fixed income assets consist primarily of investment grade and corporate bonds at market value. The insurance contracts and other consist of insurance contracts and other investment vehicles held at market value.
The expense is recognized in the following line items in the income statement:
North America plans\u00a0 | European plans | Total | ||||
2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |
Cost of sales | 377 | 401 | 1,373 | 1,557 | 1,750 | 1,958 |
Selling, general and administrative expenses | 890 | 749 | 4,756 | 4,123 | 5,646 | 4,872 |
Total | 1,267 | 1,150 | 6,129 | 5,680 | 7,396 | 6,830 |
A quantitative sensitivity analysis for significant assumptions as of December 31, 2022 is as shown below:
Assumptions | Discount rate | Future salary increases | Future pension cost increase | |||
Sensitivity level | 1% | 1% | 1% | 1% | 0.5% | 0.5% |
Impact on the net defined benefit obligation North American Plans | (3,561) | 4,157 | 75 | (79) | 91 | (86) |
Impact on the net defined benefit obligation European Plans | (19,002) | 22,045 | 2,024 | (1,817) | 5,965 | (5,531) |
Total impact on the net defined benefit obligation | (22,563) | 26,202 | 2,099 | (1,896) | 6,056 | (5,617) |
The sensitivity analyses above have been determined based on a method that extrapolates the impact on net defined benefit obligation as a result of reasonable changes in key assumptions occurring at the end of the reporting period.
The following payments are expected to be made in the future years out of the defined benefit plan obligation for the year ending December\u00a031:
North America Plans | European Plans | Total | |
2023 | 3,240 | 9,886 | 13,126 |
2024 | 3,170 | 9,888 | 13,058 |
2025 | 3,150 | 10,082 | 13,232 |
2026 | 3,740 | 10,307 | 14,047 |
2027 | 3,700 | 10,564 | 14,264 |
2028-2032 | 18,440 | 53,641 | 72,081 |
The average duration of the defined benefit plan obligation at the end of the reporting period is 12 years (2021: 14 years).
In May 2021, the shareholders of the Company approved an amendment to the Company's Remuneration Policy and long-term incentive program at the Annual General Meeting. Under the terms of the new Remuneration Policy, equity-settled stock options will no longer be awarded, and all awards for members of the Management Board will be in the form of performance share units (\u201cPSU's\u201d). The PSU's will continue to feature a three year service period; however, the new PSU plan will also require an additional two year holding period subsequent to vesting in line with the Dutch Corporate Governance Code. The PSU's will also continue to have a market performance vesting condition based upon the Company's total shareholder return relative to a relevant global peer group. However, the performance share units will no longer vest for performance below the 50th percentile (previously, the awards would fail to vest for performance below the 30th percentile). Only members of the AMG Management Board will receive PSU's. The Company established a new restricted share unit (\"RSU\") plan for the Company's employees outside of the AMG Management Board, which is discussed in detail below. These revisions to the Company's Remuneration Policy were effective on May 6, 2021 and did not impact or modify previously issued share-based payment awards.
EQUITY-SETTLED STOCK OPTIONS
As noted above, equity-settled stock options were discontinued as a result of the Company's amended Remuneration Policy.\u00a0 However, all previously issued and outstanding stock options to the Management Board were subject to the 2009 AMG Option Plan (\u201c2009 Plan\u201d) approved on May 13, 2009 at the Annual General
Meeting. Each option issued under the 2009 Plan entitles the holder to acquire shares at a future date at a price equal to the fair market value of the share at the date on which the option was granted. One half of the options granted to each option holder on any date will vest on each of the third and fourth anniversaries of the grant date. The vesting is subject to a performance condition related to return on capital employed. The options expire on the tenth anniversary of their grant date.
During the year ended December 31, 2022, no options were exercised (2021: 122,137) under the 2009 Plan. There were no new option grants under the 2009 Plan during the years ended December 31,\u00a0 2022 and 2021. During the years ended December 31, 2022 and 2021, there were no grants that expired or forfeited.
All options under the 2009 Plan are equity-settled, in accordance with IFRS 2, by award of options to acquire ordinary shares or award of ordinary shares. The fair value of these awards has been calculated at the date of grant of the award. The fair value, adjusted for an estimate of the number of awards that will eventually vest, is expensed using a graded vesting methodology. The fair value of the options granted was calculated using a Black-Scholes model. Changes in the assumptions can affect the fair value estimate of a Black- Scholes model. The assumptions used in the calculation are set out below.
During the year ended December 31, 2022, AMG recorded compensation expense from equity-settled option transactions of $324 (2021: $915) which is included in selling, general and administrative expenses in the income statement.
Movements
2022 | 2021 | |||
Number of options | Weighted average | Number of options | Weighted average | |
Outstanding at January 1 | 305 | 25.37 | 427 | 20.91 |
Granted during the year | \u2014 | \u2014 | \u2014 | \u2014 |
Exercised during the year | \u2014 | \u2014 | (122) | 9.78 |
Forfeited or expired during the year | \u2014 | \u2014 | \u2014 | \u2014 |
Outstanding at December 31 | 305 | 25.37 | 305 | 25.37 |
Exercisable at December 31 | 132 | 30.66 | 89 | 28.35 |
At December 31, 2022, the number of common shares subject to options outstanding and exercisable was as follows:
Price range | Outstanding | Weighted average | Weighted average | Exercisable | Weighted average |
\u20ac19.31 to \u20ac25.50 | 220,152 | 21.44 | 6.22 | 75,707 | 25.50 |
\u20ac31.43 to \u20ac44.24 | 85,251 | 35.51 | 5.93 | 56,194 | 37.61 |
At December 31, 2021, the number of common shares subject to options outstanding and exercisable was as follows:
Price range | Outstanding | Weighted average | Weighted average | Exercisable | Weighted average |
\u20ac19.31 to \u20ac25.50 | 220,152 | 21.44 | 7.22 | 75,707 | 25.50 |
\u20ac31.43 to\u00a0 \u20ac44.24 | 85,251 | 35.51 | 6.93 | 13,569 | 44.24 |
The maximum number of options that can be granted is 10% of total shares outstanding up to a maximum of 50,000,000. As of December 31, 2022, the total options outstanding under the 2009 Plan were 305,403 (2021: 305,403).
Assumptions
Under IFRS 2, the return on capital employed vesting condition is deemed to be a non-market performance condition. In accounting for non-market performance conditions, the Company recognizes expense based on the number of equity instruments that are expected to vest at the grant date. The Company revises that estimate, if necessary, if subsequent information indicates that the number of equity instruments expected to vest differs from previous estimates. For the year ended December 31, 2020, Management determined that the 2019 awards were unlikely to achieve the required level of return on capital employed based on projections at that point in time due to the ongoing negative effects of the pandemic, and the Company reversed the cumulative previously recognized expense for these awards. However, the 2021 results exceeded those previous projections, and the Company achieved the required level of return on capital employed to allow the awards to vest.\u00a0 As such, the Company recognized an increase of $502 to stock-based compensation in the year ended December 31, 2021 for the cumulative expense related to these awards.
Performance share units
In May 2009, the Annual General Meeting approved a remuneration policy that utilizes share-based payments as a part of compensation. This policy was subsequently amended by the May 2021 Annual General Meeting as discussed previously. In the year ended December 31, 2022, the Company issued 83,357 (2021: 90,161) PSU's under the 2021 Plan to members of the AMG Management Board which are share-settled. The PSU's granted to each employee on any date will vest on the third anniversary of the grant date. As these awards will be equity-settled, the balance is recorded in equity rather than as a liability in accordance with IFRS 2.
AMG utilized a Monte Carlo simulation to develop a valuation of the PSU awards. This calculation was performed on the date of issuance. The following table lists the inputs into the model used to calculate the fair value of the equity-settled performance share units that were granted 2020 through 2022:
2022 Grant | 2021 Grant | 2020 Grant | |
Fair value at grant date | \u20ac35.98 | \u20ac32.49 | \u20ac15.87 |
Share price at date of grant | \u20ac32.74 | \u20ac31.61 | \u20ac19.31 |
Contractual life at issuance (years) | 3.0 | 3.0 | 3.0 |
Expected volatility | 50.20% | 50.30% | 44.00% |
Discount for lack of marketability | 15.00% | 15.00% | \u2014 |
Expected departures at grant | \u2014 | \u2014 | 8% |
The expected volatility was calculated using the average share volatility of the Company (over a period equal to the expected term of the shares). The expected life is the time at which shares
will vest. For the risk-free rate, the Company utilized the relevant central bank rate curve for the currency of its peer group's respective share prices for the 2022 grants. The risk free rate does not have a significant impact on the valuation of the awards.
The Company recorded expense of $3,659 (2021: $8,413) related to these awards during the year, which is net of $73 (2021: $45) of expense that was allocated to non-controlling interests. AMG\u2019s expense related to equity-settled awards is recorded in equity.
In the year ended December 31, 2022, 4,467 PSUs were forfeited (2021: 16,241). The total number of equity-settled PSUs outstanding as of December 31, 2022 was 399,199 (2021:\u00a0456,323).
During the year ended December 31, 2022, the Company adjusted the forfeiture rate on the 2020 awards from 8% to 7%, which approximates the actual departures to date. The 2022 and 2021 awards continue to apply an 8% forfeiture assumption given the historical rate of departures. As discussed above, the 2019 PSU awards are subject to the same return on capital employed non-market performance condition. At December 31, 2020, the Company did not expect the awards to vest. As such, the Company had reversed the cumulative previously recognized expense related to these awards as of December 31, 2020.\u00a0 During the year ended December 31, 2021, the Company achieved the required return on capital employed to allow the 2019 awards to vest and consequently recorded a cumulative expense related to these awards. The impact on the income statement as a result of the decrease in the forfeiture rate and the recognition of the cumulative expense for the 2019 awards resulted in an increase to stock-based compensation expense of 5,755 during the year ended December 31, 2021.
The PSU awards include a performance multiplier which can range from 0x \u2013 1.75x the target award based on the Company\u2019s share price performance relative to its peers.
The Company achieved 0.75x for the 2019 grant which was settled in 2022 (2021: 0.75x). During the year ended December 31, 2022, 107,288 shares (2021: 84,314) were paid out with respect to the vesting of equity-settled performance share units granted in 2019.
RESTRICTED SHARE UNITS
In May 2021, the AMG Management Board approved a new RSU plan that provides share-based payments as a component of compensation to employees of the Company. In the year ended December 31, 2022, the Company issued 79,888\u00a0(2021: 80,057) RSU's to employees which are share-settled under the new plan. The RSU's granted to each employee will vest on the third anniversary of the grant date. The vesting is subject only to service conditions provided that the employee has remained continuously in the employment of the Company or a Group Company until the vesting date. In the event that the Supervisory Board has approved to pay-out any dividends to shareholders of the Company, the equivalent of the cash amount of the dividend will be converted to incremental RSU's to be awarded upon the vesting date to employees.\u00a0 As these awards will be equity-settled, the balance is recorded in equity rather than as a liability in accordance with IFRS
Environmental remediation costs and recoveries | Restructuring | Warranty | Cost | Partial | Restoration | Other | Total | |
Balance at January 1, 2021 | 10,705 | 4,641 | 5,994 | 8,344 | 706 | 9,066 | 2,188 | 41,644 |
Provisions made during the period | 11,941 | 1,377 | 2,855 | 4,353 | 24 | 20 | 436 | 21,006 |
Provisions reversals during the period | \u2014 | (283) | (2,579) | (2,828) | \u2014 | \u2014 | (968) | (6,658) |
Provisions used during the period | (15,384) | (3,482) | (574) | (1,884) | (114) | \u2014 | (155) | (21,593) |
(Decrease)/increase due to discounting | (344) | \u2014 | \u2014 | \u2014 | \u2014 | 235 | \u2014 | (109) |
Currency and transfers | (192) | (516) | (474) | (614) | (52) | (418) | (129) | (2,395) |
Balance at December 31, 2021 | 6,726 | 1,737 | 5,222 | 7,371 | 564 | 8,903 | 1,372 | 31,895 |
Balance at January 1, 2022 | 6,726 | 1,737 | 5,222 | 7,371 | 564 | 8,903 | 1,372 | 31,895 |
Provisions made during the period | 133 | 1,270 | 1,328 | 1,060 | 4 | \u2014 | 299 | 4,094 |
Provisions reversals during the period | \u2014 | (583) | (2,824) | (3,652) | \u2014 | (32) | (90) | (7,181) |
Provisions used during the period | (462) | (1,256) | (616) | (1,039) | \u2014 | (17) | (215) | (3,605) |
Decrease due to discounting | (1,427) | \u2014 | \u2014 | \u2014 | \u2014 | (462) | \u2014 | (1,889) |
Currency and transfers | (147) | (62) | (349) | (482) | (33) | 505 | (84) | (652) |
Balance at December 31, 2022 | 4,823 | 1,106 | 2,761 | 3,258 | 535 | 8,897 | 1,282 | 22,662 |
#### | ||||||||
Non-current | 4,133 | \u2014 | \u2014 | \u2014 | 564 | 8,889 | 712 | 14,298 |
Current | 2,593 | 1,737 | 5,222 | 7,371 | \u2014 | 14 | 660 | 17,597 |
Balance at December 31, 2021 | 6,726 | 1,737 | 5,222 | 7,371 | 564 | 8,903 | 1,372 | 31,895 |
Non-current | 2,430 | \u2014 | \u2014 | \u2014 | 535 | 8,610 | 786 | 12,361 |
Current | 2,393 | 1,106 | 2,761 | 3,258 | \u2014 | 287 | 496 | 10,301 |
Balance at December 31, 2022 | 4,823 | 1,106 | 2,761 | 3,258 | 535 | 8,897 | 1,282 | 22,662 |
ENVIRONMENTAL REMEDIATION COSTS AND RECOVERIES
The Company makes provisions for environmental clean-up requirements, largely resulting from historical solid and hazardous waste handling and disposal practices at its facilities. Environmental remediation provisions exist at the following sites and are discounted according to the timeline of expected payments. Due to timing and low interest rates, the undiscounted and discounted liability amounts do not differ significantly, except for with respect to the liabilities in the US.
Cambridge, OH USA
The most significant items at the Cambridge, Ohio site relate\u00a0 to a 1997 permanent injunction consent order (\u201cPICO\u201d) entered into with the State of Ohio and Cyprus Foote Mineral Company, the former owner of the site. While AMG\u2019s US subsidiary and Cyprus Foote are jointly liable, the Company has agreed to perform and be liable for the remedial obligations. The site contains two on-site
slag piles that are the result of many years of production. These slag piles were capped in 2009, in accordance with the PICO requirements, thereby lowering the radioactive emissions from the piles.
The PICO also required 1,000 years of operations and maintenance expenses (\u201cO&M\u201d) through the year 3009 at the site. The Company has reserved for ongoing O&M which is expected to cost $43,728 on an undiscounted basis and $1,291 (2021: $2,575) on a discounted basis. Annual payments for O&M are expected to be $59 for the next 14 years, declining from that point on. These amounts will be paid out of an environmental trust and annuity which have already been established by the Company. The total value of these trust and annuity assets is $4,862 of which $3,571 has not been recognized due to the liability amount recorded being less than the value of the assets. One additional provision relates to groundwater monitoring. This project is expected to create cash outflows of $56 ($81 on an undiscounted basis), and is expected to be completed within
the next 13 years. Discount rates of 4.73% - 4.01% (depending on the expected timing of payments) were used in determining the liabilities recorded.
There were no environmental expenses recorded in the year ended December 31, 2022 (2021: nil) and payments of $58 (2021: $84) related to the Cambridge site.
Newfield, NJ USA
The Newfield, NJ site is a former manufacturing facility of the Company that ceased operations in 2007.\u00a0 The United States Environmental Protection Agency (the \"US EPA\") and the New Jersey Department of Environmental Protection (\"NJDEP\") are the regulating authorities in regards to remediation of environmental liabilities identified at the site. The US EPA identified three environmental issues requiring remediation pertaining to contaminants in groundwater, contaminants in soil and sediment and perchlorate in groundwater. The liability associated with the non-perchlorate contaminants was transferred to a third-party in 2006. Refer to note 33 for additional details. The Company maintains responsibility for the remediation activities related to the perchlorate in groundwater.
The NJDEP maintains oversight for the remediation of low-level radioactive materials residing at the site. Newfield conducted operations that created a substantial slag pile with low-level radioactive materials. AMG completed negotiations with the NJDEP regarding a removal plan for the Newfield Site in 2016. The remedy consisted of the removal of low level radioactive material for transportation and disposal at an approved licensed disposal facility. During the year ended December 31, 2022, the Company recorded an environmental expense of nil (2021: $11,651) in relation to these activities. During the year ended December 31, 2021, the expense was largely driven by additional slag quantities discovered by the Company's decommissioning contractor that were located below surface level and were not anticipated in earlier estimates. This increase to the provision was offset by payments totaling $16,036 to the environmental provision for remediation efforts performed during the year ended December 31, 2021.\u00a0 As of December 31, 2022, the Company has completed a majority of the requirements under the Decommissioning Plan and made payments of $5,707.\u00a0 Once the final steps are completed, the Company can file for termination of the license to possess low level radioactive materials with the NJDEP.\u00a0 Final license termination is subject to the approval of the NJDEP, and the Company could be required to perform additional activities by the NJDEP before final approval is granted.\u00a0
A balance of $1,058 (2021: $1,374) ($1,172 on an undiscounted basis) remains in the provision at December 31, 2022. These costs are expected to be paid over the next year, subject to negotiations with the regulatory agencies, and primarily relate to activities associated with perchlorate in groundwater. The Company will perform analysis of perchlorate in groundwater over that timeframe, and based on the results of those studies, the Company will submit final reports to the US EPA for remedy selection.\u00a0
The remaining accrual represents Management\u2019s best estimate given the information available. Given the nature of the activities to be performed, there remains potential uncertainty with respect to the ultimate costs for which currently no reliable estimate can be made.
On March 6, 2020 the Company amended its Transportation and Disposal Agreement with one of its major contractors as part of the cost removal for all covered material on our facility in Newfield, NJ. Under the terms of the amendment the Company deferred its payments through 2023 and recorded a long-term liability of nil as of the year ended December 31, 2022 (2021: $6,640). See note 26 for additional details.
In addition to the removal of the slag pile the Company has agreed to an operations and maintenance agreement (O&M) provision of $155 at December 31, 2022 (2021: $221).
Remediation trust funds
The Company\u2019s US subsidiaries have established trust funds for future environmental remediation payments. The amounts are kept by commercial banks, which are responsible for making investments in equity and money market instruments. The trust funds are to be used according to the terms of the trust deed which require that these funds be used for O&M at the two US sites. Amounts are paid out following completion and approval of rehabilitation work. The assets are not available for general use. The trust funds are discounted and are shown within other non-current assets in the consolidated statement of financial position. The recognized values of the trust funds at December 31, 2022 were $1,924 (2021: $3,200). The total amount of the trusts as of December 31, 2022 were $5,495 (2021: $5,285).
Pocking, Germany
An environmental remediation liability exists with respect to the silicon metal operation and its waste storage. As of December 31, 2022, the liability for the remediation of this site is valued at $491 (2021: $540). There was an expense of $43 (2021: $60) and payments of $60 (2021: $11) made during 2022. There are expected payments in 2023 of $484. There was no discount rate used to determine the liability recorded due to closing facility in 2023.
Nuremberg, Germany
Over time, damage to the sewer lines from the plant in Nuremberg, Germany has occurred. Management is working with German authorities in order to repair the sewer lines. In the year ended December 31, 2022, there was an expense of $90 (2021: $230) and payments of $137 (2021: $57). The expected liability for continued work on the sewer rehabilitation project is $1,772 (2021: $1,931). Payments for this project are expected to occur over the next 7 years with spending taking place in a relatively consistent pattern over those years. Discount rates of 0.00% - 0.59% (depending on the expected timing of payments) were used in determining the liabilities recorded.
RESTRUCTURING
During the year ended December 31, 2022, the Company recorded restructuring expenses of $1,165 in cost of good sold and $105 on selling, general and administrative expenses, totaling $1,270 (2021: $1,377) which was offset by a reversal of ($583) (2021: ($283)). The current year net expense was largely driven by restructuring expenses in our production facilities and severance payments on five of our European operations resulting on a headcount reduction of 62.
WARRANTY
The Company\u2019s Engineering business offers warranties related to their furnace construction contracts. These warranties are only provided on select contracts and the provisions are made on a contract by contract basis. Each contractual warranty is expected to be utilized or derecognized within twelve months. The provisions for these warranties are based on the historical return percentages. Warranty payments of $363 (2021: $251) were made and warranty provisions included an expense of $1,328 (2021: $2,447) and reversal of ($2,731) (2021: ($2,579)) recorded in the year ended December 31, 2022. The additional provisions were primarily related to new projects in the turbine blade coating field and plasma melting technologies as well as several special furnaces for various heat treatment and metallurgy applications that were finalized during 2022. Reversal related to expired warranties periods.
Two other German subsidiaries provide warranties for a limited number of products. The provisions are based on actual claims made by customers. There were no additional expenses (2021: $408), a reversal of ($93) (2021: nil) and there were payments of $253 recorded during 2022 (2021: $323).
COST ESTIMATES
AMG Engineering builds a project cost provision for long-term contracts that are completed. The provision is developed on a contract by contract basis and is based on contractor estimates. The provision is utilized or derecognized depending on actual performance of the contracts and expected total of project costs. A provision made of an additional expense of $1,060 (2021: $4,353) and reversal of ($3,652) (2021: ($2,828)) was recorded in 2022 related to new projects related to the turbine blade coating field and plasma melting technologies as well as several special furnaces for various heat treatment and metallurgy applications while $1,039 (2021: $1,884) of provisions were used.
PARTIAL RETIREMENT
The collective agreements for retirement indemnities on our French subsidiary and the corresponding commitments have been valued as of December 31, 2022. There was an expense of $4 (2021: $24), reversal of nil (2021: nil) and there were no payments (2021: $114) recorded as of December 31, 2022. Additional payments of approximately $87 are expected to occur over the next 5 years. Discount rate of 2.9% was used by the Company\u2019s French subsidiary to determine the liabilities recorded. Furthermore, there were no partial retirement obligations expired during 2022.
RESTORATION, REHABILITATION AND DECOMMISSIONING COSTS
Decommissioning provisions represent the accrued cost required to provide adequate restoration and rehabilitation upon the completion of extraction activities. These amounts will be settled when rehabilitation is undertaken, generally at the end of the project\u2019s life.
Hauzenberg, Germany
The Company maintains a recultivation provision related to its graphite mine in Germany. There were no additional expense (2021: $17) and reversal of ($4) (2021: nil) recorded as of December 31, 2022 . The total restoration liability for this mine was $4,600 as of December 31, 2022 (2021: $5,740). A discount rate of 3.8% was used to determine the liability recorded.
Nazareno, Brazil
During the year ended December 31, 2022, there was a net increase in the liability of $1,134, which totaled $4,297 as of December 31, 2022 (2021: $3,163). A discount rate of 9.83% was used to determine the liability recorded. The following table summarizes the activity as of December 31, 2022:
Brazil restoration costs | |
Balance at January 1, 2021 | 2,908 |
Provisions made during the period | 3 |
Increase in fixed assets | 250 |
Increase due to discounting | 205 |
Translation loss | (203) |
Balance at December 31, 2021 | 3,163 |
Balance at January 1, 2022 | 3,163 |
Provisions reversed during the period | (28) |
Provisions used during the periods | (17) |
Increase in fixed assets | 622 |
Increase due to discounting | 336 |
Translation gain | 221 |
Balance at December 31, 2022 | 4,297 |
Non-current | 3,149 |
Current | 14 |
Balance at December 31, 2021 | 3,163 |
Non-current | 4,010 |
Current | 287 |
Balance at December 31, 2022 | 4,297 |
OTHER
2022 | 2021 | |
Trade payables | 215,652 | 235,214 |
Trade payables \u2013 contract work | 24,449 | 17,551 |
Total | 240,101 | 252,765 |
The Company has limited exposure to payables denominated in currencies other than the functional currency, and where significant exposure exists enters into appropriate foreign exchange contracts.
\u2022Trade payables are generally non-interest bearing and are normally settled on 30 or 60 day terms except for payables related to furnace construction contracts as well as retainage payables for our expansion project in Zanesville (note 10 and
\u202226) that settle between one month and twelve months. Other payables are non- interest bearing and have an average term of six months.
\u2022Interest payable is normally settled quarterly or semi-annually throughout the financial year.
\u2022For terms and conditions relating to related parties, refer to note 34.
The Company\u2019s principal financial liabilities, other than derivatives, are comprised of loans and borrowings, short-term bank debt and trade and other payables. The main purpose of these financial instruments is to provide capital for the Company\u2019s operations, including funding working capital, capital maintenance and expansion. The Company has various financial assets such as trade and other receivables, cash and cash equivalents and restricted cash, which arise directly from its operations.
The Company enters into derivative financial instruments, primarily interest rate swaps, interest rate caps, cross-currency interest rate swaps, foreign exchange forward contracts and commodity forward contracts. The purpose of these instruments is to manage interest rate, currency and commodity price risks. The Company does not enter into any contracts for speculative purposes.
The Supervisory Board has overall responsibility for the establishment of the Company\u2019s risk management framework while the Management Board is responsible for oversight and compliance within this framework. The Company\u2019s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company\u2019s activities.
The main risks arising from the Company\u2019s financial instruments are: credit, liquidity and market risks.
CREDIT RISK
The Company\u2019s exposure to credit risk with respect to trade and other receivables is influenced mainly by the individual characteristics of each customer. The demographics of the Company\u2019s customer base, including the default risk of the industry and country in which customers operate, has less of an influence on credit risk. No single customer accounts for more than 10% of the Company\u2019s revenue. There are no geographic concentrations of credit risk. It is the Company\u2019s policy that all customers who wish to trade on credit terms are subject to credit verification procedures which ensure their creditworthiness. In addition, receivable balances are monitored on an ongoing basis to ensure that the Company\u2019s exposure to impairment losses is not significant. Collateral is generally not required for trade receivables, although
26.\u00a0 OTHER LIABILITIESOther liabilities are comprised of the following:
2022 | 2021 | |
Accrued bonus | 13,600 | 12,658 |
Advanced contributions | 11,000 | \u2014 |
Accrued interest | 8,596 | 8,489 |
Other benefits and compensation | 7,599 | 7,115 |
Accrued employee payroll expenses | 7,354 | 7,983 |
Taxes, other than income | 6,999 | 4,348 |
Accrued professional fees | 6,460 | 4,720 |
Accrued operating costs | 6,146 | 17,670 |
Fiscal contingency | 4,970 | 3,876 |
Construction retainage | 3,407 | 7,296 |
Non-controlling interest dividend | 2,684 | 1,426 |
Acquisition earn-out liability | 2,293 | 2,673 |
Claims | 701 | 971 |
Sales commission | 325 | 307 |
Long-term environmental disposal | \u2014 | 6,640 |
Government grants | \u2014 | 20 |
Other miscellaneous liabilities | 2,792 | 5,578 |
Total | 84,926 | 91,770 |
Thereof: | ||
Non-current | 15,009 | 11,098 |
Current | 69,917 | 80,672 |
The Company agreed to a strategic partnership with JX Nippon Mining & Metals Corporation (\"JXN\") for the production and supply of tantalum concentrate.\u00a0 Per the terms of the agreement, JXN will make a cash contribution of $25,000.\u00a0 $11,000 was received by the Company as of December 31, 2022 and the remaining balance of $14,000 will be contributed to the partnership by the end\u00a0of March 2023.
the Company\u2019s furnace construction contracts do often require advance payments. The Company\u2019s maximum exposure is the carrying amount as discussed in note\u00a014.
With respect to credit risk arising from the other financial assets of the Company, which comprises cash and cash equivalents, restricted cash and derivative instruments, the Company\u2019s exposure to credit risk arises from the default of the counterparty, with a maximum exposure equal to the carrying amount of the instruments. The Company\u2019s treasury function monitors the location of cash and cash equivalents, restricted cash and the counterparties to hedges and monitors the strength of those banks. The Company\u2019s financial assets are held with bank and financial institution counterparties, which all carry investment-grade credit ratings. Impairment on cash and cash equivalents has been measured on a 12-month expected loss basis and reflects the short maturities of the exposures. The Company considers that its cash and cash equivalents have low credit risk based on the external credit ratings of the counterparties. The amount of impairment allowance at December 31, 2022 is $1 (2021: $1). The Company\u2019s maximum exposure is the carrying amounts as discussed in notes 16, 17 and 29.
LIQUIDITY RISK
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company\u2019s approach to managing liquidity is to ensure, as far as possible,
that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company\u2019s reputation.
The Company monitors cash flows at varying levels. At the Company level, this monitoring is done on a bi-weekly basis. However, at several subsidiaries, this type of monitoring is done daily. Typically, the Company ensures that it has sufficient cash on demand to meet expected operational expenses for a period of eight weeks, including the servicing of financial obligations. In addition, the Company maintains various borrowing facilities for working capital and general corporate purposes. The Company\u2019s primary facility includes the following:
\u2022$350,000 term loan B facility and a $200,000 revolving credit facility with a syndicate of banks that is secured by certain assets of the material subsidiaries of the Company. Interest is payable at a base rate plus a spread based on a leverage ratio.
The table below summarizes the maturity profile of the Company\u2019s financial liabilities at December 31, 2022, based on contractual undiscounted payments. The financial derivatives obligations are presented on a net basis for balances where it is appropriate to net the obligation position within a subsidiary for the respective period.
2022 | Contractual cash flows | < 3 | 3-12 | 2024 | 2025 | 2026 | 2027 | > 2027 |
Term loan / revolver | 346,500 | \u2014 | 3,500 | 3,500 | 3,500 | 3,500 | 3,500 | 329,000 |
Cash interest on term loan | 110,407 | 2,832 | 14,288 | 17,133 | 16,820 | 17,119 | 22,041 | 20,174 |
Municipal bond | 307,200 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | 307,200 |
Cash interest on municipal bond | 414,720 | 7,680 | 7,680 | 15,360 | 15,360 | 15,360 | 15,360 | 337,920 |
Other loans and borrowings | 17,569 | 10,227 | 2,005 | 2,483 | 728 | 694 | 694 | 738 |
Cash interest on other loans and borrowings | 671 | 126 | 379 | 164 | 2 | \u2014 | \u2014 | \u2014 |
Financial derivatives | 8,030 | 3,499 | 4,246 | 244 | 41 | \u2014 | \u2014 | \u2014 |
Lease payments | 71,085 | 1,450 | 4,772 | 4,917 | 4,089 | 3,834 | 3,635 | 48,388 |
Trade and other payables | 240,101 | 203,314 | 36,787 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Short-term bank debt | 6,391 | 5,860 | 531 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Total | 1,522,674 | 234,988 | 74,188 | 43,801 | 40,540 | 40,507 | 45,230 | 1,043,420 |
The table below summarizes the maturity profile of the Company\u2019s financial liabilities at December 31, 2021 based on contractual undiscounted payments.
2021 | Contractual cash flows | < 3 | 3-12 | 2023 | 2024 | 2025 | 2026 | > 2026 |
Term loan / revolver | 350,000 | \u2014 | 3,500 | 3,500 | 3,500 | 3,500 | 3,500 | 332,500 |
Cash interest on term loan | 119,625 | 2,813 | 14,480 | 17,121 | 17,133 | 16,819 | 16,767 | 34,492 |
Municipal bond | 307,200 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | 307,200 |
Cash interest on municipal bond | 430,080 | 7,680 | 7,680 | 15,360 | 15,360 | 15,360 | 15,360 | 353,280 |
Other loans and borrowings | 41,352 | 709 | 23,132 | 12,140 | 2,440 | 801 | 798 | 1,332 |
Cash interest on other loans and borrowings | 3,769 | 586 | 1,582 | 774 | 347 | 161 | 132 | 187 |
Financial derivatives | 7,781 | 2,751 | 3,355 | 1,091 | 386 | 198 | \u2014 | \u2014 |
Lease payments | 69,240 | 1,363 | 5,019 | 5,048 | 4,239 | 3,645 | 3,600 | 46,326 |
Trade and other payables | 252,765 | 194,728 | 58,037 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Short-term bank debt | 13,046 | 2,344 | 10,702 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Total | 1,594,858 | 212,974 | 127,487 | 55,034 | 43,405 | 40,484 | 40,157 | 1,075,317 |
The difference between the contractual cash flows and the carrying amount of the term loan noted above is attributable to issuance costs and an original issue discount in the amount of $6,879 and $8,103 as of December 31, 2022 and 2021, respectively, which are offset against the carrying amount of the debt.
The difference between the contractual cash flows and the carrying amount of the municipal bond noted above is attributable to issuance costs and a premium in the amount of $12,044 as of December 31, 2022 (2021: $12,276), which are included in the carrying amount of the debt.
MARKET RISK
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise three types of risk: interest rate, foreign currency, and commodity price risk. Financial instruments affected by market risk include loans and borrowings, derivative financial instruments, trade and other receivables, and trade and other payables.
The sensitivity analyses in the following sections relate to the positions as of December 31, 2022 and 2021.
The sensitivity analyses have been prepared on the basis that the amount of net debt, the ratio of fixed to floating interest rates of the debt and derivatives and the proportion of financial instruments in foreign currencies are all constant and on the basis of the hedge designations in place at December 31, 2022.
The analyses exclude the impact of movements in market variables on the carrying value of pension and other post- retirement obligations, provisions and on the non-financial assets and liabilities of foreign operations.
The following assumptions have been made in calculating the sensitivity analyses:
\u2022The statement of financial position sensitivity relates to derivatives.
\u2022The sensitivity of the relevant income statement item is the effect of the assumed changes in respective market risks.
This is based on the financial assets and financial liabilities held at December 31, 2022 and 2021, including the effect of hedge accounting.
INTEREST RATE RISK
Interest rate risk is the risk that changes in interest rates will affect the Company\u2019s income or the value of its holdings of financial instruments. The Company\u2019s fixed rate borrowings are exposed to a risk of change in their fair value due to changes in interest rates. The Company\u2019s floating rate borrowings are exposed to a risk of change in cash flows due to changes in interest rates. Short-term receivables and payables are not exposed to interest rate risk.
The Company\u2019s policy is to maintain at least 75% of its borrowings as fixed or capped rate borrowings. The Company either enters into fixed rate debt or strives to limit the variability of floating rate instruments through the use of interest rate swaps or caps. These are designed to hedge underlying debt obligations. At December 31, 2022 and 2021, after considering the effect of interest rate hedges, all of the Company\u2019s borrowings are at a fixed or capped rate of interest.
The following table demonstrates the sensitivity to a reasonably possible change in interest rates adjusting for multiple interest rate caps and swaps effective as of December 31, 2022 and 2021, with all other variables held constant, of the Company\u2019s profit before tax (through the impact on floating rate borrowings).
2022 | Increase/decrease | Effect on profit | Effect on equity before tax |
US dollar | +50 | \u2014 | 5,273 |
Brazilian real | +50 | (24) | \u2014 |
US dollar | -50 | \u2014 | (5,273) |
Brazilian real | -50 | 24 | \u2014 |
2021 | Increase/decrease | Effect on profit | Effect on equity before tax |
US dollar | +50 | \u2014 | 5,791 |
Brazilian real | +50 | (36) | \u2014 |
US dollar | -50 | \u2014 | (6,380) |
Brazilian real | -50 | 36 | \u2014 |
See note 21 for loans and borrowings explanations.
At December 31, 2022, the Company\u2019s interest rate derivatives had a fair value of $31,959 (2021: ($2,460)). In November 2021, the Company entered into interest rate swaps with two financial institutions in connection with the execution of its new new credit facility and unwound its prior interest rate caps. The original notional value of the swaps was $350,000, and the notional decreases over the term of the contract to align with the outstanding balance on the Company's term loan B. The objective of the hedge is to eliminate the variability of cash flows in the interest payments associated with the 1-month LIBOR benchmark interest rate of the term loan B. The contract swaps the variable 1-month LIBOR rate to a fixed rate of 1.41% over the expected life of the term loan B. Prior to the execution of the interest rate swaps in November 2021, the Company utilized interest rate cap agreements to hedge its interest rate risk on its prior credit facility that was extinguished in the prior year (refer to note 21). The Company had capped the variable rate of interest for a $350,000 notional value of debt at 3%.
FOREIGN CURRENCY RISK
Foreign currency risk is the risk that changes in foreign exchange rates will affect the Company\u2019s income or the value of its holdings of financial instruments. Many of the Company\u2019s subsidiaries are located outside the US. Individual subsidiaries execute their operating activities in their respective functional currencies which are primarily comprised of the US dollar and euro. Since the financial reporting currency of the Company is the US dollar, the financial statements of those non-US dollar operating subsidiaries are translated so that the financial results can be presented in the Company\u2019s consolidated financial statements.
Each subsidiary conducting business with third parties that leads to future cash flows denominated in a currency other than its functional currency is exposed to the risk from changes in foreign exchange rates. It is the Company\u2019s policy to use forward currency contracts to minimize the currency exposures on net cash flows. For several subsidiaries, this includes managing balance sheet positions in addition to forecast and committed transactions. For these contracts, maturity dates are established at the end of each month matching the net cash flows expected for that month. Another subsidiary hedges all sales transactions in excess of a certain threshold. For this subsidiary, the contracts mature at the anticipated cash requirement date. Most forward exchange contracts mature within twelve months and are predominantly denominated in US dollars, euros, British pound sterling and
Brazilian reais. When established, the forward currency contract must be in the same currency as the hedged item. It is the Company\u2019s policy to negotiate the terms of the hedge derivatives to closely match the terms of the hedged item to maximize hedge effectiveness. The Company seeks to mitigate this risk by hedging a range of 60% to 90% of transactions that occur in a currency other than the functional currency. Starting January 2021, the Company no longer hedged intergroup balance sheet exposures as well as long-term operating costs in Brazil.
The Company deems its primary currency exposures to be in US dollars and euros. The following table demonstrates the sensitivity to a reasonably possible change in the two primary functional currencies of the Company: US dollar and euro exchange rates with all other variables held constant, of the Company\u2019s profit before tax (due to changes in the fair value of monetary assets and liabilities) and the Company\u2019s equity (due to changes in the fair value of forward exchange contracts). Changes in sensitivity rates reflect various changes in the economy year-over-year.
2022 | Strengthening/ weakening in functional rate | Effect on profit before tax | Effect on equity before tax |
US dollar | +10% | (1,838) | 498 |
Euro | +10% | 1,142 | (2,519) |
US dollar | \u201310% | 1,838 | (498) |
Euro | \u201310% | (1,142) | 2,519 |
2021 | Strengthening/ weakening in functional rate | Effect on profit before tax | Effect on equity before tax |
US dollar | +10% | 668 | 316 |
Euro | +10% | 3,350 | (2,213) |
US dollar | \u201310% | (668) | (316) |
Euro | \u201310% | (3,350) | 2,213 |
COMMODITY PRICE RISK
Commodity price risk is the risk that raw materials prices will increase and negatively impact the gross margins and operating results of the Company. The Company is exposed to volatility in the prices of raw materials used in some products and uses forward contracts to manage these exposures for exchange-traded metals when possible. For these exchange-traded metals, the Company aims to maintain a greater than 50% hedged position in order to avoid undue volatility in the sales prices and purchase costs attained in the normal course of business. Commodity forward contracts are generally settled within twelve months of the reporting date. However, most of the metals, alloys and chemicals that the Company processes and sells such as lithium, vanadium, chrome metal, tantalum, graphite, niobium, and antimony trioxide, cannot be hedged on an exchange or there is insufficient liquidity on the exchange. For these materials, the Company mitigates its price exposure by aligning raw materials purchases with sales orders and ensuring that it is managing working capital in a manner that minimizes commodity price exposure.
CAPITAL MANAGEMENT
With regard to its capital structure the primary objective of the Company is to maintain strong capital ratios in order to support its business and maximize shareholder value.
The Company manages its capital structure and makes adjustments to it, in light of economic conditions. Its policy is to ensure that the debt levels are manageable to the Company and that they are not increasing at a level that is in excess of the increases that occur within equity. During the planning process, the expected cash flows of the Company are evaluated and the debt to equity and debt to total capital ratios are evaluated in order to ensure that levels are improving year-over-year. Debt to total capital is a more appropriate measure for the Company due to its initial equity values of the subsidiaries from the combination in 2007. Management deems total capital to include all debt (including short-term and long-term) as well as the total of the equity of the Company, including non-controlling interests.
2022 | 2021 | |
Loans and borrowings | 676,434 | 702,725 |
Short-term bank debt | 6,391 | 13,046 |
Less: cash and cash equivalents and restricted cash | 352,963 | 431,311 |
Net debt | 329,862 | 284,460 |
Total equity | 517,849 | 294,152 |
Total capital | 847,711 | 578,612 |
Debt to total capital ratio | 38.9% | 49.2% |
FAIR VALUES
The carrying amounts presented in the finan cial statements approximate the fair values for all of the Company\u2019s financial instruments, other than as discussed below.
The fair value of the financial assets and liabilities are included at the price that would be received to sell the instrument in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions.
\u2022Current assets and liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments and as such are not included in the following tables.
\u2022The calculation of fair value for derivative financial\u00a0 instruments depends on the type of instruments: Derivative interest rate contracts are estimated by discounting expected future cash flows using current market interest rates and yield curves over the remaining term of the instrument; Derivative currency and commodity contracts are based on quoted forward exchange rates and commodity prices, respectively.
\u2022The Company's term loan B is a floating rate borrowing and is carried at amortized cost. The fair value of the term loan B\u00a0 was $334,373 (2021: $347,375) at December 31, 2022. The Company's municipal bonds are fixed rate borrowings and are carried at amortized cost. The fair value of those bonds
\u2022was $272,627 (2021: $353,434) at December 31, 2022. The fair value of the term loan and municipal bonds is based on quoted prices for similar securities adjusted for the prevailing market-based yields and are deemed to be Level 2 inputs. The remainder of the Company's borrowings and notes receivable maintain a floating interest rate and approximate fair value. Fair value of the Company\u2019s floating rate loans and borrowings are estimated by discounting expected future cash flows using a discount rate that reflects the Company\u2019s borrowing rate at December 31, 2022.
\u2022The consideration of non-performance risk did not significantly impact the fair values for fixed and floating rate loans and borrowings.
\u2022Contingent consideration is calculated using a valuation model that considers the present value of the expected future payments, discounted using a risk-adjusted discount rate.
FAIR VALUE HIERARCHY
The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data
As of December 31, 2022, the Company held the following financial instruments measured at fair value:
Assets measured at fair value
December 31, 2022 | Total | Level 1 | Level 2 | Level 3 |
Non-current financial assets | ||||
Restricted cash | 5,875 | 5,875 | \u2014 | \u2014 |
Equity investments classified as FVOCI (note 12) | 13,629 | \u2014 | \u2014 | 13,629 |
Other investments (note 12) | 15,695 | 8,222 | \u2014 | 7,473 |
Forward contracts \u2013 hedged | 682 | \u2014 | 682 | \u2014 |
Interest rate derivatives | 32,360 | \u2014 | 32,360 | \u2014 |
Current financial assets | ||||
Restricted cash | 1,045 | 1,045 | \u2014 | \u2014 |
Forward contracts - hedged | 2,502 | \u2014 | 2,502 | \u2014 |
Interest rate derivatives | 70 | \u2014 | 70 | \u2014 |
Energy forward contracts | 944 | \u2014 | 944 | \u2014 |
Liabilities measured at fair value
December 31, 2022 | Total | Level 1 | Level 2 | Level 3 |
Non-current financial liabilities | ||||
Forward contracts \u2013 hedged | 97 | \u2014 | 97 | \u2014 |
Interest rate derivatives | 187 | \u2014 | 187 | \u2014 |
Contingent consideration | 1,658 | \u2014 | \u2014 | 1,658 |
Current financial liabilities | ||||
Forward contracts - hedged | 6,837 | \u2014 | 6,837 | \u2014 |
Interest rate derivatives | 284 | \u2014 | 284 | \u2014 |
Energy forward contracts | 625 | \u2014 | 625 | \u2014 |
Contingent consideration | 635 | \u2014 | \u2014 | 635 |
As of December 31, 2021, the Company held the following financial instruments measured at fair value:
Assets measured at fair value
December 31, 2021 | Total | Level 1 | Level 2 | Level 3 |
Non-current financial assets | ||||
Restricted cash | 85,023 | 85,023 | \u2014 | \u2014 |
Equity investments classified as FVOCI (note 12) | 12,300 | \u2014 | \u2014 | 12,300 |
Other investments (note 12) | 17,530 | 11,079 | \u2014 | 6,451 |
Forward contracts \u2013 hedged | 95 | \u2014 | 95 | \u2014 |
Current financial assets | ||||
Restricted cash | 8,411 | 8,411 | \u2014 | \u2014 |
Forward contracts \u2013 hedged | 4,026 | \u2014 | 4,026 | \u2014 |
Interest rate derivatives | 30 | \u2014 | 30 | \u2014 |
Liabilities measured at fair value
December 31, 2021 | Total | Level 1 | Level 2 | Level 3 |
Non-current financial liabilities | ||||
Forward contracts \u2013 hedged | 574 | \u2014 | 574 | \u2014 |
Interest rate derivatives | 1,490 | \u2014 | 1,490 | \u2014 |
Contingent consideration | 2,015 | \u2014 | \u2014 | 2,015 |
Current financial liabilities | ||||
Forward contracts \u2013 hedged | 5,010 | \u2014 | 5,010 | \u2014 |
Interest rate derivatives | 1,000 | \u2014 | 1,000 | \u2014 |
Contingent consideration | 658 | \u2014 | \u2014 | 658 |
During the years ended December 31, 2022 and 2021, there were no transfers between Level 1, Level 2, and Level 3 fair value measurements.
The following table shows a reconciliation from the opening balances to the closing balances for Level 3 fair values.
Equity Securities | Contingent Consideration | |
Balance at January 1, 2021 | 16,730 | \u2014 |
Purchase of other investments | 990 | \u2014 |
Change in fair value | 1,031 | \u2014 |
Acquired in business combination | \u2014 | 2,759 |
Foreign currency adjustments | \u2014 | (86) |
Balance at December 31, 2021 | 18,751 | 2,673 |
Purchase of other investments | 990 | \u2014 |
Change in fair value | 1,361 | (223) |
Foreign currency adjustments | \u2014 | (157) |
Balance at December 31, 2022 | 21,102 | 2,293 |
HEDGING ACTIVITIES
Interest rate hedges
In November 2021, the Company entered into interest rate swap contracts with two financial institutions in connection with the execution of its new credit facility. The contracts have a notional value equivalent to the total balance of the term loan B. The contracts swap the variable interest payments on the term loan B to fixed payments of interest. The interest rate caps related to the prior credit facility were unwound and replaced by these contracts. The interest rate swaps were executed so that the Company could hedge its exposure to changes in the benchmark interest rate on the term loan B facility. The Company has matched the critical terms of the swaps to the term loan B and consequently has designated the interest rate swaps as effective cash flow hedges. The amount of gains (losses) related to the interest rate hedges included in equity was $30,245 and ($295) in the years ended December 31, 2022 and 2021, respectively. The amount included in equity is anticipated to impact the income statement through November 2026, which is the term of the contracts. During the years ended December 31, 2022 and 2021, ($1,324) and $426 was transferred from equity to the income statement as a (decrease) increase to finance costs. There was no ineffectiveness for contracts designated as cash flow hedges during the years ended December 31, 2022 and 2021, respectively.\u00a0
The Company also continues to maintain derivative contracts with a financial institution to mitigate its exposure to changes in the benchmark interest rate on portions of its Brazilian subsidiary debt. The contracts include interest rate swaps and cross-currency interest rate swaps, which the Company has not designated for hedge accounting. All gains and losses are recognized in profit and loss. During the year ended December 31, 2022, $1,456 (2021: ($636)) of gains (losses) related to these outstanding interest rate derivatives were recorded to finance costs in the income statement.
Commodity forward contracts
The Company is exposed to volatility in the prices of raw materials used in some products and uses commodity forward contracts to manage these exposures. Such contracts generally mature within twelve months. Commodity forward contracts have been designated as cash flow hedges and contracts not designated as cash flow hedges are immediately recognized in cost of sales.
The open US dollar denominated forward contracts to purchase commodities contracts as of December 31, 2022 are as follows:
Metric tons | Average | Fair value | Fair value liabilities | |
Aluminum forwards | 1,475 | 2,388 | 3 | (28) |
The open US dollar denominated forward contracts to purchase commodities contracts as of December 31, 2021 are as follows:
Metric tons | Average | Fair value | Fair value liabilities | |
Aluminum forwards | 2,775 | 2,677 | 445 | (36) |
The amount from the commodity cash flow hedges included in equity was $80 and $384 in the years ended December 31, 2022 and 2021, respectively. The amount included in equity is anticipated to impact the income statement over the next 12 months. During the years ended December 31, 2022 and 2021, $666 and ($2,127), respectively, were transferred from equity to the income statement as increases (decreases) to cost of sales. There was no ineffectiveness for contracts designated as cash flow hedges during the years ended December 31, 2022 and 2021.
Foreign currency forward contracts
At any point in time, the Company also uses foreign exchange forward contracts to hedge a portion of its estimated foreign currency exposure in respect of forecasted sales and purchases. These contracts are negotiated to match the terms of the commitments and generally mature within two years. When necessary, these contracts are rolled over at maturity. Foreign exchange forward contracts that are not part of a hedge relationship are held at fair value with fair value changes recognized through profit or loss.
The open foreign exchange forward sales contracts as of December 31, 2022 are as follows:
Exposure | Notional amount | Contract | Fair | Fair |
Cash Flow Hedges | ||||
EUR (versus USD) | \u20ac19.1 million | 0.96 | 21 | (459) |
USD (versus EUR) | $65.0 million | 1.08 | 1,765 | (1,802) |
The open foreign exchange forward sales contracts as of December 31, 2021 are as follows:
Exposure | Notional amount | Contract | Fair | Fair |
Cash Flow Hedges | ||||
EUR (versus USD) | \u20ac16.0 million | 0.87 | 380 | (115) |
USD (versus EUR) | $76.1 million | 1.20 | 5 | (3,794) |
The open foreign exchange forward purchase contracts as of December 31, 2022 are as follows:
Exposure | Notional amount | Contract | Fair | Fair |
Cash Flow Hedges | ||||
USD (versus EUR) | $52.7 million | 1.037 | 263 | (2,372) |
EUR (versus USD) | \u20ac36.4 million | 0.956 | 1,046 | (39) |
GBP (versus USD) | \u00a327.1 million | 1.290 | \u2014 | (2,090) |
CNY (versus EUR) | \u00a526.3 million | 0.140 | 86 | (144) |
The open foreign exchange forward purchase contracts as of December 31, 2021 are as follows:
Exposure | Notional amount | Contract | Fair | Fair |
Cash Flow Hedges | ||||
USD (versus EUR) | $95.7 million | 1.171 | 3,015 | (87) |
EUR (versus USD) | \u20ac28.5 million | 0.861 | 42 | (679) |
GBP (versus USD) | \u00a324.4 million | 1.386 | 43 | (865) |
CNY (versus USD) | \u00a558.7 million | 0.136 | 191 | (8) |
The amounts from the foreign currency cash flow hedges included in equity were ($2,475) and ($683) in the years ended December 31, 2022 and 2021, respectively. The amount included in equity is anticipated to impact the income statement over the next two years. During the years ended December 31, 2022 and 2021, $5,944 and $2,735, respectively, were transferred from equity to the income statement as increases to cost of sales and selling, general, and administrative expenses. There was nil (2021: nil) recognized in profit or loss during the year ended December 31, 2022 due to ineffectiveness.
Energy forward contracts
The Company is exposed to volatility in the prices of energy that it consumes as part of its operations. The Company enters into fixed price energy forward contracts to manage this exposure. In most cases, the Company enters into forward energy contracts with the expectation that the contract will result in the physical delivery of the underlying gas or electricity in accordance with the Company\u2019s operational usage requirements. As such, the energy forward contracts generally qualify for the\u00a0 scope exemption under IFRS 9 and are not recognized as financial instruments. However, for a German subsidiary, a portion of the contracts will be settled in cash rather than through physical delivery of the underlying energy and do not qualify under the scope exemption of IFRS 9 as a result. Consequently, these specific contracts are recorded as derivative instruments. These contracts generally mature within twelve months. The energy forward contracts have been designated as cash flow hedges.
The open energy forward contracts as of December 31, 2022 are as follows:
Megawatt hours | Average | Fair value | Fair value liabilities | |
Energy forward contracts | 25,313 | \u20ac129.73 | 944 | (625) |
During 2021, the Company incurred acquisition-related costs of $170 on legal fees and due diligence costs. These costs were included in selling, general and administrative expenses.
The following table summarizes the recognized amounts of assets acquired and liabilities assumed at the date of acquisition:
Note | ||
Intangible assets | 11 | 3,774 |
Deferred tax liability | 9 | (1,122) |
Total identifiable net assets acquired | 2,652 |
The valuation techniques used for measuring the fair value of material assets acquired were as follows:
\u2022Intangible assets - multi-period excess earnings method: The multi-period excess earnings method considers the present value of net cash flows that are expected to be generated by the acquired software, by excluding any cash flows related to contributory assets.
LEASES AS LESSEE
The Company has entered into leases for office space, facilities and equipment. The leases generally provide that the Company pays the tax, insurance and maintenance expenses related to the leased assets. These leases have an average original term of 5-7 years with renewal terms at the option of the lessee and lease payments based on market prices at the time of renewal. There are no restrictions placed upon the lessee by entering into these leases.
Set out below are the carrying amounts of the Company\u2019s right-of-use assets, which are included in property, plant and equipment in the statement of financial position, and lease liabilities as well as the movements during the period:
Right-of-use assets | |||||
Land, buildings | Machinery and | Furniture and | Total | Lease liabilities | |
January 1, 2021 | 46,212 | 3,373 | 801 | 50,386 | 51,881 |
Additions | 5,948 | 770 | 576 | 7,294 | 7,294 |
Retirements and transfers | 1,116 | (10) | (2) | 1,104 | (57) |
Depreciation expense | (4,190) | (1,169) | (458) | (5,817) | \u2014 |
Interest expense | \u2014 | \u2014 | \u2014 | \u2014 | 1,807 |
Payments | \u2014 | \u2014 | \u2014 | \u2014 | (7,120) |
Foreign currency translation | (2,956) | (169) | (47) | (3,172) | (3,256) |
December 31, 2021 | 46,130 | 2,795 | 870 | 49,795 | 50,549 |
January 1, 2022 | 46,130 | 2,795 | 870 | 49,795 | 50,549 |
Additions | 4,840 | 1,453 | 180 | 6,473 | 6,473 |
Retirements and transfers | (482) | (14) | (6) | (502) | (509) |
Depreciation expense | (4,125) | (1,127) | (434) | (5,686) | \u2014 |
Interest expense | \u2014 | \u2014 | \u2014 | \u2014 | 1,663 |
Payments | \u2014 | \u2014 | \u2014 | \u2014 | (6,764) |
Foreign currency translation | (2,316) | (122) | (60) | (2,498) | (2,478) |
December 31, 2022 | 44,047 | 2,985 | 550 | 47,582 | 48,934 |
GUARANTEES
The following table outlines the Company\u2019s off-balance sheet guarantees and letters of credit for the benefit of third parties as of December 31, 2022 and 2021:
Guarantees | Letters of | Total | |
2022 | |||
Total amounts committed: | 128,231 | 32,608 | 160,839 |
Less than 1 year | 45,584 | 32,608 | 78,192 |
2\u20135 years | 75,123 | \u2014 | 75,123 |
After 5 years | 7,524 | \u2014 | 7,524 |
Guarantees | Letters of | Total | |
2021 | |||
Total amounts committed: | 118,673 | 26,202 | 144,875 |
Less than 1 year | 42,845 | 26,202 | 69,047 |
2\u20135 years | 68,508 | \u2014 | 68,508 |
After 5 years | 7,320 | \u2014 | 7,320 |
In the normal course of business, the Company has provided indemnifications in various commercial agreements which may require payment by the Company for breach of contractual terms of the agreement. Counterparties to these agreements provide the Company with comparable indemnifications. The indemnification period generally covers, at maximum, the period of the applicable agreement plus the applicable limitations period under the law. The maximum potential amount of future payments that the Company would be required to make under these indemnification agreements is not reasonably quantifiable as some indemnifications are not subject to limitation. However, the Company enters into indemnification agreements only when an assessment of the business circumstances would indicate that the risk of loss is remote.
The Company has agreed to indemnify its current and former directors and officers to the extent permitted by law against any and all charges, costs, expenses, amounts paid in settlement and damages incurred by the directors and officers as a result of any lawsuit or any other judicial administrative or investigative proceeding in which the directors and officers are sued as a result of their service. These indemnification claims will be subject to any statutory or other legal limitation period. The nature of such indemnification prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay to counterparties. The Company has $100,000 in directors\u2019 and officers\u2019 liability insurance coverage.
ENVIRONMENTAL
In 2006, a US subsidiary of the Company entered into a fixed price remediation contract with an environmental consultant, whereby that consultant became primarily responsible for aspects of the environmental remediation. This subsidiary of the Company is still a secondary obligor for this remediation, in the event that the consultant does not perform. The US subsidiary is also still subject to remediate any contamination associated with perchlorate contamination work which commenced in 2019.
The Company has other contingent liabilities related to\u00a0 environmental regulations at several locations. Environmental regulations in France require monitoring of wastewater and potential clean-up to be performed at one of the French subsidiary\u2019s plant sites in Chauny. Although the extent of these issues is not yet known, there is a possibility that the Company could incur remediation costs.
As discussed in note 25, a German subsidiary of the Company has a sewer system liability, which is in the process of being resolved via a sewer replacement project. Based on the liability associated with the sewer, it is also believed that there may be a groundwater contamination issue. This German subsidiary has performed
remediation feasibility trials but has not received a demand from the government with respect to any potential wider groundwater treatment and it has recorded no provision for this, but it is possible that some remediation will eventually be required. The Company believes that the maximum exposure related to this contamination is $10,000.
TAXATION
The Brazilian subsidiary has established provisions related to potential tax exposure matters such as: (i) income tax on previous years calculations and on interests on intergroup loans; (ii) taxes over other revenues; (iii) federal and state VAT credits disallowances and; (iv) mining royalties. Not all of these matters are pending legal action, and some of these matters are maintained pending applicable statute of limitations. The accrued amounts include potential penalties and interest exposure and are based upon the input of the Company\u2019s advisors as to probability evaluation and payable nature to such matters. The amount accrued for all such matters was $4,953 as of December 31, 2022.
LITIGATION
We are party to various pending or threatened legal actions and other proceedings that arise in the ordinary course of our business, including matters arising under provisions relating to the protection of the environment. These types of matters could result in compensatory damages, cost reimbursements or contributions, penalties, non-monetary sanctions, or other relief. We believe the probability is remote that the outcome of each of these matters will have a material adverse effect on the Company as a whole. We cannot predict the outcome of legal or other proceedings with certainty.
OTHER
TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL
Key management personnel compensation
The Company considers the members of the Management Board and the Supervisory Board to be the key management personnel as defined in IAS 24 Related parties. Refer to note 24 for further details.
For remuneration details of the Management Board and the Supervisory Board, see below.
The compensation of the Management Board of the Company comprised:
For the year ended December 31, 2022 | Salaries and | Share-based compensation | Post-employment benefits including contributions to defined contribution plans | Other remuneration (a) | Total |
Heinz Schimmelbusch | 2,710 | 2,024 | 210 | 196 | 5,140 |
Eric Jackson | 1,889 | 775 | 116 | 54 | 2,834 |
Jackson Dunckel | 1,433 | 597 | 406 | 38 | 2,474 |
Total | 6,032 | 3,396 | 732 | 288 | 10,448 |
[a]Other remuneration includes car expenses and insurance paid for by the Company.
For the year ended December 31, 2021 | Salaries and | Share-based | Post-employment benefits including contributions to defined contribution plans | Other remuneration (a) | Total |
Heinz Schimmelbusch | 2,628 | 3,539 | 181 | 175 | 6,523 |
Eric Jackson | 1,814 | 1,252 | 103 | 42 | 3,211 |
Jackson Dunckel | 1,383 | 1,041 | 417 | 41 | 2,882 |
Total | 5,825 | 5,832 | 701 | 258 | 12,616 |
[a]Other remuneration includes car expenses and insurance paid for by the Company.
Each member of the Management Board has an employment contract with the Company which provides for severance in the event of termination without cause. The maximum severance payout is limited to two years base salary and two years of target annual bonus.
The compensation of the Supervisory Board of the Company comprised:
For the year ended December 31, 2022 | Cash remuneration | Share-based remuneration | Total compensation |
Steve Hanke | 110 | 63 | 173 |
Willem van Hassel | 75 | 42 | 117 |
Herb Depp | 80 | 37 | 117 |
Donatella Ceccarelli | 80 | 37 | 117 |
Dagmar Bottenbruch | 65 | 37 | 102 |
Warmolt Prins | 65 | 37 | 102 |
Total | 475 | 253 | 728 |
For the year ended December 31, 2021 | Cash remuneration | Share-based remuneration | Total compensation |
Steve Hanke | 110 | 71 | 181 |
Willem van Hassel | 75 | 47 | 122 |
Herb Depp | 80 | 41 | 121 |
Donatella Ceccarelli | 80 | 41 | 121 |
Frank L\u00f6hner 1 | 22 | 14 | 36 |
Dagmar Bottenbruch | 65 | 41 | 106 |
Warmolt Prins | 43 | 27 | 70 |
Total | 475 | 282 | 757 |
[1]Frank L\u00f6hner stepped down from the Supervisory Board effective May 2021.
Total Management Board and Supervisory Board Compensation for the year ended: | Cash remuneration | Share-based compensation | Post-employment benefits including contributions to defined contribution plans | Other remuneration (a) | Total |
December 31, 2022 | 6,507 | 3,649 | 732 | 288 | 11,176 |
December 31, 2021 | 6,300 | 6,114 | 701 | 258 | 13,373 |
[a]Other remuneration includes car expenses and insurance paid for by the Company.
ENTITIES WITH SIGNIFICANT INFLUENCE OVER THE COMPANY
Foundation
In July 2010, the foundation \u201cStichting Continuiteit AMG\u201d (\u201cFoundation\u201d) was established following the resolution adopted at its Annual Meeting on May 12, 2010. The board of the Foundation consists of three members, all of whom are independent of AMG. The purpose of the Foundation is to safeguard the interests of the parent company, the enterprise connected therewith and all the parties having an interest therein and to exclude as much as possible influences which could threaten, amongst other things, the continuity, independence and identity of the parent company contrary to such interests.
By agreement on December 22, 2010, between the parent company and the Foundation, the Foundation has been granted a call option pursuant to which it may purchase a number of preference shares up to a maximum of the number of ordinary
(A)STATEMENT OF COMPLIANCE
EU law (IAS Regulation EC 1606/2002) requires that the annual consolidated financial statements of the Company for the year ending December 31, 2022, be prepared in accordance with accounting standards adopted and endorsed by the European Union (\u201cEU\u201d) further to the IAS Regulation (EC 1606/2002) (further referred to as \u201cIFRS, as endorsed by the EU\u201d).
The consolidated financial statements of AMG NV and its subsidiaries have been prepared in accordance with International Financial Reporting Standards (\u201cIFRS\u201d) as of December 31, 2022, as endorsed by the EU and article 2.362.9 of the Netherlands Civil Code.
(B)BASIS OF MEASUREMENT
The consolidated financial statements have been prepared on the historical cost basis except for the following items, which are measured on an alternative basis on each reporting date. The methods used to measure fair values are discussed further in note 3.
Derivative financial instruments | Fair value |
Non-derivative financial instruments at\u00a0 fair value through profit or loss | Fair value |
Non-derivative financial instruments, including restricted cash, at fair value through other comprehensive income | Fair value |
Net defined benefit (asset) liability\u00a0 | Fair value of plan assets less the present value of the defined benefit obligation, limited as explained in note 3 |
(C)MEASUREMENT OF FAIR VALUES
A number of the Company\u2019s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and\u00a0 liabilities. The Company has an established control framework with respect to the measurement of fair values. This includes overseeing all significant fair value measurements, including Level 3 fair values.
The Company regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the Company assesses the evidence obtained from the third parties to support the conclusion that these valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which the valuations should be classified.
Significant valuation issues are reported to the Company\u2019s audit committee.
When measuring the fair value of an asset or a liability, the Company uses observable market data as far as possible.
Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.
The Company recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.
Further information about the assumptions made in measuring fair values is included in the following notes:
\u2022note 12 \u2013 measurement of other investments
\u2022note 24 \u2013 share-based payments
\u2022note 29 \u2013 measurement of financial instruments
\u2022note 30 \u2013 business combination
(E)USE OF ESTIMATES AND JUDGMENTS
The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected.
Key uses of judgments
Information related to critical judgments made in applying accounting policies that have the most significant effects on the amounts recognized in the Company\u2019s consolidated financial statements are included in the following notes:
\u2022notes 3 and 5 \u2013 Revenue from contracts with customers: determination of revenue recognition from furnace construction contracts
\u2022notes 3 and 12 - other investments: whether the Company has significant influence over an equity-accounted investee
\u2022notes 3 and 31 \u2013 Leases: determination of the lease term for some lease contracts which include renewal options
Assumptions and estimation uncertainty
Information about assumptions and estimation uncertainties that may have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are included in the following notes:
\u2022note 9 \u2013 Income tax: recognition of income taxes and deferred tax assets
\u2022note 10 \u2013 Property, plant and equipment: determination of useful lives of mining-related assets
\u2022note 11 \u2013 Goodwill and other intangible assets: measurement of the recoverable amounts of assets and cash-generating units for purposes of impairment testing
\u2022note 12 \u2013 Other investments; the assumptions and model used to determine fair value
\u2022note 23 \u2013 Employee benefits: measurement of plan obligations and actuarial assumptions
\u2022note 24 \u2013 Share-based payments: the assumptions and model used to determine fair value
\u2022note 25 \u2013 Provisions: determination of amounts recorded based on expected payments and any regulatory framework
\u2022note 29 \u2013 Financial instruments: fair value determination based on present value of future cash flows
\u2022note 30 \u2013 Acquisition of subsidiary: fair value of the assets acquired and liabilities assumed
(A)STATEMENT OF COMPLIANCE
EU law (IAS Regulation EC 1606/2002) requires that the annual consolidated financial statements of the Company for the year ending December 31, 2022, be prepared in accordance with accounting standards adopted and endorsed by the European Union (\u201cEU\u201d) further to the IAS Regulation (EC 1606/2002) (further referred to as \u201cIFRS, as endorsed by the EU\u201d).
The consolidated financial statements of AMG NV and its subsidiaries have been prepared in accordance with International Financial Reporting Standards (\u201cIFRS\u201d) as of December 31, 2022, as endorsed by the EU and article 2.362.9 of the Netherlands Civil Code.
(B)BASIS OF MEASUREMENT
The consolidated financial statements have been prepared on the historical cost basis except for the following items, which are measured on an alternative basis on each reporting date. The methods used to measure fair values are discussed further in note 3.
Derivative financial instruments | Fair value |
Non-derivative financial instruments at\u00a0 fair value through profit or loss | Fair value |
Non-derivative financial instruments, including restricted cash, at fair value through other comprehensive income | Fair value |
Net defined benefit (asset) liability\u00a0 | Fair value of plan assets less the present value of the defined benefit obligation, limited as explained in note 3 |
(C)MEASUREMENT OF FAIR VALUES
A number of the Company\u2019s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and\u00a0 liabilities. The Company has an established control framework with respect to the measurement of fair values. This includes overseeing all significant fair value measurements, including Level 3 fair values.
The Company regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the Company assesses the evidence obtained from the third parties to support the conclusion that these valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which the valuations should be classified.
Significant valuation issues are reported to the Company\u2019s audit committee.
When measuring the fair value of an asset or a liability, the Company uses observable market data as far as possible.
Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.
The Company recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.
Further information about the assumptions made in measuring fair values is included in the following notes:
\u2022note 12 \u2013 measurement of other investments
\u2022note 24 \u2013 share-based payments
\u2022note 29 \u2013 measurement of financial instruments
\u2022note 30 \u2013 business combination
(E)USE OF ESTIMATES AND JUDGMENTS
The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected.
Key uses of judgments
Information related to critical judgments made in applying accounting policies that have the most significant effects on the amounts recognized in the Company\u2019s consolidated financial statements are included in the following notes:
\u2022notes 3 and 5 \u2013 Revenue from contracts with customers: determination of revenue recognition from furnace construction contracts
\u2022notes 3 and 12 - other investments: whether the Company has significant influence over an equity-accounted investee
\u2022notes 3 and 31 \u2013 Leases: determination of the lease term for some lease contracts which include renewal options
Assumptions and estimation uncertainty
Information about assumptions and estimation uncertainties that may have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are included in the following notes:
\u2022note 9 \u2013 Income tax: recognition of income taxes and deferred tax assets
\u2022note 10 \u2013 Property, plant and equipment: determination of useful lives of mining-related assets
\u2022note 11 \u2013 Goodwill and other intangible assets: measurement of the recoverable amounts of assets and cash-generating units for purposes of impairment testing
\u2022note 12 \u2013 Other investments; the assumptions and model used to determine fair value
\u2022note 23 \u2013 Employee benefits: measurement of plan obligations and actuarial assumptions
\u2022note 24 \u2013 Share-based payments: the assumptions and model used to determine fair value
\u2022note 25 \u2013 Provisions: determination of amounts recorded based on expected payments and any regulatory framework
\u2022note 29 \u2013 Financial instruments: fair value determination based on present value of future cash flows
\u2022note 30 \u2013 Acquisition of subsidiary: fair value of the assets acquired and liabilities assumed
EU law (IAS Regulation EC 1606/2002) requires that the annual consolidated financial statements of the Company for the year ending December 31, 2022, be prepared in accordance with accounting standards adopted and endorsed by the European Union (\u201cEU\u201d) further to the IAS Regulation (EC 1606/2002) (further referred to as \u201cIFRS, as endorsed by the EU\u201d).
The consolidated financial statements of AMG NV and its subsidiaries have been prepared in accordance with International Financial Reporting Standards (\u201cIFRS\u201d) as of December 31, 2022, as endorsed by the EU and article 2.362.9 of the Netherlands Civil Code.
A number of the Company\u2019s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and\u00a0 liabilities. The Company has an established control framework with respect to the measurement of fair values. This includes overseeing all significant fair value measurements, including Level 3 fair values.
The Company regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the Company assesses the evidence obtained from the third parties to support the conclusion that these valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which the valuations should be classified.
Significant valuation issues are reported to the Company\u2019s audit committee.
When measuring the fair value of an asset or a liability, the Company uses observable market data as far as possible.
Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.
The Company recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.
Further information about the assumptions made in measuring fair values is included in the following notes:
\u2022note 12 \u2013 measurement of other investments
\u2022note 24 \u2013 share-based payments
\u2022note 29 \u2013 measurement of financial instruments
\u2022note 30 \u2013 business combination
The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected.
Key uses of judgments
Information related to critical judgments made in applying accounting policies that have the most significant effects on the amounts recognized in the Company\u2019s consolidated financial statements are included in the following notes:
\u2022notes 3 and 5 \u2013 Revenue from contracts with customers: determination of revenue recognition from furnace construction contracts
\u2022notes 3 and 12 - other investments: whether the Company has significant influence over an equity-accounted investee
\u2022notes 3 and 31 \u2013 Leases: determination of the lease term for some lease contracts which include renewal options
Assumptions and estimation uncertainty
Information about assumptions and estimation uncertainties that may have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are included in the following notes:
\u2022note 9 \u2013 Income tax: recognition of income taxes and deferred tax assets
\u2022note 10 \u2013 Property, plant and equipment: determination of useful lives of mining-related assets
\u2022note 11 \u2013 Goodwill and other intangible assets: measurement of the recoverable amounts of assets and cash-generating units for purposes of impairment testing
\u2022note 12 \u2013 Other investments; the assumptions and model used to determine fair value
\u2022note 23 \u2013 Employee benefits: measurement of plan obligations and actuarial assumptions
\u2022note 24 \u2013 Share-based payments: the assumptions and model used to determine fair value
\u2022note 25 \u2013 Provisions: determination of amounts recorded based on expected payments and any regulatory framework
\u2022note 29 \u2013 Financial instruments: fair value determination based on present value of future cash flows
\u2022note 30 \u2013 Acquisition of subsidiary: fair value of the assets acquired and liabilities assumed
These consolidated financial statements as of December 31, 2022, present the consolidated financial position, results of operations and cash flows of the Company and its subsidiaries. The Company has consistently applied the following accounting policies to all periods presented in these consolidated financial statements.
(A)BASIS OF CONSOLIDATION
(i)Business combinations
The Company accounts for business combinations using the acquisition method once control is gained by the Company. Consideration transferred and separately identifiable net assets acquired in the acquisition are measured at fair value. Consideration transferred does not include amounts related to the settlement of pre-existing relationships, which are recognized in profit or loss. Any goodwill that arises is tested annually for impairment. In the event of a bargain purchase, any gain is recognized in the income statement immediately. Transaction costs are expensed as incurred, unless related to the issuance of debt or equity securities.
Contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration meets the definition of a financial instrument classified as equity, then it is not remeasured, and settlement is accounted for within equity. Other contingent consideration is remeasured at fair value at each reporting date, with subsequent changes in the fair value of the contingency being recognized through profit or loss.
(i)Subsidiaries
Subsidiaries are entities controlled by the Company. The Company controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.
(ii)Non-controlling interests
Non-controlling interests are measured at their proportionate share of the acquiree\u2019s identifiable net assets at the date of acquisition.
Changes in the Company\u2019s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
(iii)Loss of control
When the Company loses control over a subsidiary, it derecognizes the assets and liabilities of the subsidiary, and any related non-controlling interest and other components of equity. Any resulting gain or loss is recognized in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.
(iv)Interests in equity-accounted investees
The Company\u2019s interests in equity-accounted investees comprise interests in associates and joint ventures.
Associates are those entities in which the Company has significant influence, but not control or joint control, over the financial and operating policies. A joint venture is an arrangement in which the Company has joint control, whereby the Company has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities.
Interests in associates and joint ventures are accounted for using the equity method. They are initially recognized at cost, including transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Company\u2019s share of the profit or loss and OCI of equity-accounted investees in accordance with the Company's accounting policies, until the date on which significant influence or joint control ceases.
(v)Transactions eliminated on consolidation
Intergroup balances and transactions, and any unrealized income and expenses arising from intergroup transactions, are eliminated. Unrealized gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Company\u2019s interest in the investee. Unrealized losses are eliminated similarly, to the extent there is no evidence of impairment.
(B)FOREIGN CURRENCY
(i)Functional and presentation currency
These consolidated financial statements are presented in US dollars ($), which is the Company\u2019s functional and presentation currency.
All financial information is presented in US dollars and has been rounded to the nearest thousand, unless otherwise stated.
The local currency is the functional currency for the Company\u2019s significant operations outside the United States (US), except operations in the UK and Brazil, where the US dollar is used as the functional currency. The determination of functional currency is based on appropriate economic and management indicators.
(ii)Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of the Company\u2019s entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange at the reporting date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the functional currency at the exchange rate when the fair value was determined. Non-monetary items that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Foreign currency differences arising from the translation of monetary assets and liabilities denominated in a foreign currency are recognized in profit or loss.
Foreign currency differences arising from the translation of the following items are recognized in other comprehensive income:
\u2022Equity investments classified as fair value through other comprehensive income (except on impairment, in which case foreign currency differences that have been recognized in other comprehensive income are reclassified to profit or loss);
\u2022A financial liability designated as a hedge of the net investment in a foreign operation to the extent that the hedge is effective; and
\u2022Qualifying cash flow hedges to the extent that the hedges are effective.
(vi)Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to US dollars at exchange rates at the reporting date. The income and expenses of foreign operations are translated to US dollars at the average exchange rates calculated at the reporting date.
Foreign currency differences arising from the translation of foreign operations are recognized in other comprehensive income and accumulated in the foreign currency translation reserve, except to the extent that the translation difference is allocated to non-controlling interest. When a foreign operation is disposed of, in its entirety or partially such that control, significant influence, or joint control is lost, the cumulative amount in the translation reserve
related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. If the Company disposes of part of its interest in a subsidiary but retains control, then the relevant proportion of the cumulative amount is reattributed to non- controlling interest. When the Company disposes of only part of an associate or joint venture while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss.
(C)REVENUE FROM CONTRACTS WITH CUSTOMERS
(i)Goods sold
The Company\u2019s contracts for goods sold typically contain a single performance obligation. The timing of when a customer obtains control over goods sold varies depending on the individual terms of the sales agreement. In satisfying the Company\u2019s performance obligation to its customers, transfer of control typically occurs when title and risk of loss pass to the customer. In the case of export sales, control of the goods sold may pass when the product reaches a foreign port. Invoices are generally issued according to contractual terms and are usually payable within 30-90 days. The transaction price of goods sold is typically based on contractual terms or market pricing and is not subject to variable consideration.
(ii)Furnace construction contracts
Furnace construction contract revenue results from the design, engineering and construction of advanced vacuum furnace systems in the AMG Technologies segment. These furnaces are constructed based on specifically negotiated contracts with customers. Contract revenues includes the initial amount agreed in the contract plus any variations in contract work, claims and incentive payments, to the extent that it is probable that they will result in revenue and can be measured reliably. Invoices are generally issued according to contractual terms and are usually payable within 30-90 days.
The performance obligations in the Company\u2019s furnace construction contracts are mainly recognized over time. The Company\u2019s furnace construction contracts require the Company to develop highly specialized assets that meet the customer\u2019s specific needs. The assets do not have an alternative use to the Company, and the Company has a legal right to payment for its services rendered to date for all furnace construction arrangements. The Company recognizes contract revenue over time in proportion to the stage of completion of the contract. The stage of completion is assessed with reference to costs incurred to date and estimated total cost. Otherwise, contract revenue is recognized only to the extent of contract costs incurred that are likely to be recoverable.
Contract expenses are recognized as incurred unless they create an asset related to future contract activity. An expected loss on a contract is recognized immediately in profit or loss.
Amounts expected to be collected from customers for contract work performed is measured at costs incurred plus profits recognized to date, less progress billings and recognized losses.
In the statement of financial position, construction contracts in progress for which costs incurred plus recognized profits exceed progress billings and recognized losses are presented as trade and other receivables. Contracts for which progress billings and recognized losses exceed costs incurred plus recognized profits are presented as deferred revenues and included with advanced payments.
(i)Heat treatment services
The Company offers heat treatment services on a tolling basis using its internally developed furnace and process technology that is owned and operated by the AMG Technologies segment. The Company\u2019s performance obligations under these tolling contracts require the Company to apply this technology to the customer\u2019s materials at a contractually agreed upon cost per unit. The Company recognizes revenues for heat treatment services completed to date that the Company has a contractual right to invoice its customers for the related services.
(ii)Processing services
Within the AMG Clean Energy Materials segment, the Company performs services to convert spent refinery catalyst and other vanadium-bearing residues into ferrovanadium and a ferronickel-molybdenum alloy. These metals are reclaimed from spent catalyst using the Company's proprietary roasting and pyrometallurgical processes. The reclaimed metals are then sold to the carbon and stainless-steel industries. The Company\u2019s performance obligations under these contracts require the Company to process the materials and reclaim the metals at a contractually agreed upon cost per unit. The Company recognizes revenues at a point in time for processing services completed to date to the extent that the Company has a contractual right to invoice its customers for the related services. Processing fees can be subject to adjustments based on the market prices of the reclaimed metals for a period up to to three months after roasting. To account for this potential volatility in the processing fee revenue, the Company defers a portion of its processing fee revenue until the uncertainty related to the metal prices is resolved in accordance with the variable consideration policy noted below. The deferral is determined taking into account the historical volatility of the metal prices relative to the market price at the reporting date.
(iii)Commissions
If the Company acts in the capacity of an agent rather than as the principal in a transaction, then the revenue recognized is the net amount of commission made by the Company.
(iv)Warranty obligations
The Company typically provides warranties for general repairs of defects that existed at the time of sale, as required by law. These assurance-type warranties are not considered to be separate performance obligations and are accounted for under IAS 37 Provisions, Contingent Liabilities and Contingent Assets as described in our accounting policy for provisions.
(i)Variable consideration
If the consideration in a contract includes a variable amount, the Company estimates the amount of consideration to which it will be entitled in exchange for providing services or for transferring the goods to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognized will not occur when the associated uncertainty with the variable consideration is subsequently resolved.
(D)FINANCE INCOME AND COST
Finance income comprises interest income on funds invested, changes in the discount on provisions, foreign currency gains and gains on derivatives and hedging instruments. Interest income is recognized as it is earned, using the effective interest method.
Finance cost comprises interest expense on borrowings and interest rate caps and swaps, amendment fees on borrowings, amortization of loan issuance costs, interest expense on lease liabilities, commitment fees on borrowings, changes in the discount on provisions, interest on tax liabilities, foreign currency losses, losses on derivatives and hedging instruments, fees for letters of credit/guarantees, interest for accounts receivable factoring and any loss recorded on debt extinguishment. All transaction costs are recognized in profit or loss using the effective interest method when the costs are related to actual borrowings on the facility or using the straight-line method when they are related to the revolving credit facility.
(E)INCOME TAX EXPENSE
Income tax expense comprises current and deferred tax.
It is recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.
Interest and penalties related to income taxes, including uncertain tax treatments, are accounted for under IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
(i)Current tax
Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable or receivable in respect of previous years. The amount of current tax payable or receivable is the best estimate of the tax amount expected to be paid or received that reflects uncertainty related to income taxes, if any. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends.
Current tax assets and liabilities are offset only if allowable in the related tax jurisdiction.
(ii)Deferred tax
Deferred tax is recognized 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 is not recognized for:
\u2022temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;
\u2022temporary differences related to investments in subsidiaries, associates and joint ventures to the extent that the Company is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and
\u2022taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax assets are recognized for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Future taxable profits are determined based on business plans for individual subsidiaries in the Company and the reversal of temporary differences. If the amount of taxable temporary differences is insufficient to recognize a deferred tax asset in full, then future taxable profits, adjusted for reversals of existing temporary differences, are considered, based on the business plans for individual subsidiaries in the Company. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized; such reductions are reversed when the probability of future taxable profits improves.
Unrecognized deferred tax assets are reassessed at each reporting date and recognized to the extent that it has become probable that future taxable profits will be available against which they can be used.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.
The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Company expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset generally when they arise in the same tax jurisdiction.
(iv)Sales and other taxes
Revenues, expenses and assets are recognized net of the amount of sales tax except:
\u2022where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is recognized as part of the cost of acquisition of the asset or as part of the expense item as applicable; and
\u2022receivables and payables that are stated with the amount of sales tax included.
The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position.
Additional income taxes that arise from the distribution of dividends are recognized at the same time as the liability to pay the related dividend is recognized.
(F)GOVERNMENT GRANTS
Grants that compensate the Group for expenses incurred are recognized in profit or loss as other income on a systematic basis in the periods in which the expenses are recognized, unless the condition for receiving the grant are met after the related expenses have been recognized. In this case, the grant is recognized when it becomes receivable.
(G)FINANCIAL INSTRUMENTS
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
(i)Financial assets Initial recognition and measurement
Financial assets are classified, at initial recognition, as subsequently measured at amortized cost, fair value through other comprehensive income (OCI), or fair value through profit or loss.
The classification of financial assets at initial recognition depends on the financial asset\u2019s contractual cash flow characteristics and the Company\u2019s business model for managing them. The Company initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Company has applied the practical expedient are measured at the transaction price as disclosed in section (c) Revenue from contracts with customers.
In order for a financial asset to be classified and measured at amortized cost or fair value through OCI, it needs to give rise to cash flows that are \u2018solely payments of principal and interest (SPPI)\u2019 on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level. Financial assets with cash flows that are not SPPI are classified and measured at fair value through profit or loss, irrespective of the business model.
The Company\u2019s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. Financial assets classified and measured at amortized cost are held within a business model with the objective to hold financial assets in order to collect contractual cash flows while financial assets classified and measured at fair value through OCI are held within a business model with the objective of both holding to collect contractual cash flows and selling.
Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognized on the trade date, i.e., the date that the Company commits to purchase or sell the asset.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in four categories:
\u2022Financial assets at amortized cost (debt instruments)
\u2022Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments)
\u2022Financial assets at fair value through profit or loss
Financial assets at amortized cost (debt instruments)
Financial assets at amortized cost are subsequently measured using the effective interest method and are subject to impairment. Gains and losses are recognized in profit or loss when the asset is derecognized, modified or impaired.
The Company\u2019s financial assets at amortized cost includes trade receivables.
Financial assets designated at fair value through OCI (equity instruments)
Upon initial recognition, the Company can elect to classify irrevocably its equity investments as equity instruments designated at fair value through OCI when they meet the definition of equity under IAS 32 Financial Instruments: Presentation and are not held for trading. The classification is determined on an instrument-by-instrument basis.
Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognized as other income in profit or loss when the right of payment has been established, except when the Company benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments designated at fair value through OCI are not subject to impairment assessment.
The Company elected to classify its other investments (note 12) under this category.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognized in profit or loss.
This category includes the Company\u2019s derivative instruments that have not been designated for hedge accounting.
A derivative embedded in a hybrid contract, with a financial liability or non-financial host, is separated from the host and accounted for as a separate derivative if: the economic characteristics and risks are not closely related to the host; a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and the hybrid contract is not measured at fair
value through profit or loss. Embedded derivatives are measured at fair value with changes in fair value recognized in profit or loss. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the fair value through profit or loss category. The Company does not currently have any embedded derivatives that are accounted for separately from the host.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognized (i.e., removed from the Company\u2019s consolidated statement of financial position) when the rights to receive cash flows from the asset have expired or when the Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a \u2018pass-through\u2019 arrangement. In order for a pass-through arrangement to qualify for derecognition, the Company must have transferred substantially all the risks and rewards of the asset, or the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognize the transferred asset to the extent of its continuing involvement. In that case, the Company also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.
Impairment
The Company recognizes an allowance for expected credit losses (\u201cECL\u2019s\u201d) for all debt instruments not held at fair value through profit or loss. ECL\u2019s are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Company expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.
ECL's are recognized in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECL\u2019s are provided for credit losses that result from default events that are possible within the next 12 months (a
12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).
For trade receivables and contract assets, the Company applies a simplified approach in calculating ECL\u2019s. Therefore, the Company does not track changes in credit risk, but instead recognizes a loss allowance based on lifetime ECL\u2019s at each reporting date. The Company has established an allowance matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
The Company considers a financial asset to be in default when internal or external information indicates that the Company is unlikely to receive the outstanding contractual amounts in full before considering any credit enhancements held by the Company. A financial asset is written-off when there is no reasonable expectation of recovering the contractual cash flows.
(i)Financial liabilities Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.
All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
The Company\u2019s financial liabilities include trade and other payables, loans and borrowings, short-term bank debt and derivative financial instruments.
Subsequent measurement
For purposes of subsequent measurement, financial liabilities are classified in two categories:
\u2022Financial liabilities at fair value through profit or loss
\u2022Financial liabilities at amortized cost (loans and borrowings)
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.
Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by IFRS 9. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognized in profit or loss.
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of
recognition, and only if the criteria in IFRS 9 are satisfied. The Company has not designated any financial liability as at fair value through profit or loss.
Financial liabilities at amortized cost (loans and borrowings)
This is the category most relevant to the Company. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the effective interest rate method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the effective interest rate amortization process.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortization is included as finance costs in the income statement.
This category generally applies to interest-bearing loans and borrowings (note 21) and short-term bank debt (note 22).
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in profit or loss.
(i)Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realize the assets and settle the liabilities simultaneously.
(ii)Derivative financial instruments and hedge accounting
The Company uses derivative financial instruments, such as forward currency contracts, interest rate caps and swaps and forward commodity contracts, to hedge its foreign currency risks, interest rate risks and commodity price risks, respectively. Derivative instruments, which include physical contracts that do not meet the own use exemption, are initially recognized at fair value when the Company becomes a party to the contractual provisions of the instrument and are subsequently remeasured to fair value at the end of each reporting period. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
The Company designates derivatives as hedging instruments to hedge the variability in cash flows associated with highly probable forecast transactions arising from changes in foreign exchange rates, commodity prices and interest rates.
At inception of designated hedging relationships, the Company documents the risk management objective and strategy for undertaking the hedge. The Company also documents the
economic relationship between the hedged item and the hedging instrument, including whether the changes in cash flows of the hedged item and hedging instrument are expected to offset each other.
Cash flow hedges
When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and accumulated in the hedging reserve. The effective portion of changes in fair value of the derivative that is recognized in other comprehensive income is limited to the cumulative change in fair value of the hedged item, determined on a present value basis, from inception of the hedge.\u00a0 Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss.
The Company designates only the change in fair value of the spot element of forward exchange contracts as the hedging instrument in cash flow hedging relationships. The change in fair value of the forward element of forward exchange contracts is separately accounted for as a cost of hedging and recognized in a cost of hedging reserve within equity.
When the hedged forecast transaction subsequently results in the recognition of a non-financial item such as inventory, the amount accumulated in the hedging reserve and the cost of hedging reserve is included directly in the initial cost of the non-financial item when it is recognized.
For all other hedged forecast transactions, the amount accumulated in the hedging reserve and the cost of hedging reserve is reclassified to profit or loss in the same period or periods during which the hedged expected future cash flows affect profit or loss.
If the hedge no longer meets the criteria for hedge accounting or the hedging instrument is sold, expires, is terminated or is exercised, then hedge accounting is discontinued prospectively. When hedge accounting for cash flow hedges is discontinued, the amount that has been accumulated in the hedging reserve remains in equity until, for a hedge of a transaction resulting in the recognition of a non-financial item, it is included in the non-financial item\u2019s cost on its initial recognition or, for other cash flow hedges, it is reclassified to profit or loss in the same period or periods as the hedged expected future cash flows affect profit or loss.
If the hedged future cash flows are no longer expected to occur, then the amounts that have been accumulated in the hedging reserve and the cost of hedging reserve are immediately reclassified to profit or loss.
(H)SHARE CAPITAL
(i)Ordinary shares
Incremental costs directly attributable to the issue of ordinary shares, net of any tax effects, are recognized as a deduction from equity. Income tax relating to transaction costs of an equity transaction is accounted for in accordance with IAS 12.
(i)Repurchase and reissue of ordinary shares (treasury shares)
When shares recognized as equity are repurchased, the amount of the consideration paid, which includes directly attributable costs, net of any tax effects, is recognized as a deduction from equity. Repurchased shares are classified as treasury shares and are presented in the treasury share reserve. When treasury shares are sold or reissued subsequently, the amount received is recognized as an increase in equity, and the resulting surplus or deficit on the transaction is presented within share premium.
(I)EMPLOYEE BENEFITS
(i)Short-term benefits
Short-term employee benefits are expensed as the related service is provided. A liability is recognized for the amount expected to be paid if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
(ii)Share-based payment transactions
The grant date fair value of equity-settled share-based payment arrangements granted to employees is generally recognized as an expense, with a corresponding increase in equity, over the vesting period of the awards. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognized is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with market and non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.
(iii)Defined contribution plans
Obligations for contributions to defined contribution plans are expensed as the related service is provided. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in future payments is available.
(iv)Defined benefit plans
The Company\u2019s net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in the current and prior periods, discounting that amount and deducting the fair value of any plan assets.
The calculation of defined benefit obligations is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a potential asset for the Company, the recognized asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. To calculate the present value of economic benefits, consideration is given to any applicable minimum funding requirements.
Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in other comprehensive income. The Company determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognized in profit or loss.
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in profit or loss. The Company recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs.
(i)Other long-term employee benefits
The Company\u2019s net obligation in respect of long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value. Remeasurements are recognized in profit or loss in the period in which they arise.
(ii)Termination benefits
Termination benefits are expensed at the earlier of when the Company can no longer withdraw the offer of those benefits and when the Company recognizes costs for a restructuring. If benefits are not expected to be settled wholly within 12 months of the reporting date, then they are discounted.
(J)PROPERTY, PLANT AND EQUIPMENT
(i)Recognition and measurement
Items of property, plant and equipment are measured at cost, which includes capitalized borrowing costs, less accumulated depreciation and any accumulated impairment losses.
Costs associated with developing mine reserves are recognized in property, plant and equipment when they are established as commercially viable. These costs can include amounts that were previously recognized as intangible assets during the evaluation phase of the mine development.
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.
If significant parts of an item of property, plant and equipment have different useful lives, then they are accounted for as separate items (major components) of property, plant and equipment.
Any gain or loss on disposal of an item of property, plant and equipment is recognized in profit or loss.
(i)Subsequent expenditures
Subsequent expenditure is capitalized only if it is probable that the future economic benefits associated with the expenditure will flow to the Company.
(ii)Depreciation
Depreciation is calculated to write-off the cost of items of property, plant and equipment less their estimated residual values using the straight-line method over their estimated useful lives and is generally recognized in the income statement. Land is not depreciated.
The estimated useful lives of property, plant and equipment for current and comparative periods are as follows:
\u2022mining costs | 4-20 years |
\u2022buildings and improvements | 2-50 years |
\u2022machinery and equipment | 2-20 years |
\u2022furniture and fixtures | 2-15 years |
Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
The depreciation of mining costs is linked to production levels. Therefore, these assets are amortized using a units of production basis. The Company\u2019s mine in Brazil is currently the only mine asset being depreciated using this basis and approximates a 19-year remaining life of the mine based on updated geology studies. Other mining assets are depreciated on a straight-line basis ranging from 4-20 years, depending on useful life.
(K)GOODWILL AND OTHER INTANGIBLE ASSETS
(i)Goodwill
Goodwill arising on the acquisition of subsidiaries is measured at cost less accumulated impairment losses.
(ii)Research and development
Expenditure on research activities is recognized in profit or loss when incurred.
Development expenditures are capitalized if and only if the following criteria are met:
\u2022the expenditure can be measured reliably;
\u2022the product or process is technically and commercially feasible;
\u2022future economic benefits are probable; and
\u2022the Company intends to and has sufficient resources to complete development and to use or sell the asset.
Research and development costs that do not qualify as assets are shown within selling, general and administrative expenses in the income statement. Subsequent to initial recognition, development expenditure is measured at cost less accumulated amortization and any accumulated impairment losses.
(i)Mining assets
Mining assets which are included in intangible assets include exploration, evaluation and development expenditures. See significant accounting policies section (k) for additional information on the accounting for mining assets.
(ii)Other intangible assets
Other intangible assets, including software, customer relationships, patents and trademarks that are acquired by the Company and have finite useful lives are measured at cost less accumulated amortization and any accumulated impairment losses.
(iii)Subsequent expenditure
Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill, is recognized in the income statement as incurred.
(iv)Amortization
Amortization is calculated to write-off the cost of intangible assets less their estimated residual values using the straight- line method over their estimated useful lives, and is generally recognized in profit or loss. Goodwill is not amortized. Amortization methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
The estimated useful lives for current and comparative periods are based on expected futures sales for the related asset and are as follows:
\u2022customer relationships | 5-15 years |
\u2022development costs | 8-15 years |
\u2022machinery and equipment | 9-12 years |
\u2022mining assets | 2-20 years |
(L)INVENTORIES
Inventories are measured at the lower of cost and net realizable value. The cost of inventories is determined based on the average cost and specific identification methods, and includes expenditures incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of finished goods inventory and work in process, cost includes materials and labor as well as an appropriate share of production overhead based on normal operating capacity.
(M)MINING ASSETS
(i)Exploration, evaluation and development expenditures
Exploration and evaluation expenditures relate to costs incurred on the exploration and evaluation of potential mineral resources. These costs are recorded as intangible assets while exploration is in progress. When commercially recoverable reserves are determined, and such development receives the appropriate approvals, capitalized exploration and evaluation expenditures
are transferred to construction in progress. Upon completion of development and commencement of production, capitalized development costs as well as exploration and evaluation expenditures are transferred to mining assets in property, plant and equipment and depreciated over their estimated useful life.
(i)Deferred stripping costs
The Company is following IFRIC 20 for all surface mine accounting. The Interpretation only applies to stripping costs incurred during the production phase of a surface mine (production stripping costs). Costs incurred in undertaking stripping activities are considered to create two possible benefits: a) the production of inventory in the current period and/or b) improved access to ore to be mined in a future period. Where the benefits are realized in the form of inventory produced, the production stripping costs are to be accounted for in accordance with IAS 2. Where the benefit is improved access to ore that will be mined in the future, these costs are to be recognized as a non-current asset.
Production stripping costs are capitalized as part of an asset when the Company can demonstrate: a) it is probable that future economic benefit associated with the stripping activity will flow to the entity; b) the entity can identify the component of an ore body for which access has been improved; and c) the costs can be reliably measured. These costs are amortized over the life of the component ore body identified.
(N)LEASES
At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
(i)As a lessee
At commencement or on modification of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease component on the basis of its relative stand-alone prices.
The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Company by the end of the lease term or the cost of the right-of-use asset reflects that the Company will exercise a purchase option. In that case the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment.
In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for\u00a0 remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company\u2019s incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate.
The Company determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes adjustments to reflect the terms of the lease and type of the asset leased.
Lease payments included in the measurement of the lease liability comprise the following:
\u2022fixed payments, including in-substance fixed payments;
\u2022variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;
\u2022amounts expected to be payable under a residual value guarantee; and
\u2022the exercise price under a purchase option that the Company is reasonably certain to exercise, lease payments in an optional renewal period if the Company is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Company is reasonably certain not to terminate early.
The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Company\u2019s estimate of the amount expected to be payable under a residual value guarantee, if the Company changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
The Company presents right-of-use assets that do not meet the definition of investment property in property, plant and equipment and lease liabilities are presented as a separate line item in the statement of financial position.
Short-term leases and leases of low-value assets
The Company has elected not to recognize right-of-use assets and lease liabilities for leases of low-value assets and short- term leases. The Company recognizes the lease payments
associated with these leases as an expense on a straight-line basis over the lease term.
(O)ASSETS HELD FOR SALE
Non-current assets, or disposal groups comprising assets and liabilities, are classified as held for sale if it is highly probable that they will be recovered primarily through sale rather than through continuing use.
Such assets, or disposal groups, are generally measured at the lower of their carrying amount and fair value less costs to sell. Any impairment loss on a disposal group is allocated first to goodwill, and then to the remaining assets and liabilities on a pro rata basis, except that no loss is allocated to inventories, financial assets, deferred tax assets, employee benefit assets, investment property or biological assets, which continue to be measured in accordance with the Company\u2019s other accounting policies. Impairment losses on initial classification as held for sale or held for distribution and subsequent gains and losses on remeasurement are recognized in the income statement.
Once classified as held for sale, intangible assets and property, plant and equipment are no longer amortized or depreciated, and any equity-accounted investee is no longer equity accounted.
(P)IMPAIRMENT OF NON-FINANCIAL ASSETS
At each reporting date, the Company reviews the carrying amounts of its non-financial assets (other than inventories, contract assets and deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset\u2019s recoverable amount is estimated. Goodwill is tested annually for impairment.
For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or cash generating units. Goodwill arising from a business combination is allocated to cash generating units or groups of cash generating units that are expected to benefit from the synergies of the combination.
The recoverable amount of an asset or cash generating unit is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash generating unit.
An impairment loss is recognized if the carrying amount of an asset or cash generating unit exceeds its recoverable amount.
Impairment losses are recognized in the income statement. They are allocated first to reduce the carrying amount of any goodwill allocated to the cash generating unit, and then to reduce the carrying amounts of the other assets in the cash generating unit on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset\u2019s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
(Q)PROVISIONS
Provisions are recognized when:
\u2022the Company has a present obligation (legal or constructive) as a result of a past event;
\u2022it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and
\u2022a reliable estimate can be made for the amount of the obligation.
If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost.
(i)Environmental remediation costs and recoveries
Several subsidiaries of the Company are faced with a number of issues relating to environmental clean-up requirements, largely resulting from historical solid and hazardous waste handling and disposal practices at their facilities. In accordance with the Company\u2019s environmental policy and applicable legal requirements, provisions associated with environmental remediation obligations are accrued when such losses are deemed probable and reasonably estimable. Such accruals generally are recognized no later than the completion of the remedial feasibility study and are adjusted as further information develops or circumstances change.
A provision is made for shutdown, restoration and environmental rehabilitation costs in the financial period when the related environmental disturbance occurs, based on the estimated future costs using information available at the reporting date. The provision is discounted using a current market-based pre-tax discount rate and any change in the discount is included in finance cost. The provision is reviewed on an annual basis for changes to obligations, legislation or discount rates that may lead to changes in cost estimates or the expected timeline for payments.
Where the Company expects some or all of an environmental provision to be reimbursed, for example using a trust account, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement. The subsidiaries of the Company have been required, in several instances, to create trust funds for the environmental rehabilitation. Once established, the subsidiaries have a 100% interest in these funds. Rehabilitation and restoration trust funds holding monies committed for use in satisfying environmental obligations are included on a discounted basis within other non-current assets on the statement of financial position, only to the extent that a liability exists for these obligations.
Environmental expense recoveries are generally recognized in profit or loss upon final settlement with the Company\u2019s insurance carriers.
Additional environmental remediation costs and provisions may be required if the Company were to decide to close its sites. Several of the Company\u2019s restructuring programs have involved closure of sites. Remediation liabilities are recognized when the site closure has been announced. In the opinion of the Company, it is not possible to estimate reliably the costs that would be incurred on the eventual closure of its continuing sites, where there is no present obligation to remediate, because it is neither possible to determine a time limit beyond which the sites will no longer be operated, nor what remediation costs may be required on their eventual closure.
(i)Restructuring
A provision for restructuring is recognized when the Company has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced publicly. Provisions are not made for future operating costs. The timing of recording of portions of the restructuring provision is dependent on receiving social plan approval generally in European jurisdictions which require external approval. Changes in the estimate of costs related to restructuring plans are included in profit or loss in the period when the change is identified.
(ii)Warranty
A provision for warranty is recognized when the Company has determined that it has a basis for recording a warranty provision based on historical returns for warranty work. The estimate of warranty-related costs is updated and revised at each reporting date.
(iii)Partial retirement
The collective agreements for retirement indemnities on our French subsidiary and the corresponding commitments are updated and revised at each reporting date.
(iv)Cost estimates
As part of its process to provide reliable estimations of profitability for long-term contracts, the Company makes provisions for cost estimates for completed contracts. These provisions are developed on a contract by contract basis and are based on contractor estimates and are utilized or derecognized depending on actual performance of the contracts. The cost estimates are updated and revised at each reporting date.
(v)Restoration, rehabilitation and decommissioning costs
Restoration, rehabilitation and decommissioning costs arising from the installation of plant and other site preparation work, discounted to their net present value, are provided for and capitalized at the time such an obligation arises. The costs are charged to the income statement over the life of the operation through depreciation of the asset and the unwinding of the discount on the provision.
Mine rehabilitation costs will be incurred by the Company at the end of the operating life of some of the Company\u2019s facilities and mine properties. The Company assesses its mine rehabilitation provision at each reporting date. The ultimate rehabilitation costs are uncertain, and cost estimates can vary in response
to many factors, including estimates of the extent and costs of rehabilitation activities, technological changes, regulatory changes, cost increases as compared to the inflation rates, and changes in discount rates. The provision recorded at each reporting date represents management\u2019s best estimate of the present value of the future rehabilitation costs required.
Costs for restoration of subsequent site disturbance, which is created on an ongoing basis during production, are provided for at their net present values and charged to the income statement as extraction progresses.
(R)NEW AND AMENDED STANDARDS AND INTERPRETATIONS
The following new standards became effective for annual periods beginning after January 1, 2022; however, these amended standards and interpretations did not have a significant impact on the Company\u2019s consolidated financial statements.
\u2022Onerous contracts - Cost of Fulfilling a Contract (Amendments to IAS 37).
\u2022Annual Improvements to IFRS Standards 2018-2020.
\u2022Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16).
\u2022Reference to Conceptual Framework (Amendments to IFRS 3).
(S)STANDARDS ISSUED BUT NOT YET EFFECTIVE
A number of new standards are effective for annual periods beginning after January 1, 2022 and earlier application is permitted; however, the Company has not early adopted the new or amended standards in preparing these consolidated financial statements. The following amended standards and interpretations are not expected to have a significant impact on the Company\u2019s consolidated financial statements.
\u2022Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12).
\u2022Classification of Liabilities as Current or Non-current (Amendments to IAS 1).
\u2022IFRS 17 Insurance Contracts and amendments to IFRS 17 Insurance Contracts.
\u2022Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2).
(i)Business combinations
The Company accounts for business combinations using the acquisition method once control is gained by the Company. Consideration transferred and separately identifiable net assets acquired in the acquisition are measured at fair value. Consideration transferred does not include amounts related to the settlement of pre-existing relationships, which are recognized in profit or loss. Any goodwill that arises is tested annually for impairment. In the event of a bargain purchase, any gain is recognized in the income statement immediately. Transaction costs are expensed as incurred, unless related to the issuance of debt or equity securities.
Contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration meets the definition of a financial instrument classified as equity, then it is not remeasured, and settlement is accounted for within equity. Other contingent consideration is remeasured at fair value at each reporting date, with subsequent changes in the fair value of the contingency being recognized through profit or loss.
(i)Subsidiaries
Subsidiaries are entities controlled by the Company. The Company controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.
(ii)Non-controlling interests
Non-controlling interests are measured at their proportionate share of the acquiree\u2019s identifiable net assets at the date of acquisition.
Changes in the Company\u2019s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
(iii)Loss of control
When the Company loses control over a subsidiary, it derecognizes the assets and liabilities of the subsidiary, and any related non-controlling interest and other components of equity. Any resulting gain or loss is recognized in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.
(iv)Interests in equity-accounted investees
The Company\u2019s interests in equity-accounted investees comprise interests in associates and joint ventures.
Associates are those entities in which the Company has significant influence, but not control or joint control, over the financial and operating policies. A joint venture is an arrangement in which the Company has joint control, whereby the Company has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities.
Interests in associates and joint ventures are accounted for using the equity method. They are initially recognized at cost, including transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Company\u2019s share of the profit or loss and OCI of equity-accounted investees in accordance with the Company's accounting policies, until the date on which significant influence or joint control ceases.
(v)Transactions eliminated on consolidation
Intergroup balances and transactions, and any unrealized income and expenses arising from intergroup transactions, are eliminated. Unrealized gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Company\u2019s interest in the investee. Unrealized losses are eliminated similarly, to the extent there is no evidence of impairment.
Non-controlling interests are measured at their proportionate share of the acquiree\u2019s identifiable net assets at the date of acquisition.
Changes in the Company\u2019s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
The Company\u2019s interests in equity-accounted investees comprise interests in associates and joint ventures.
Associates are those entities in which the Company has significant influence, but not control or joint control, over the financial and operating policies. A joint venture is an arrangement in which the Company has joint control, whereby the Company has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities.
Interests in associates and joint ventures are accounted for using the equity method. They are initially recognized at cost, including transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Company\u2019s share of the profit or loss and OCI of equity-accounted investees in accordance with the Company's accounting policies, until the date on which significant influence or joint control ceases.
(i)Functional and presentation currency
These consolidated financial statements are presented in US dollars ($), which is the Company\u2019s functional and presentation currency.
All financial information is presented in US dollars and has been rounded to the nearest thousand, unless otherwise stated.
The local currency is the functional currency for the Company\u2019s significant operations outside the United States (US), except operations in the UK and Brazil, where the US dollar is used as the functional currency. The determination of functional currency is based on appropriate economic and management indicators.
(ii)Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of the Company\u2019s entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange at the reporting date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the functional currency at the exchange rate when the fair value was determined. Non-monetary items that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Foreign currency differences arising from the translation of monetary assets and liabilities denominated in a foreign currency are recognized in profit or loss.
Foreign currency differences arising from the translation of the following items are recognized in other comprehensive income:
\u2022Equity investments classified as fair value through other comprehensive income (except on impairment, in which case foreign currency differences that have been recognized in other comprehensive income are reclassified to profit or loss);
\u2022A financial liability designated as a hedge of the net investment in a foreign operation to the extent that the hedge is effective; and
\u2022Qualifying cash flow hedges to the extent that the hedges are effective.
(vi)Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to US dollars at exchange rates at the reporting date. The income and expenses of foreign operations are translated to US dollars at the average exchange rates calculated at the reporting date.
Foreign currency differences arising from the translation of foreign operations are recognized in other comprehensive income and accumulated in the foreign currency translation reserve, except to the extent that the translation difference is allocated to non-controlling interest. When a foreign operation is disposed of, in its entirety or partially such that control, significant influence, or joint control is lost, the cumulative amount in the translation reserve
related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. If the Company disposes of part of its interest in a subsidiary but retains control, then the relevant proportion of the cumulative amount is reattributed to non- controlling interest. When the Company disposes of only part of an associate or joint venture while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss.", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForForeignCurrencyTranslationExplanatory", "language": "en", "entity": "scheme:5493006MN6OH67U2YI74", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "id3VybDovL2RvY3MudjEvZG9jOjFiOTE3YTE2NTY0OTQyZDNhOTE0NGI5YzZjMjFmMWVkL3NlYzoxYjkxN2ExNjU2NDk0MmQzYTkxNDRiOWM2YzIxZjFlZF8xMTgvZnJhZzowMzNkNTQ2N2Q4MWI0NWU1OWU1MWI2YTcwODY2YzExOS90ZXh0cmVnaW9uOjAzM2Q1NDY3ZDgxYjQ1ZTU5ZTUxYjZhNzA4NjZjMTE5XzIxOTkwMjMzMTY5NDc_94670188-2b47-419c-8490-7a3b5c3f1465": { "value": "Functional and presentation currencyThese consolidated financial statements are presented in US dollars ($), which is the Company\u2019s functional and presentation currency.
All financial information is presented in US dollars and has been rounded to the nearest thousand, unless otherwise stated.
The local currency is the functional currency for the Company\u2019s significant operations outside the United States (US), except operations in the UK and Brazil, where the US dollar is used as the functional currency. The determination of functional currency is based on appropriate economic and management indicators.
(i)Goods sold
The Company\u2019s contracts for goods sold typically contain a single performance obligation. The timing of when a customer obtains control over goods sold varies depending on the individual terms of the sales agreement. In satisfying the Company\u2019s performance obligation to its customers, transfer of control typically occurs when title and risk of loss pass to the customer. In the case of export sales, control of the goods sold may pass when the product reaches a foreign port. Invoices are generally issued according to contractual terms and are usually payable within 30-90 days. The transaction price of goods sold is typically based on contractual terms or market pricing and is not subject to variable consideration.
(ii)Furnace construction contracts
Furnace construction contract revenue results from the design, engineering and construction of advanced vacuum furnace systems in the AMG Technologies segment. These furnaces are constructed based on specifically negotiated contracts with customers. Contract revenues includes the initial amount agreed in the contract plus any variations in contract work, claims and incentive payments, to the extent that it is probable that they will result in revenue and can be measured reliably. Invoices are generally issued according to contractual terms and are usually payable within 30-90 days.
The performance obligations in the Company\u2019s furnace construction contracts are mainly recognized over time. The Company\u2019s furnace construction contracts require the Company to develop highly specialized assets that meet the customer\u2019s specific needs. The assets do not have an alternative use to the Company, and the Company has a legal right to payment for its services rendered to date for all furnace construction arrangements. The Company recognizes contract revenue over time in proportion to the stage of completion of the contract. The stage of completion is assessed with reference to costs incurred to date and estimated total cost. Otherwise, contract revenue is recognized only to the extent of contract costs incurred that are likely to be recoverable.
Contract expenses are recognized as incurred unless they create an asset related to future contract activity. An expected loss on a contract is recognized immediately in profit or loss.
Amounts expected to be collected from customers for contract work performed is measured at costs incurred plus profits recognized to date, less progress billings and recognized losses.
In the statement of financial position, construction contracts in progress for which costs incurred plus recognized profits exceed progress billings and recognized losses are presented as trade and other receivables. Contracts for which progress billings and recognized losses exceed costs incurred plus recognized profits are presented as deferred revenues and included with advanced payments.
(i)Heat treatment services
The Company offers heat treatment services on a tolling basis using its internally developed furnace and process technology that is owned and operated by the AMG Technologies segment. The Company\u2019s performance obligations under these tolling contracts require the Company to apply this technology to the customer\u2019s materials at a contractually agreed upon cost per unit. The Company recognizes revenues for heat treatment services completed to date that the Company has a contractual right to invoice its customers for the related services.
(ii)Processing services
Within the AMG Clean Energy Materials segment, the Company performs services to convert spent refinery catalyst and other vanadium-bearing residues into ferrovanadium and a ferronickel-molybdenum alloy. These metals are reclaimed from spent catalyst using the Company's proprietary roasting and pyrometallurgical processes. The reclaimed metals are then sold to the carbon and stainless-steel industries. The Company\u2019s performance obligations under these contracts require the Company to process the materials and reclaim the metals at a contractually agreed upon cost per unit. The Company recognizes revenues at a point in time for processing services completed to date to the extent that the Company has a contractual right to invoice its customers for the related services. Processing fees can be subject to adjustments based on the market prices of the reclaimed metals for a period up to to three months after roasting. To account for this potential volatility in the processing fee revenue, the Company defers a portion of its processing fee revenue until the uncertainty related to the metal prices is resolved in accordance with the variable consideration policy noted below. The deferral is determined taking into account the historical volatility of the metal prices relative to the market price at the reporting date.
(iii)Commissions
If the Company acts in the capacity of an agent rather than as the principal in a transaction, then the revenue recognized is the net amount of commission made by the Company.
(iv)Warranty obligations
The Company typically provides warranties for general repairs of defects that existed at the time of sale, as required by law. These assurance-type warranties are not considered to be separate performance obligations and are accounted for under IAS 37 Provisions, Contingent Liabilities and Contingent Assets as described in our accounting policy for provisions.
(i)Variable consideration
If the consideration in a contract includes a variable amount, the Company estimates the amount of consideration to which it will be entitled in exchange for providing services or for transferring the goods to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognized will not occur when the associated uncertainty with the variable consideration is subsequently resolved.
Finance income comprises interest income on funds invested, changes in the discount on provisions, foreign currency gains and gains on derivatives and hedging instruments. Interest income is recognized as it is earned, using the effective interest method.
Finance cost comprises interest expense on borrowings and interest rate caps and swaps, amendment fees on borrowings, amortization of loan issuance costs, interest expense on lease liabilities, commitment fees on borrowings, changes in the discount on provisions, interest on tax liabilities, foreign currency losses, losses on derivatives and hedging instruments, fees for letters of credit/guarantees, interest for accounts receivable factoring and any loss recorded on debt extinguishment. All transaction costs are recognized in profit or loss using the effective interest method when the costs are related to actual borrowings on the facility or using the straight-line method when they are related to the revolving credit facility.
Income tax expense comprises current and deferred tax.
It is recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.
Interest and penalties related to income taxes, including uncertain tax treatments, are accounted for under IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
(i)Current tax
Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable or receivable in respect of previous years. The amount of current tax payable or receivable is the best estimate of the tax amount expected to be paid or received that reflects uncertainty related to income taxes, if any. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends.
Current tax assets and liabilities are offset only if allowable in the related tax jurisdiction.
(ii)Deferred tax
Deferred tax is recognized 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 is not recognized for:
\u2022temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;
\u2022temporary differences related to investments in subsidiaries, associates and joint ventures to the extent that the Company is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and
\u2022taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax assets are recognized for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Future taxable profits are determined based on business plans for individual subsidiaries in the Company and the reversal of temporary differences. If the amount of taxable temporary differences is insufficient to recognize a deferred tax asset in full, then future taxable profits, adjusted for reversals of existing temporary differences, are considered, based on the business plans for individual subsidiaries in the Company. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized; such reductions are reversed when the probability of future taxable profits improves.
Unrecognized deferred tax assets are reassessed at each reporting date and recognized to the extent that it has become probable that future taxable profits will be available against which they can be used.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.
The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Company expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset generally when they arise in the same tax jurisdiction.
(iv)Sales and other taxes
Revenues, expenses and assets are recognized net of the amount of sales tax except:
\u2022where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is recognized as part of the cost of acquisition of the asset or as part of the expense item as applicable; and
\u2022receivables and payables that are stated with the amount of sales tax included.
The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position.
reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for:
\u2022temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;
\u2022temporary differences related to investments in subsidiaries, associates and joint ventures to the extent that the Company is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future; and
\u2022taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax assets are recognized for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Future taxable profits are determined based on business plans for individual subsidiaries in the Company and the reversal of temporary differences. If the amount of taxable temporary differences is insufficient to recognize a deferred tax asset in full, then future taxable profits, adjusted for reversals of existing temporary differences, are considered, based on the business plans for individual subsidiaries in the Company. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized; such reductions are reversed when the probability of future taxable profits improves.
Unrecognized deferred tax assets are reassessed at each reporting date and recognized to the extent that it has become probable that future taxable profits will be available against which they can be used.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.
The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Company expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset generally when they arise in the same tax jurisdiction.
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
(i)Financial assets Initial recognition and measurement
Financial assets are classified, at initial recognition, as subsequently measured at amortized cost, fair value through other comprehensive income (OCI), or fair value through profit or loss.
The classification of financial assets at initial recognition depends on the financial asset\u2019s contractual cash flow characteristics and the Company\u2019s business model for managing them. The Company initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Company has applied the practical expedient are measured at the transaction price as disclosed in section (c) Revenue from contracts with customers.
In order for a financial asset to be classified and measured at amortized cost or fair value through OCI, it needs to give rise to cash flows that are \u2018solely payments of principal and interest (SPPI)\u2019 on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level. Financial assets with cash flows that are not SPPI are classified and measured at fair value through profit or loss, irrespective of the business model.
The Company\u2019s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. Financial assets classified and measured at amortized cost are held within a business model with the objective to hold financial assets in order to collect contractual cash flows while financial assets classified and measured at fair value through OCI are held within a business model with the objective of both holding to collect contractual cash flows and selling.
Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognized on the trade date, i.e., the date that the Company commits to purchase or sell the asset.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in four categories:
\u2022Financial assets at amortized cost (debt instruments)
\u2022Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments)
\u2022Financial assets at fair value through profit or loss
Financial assets at amortized cost (debt instruments)
Financial assets at amortized cost are subsequently measured using the effective interest method and are subject to impairment. Gains and losses are recognized in profit or loss when the asset is derecognized, modified or impaired.
The Company\u2019s financial assets at amortized cost includes trade receivables.
Financial assets designated at fair value through OCI (equity instruments)
Upon initial recognition, the Company can elect to classify irrevocably its equity investments as equity instruments designated at fair value through OCI when they meet the definition of equity under IAS 32 Financial Instruments: Presentation and are not held for trading. The classification is determined on an instrument-by-instrument basis.
Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognized as other income in profit or loss when the right of payment has been established, except when the Company benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments designated at fair value through OCI are not subject to impairment assessment.
The Company elected to classify its other investments (note 12) under this category.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognized in profit or loss.
This category includes the Company\u2019s derivative instruments that have not been designated for hedge accounting.
A derivative embedded in a hybrid contract, with a financial liability or non-financial host, is separated from the host and accounted for as a separate derivative if: the economic characteristics and risks are not closely related to the host; a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and the hybrid contract is not measured at fair
value through profit or loss. Embedded derivatives are measured at fair value with changes in fair value recognized in profit or loss. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the fair value through profit or loss category. The Company does not currently have any embedded derivatives that are accounted for separately from the host.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognized (i.e., removed from the Company\u2019s consolidated statement of financial position) when the rights to receive cash flows from the asset have expired or when the Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a \u2018pass-through\u2019 arrangement. In order for a pass-through arrangement to qualify for derecognition, the Company must have transferred substantially all the risks and rewards of the asset, or the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognize the transferred asset to the extent of its continuing involvement. In that case, the Company also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.
Impairment
The Company recognizes an allowance for expected credit losses (\u201cECL\u2019s\u201d) for all debt instruments not held at fair value through profit or loss. ECL\u2019s are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Company expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.
ECL's are recognized in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECL\u2019s are provided for credit losses that result from default events that are possible within the next 12 months (a
12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).
For trade receivables and contract assets, the Company applies a simplified approach in calculating ECL\u2019s. Therefore, the Company does not track changes in credit risk, but instead recognizes a loss allowance based on lifetime ECL\u2019s at each reporting date. The Company has established an allowance matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
The Company considers a financial asset to be in default when internal or external information indicates that the Company is unlikely to receive the outstanding contractual amounts in full before considering any credit enhancements held by the Company. A financial asset is written-off when there is no reasonable expectation of recovering the contractual cash flows.
(i)Financial liabilities Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.
All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
The Company\u2019s financial liabilities include trade and other payables, loans and borrowings, short-term bank debt and derivative financial instruments.
Subsequent measurement
For purposes of subsequent measurement, financial liabilities are classified in two categories:
\u2022Financial liabilities at fair value through profit or loss
\u2022Financial liabilities at amortized cost (loans and borrowings)
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.
Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by IFRS 9. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognized in profit or loss.
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of
recognition, and only if the criteria in IFRS 9 are satisfied. The Company has not designated any financial liability as at fair value through profit or loss.
Financial liabilities at amortized cost (loans and borrowings)
This is the category most relevant to the Company. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the effective interest rate method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the effective interest rate amortization process.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortization is included as finance costs in the income statement.
This category generally applies to interest-bearing loans and borrowings (note 21) and short-term bank debt (note 22).
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in profit or loss.
(i)Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realize the assets and settle the liabilities simultaneously.
(ii)Derivative financial instruments and hedge accounting
The Company uses derivative financial instruments, such as forward currency contracts, interest rate caps and swaps and forward commodity contracts, to hedge its foreign currency risks, interest rate risks and commodity price risks, respectively. Derivative instruments, which include physical contracts that do not meet the own use exemption, are initially recognized at fair value when the Company becomes a party to the contractual provisions of the instrument and are subsequently remeasured to fair value at the end of each reporting period. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
The Company designates derivatives as hedging instruments to hedge the variability in cash flows associated with highly probable forecast transactions arising from changes in foreign exchange rates, commodity prices and interest rates.
At inception of designated hedging relationships, the Company documents the risk management objective and strategy for undertaking the hedge. The Company also documents the
economic relationship between the hedged item and the hedging instrument, including whether the changes in cash flows of the hedged item and hedging instrument are expected to offset each other.
Cash flow hedges
When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and accumulated in the hedging reserve. The effective portion of changes in fair value of the derivative that is recognized in other comprehensive income is limited to the cumulative change in fair value of the hedged item, determined on a present value basis, from inception of the hedge.\u00a0 Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss.
The Company designates only the change in fair value of the spot element of forward exchange contracts as the hedging instrument in cash flow hedging relationships. The change in fair value of the forward element of forward exchange contracts is separately accounted for as a cost of hedging and recognized in a cost of hedging reserve within equity.
When the hedged forecast transaction subsequently results in the recognition of a non-financial item such as inventory, the amount accumulated in the hedging reserve and the cost of hedging reserve is included directly in the initial cost of the non-financial item when it is recognized.
For all other hedged forecast transactions, the amount accumulated in the hedging reserve and the cost of hedging reserve is reclassified to profit or loss in the same period or periods during which the hedged expected future cash flows affect profit or loss.
If the hedge no longer meets the criteria for hedge accounting or the hedging instrument is sold, expires, is terminated or is exercised, then hedge accounting is discontinued prospectively. When hedge accounting for cash flow hedges is discontinued, the amount that has been accumulated in the hedging reserve remains in equity until, for a hedge of a transaction resulting in the recognition of a non-financial item, it is included in the non-financial item\u2019s cost on its initial recognition or, for other cash flow hedges, it is reclassified to profit or loss in the same period or periods as the hedged expected future cash flows affect profit or loss.
If the hedged future cash flows are no longer expected to occur, then the amounts that have been accumulated in the hedging reserve and the cost of hedging reserve are immediately reclassified to profit or loss.
Financial assets are classified, at initial recognition, as subsequently measured at amortized cost, fair value through other comprehensive income (OCI), or fair value through profit or loss.
The classification of financial assets at initial recognition depends on the financial asset\u2019s contractual cash flow characteristics and the Company\u2019s business model for managing them. The Company initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Company has applied the practical expedient are measured at the transaction price as disclosed in section (c) Revenue from contracts with customers.
In order for a financial asset to be classified and measured at amortized cost or fair value through OCI, it needs to give rise to cash flows that are \u2018solely payments of principal and interest (SPPI)\u2019 on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level. Financial assets with cash flows that are not SPPI are classified and measured at fair value through profit or loss, irrespective of the business model.
The Company\u2019s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. Financial assets classified and measured at amortized cost are held within a business model with the objective to hold financial assets in order to collect contractual cash flows while financial assets classified and measured at fair value through OCI are held within a business model with the objective of both holding to collect contractual cash flows and selling.
Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognized on the trade date, i.e., the date that the Company commits to purchase or sell the asset.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in four categories:
\u2022Financial assets at amortized cost (debt instruments)
\u2022Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments)
\u2022Financial assets at fair value through profit or loss
Financial assets at amortized cost (debt instruments)
Financial assets at amortized cost are subsequently measured using the effective interest method and are subject to impairment. Gains and losses are recognized in profit or loss when the asset is derecognized, modified or impaired.
The Company\u2019s financial assets at amortized cost includes trade receivables.
Financial assets designated at fair value through OCI (equity instruments)
Upon initial recognition, the Company can elect to classify irrevocably its equity investments as equity instruments designated at fair value through OCI when they meet the definition of equity under IAS 32 Financial Instruments: Presentation and are not held for trading. The classification is determined on an instrument-by-instrument basis.
Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognized as other income in profit or loss when the right of payment has been established, except when the Company benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments designated at fair value through OCI are not subject to impairment assessment.
The Company elected to classify its other investments (note 12) under this category.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognized in profit or loss.
This category includes the Company\u2019s derivative instruments that have not been designated for hedge accounting.
A derivative embedded in a hybrid contract, with a financial liability or non-financial host, is separated from the host and accounted for as a separate derivative if: the economic characteristics and risks are not closely related to the host; a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and the hybrid contract is not measured at fair
value through profit or loss. Embedded derivatives are measured at fair value with changes in fair value recognized in profit or loss. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the fair value through profit or loss category. The Company does not currently have any embedded derivatives that are accounted for separately from the host.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognized (i.e., removed from the Company\u2019s consolidated statement of financial position) when the rights to receive cash flows from the asset have expired or when the Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a \u2018pass-through\u2019 arrangement. In order for a pass-through arrangement to qualify for derecognition, the Company must have transferred substantially all the risks and rewards of the asset, or the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognize the transferred asset to the extent of its continuing involvement. In that case, the Company also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.
Impairment
The Company recognizes an allowance for expected credit losses (\u201cECL\u2019s\u201d) for all debt instruments not held at fair value through profit or loss. ECL\u2019s are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Company expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.
ECL's are recognized in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECL\u2019s are provided for credit losses that result from default events that are possible within the next 12 months (a
12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).
For trade receivables and contract assets, the Company applies a simplified approach in calculating ECL\u2019s. Therefore, the Company does not track changes in credit risk, but instead recognizes a loss allowance based on lifetime ECL\u2019s at each reporting date. The Company has established an allowance matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
The Company considers a financial asset to be in default when internal or external information indicates that the Company is unlikely to receive the outstanding contractual amounts in full before considering any credit enhancements held by the Company. A financial asset is written-off when there is no reasonable expectation of recovering the contractual cash flows.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognized in profit or loss.
This category includes the Company\u2019s derivative instruments that have not been designated for hedge accounting.
A derivative embedded in a hybrid contract, with a financial liability or non-financial host, is separated from the host and accounted for as a separate derivative if: the economic characteristics and risks are not closely related to the host; a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and the hybrid contract is not measured at fair
value through profit or loss. Embedded derivatives are measured at fair value with changes in fair value recognized in profit or loss. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the fair value through profit or loss category. The Company does not currently have any embedded derivatives that are accounted for separately from the host.", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForFinancialInstrumentsAtFairValueThroughProfitOrLossExplanatory", "language": "en", "entity": "scheme:5493006MN6OH67U2YI74", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "id3VybDovL2RvY3MudjEvZG9jOjFiOTE3YTE2NTY0OTQyZDNhOTE0NGI5YzZjMjFmMWVkL3NlYzoxYjkxN2ExNjU2NDk0MmQzYTkxNDRiOWM2YzIxZjFlZF8xMTgvZnJhZzowMzNkNTQ2N2Q4MWI0NWU1OWU1MWI2YTcwODY2YzExOS90ZXh0cmVnaW9uOjAzM2Q1NDY3ZDgxYjQ1ZTU5ZTUxYjZhNzA4NjZjMTE5XzIxOTkwMjMzMTY5Njk_defe3819-3d1b-4c35-8390-51f1d6ece8b0": { "value": "Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognized (i.e., removed from the Company\u2019s consolidated statement of financial position) when the rights to receive cash flows from the asset have expired or when the Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a \u2018pass-through\u2019 arrangement. In order for a pass-through arrangement to qualify for derecognition, the Company must have transferred substantially all the risks and rewards of the asset, or the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognize the transferred asset to the extent of its continuing involvement. In that case, the Company also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in profit or loss.
Impairment
The Company recognizes an allowance for expected credit losses (\u201cECL\u2019s\u201d) for all debt instruments not held at fair value through profit or loss. ECL\u2019s are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Company expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.
ECL's are recognized in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECL\u2019s are provided for credit losses that result from default events that are possible within the next 12 months (a
12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).
For trade receivables and contract assets, the Company applies a simplified approach in calculating ECL\u2019s. Therefore, the Company does not track changes in credit risk, but instead recognizes a loss allowance based on lifetime ECL\u2019s at each reporting date. The Company has established an allowance matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.
All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
The Company\u2019s financial liabilities include trade and other payables, loans and borrowings, short-term bank debt and derivative financial instruments.
Subsequent measurement
For purposes of subsequent measurement, financial liabilities are classified in two categories:
\u2022Financial liabilities at fair value through profit or loss
\u2022Financial liabilities at amortized cost (loans and borrowings)
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.
Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by IFRS 9. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognized in profit or loss.
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of
recognition, and only if the criteria in IFRS 9 are satisfied. The Company has not designated any financial liability as at fair value through profit or loss.
Financial liabilities at amortized cost (loans and borrowings)
This is the category most relevant to the Company. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the effective interest rate method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the effective interest rate amortization process.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortization is included as finance costs in the income statement.
This category generally applies to interest-bearing loans and borrowings (note 21) and short-term bank debt (note 22).
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in profit or loss.
Financial liabilities at amortized cost (loans and borrowings)
This is the category most relevant to the Company. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the effective interest rate method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the effective interest rate amortization process.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortization is included as finance costs in the income statement.
This category generally applies to interest-bearing loans and borrowings (note 21) and short-term bank debt (note 22).
The Company uses derivative financial instruments, such as forward currency contracts, interest rate caps and swaps and forward commodity contracts, to hedge its foreign currency risks, interest rate risks and commodity price risks, respectively. Derivative instruments, which include physical contracts that do not meet the own use exemption, are initially recognized at fair value when the Company becomes a party to the contractual provisions of the instrument and are subsequently remeasured to fair value at the end of each reporting period. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
The Company designates derivatives as hedging instruments to hedge the variability in cash flows associated with highly probable forecast transactions arising from changes in foreign exchange rates, commodity prices and interest rates.
At inception of designated hedging relationships, the Company documents the risk management objective and strategy for undertaking the hedge. The Company also documents the
economic relationship between the hedged item and the hedging instrument, including whether the changes in cash flows of the hedged item and hedging instrument are expected to offset each other.
Cash flow hedges
When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and accumulated in the hedging reserve. The effective portion of changes in fair value of the derivative that is recognized in other comprehensive income is limited to the cumulative change in fair value of the hedged item, determined on a present value basis, from inception of the hedge.\u00a0 Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss.
The Company designates only the change in fair value of the spot element of forward exchange contracts as the hedging instrument in cash flow hedging relationships. The change in fair value of the forward element of forward exchange contracts is separately accounted for as a cost of hedging and recognized in a cost of hedging reserve within equity.
When the hedged forecast transaction subsequently results in the recognition of a non-financial item such as inventory, the amount accumulated in the hedging reserve and the cost of hedging reserve is included directly in the initial cost of the non-financial item when it is recognized.
For all other hedged forecast transactions, the amount accumulated in the hedging reserve and the cost of hedging reserve is reclassified to profit or loss in the same period or periods during which the hedged expected future cash flows affect profit or loss.
If the hedge no longer meets the criteria for hedge accounting or the hedging instrument is sold, expires, is terminated or is exercised, then hedge accounting is discontinued prospectively. When hedge accounting for cash flow hedges is discontinued, the amount that has been accumulated in the hedging reserve remains in equity until, for a hedge of a transaction resulting in the recognition of a non-financial item, it is included in the non-financial item\u2019s cost on its initial recognition or, for other cash flow hedges, it is reclassified to profit or loss in the same period or periods as the hedged expected future cash flows affect profit or loss.
If the hedged future cash flows are no longer expected to occur, then the amounts that have been accumulated in the hedging reserve and the cost of hedging reserve are immediately reclassified to profit or loss.
The Company uses derivative financial instruments, such as forward currency contracts, interest rate caps and swaps and forward commodity contracts, to hedge its foreign currency risks, interest rate risks and commodity price risks, respectively. Derivative instruments, which include physical contracts that do not meet the own use exemption, are initially recognized at fair value when the Company becomes a party to the contractual provisions of the instrument and are subsequently remeasured to fair value at the end of each reporting period. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
The Company designates derivatives as hedging instruments to hedge the variability in cash flows associated with highly probable forecast transactions arising from changes in foreign exchange rates, commodity prices and interest rates.
At inception of designated hedging relationships, the Company documents the risk management objective and strategy for undertaking the hedge. The Company also documents the
economic relationship between the hedged item and the hedging instrument, including whether the changes in cash flows of the hedged item and hedging instrument are expected to offset each other.
Cash flow hedges
When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and accumulated in the hedging reserve. The effective portion of changes in fair value of the derivative that is recognized in other comprehensive income is limited to the cumulative change in fair value of the hedged item, determined on a present value basis, from inception of the hedge.\u00a0 Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss.
The Company designates only the change in fair value of the spot element of forward exchange contracts as the hedging instrument in cash flow hedging relationships. The change in fair value of the forward element of forward exchange contracts is separately accounted for as a cost of hedging and recognized in a cost of hedging reserve within equity.
When the hedged forecast transaction subsequently results in the recognition of a non-financial item such as inventory, the amount accumulated in the hedging reserve and the cost of hedging reserve is included directly in the initial cost of the non-financial item when it is recognized.
For all other hedged forecast transactions, the amount accumulated in the hedging reserve and the cost of hedging reserve is reclassified to profit or loss in the same period or periods during which the hedged expected future cash flows affect profit or loss.
If the hedge no longer meets the criteria for hedge accounting or the hedging instrument is sold, expires, is terminated or is exercised, then hedge accounting is discontinued prospectively. When hedge accounting for cash flow hedges is discontinued, the amount that has been accumulated in the hedging reserve remains in equity until, for a hedge of a transaction resulting in the recognition of a non-financial item, it is included in the non-financial item\u2019s cost on its initial recognition or, for other cash flow hedges, it is reclassified to profit or loss in the same period or periods as the hedged expected future cash flows affect profit or loss.
If the hedged future cash flows are no longer expected to occur, then the amounts that have been accumulated in the hedging reserve and the cost of hedging reserve are immediately reclassified to profit or loss.
(i)Short-term benefits
Short-term employee benefits are expensed as the related service is provided. A liability is recognized for the amount expected to be paid if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
(ii)Share-based payment transactions
The grant date fair value of equity-settled share-based payment arrangements granted to employees is generally recognized as an expense, with a corresponding increase in equity, over the vesting period of the awards. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognized is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with market and non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.
(iii)Defined contribution plans
Obligations for contributions to defined contribution plans are expensed as the related service is provided. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in future payments is available.
(iv)Defined benefit plans
The Company\u2019s net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in the current and prior periods, discounting that amount and deducting the fair value of any plan assets.
The calculation of defined benefit obligations is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a potential asset for the Company, the recognized asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. To calculate the present value of economic benefits, consideration is given to any applicable minimum funding requirements.
Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in other comprehensive income. The Company determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognized in profit or loss.
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in profit or loss. The Company recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs.
(i)Other long-term employee benefits
The Company\u2019s net obligation in respect of long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value. Remeasurements are recognized in profit or loss in the period in which they arise.
(ii)Termination benefits
Termination benefits are expensed at the earlier of when the Company can no longer withdraw the offer of those benefits and when the Company recognizes costs for a restructuring. If benefits are not expected to be settled wholly within 12 months of the reporting date, then they are discounted.
(i)Recognition and measurement
Items of property, plant and equipment are measured at cost, which includes capitalized borrowing costs, less accumulated depreciation and any accumulated impairment losses.
Costs associated with developing mine reserves are recognized in property, plant and equipment when they are established as commercially viable. These costs can include amounts that were previously recognized as intangible assets during the evaluation phase of the mine development.
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.
If significant parts of an item of property, plant and equipment have different useful lives, then they are accounted for as separate items (major components) of property, plant and equipment.
Any gain or loss on disposal of an item of property, plant and equipment is recognized in profit or loss.
(i)Subsequent expenditures
Subsequent expenditure is capitalized only if it is probable that the future economic benefits associated with the expenditure will flow to the Company.
(ii)Depreciation
Depreciation is calculated to write-off the cost of items of property, plant and equipment less their estimated residual values using the straight-line method over their estimated useful lives and is generally recognized in the income statement. Land is not depreciated.
The estimated useful lives of property, plant and equipment for current and comparative periods are as follows:
\u2022mining costs | 4-20 years |
\u2022buildings and improvements | 2-50 years |
\u2022machinery and equipment | 2-20 years |
\u2022furniture and fixtures | 2-15 years |
Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
The depreciation of mining costs is linked to production levels. Therefore, these assets are amortized using a units of production basis. The Company\u2019s mine in Brazil is currently the only mine asset being depreciated using this basis and approximates a 19-year remaining life of the mine based on updated geology studies. Other mining assets are depreciated on a straight-line basis ranging from 4-20 years, depending on useful life.
Depreciation is calculated to write-off the cost of items of property, plant and equipment less their estimated residual values using the straight-line method over their estimated useful lives and is generally recognized in the income statement. Land is not depreciated.
The estimated useful lives of property, plant and equipment for current and comparative periods are as follows:
\u2022mining costs | 4-20 years |
\u2022buildings and improvements | 2-50 years |
\u2022machinery and equipment | 2-20 years |
\u2022furniture and fixtures | 2-15 years |
Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
The depreciation of mining costs is linked to production levels. Therefore, these assets are amortized using a units of production basis. The Company\u2019s mine in Brazil is currently the only mine asset being depreciated using this basis and approximates a 19-year remaining life of the mine based on updated geology studies. Other mining assets are depreciated on a straight-line basis ranging from 4-20 years, depending on useful life.
(i)Goodwill
Goodwill arising on the acquisition of subsidiaries is measured at cost less accumulated impairment losses.
(ii)Research and development
Expenditure on research activities is recognized in profit or loss when incurred.
Development expenditures are capitalized if and only if the following criteria are met:
\u2022the expenditure can be measured reliably;
\u2022the product or process is technically and commercially feasible;
\u2022future economic benefits are probable; and
\u2022the Company intends to and has sufficient resources to complete development and to use or sell the asset.
Research and development costs that do not qualify as assets are shown within selling, general and administrative expenses in the income statement. Subsequent to initial recognition, development expenditure is measured at cost less accumulated amortization and any accumulated impairment losses.
(i)Mining assets
Mining assets which are included in intangible assets include exploration, evaluation and development expenditures. See significant accounting policies section (k) for additional information on the accounting for mining assets.
(ii)Other intangible assets
Other intangible assets, including software, customer relationships, patents and trademarks that are acquired by the Company and have finite useful lives are measured at cost less accumulated amortization and any accumulated impairment losses.
(iii)Subsequent expenditure
Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill, is recognized in the income statement as incurred.
(iv)Amortization
Amortization is calculated to write-off the cost of intangible assets less their estimated residual values using the straight- line method over their estimated useful lives, and is generally recognized in profit or loss. Goodwill is not amortized. Amortization methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
The estimated useful lives for current and comparative periods are based on expected futures sales for the related asset and are as follows:
\u2022customer relationships | 5-15 years |
\u2022development costs | 8-15 years |
\u2022machinery and equipment | 9-12 years |
\u2022mining assets | 2-20 years |
Expenditure on research activities is recognized in profit or loss when incurred.
Development expenditures are capitalized if and only if the following criteria are met:
\u2022the expenditure can be measured reliably;
\u2022the product or process is technically and commercially feasible;
\u2022future economic benefits are probable; and
\u2022the Company intends to and has sufficient resources to complete development and to use or sell the asset.
Research and development costs that do not qualify as assets are shown within selling, general and administrative expenses in the income statement. Subsequent to initial recognition, development expenditure is measured at cost less accumulated amortization and any accumulated impairment losses.
(i)Exploration, evaluation and development expenditures
Exploration and evaluation expenditures relate to costs incurred on the exploration and evaluation of potential mineral resources. These costs are recorded as intangible assets while exploration is in progress. When commercially recoverable reserves are determined, and such development receives the appropriate approvals, capitalized exploration and evaluation expenditures
are transferred to construction in progress. Upon completion of development and commencement of production, capitalized development costs as well as exploration and evaluation expenditures are transferred to mining assets in property, plant and equipment and depreciated over their estimated useful life.
(i)Deferred stripping costs
The Company is following IFRIC 20 for all surface mine accounting. The Interpretation only applies to stripping costs incurred during the production phase of a surface mine (production stripping costs). Costs incurred in undertaking stripping activities are considered to create two possible benefits: a) the production of inventory in the current period and/or b) improved access to ore to be mined in a future period. Where the benefits are realized in the form of inventory produced, the production stripping costs are to be accounted for in accordance with IAS 2. Where the benefit is improved access to ore that will be mined in the future, these costs are to be recognized as a non-current asset.
Production stripping costs are capitalized as part of an asset when the Company can demonstrate: a) it is probable that future economic benefit associated with the stripping activity will flow to the entity; b) the entity can identify the component of an ore body for which access has been improved; and c) the costs can be reliably measured. These costs are amortized over the life of the component ore body identified.
The Company is following IFRIC 20 for all surface mine accounting. The Interpretation only applies to stripping costs incurred during the production phase of a surface mine (production stripping costs). Costs incurred in undertaking stripping activities are considered to create two possible benefits: a) the production of inventory in the current period and/or b) improved access to ore to be mined in a future period. Where the benefits are realized in the form of inventory produced, the production stripping costs are to be accounted for in accordance with IAS 2. Where the benefit is improved access to ore that will be mined in the future, these costs are to be recognized as a non-current asset.
Production stripping costs are capitalized as part of an asset when the Company can demonstrate: a) it is probable that future economic benefit associated with the stripping activity will flow to the entity; b) the entity can identify the component of an ore body for which access has been improved; and c) the costs can be reliably measured. These costs are amortized over the life of the component ore body identified.
At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
(i)As a lessee
At commencement or on modification of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease component on the basis of its relative stand-alone prices.
The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Company by the end of the lease term or the cost of the right-of-use asset reflects that the Company will exercise a purchase option. In that case the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment.
In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for\u00a0 remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company\u2019s incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate.
The Company determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes adjustments to reflect the terms of the lease and type of the asset leased.
Lease payments included in the measurement of the lease liability comprise the following:
\u2022fixed payments, including in-substance fixed payments;
\u2022variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;
\u2022amounts expected to be payable under a residual value guarantee; and
\u2022the exercise price under a purchase option that the Company is reasonably certain to exercise, lease payments in an optional renewal period if the Company is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Company is reasonably certain not to terminate early.
The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Company\u2019s estimate of the amount expected to be payable under a residual value guarantee, if the Company changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
The Company presents right-of-use assets that do not meet the definition of investment property in property, plant and equipment and lease liabilities are presented as a separate line item in the statement of financial position.
Short-term leases and leases of low-value assets
The Company has elected not to recognize right-of-use assets and lease liabilities for leases of low-value assets and short- term leases. The Company recognizes the lease payments
associated with these leases as an expense on a straight-line basis over the lease term.
Non-current assets, or disposal groups comprising assets and liabilities, are classified as held for sale if it is highly probable that they will be recovered primarily through sale rather than through continuing use.
Such assets, or disposal groups, are generally measured at the lower of their carrying amount and fair value less costs to sell. Any impairment loss on a disposal group is allocated first to goodwill, and then to the remaining assets and liabilities on a pro rata basis, except that no loss is allocated to inventories, financial assets, deferred tax assets, employee benefit assets, investment property or biological assets, which continue to be measured in accordance with the Company\u2019s other accounting policies. Impairment losses on initial classification as held for sale or held for distribution and subsequent gains and losses on remeasurement are recognized in the income statement.
Once classified as held for sale, intangible assets and property, plant and equipment are no longer amortized or depreciated, and any equity-accounted investee is no longer equity accounted.
Non-current assets, or disposal groups comprising assets and liabilities, are classified as held for sale if it is highly probable that they will be recovered primarily through sale rather than through continuing use.
Such assets, or disposal groups, are generally measured at the lower of their carrying amount and fair value less costs to sell. Any impairment loss on a disposal group is allocated first to goodwill, and then to the remaining assets and liabilities on a pro rata basis, except that no loss is allocated to inventories, financial assets, deferred tax assets, employee benefit assets, investment property or biological assets, which continue to be measured in accordance with the Company\u2019s other accounting policies. Impairment losses on initial classification as held for sale or held for distribution and subsequent gains and losses on remeasurement are recognized in the income statement.
Once classified as held for sale, intangible assets and property, plant and equipment are no longer amortized or depreciated, and any equity-accounted investee is no longer equity accounted.
At each reporting date, the Company reviews the carrying amounts of its non-financial assets (other than inventories, contract assets and deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset\u2019s recoverable amount is estimated. Goodwill is tested annually for impairment.
For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or cash generating units. Goodwill arising from a business combination is allocated to cash generating units or groups of cash generating units that are expected to benefit from the synergies of the combination.
The recoverable amount of an asset or cash generating unit is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash generating unit.
An impairment loss is recognized if the carrying amount of an asset or cash generating unit exceeds its recoverable amount.
Impairment losses are recognized in the income statement. They are allocated first to reduce the carrying amount of any goodwill allocated to the cash generating unit, and then to reduce the carrying amounts of the other assets in the cash generating unit on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset\u2019s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
Provisions are recognized when:
\u2022the Company has a present obligation (legal or constructive) as a result of a past event;
\u2022it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and
\u2022a reliable estimate can be made for the amount of the obligation.
If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost.
(i)Environmental remediation costs and recoveries
Several subsidiaries of the Company are faced with a number of issues relating to environmental clean-up requirements, largely resulting from historical solid and hazardous waste handling and disposal practices at their facilities. In accordance with the Company\u2019s environmental policy and applicable legal requirements, provisions associated with environmental remediation obligations are accrued when such losses are deemed probable and reasonably estimable. Such accruals generally are recognized no later than the completion of the remedial feasibility study and are adjusted as further information develops or circumstances change.
A provision is made for shutdown, restoration and environmental rehabilitation costs in the financial period when the related environmental disturbance occurs, based on the estimated future costs using information available at the reporting date. The provision is discounted using a current market-based pre-tax discount rate and any change in the discount is included in finance cost. The provision is reviewed on an annual basis for changes to obligations, legislation or discount rates that may lead to changes in cost estimates or the expected timeline for payments.
Where the Company expects some or all of an environmental provision to be reimbursed, for example using a trust account, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement. The subsidiaries of the Company have been required, in several instances, to create trust funds for the environmental rehabilitation. Once established, the subsidiaries have a 100% interest in these funds. Rehabilitation and restoration trust funds holding monies committed for use in satisfying environmental obligations are included on a discounted basis within other non-current assets on the statement of financial position, only to the extent that a liability exists for these obligations.
Environmental expense recoveries are generally recognized in profit or loss upon final settlement with the Company\u2019s insurance carriers.
Additional environmental remediation costs and provisions may be required if the Company were to decide to close its sites. Several of the Company\u2019s restructuring programs have involved closure of sites. Remediation liabilities are recognized when the site closure has been announced. In the opinion of the Company, it is not possible to estimate reliably the costs that would be incurred on the eventual closure of its continuing sites, where there is no present obligation to remediate, because it is neither possible to determine a time limit beyond which the sites will no longer be operated, nor what remediation costs may be required on their eventual closure.
(i)Restructuring
A provision for restructuring is recognized when the Company has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced publicly. Provisions are not made for future operating costs. The timing of recording of portions of the restructuring provision is dependent on receiving social plan approval generally in European jurisdictions which require external approval. Changes in the estimate of costs related to restructuring plans are included in profit or loss in the period when the change is identified.
(ii)Warranty
A provision for warranty is recognized when the Company has determined that it has a basis for recording a warranty provision based on historical returns for warranty work. The estimate of warranty-related costs is updated and revised at each reporting date.
(iii)Partial retirement
The collective agreements for retirement indemnities on our French subsidiary and the corresponding commitments are updated and revised at each reporting date.
(iv)Cost estimates
As part of its process to provide reliable estimations of profitability for long-term contracts, the Company makes provisions for cost estimates for completed contracts. These provisions are developed on a contract by contract basis and are based on contractor estimates and are utilized or derecognized depending on actual performance of the contracts. The cost estimates are updated and revised at each reporting date.
(v)Restoration, rehabilitation and decommissioning costs
Restoration, rehabilitation and decommissioning costs arising from the installation of plant and other site preparation work, discounted to their net present value, are provided for and capitalized at the time such an obligation arises. The costs are charged to the income statement over the life of the operation through depreciation of the asset and the unwinding of the discount on the provision.
Mine rehabilitation costs will be incurred by the Company at the end of the operating life of some of the Company\u2019s facilities and mine properties. The Company assesses its mine rehabilitation provision at each reporting date. The ultimate rehabilitation costs are uncertain, and cost estimates can vary in response
to many factors, including estimates of the extent and costs of rehabilitation activities, technological changes, regulatory changes, cost increases as compared to the inflation rates, and changes in discount rates. The provision recorded at each reporting date represents management\u2019s best estimate of the present value of the future rehabilitation costs required.
Costs for restoration of subsequent site disturbance, which is created on an ongoing basis during production, are provided for at their net present values and charged to the income statement as extraction progresses.
Restoration, rehabilitation and decommissioning costs arising from the installation of plant and other site preparation work, discounted to their net present value, are provided for and capitalized at the time such an obligation arises. The costs are charged to the income statement over the life of the operation through depreciation of the asset and the unwinding of the discount on the provision.
Mine rehabilitation costs will be incurred by the Company at the end of the operating life of some of the Company\u2019s facilities and mine properties. The Company assesses its mine rehabilitation provision at each reporting date. The ultimate rehabilitation costs are uncertain, and cost estimates can vary in response
to many factors, including estimates of the extent and costs of rehabilitation activities, technological changes, regulatory changes, cost increases as compared to the inflation rates, and changes in discount rates. The provision recorded at each reporting date represents management\u2019s best estimate of the present value of the future rehabilitation costs required.
Costs for restoration of subsequent site disturbance, which is created on an ongoing basis during production, are provided for at their net present values and charged to the income statement as extraction progresses.
For Management purposes, the Company is organized under three operating segments: AMG Clean Energy Materials, AMG Critical Minerals and AMG Critical Materials Technologies.\u00a0 AMG Clean Energy Materials is comprised of the Vanadium, Lithium and Tantalum business units. AMG Critical Minerals is comprised of the Graphite, Silicon and Antimony business units.\u00a0 AMG Critical Materials Technologies is comprised of the Engineering, Titanium Alloys and Chrome Metal business units.
The Management Board of the Company is the Chief Operating Decision Maker and monitors the operating results of its segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the consolidated financial statements. The Company\u2019s headquarters costs, financing (including finance cost and finance income) and assets are managed on a group basis and are allocated to operating segments. Transfer prices between operating segments are on an arm\u2019s length basis in a manner similar to transactions with third parties.
AMG Clean Energy Materials
AMG Clean Energy Materials combines our recycling and mining operations, producing materials for infrastructure and energy storage solutions while reducing the CO2 footprint of both suppliers and customers. Clean Energy Materials spans the vanadium, lithium, and tantalum value chains. AMG Clean Energy Materials has major production facilities in the US and Brazil.
AMG Critical Minerals
AMG Critical Minerals consists of our mineral processing operations in graphite, silicon metal and antimony. AMG Critical Minerals produces materials for the chemical, automotive, aluminum, and building material industries. AMG Critical Minerals has major production facilities in Germany and France.
AMG Critical Materials Technologies
AMG Critical Materials Technologies combines our leading vacuum furnace technology line with high-purity materials serving global leaders in the aerospace sector. This segment produces titanium aluminides, titanium alloys, and chrome metal for the aerospace market; designs, engineers, and produces advanced vacuum furnace systems; and operates vacuum heat treatment facilities, primarily for the transportation and energy industries (including solar and nuclear industries). AMG Critical Materials Technologies also provides vacuum case-hardening heat treatment services on a tolling basis. AMG Critical Materials Technologies has production facilities located in Germany, UK, France, Mexico, India, China and the US.
AMG Corporate headquarters costs and assets are allocated thirty percent to AMG Clean Energy Materials, twenty percent to AMG Critical Minerals, and fifty percent to AMG Critical Materials Technologies in 2022 and 2021 based on an estimation of services provided to the operating segments.
Year ended December 31, 2022 | AMG Clean Energy Materials | AMG | AMG Critical Materials Technologies | Eliminations(a) | Total |
Revenue | |||||
Revenue from external customers | 667,804 | 364,502 | 610,468 | \u2014 | 1,642,774 |
Intersegment revenue | 26,537 | \u2014 | 4,969 | (31,506) | \u2014 |
Total revenue | 694,341 | 364,502 | 615,437 | (31,506) | 1,642,774 |
Segment results | |||||
Depreciation and amortization | 20,663 | 6,790 | 17,846 | \u2014 | 45,299 |
Restructuring | \u2014 | (54) | 636 | \u2014 | 582 |
Asset impairment expense (reversal) | 15 | 11,261 | (679) | \u2014 | 10,597 |
Inventory adjustments | 1,195 | \u2014 | 4,038 | \u2014 | 5,233 |
Environmental expense | \u2014 | 44 | 89 | \u2014 | 133 |
Other expenses | \u2014 | (14,411) | \u2014 | \u2014 | (14,411) |
Other income | 153 | 59,924 | 3 | \u2014 | 60,080 |
Operating profit | 222,590 | 63,995 | 20,474 | \u2014 | 307,059 |
Statement of financial position | |||||
Segment assets | 982,983 | 276,145 | 584,183 | \u2014 | 1,843,311 |
Other investments | 29,324 | \u2014 | \u2014 | \u2014 | 29,324 |
Total assets | 1,012,307 | 276,145 | 584,183 | \u2014 | 1,872,635 |
Segment liabilities | 708,525 | 123,069 | 383,370 | \u2014 | 1,214,964 |
Employee benefits | 14,629 | 23,737 | 78,794 | \u2014 | 117,160 |
Provisions | 6,941 | 6,504 | 9,217 | \u2014 | 22,662 |
Total liabilities | 730,095 | 153,310 | 471,381 | \u2014 | 1,354,786 |
Other information | |||||
Capital expenditures for expansion \u2013 tangible assets | 156,579 | 1,474 | 16,347 | \u2014 | 174,400 |
Capital expenditures for maintenance \u2013 tangible assets | 6,817 | 2,547 | 6,213 | \u2014 | 15,577 |
Capital expenditures \u2013 intangible assets | 208 | 248 | 485 | \u2014 | 941 |
Year ended December 31, 2021 | AMG Clean Energy Materials | AMG | AMG Critical Materials Technologies | Eliminations (a) | Total |
Revenue | |||||
Revenue from external customers | 381,475 | 308,523 | 514,668 | \u2014 | 1,204,666 |
Intersegment revenue | 28,179 | 35 | 16,383 | (44,597) | \u2014 |
Total revenue | 409,654 | 308,558 | 531,051 | (44,597) | 1,204,666 |
Segment results | |||||
Depreciation and amortization | 16,106 | 8,440 | 19,139 | \u2014 | 43,685 |
Restructuring | 93 | 666 | (237) | \u2014 | 522 |
Asset impairment reversal | \u2014 | (711) | \u2014 | \u2014 | (711) |
Inventory adjustments | 1,031 | (302) | 1,200 | \u2014 | 1,929 |
Environmental expense | 11,651 | 60 | 230 | \u2014 | 11,941 |
Operating profit | 22,476 | 20,181 | 14,484 | \u2014 | 57,141 |
Statement of financial position | |||||
Segment assets | 861,622 | 237,465 | 570,800 | \u2014 | 1,669,887 |
Other investments | 29,830 | \u2014 | \u2014 | \u2014 | 29,830 |
Total assets | 891,452 | 237,465 | 570,800 | \u2014 | 1,699,717 |
Segment liabilities | 719,060 | 129,122 | 362,860 | \u2014 | 1,211,042 |
Employee benefits | 19,435 | 36,724 | 106,469 | \u2014 | 162,628 |
Provisions | 7,508 | 7,900 | 16,487 | \u2014 | 31,895 |
Total liabilities | 746,003 | 173,746 | 485,816 | \u2014 | 1,405,565 |
Other information | |||||
Capital expenditures for expansion \u2013 tangible assets | 153,115 | 1,177 | 8,284 | \u2014 | 162,576 |
Capital expenditures for maintenance \u2013 tangible assets | 4,922 | 3,842 | 5,436 | \u2014 | 14,200 |
Capital expenditures \u2013 intangible assets | 27 | 361 | 875 | \u2014 | 1,263 |
[a]Eliminations column includes intersegment trade eliminations. The intersegment revenue eliminates against the intersegment cost of sales.
GEOGRAPHICAL INFORMATION
Geographical information for the Company is provided below. Revenues are based on the shipping location of the customer while non-current assets are based on the physical location of the assets.
Year ended December 31, 2022 | Year ended December 31, 2021 | |||
Revenues | Non-current assets | Revenues | Non-current assets | |
United States | 391,206 | 417,173 | 280,097 | 354,453 |
China | 377,151 | 23,042 | 216,142 | 17,033 |
Germany | 216,475 | 216,853 | 190,478 | 201,268 |
Brazil | 62,652 | 140,739 | 50,109 | 123,215 |
Italy | 62,628 | \u2014 | 52,587 | \u2014 |
United Kingdom | 61,367 | 21,764 | 47,647 | 20,868 |
France | 61,027 | 15,421 | 43,851 | 15,522 |
Canada | 48,502 | \u2014 | 34,486 | \u2014 |
Japan | 43,025 | 2 | 33,390 | 3 |
Austria | 37,554 | \u2014 | 28,829 | \u2014 |
Thailand | 27,736 | 20 | 14,545 | 27 |
India | 27,582 | 92 | 20,186 | 49 |
Belgium | 22,712 | 38 | 16,882 | 58 |
Mexico | 22,295 | 3,094 | 16,293 | 3,000 |
South Korea | 18,917 | \u2014 | 20,128 | \u2014 |
Poland | 14,016 | \u2014 | 8,900 | \u2014 |
Turkey | 13,938 | \u2014 | 9,956 | \u2014 |
Australia | 12,162 | \u2014 | 6,485 | \u2014 |
Sweden | 11,223 | \u2014 | 8,089 | \u2014 |
Spain | 10,505 | 93 | 11,768 | 115 |
Czech Republic | 9,257 | \u2014 | 8,294 | \u2014 |
Netherlands | 8,166 | \u2014 | 6,734 | \u2014 |
Taiwan | 6,067 | \u2014 | 9,252 | \u2014 |
Switzerland | 5,402 | \u2014 | 6,875 | \u2014 |
Argentina | 4,051 | \u2014 | 2,909 | \u2014 |
Singapore | 1,502 | \u2014 | 3,718 | \u2014 |
Russia | 854 | 6 | 3,913 | 3 |
Kazakhstan | 290 | \u2014 | 1,579 | \u2014 |
Mozambique | \u2014 | 6,990 | 1 | 8,059 |
Other | 64,512 | 2,300 | 50,543 | 3,106 |
Total | 1,642,774 | 847,627 | 1,204,666 | 746,779 |
Revenue from sales of goods, furnace construction contracts, heat treatment services and processing services during the year ended December 31, 2022 was $1,642,774 (2021: $1,204,666). For revenue by segment and by geographical basis, see note 4.
The following tables show the Company\u2019s total revenues disaggregated based on the timing of revenue recognition:
Year ended December 31, 2022 | AMG Clean Energy Materials | AMG | AMG Critical Materials Technologies | Total |
Products transferred at a point in time | 667,804 | 364,502 | 455,542 | 1,487,848 |
Products and services transferred over time | \u2014 | \u2014 | 154,926 | 154,926 |
Total revenue | 667,804 | 364,502 | 610,468 | 1,642,774 |
###### | ||||
Year ended December 31, 2021 | AMG Clean Energy Materials | AMG | AMG Critical Materials Technologies | Total |
Products transferred at a point in time | 381,475 | 308,523 | 349,913 | 1,039,911 |
Products and services transferred over time | \u2014 | \u2014 | 164,755 | 164,755 |
Total revenue | 381,475 | 308,523 | 514,668 | 1,204,666 |
Contract balances
The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers:
2022 | 2021 | |
Trade receivables, net of allowance for doubtful accounts | 124,754 | 107,682 |
Gross amount due from customers for contract work (note 14) | 37,565 | 37,627 |
Advanced payments from customers | 51,054 | 35,091 |
Deferred revenue | 48,277 | 40,819 |
The contract assets primarily relate to the Company\u2019s rights to consideration for work completed but not billed at the reporting date for furnace construction contracts. The contract assets are transferred to receivables when the rights become unconditional.\u00a0 This usually occurs when the Company issues an invoice to the customer.
The contract liabilities primarily relate to the advance consideration received from customers. The advanced payments from customers above pertains to consideration received for furnace construction contracts. The remaining contract liabilities pertain to prepayments received from customers for spodumene sale contracts, spent catalyst processing fee contracts, and titanium aluminide contracts and are included in the deferred revenue balance.\u00a0
The Company recognized revenues of $48,043 (2021: $50,510) that were included in the balance of contract liabilities as of December 31, 2022. The amount of revenues recognized during the year that pertained to performance obligations that were satisfied in a previous year is $3,242 (2021: $4,010).
The transaction price allocated to the remaining performance obligations (unsatisfied or partially satisfied) as of December 31, 2022 and 2021 are as follows:
2022 | 2021 | |
Within one year | 96,564 | 111,093 |
Within two years | 7,128 | 6,052 |
2022 | 2021 | |
Energy contract settlements | 59,847 | \u2014 |
Other miscellaneous income | 233 | 415 |
Other income | 60,080 | 415 |
#### | ||
Customer contract settlements | (14,411) | \u2014 |
Other expense | (14,411) | \u2014 |
#### | ||
Environmental expenses | (133) | (11,941) |
#### | ||
Net other operating income (expense) | 45,536 | (11,526) |
Effective January 2023, AMG placed its silicon metal plant in Pocking, Germany, on care and maintenance due to external economic factors.\u00a0 Associated with this shutdown, AMG recorded income from the sale of an existing supply contract which positively impacted operating profit for the year. This income was offset partially by a settlement with a major customer and an impairment of existing assets. See notes 10 and 26.
Note | 2022 | 2021 | |
Raw materials and consumables | 760,035 | 601,338 | |
Employee benefits | 249,729 | 240,240 | |
Raw material processing and conversion costs | 225,048 | 178,129 | |
Depreciation and amortization | 10, 11 | 45,299 | 43,685 |
Maintenance | 32,366 | 25,723 | |
Consultancy | 29,377 | 24,492 | |
Asset impairment expense (reversal) | 10,597 | (711) | |
Other | 28,800 | 23,103 | |
Total cost of sales and selling, general and administrative expenses | 1,381,251 | 1,135,999 |
2022 | 2021 | |
Interest income on bank deposits | 2,787 | 680 |
Finance income on derivatives | 1,907 | \u2014 |
Interest income on fiscal contingency | 1,759 | \u2014 |
Discounting on long-term assets and provisions | 1,436 | 382 |
Interest income on tax refunds | 136 | 779 |
Other | 1,036 | 97 |
Finance income | 9,061 | 1,938 |
Interest expense on loans, borrowings and related derivative instruments | (20,773) | (19,943) |
Municipal bond interest | (5,679) | \u2014 |
Interest expense related to lease liabilities | (1,663) | (1,807) |
Discount on long-term assets, provisions and retirement obligations | (1,622) | (671) |
Interest expense on accounts receivable factoring | (1,490) | (719) |
Interest expense on taxes | (1,363) | (1,359) |
Guarantees | (1,064) | (880) |
Interest paid to suppliers | (968) | (1,460) |
Commitment/unutilized fees | (951) | (781) |
Other | (153) | (569) |
Foreign exchange loss | (4,276) | (7,351) |
Finance cost | (40,002) | (35,540) |
Net finance cost | (30,941) | (33,602) |
Significant components of income tax expense for the years ended:
CONSOLIDATED INCOME STATEMENT
2022 | 2021 | |
Current tax expense (benefit): | ||
Current year | 60,331 | 13,383 |
Adjustment for prior year | (404) | (504) |
Total current tax expense (benefit) for the year | 59,927 | 12,879 |
Deferred tax expense (benefit) | ||
Origination and reversal of temporary differences | 36,033 | 926 |
Changes in previously unrecognized tax losses, tax credits and unrecognized temporary differences | (4,704) | (2,918) |
Changes in previously recognized tax losses, tax credits and recognized temporary differences for changes in enacted tax rates and currency effects | (7,375) | (1,637) |
Derecognition of previously recognized tax losses, tax credits and temporary differences | 132 | 343 |
Adjustment for prior year | 84 | (886) |
Total deferred tax expense (benefit) | 24,170 | (4,172) |
Total income tax expense reported in consolidated income statement | 84,097 | 8,707 |
Consolidated statement of other comprehensive income | ||
Income tax related to items recognized in OCI in the year: | ||
Cash flow hedges, effective portion of changes in fair value | (1,304) | (2,713) |
Income tax expense on actuarial gains | (10,851) | (4,297) |
Income tax expense charged to OCI | (12,155) | (7,010) |
RECONCILIATION OF EFFECTIVE TAX RATE
A reconciliation of income tax expense applicable to accounting profit before income tax at the weighted average statutory income tax rate of 32.03% (2021: 21.50%) to the Company\u2019s effective income tax rate for the years ended is as follows:
2022 | 2021 | |
Profit before income tax from continuing operations | 274,868 | 22,486 |
Income tax using the Company\u2019s weighted average tax rate | 88,031 | 4,834 |
Non-deductible expenses | 4,382 | 6,145 |
Tax exempt income | (4,061) | (4,039) |
Current year losses and changes in temporary differences for which no deferred tax asset was recognized | 3,914 | 6,135 |
Recognition of previously unrecognized tax losses, tax credits and temporary differences of a prior year | (4,704) | (2,918) |
Derecognition of previously recognized tax losses, tax credits and temporary differences | 132 | 343 |
Changes in previously recognized tax losses, tax credits and recognized temporary and permanent differences for changes in enacted tax rates | 2,840 | 1,887 |
Changes in previously recognized tax losses, tax credits and recognized temporary and permanent differences for changes in currency effects | (6,756) | (3,524) |
Over provided in prior periods | (254) | (886) |
State and local taxes | 804 | 1,070 |
Other | (231) | (340) |
Income tax expense reported in consolidated income statement | 84,097 | 8,707 |
The weighted average statutory income tax rate is the average of the statutory income tax rates applicable in the countries in which the Company operates, weighted by the profit (loss) before income tax of the subsidiaries in the respective countries as included in the consolidated accounts. Several entities have losses for which no deferred tax assets have been recognized.
During the years ended December 31, 2022 and 2021, the income tax benefits related to the current year losses of certain entities located primarily in Africa, China, France, Germany, India, and the Netherlands were not recognized. In total, $3,914 and $6,135 were not recognized in 2022 and 2021, respectively, as it is probable that these amounts will not be realized.
During the years ended December 31, 2022 and 2021, certain income tax benefits related to previously unrecognized tax losses and temporary differences related to entities located in Germany, India, Thailand, US and other were recognized. In total, $4,704 and $2,918 were recognized in 2022 and 2021, respectively, through an increase to the net deferred tax asset.\u00a0
The main factors considered in assessing the realizability of deferred tax benefits were improved profitability, higher forecasted taxable profitability and the carryforward period of the tax losses. After assessing these factors, the Company determined that it is probable that the deferred tax benefit of the tax losses and temporary differences will be realized in the foreseeable future.
Also, during the year ended December 31, 2022, the net recognized deferred tax assets (liabilities) were adjusted for changes in the enacted tax rates in several local jurisdictions in the US. The net impact of the tax rate changes was an increase to income tax expense of $2,840 (2021: $1,887). The net recognized deferred tax assets (liabilities) were also adjusted to reflect changes in currency rates in Brazil. The impact of the currency rates was a decrease to income tax expense of $6,756 (2021: $3,524).
During the year 2022, an income tax benefit of $231 (2021: $340)\u00a0was recorded to Other in the effective tax rate reconciliation.
There were no income tax consequences associated with the payment of dividends in either 2022 or 2021 by AMG to its shareholders.
DEFERRED TAX ASSETS AND LIABILITIES
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In addition, deferred income tax assets\u00a0 include amounts related to net operating loss carryforwards, tax credits and interest limitation carryforwards.
Deferred tax assets are recognized to the extent it is probable that the temporary differences, unused tax losses, unused tax credits, and limitations on interest deductions will be realized. The realization of deferred tax assets is reviewed each reporting period and includes the consideration of historical operating results, projected future taxable income exclusive of reversing temporary differences and carryforwards, the scheduled reversal of deferred tax liabilities and tax planning.
RECOGNIZED DEFERRED TAX ASSETS AND LIABILITIES
Deferred tax assets and liabilities have been recognized in respect of the following roll forward:
2022 Activity | December 31, 2022 | ||||||
December 31, 2021 Net tax asset and liability | Deferred benefit (expense) | Other comprehensive | Currency translation adjustment/other | Net tax asset | Assets | Liabilities | |
Inventories | 283 | 199 | \u2014 | 73 | 555 | 1,060 | 505 |
Long-term contracts | (16,365) | (3,473) | \u2014 | 916 | (18,922) | \u2014 | 18,922 |
Prepaid and other current assets | (1) | (17,652) | \u2014 | (244) | (17,897) | 102 | 17,999 |
Property, plant, and equipment | (16,468) | (7,696) | \u2014 | 830 | (23,334) | 391 | 23,725 |
Deferred charges and non-current assets | (16,561) | 4,315 | (1,304) | (162) | (13,712) | 980 | 14,692 |
Accruals and reserves | 16,298 | (2,248) | \u2014 | (598) | 13,452 | 13,862 | 410 |
Environmental liabilities | 4,290 | (1,652) | \u2014 | (48) | 2,590 | 2,826 | 236 |
Retirement benefits | 32,344 | (1,147) | (10,851) | (1,780) | 18,566 | 18,601 | 35 |
Tax loss and tax credit carryforwards | 43,500 | 5,184 | \u2014 | (70) | 48,614 | 48,614 | \u2014 |
Total | 47,320 | (24,170) | (12,155) | (1,083) | 9,912 | 86,436 | 76,524 |
Set off of tax | (49,255) | (49,255) | |||||
Net tax assets and liabilities | 37,181 | 27,269 |
During the year ended December 31, 2022, the Company recorded deferred income tax expense of $1,304 (2021: $2,713) related to cash flow hedges and $10,851 (2021: $4,297) related to actuarial gains in defined benefit plans in other comprehensive income.
UNRECOGNIZED DEFERRED TAX ASSETS
The net deferred tax assets are fully recognized for each of the jurisdictions in which we operate with the exception of the following: (1) a German entity did not recognize the specific deferred tax asset recorded for the impact of assets impaired for book purposes; (2) Dutch companies and operating companies in Germany, China, France, Africa, India and other do not recognize deferred tax assets for their loss carryforward positions and other carryforwards because management has determined that there will not be sufficient and foreseeable taxable profits in these locations to realize the benefits of these carryforward positions.
Deferred tax assets for these entities have not been recognized in respect of tax loss carryforwards, tax attributes, and temporary differences as they may not be used to offset taxable profits generated elsewhere in the Company and they have arisen in subsidiaries that have a history of losses or limited profitability.
Deferred tax assets and liabilities have not been recognized in respect of the following items:
Assets | ||
2022 | 2021 | |
Deferred charges and non-current assets | 8,236 | 8,798 |
Tax loss and tax credit carryforwards | 44,065 | 36,866 |
Net tax assets \u2013 unrecognized | 52,301 | 45,664 |
In addition to the unrecognized federal deferred tax assets that are detailed above, there are $6,826 in unrecognized US state deferred tax assets.
At December 31, 2022, pre-tax net operating losses and tax credit carryforwards for which no deferred tax assets have been recognized on the balance sheet, expire as follows:
2023 | 1,429 |
2024 | 1,577 |
2025 | 1,620 |
2026 | 2,526 |
2027 | 3,128 |
2028-2031 | 10,793 |
Unlimited | 146,211 |
Total | 167,284 |
Significant components of income tax expense for the years ended:
CONSOLIDATED INCOME STATEMENT
2022 | 2021 | |
Current tax expense (benefit): | ||
Current year | 60,331 | 13,383 |
Adjustment for prior year | (404) | (504) |
Total current tax expense (benefit) for the year | 59,927 | 12,879 |
Deferred tax expense (benefit) | ||
Origination and reversal of temporary differences | 36,033 | 926 |
Changes in previously unrecognized tax losses, tax credits and unrecognized temporary differences | (4,704) | (2,918) |
Changes in previously recognized tax losses, tax credits and recognized temporary differences for changes in enacted tax rates and currency effects | (7,375) | (1,637) |
Derecognition of previously recognized tax losses, tax credits and temporary differences | 132 | 343 |
Adjustment for prior year | 84 | (886) |
Total deferred tax expense (benefit) | 24,170 | (4,172) |
Total income tax expense reported in consolidated income statement | 84,097 | 8,707 |
Consolidated statement of other comprehensive income | ||
Income tax related to items recognized in OCI in the year: | ||
Cash flow hedges, effective portion of changes in fair value | (1,304) | (2,713) |
Income tax expense on actuarial gains | (10,851) | (4,297) |
Income tax expense charged to OCI | (12,155) | (7,010) |
RECONCILIATION OF EFFECTIVE TAX RATE
A reconciliation of income tax expense applicable to accounting profit before income tax at the weighted average statutory income tax rate of 32.03% (2021: 21.50%) to the Company\u2019s effective income tax rate for the years ended is as follows:
2022 | 2021 | |
Profit before income tax from continuing operations | 274,868 | 22,486 |
Income tax using the Company\u2019s weighted average tax rate | 88,031 | 4,834 |
Non-deductible expenses | 4,382 | 6,145 |
Tax exempt income | (4,061) | (4,039) |
Current year losses and changes in temporary differences for which no deferred tax asset was recognized | 3,914 | 6,135 |
Recognition of previously unrecognized tax losses, tax credits and temporary differences of a prior year | (4,704) | (2,918) |
Derecognition of previously recognized tax losses, tax credits and temporary differences | 132 | 343 |
Changes in previously recognized tax losses, tax credits and recognized temporary and permanent differences for changes in enacted tax rates | 2,840 | 1,887 |
Changes in previously recognized tax losses, tax credits and recognized temporary and permanent differences for changes in currency effects | (6,756) | (3,524) |
Over provided in prior periods | (254) | (886) |
State and local taxes | 804 | 1,070 |
Other | (231) | (340) |
Income tax expense reported in consolidated income statement | 84,097 | 8,707 |
The weighted average statutory income tax rate is the average of the statutory income tax rates applicable in the countries in which the Company operates, weighted by the profit (loss) before income tax of the subsidiaries in the respective countries as included in the consolidated accounts. Several entities have losses for which no deferred tax assets have been recognized.
During the years ended December 31, 2022 and 2021, the income tax benefits related to the current year losses of certain entities located primarily in Africa, China, France, Germany, India, and the Netherlands were not recognized. In total, $3,914 and $6,135 were not recognized in 2022 and 2021, respectively, as it is probable that these amounts will not be realized.
During the years ended December 31, 2022 and 2021, certain income tax benefits related to previously unrecognized tax losses and temporary differences related to entities located in Germany, India, Thailand, US and other were recognized. In total, $4,704 and $2,918 were recognized in 2022 and 2021, respectively, through an increase to the net deferred tax asset.\u00a0
The main factors considered in assessing the realizability of deferred tax benefits were improved profitability, higher forecasted taxable profitability and the carryforward period of the tax losses. After assessing these factors, the Company determined that it is probable that the deferred tax benefit of the tax losses and temporary differences will be realized in the foreseeable future.
Also, during the year ended December 31, 2022, the net recognized deferred tax assets (liabilities) were adjusted for changes in the enacted tax rates in several local jurisdictions in the US. The net impact of the tax rate changes was an increase to income tax expense of $2,840 (2021: $1,887). The net recognized deferred tax assets (liabilities) were also adjusted to reflect changes in currency rates in Brazil. The impact of the currency rates was a decrease to income tax expense of $6,756 (2021: $3,524).
During the year 2022, an income tax benefit of $231 (2021: $340)\u00a0was recorded to Other in the effective tax rate reconciliation.
There were no income tax consequences associated with the payment of dividends in either 2022 or 2021 by AMG to its shareholders.
DEFERRED TAX ASSETS AND LIABILITIES
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In addition, deferred income tax assets\u00a0 include amounts related to net operating loss carryforwards, tax credits and interest limitation carryforwards.
Deferred tax assets are recognized to the extent it is probable that the temporary differences, unused tax losses, unused tax credits, and limitations on interest deductions will be realized. The realization of deferred tax assets is reviewed each reporting period and includes the consideration of historical operating results, projected future taxable income exclusive of reversing temporary differences and carryforwards, the scheduled reversal of deferred tax liabilities and tax planning.
RECOGNIZED DEFERRED TAX ASSETS AND LIABILITIES
Deferred tax assets and liabilities have been recognized in respect of the following roll forward:
2022 Activity | December 31, 2022 | ||||||
December 31, 2021 Net tax asset and liability | Deferred benefit (expense) | Other comprehensive | Currency translation adjustment/other | Net tax asset | Assets | Liabilities | |
Inventories | 283 | 199 | \u2014 | 73 | 555 | 1,060 | 505 |
Long-term contracts | (16,365) | (3,473) | \u2014 | 916 | (18,922) | \u2014 | 18,922 |
Prepaid and other current assets | (1) | (17,652) | \u2014 | (244) | (17,897) | 102 | 17,999 |
Property, plant, and equipment | (16,468) | (7,696) | \u2014 | 830 | (23,334) | 391 | 23,725 |
Deferred charges and non-current assets | (16,561) | 4,315 | (1,304) | (162) | (13,712) | 980 | 14,692 |
Accruals and reserves | 16,298 | (2,248) | \u2014 | (598) | 13,452 | 13,862 | 410 |
Environmental liabilities | 4,290 | (1,652) | \u2014 | (48) | 2,590 | 2,826 | 236 |
Retirement benefits | 32,344 | (1,147) | (10,851) | (1,780) | 18,566 | 18,601 | 35 |
Tax loss and tax credit carryforwards | 43,500 | 5,184 | \u2014 | (70) | 48,614 | 48,614 | \u2014 |
Total | 47,320 | (24,170) | (12,155) | (1,083) | 9,912 | 86,436 | 76,524 |
Set off of tax | (49,255) | (49,255) | |||||
Net tax assets and liabilities | 37,181 | 27,269 |
During the year ended December 31, 2022, the Company recorded deferred income tax expense of $1,304 (2021: $2,713) related to cash flow hedges and $10,851 (2021: $4,297) related to actuarial gains in defined benefit plans in other comprehensive income.
UNRECOGNIZED DEFERRED TAX ASSETS
The net deferred tax assets are fully recognized for each of the jurisdictions in which we operate with the exception of the following: (1) a German entity did not recognize the specific deferred tax asset recorded for the impact of assets impaired for book purposes; (2) Dutch companies and operating companies in Germany, China, France, Africa, India and other do not recognize deferred tax assets for their loss carryforward positions and other carryforwards because management has determined that there will not be sufficient and foreseeable taxable profits in these locations to realize the benefits of these carryforward positions.
Deferred tax assets for these entities have not been recognized in respect of tax loss carryforwards, tax attributes, and temporary differences as they may not be used to offset taxable profits generated elsewhere in the Company and they have arisen in subsidiaries that have a history of losses or limited profitability.
Deferred tax assets and liabilities have not been recognized in respect of the following items:
Assets | ||
2022 | 2021 | |
Deferred charges and non-current assets | 8,236 | 8,798 |
Tax loss and tax credit carryforwards | 44,065 | 36,866 |
Net tax assets \u2013 unrecognized | 52,301 | 45,664 |
In addition to the unrecognized federal deferred tax assets that are detailed above, there are $6,826 in unrecognized US state deferred tax assets.
At December 31, 2022, pre-tax net operating losses and tax credit carryforwards for which no deferred tax assets have been recognized on the balance sheet, expire as follows:
2023 | 1,429 |
2024 | 1,577 |
2025 | 1,620 |
2026 | 2,526 |
2027 | 3,128 |
2028-2031 | 10,793 |
Unlimited | 146,211 |
Total | 167,284 |
DEFERRED TAX ASSETS AND LIABILITIES
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In addition, deferred income tax assets\u00a0 include amounts related to net operating loss carryforwards, tax credits and interest limitation carryforwards.
Deferred tax assets are recognized to the extent it is probable that the temporary differences, unused tax losses, unused tax credits, and limitations on interest deductions will be realized. The realization of deferred tax assets is reviewed each reporting period and includes the consideration of historical operating results, projected future taxable income exclusive of reversing temporary differences and carryforwards, the scheduled reversal of deferred tax liabilities and tax planning.
RECOGNIZED DEFERRED TAX ASSETS AND LIABILITIES
Deferred tax assets and liabilities have been recognized in respect of the following roll forward:
2022 Activity | December 31, 2022 | ||||||
December 31, 2021 Net tax asset and liability | Deferred benefit (expense) | Other comprehensive | Currency translation adjustment/other | Net tax asset | Assets | Liabilities | |
Inventories | 283 | 199 | \u2014 | 73 | 555 | 1,060 | 505 |
Long-term contracts | (16,365) | (3,473) | \u2014 | 916 | (18,922) | \u2014 | 18,922 |
Prepaid and other current assets | (1) | (17,652) | \u2014 | (244) | (17,897) | 102 | 17,999 |
Property, plant, and equipment | (16,468) | (7,696) | \u2014 | 830 | (23,334) | 391 | 23,725 |
Deferred charges and non-current assets | (16,561) | 4,315 | (1,304) | (162) | (13,712) | 980 | 14,692 |
Accruals and reserves | 16,298 | (2,248) | \u2014 | (598) | 13,452 | 13,862 | 410 |
Environmental liabilities | 4,290 | (1,652) | \u2014 | (48) | 2,590 | 2,826 | 236 |
Retirement benefits | 32,344 | (1,147) | (10,851) | (1,780) | 18,566 | 18,601 | 35 |
Tax loss and tax credit carryforwards | 43,500 | 5,184 | \u2014 | (70) | 48,614 | 48,614 | \u2014 |
Total | 47,320 | (24,170) | (12,155) | (1,083) | 9,912 | 86,436 | 76,524 |
Set off of tax | (49,255) | (49,255) | |||||
Net tax assets and liabilities | 37,181 | 27,269 |
During the year ended December 31, 2022, the Company recorded deferred income tax expense of $1,304 (2021: $2,713) related to cash flow hedges and $10,851 (2021: $4,297) related to actuarial gains in defined benefit plans in other comprehensive income.
UNRECOGNIZED DEFERRED TAX ASSETS
The net deferred tax assets are fully recognized for each of the jurisdictions in which we operate with the exception of the following: (1) a German entity did not recognize the specific deferred tax asset recorded for the impact of assets impaired for book purposes; (2) Dutch companies and operating companies in Germany, China, France, Africa, India and other do not recognize deferred tax assets for their loss carryforward positions and other carryforwards because management has determined that there will not be sufficient and foreseeable taxable profits in these locations to realize the benefits of these carryforward positions.
Deferred tax assets for these entities have not been recognized in respect of tax loss carryforwards, tax attributes, and temporary differences as they may not be used to offset taxable profits generated elsewhere in the Company and they have arisen in subsidiaries that have a history of losses or limited profitability.
Deferred tax assets and liabilities have not been recognized in respect of the following items:
Assets | ||
2022 | 2021 | |
Deferred charges and non-current assets | 8,236 | 8,798 |
Tax loss and tax credit carryforwards | 44,065 | 36,866 |
Net tax assets \u2013 unrecognized | 52,301 | 45,664 |
In addition to the unrecognized federal deferred tax assets that are detailed above, there are $6,826 in unrecognized US state deferred tax assets.
At December 31, 2022, pre-tax net operating losses and tax credit carryforwards for which no deferred tax assets have been recognized on the balance sheet, expire as follows:
2023 | 1,429 |
2024 | 1,577 |
2025 | 1,620 |
2026 | 2,526 |
2027 | 3,128 |
2028-2031 | 10,793 |
Unlimited | 146,211 |
Total | 167,284 |
COST | Mining | Land, | Machinery and equipment | Furniture and fixtures | Construction in progress | Total |
Balance at January 1, 2021 | 47,157 | 276,513 | 487,687 | 40,107 | 158,787 | 1,010,251 |
Additions | 286 | 11,851 | 9,163 | 2,706 | 158,641 | 182,647 |
Capitalized borrowings | \u2014 | \u2014 | 6 | \u2014 | 15,571 | 15,577 |
Retirements and transfers | 206 | 672 | (3,916) | (1,276) | (6,704) | (11,018) |
Impairments | \u2014 | \u2014 | 691 | \u2014 | \u2014 | 691 |
Effect of movements in exchange rates | (1,071) | (10,538) | (14,338) | (2,383) | (1,765) | (30,095) |
Balance at December 31, 2021 | 46,578 | 278,498 | 479,293 | 39,154 | 324,530 | 1,168,053 |
Balance at January 1, 2022 | 46,578 | 278,498 | 479,293 | 39,154 | 324,530 | 1,168,053 |
Additions | 2,052 | 11,531 | 19,941 | 3,172 | 124,401 | 161,097 |
Capitalized borrowings | \u2014 | \u2014 | 477 | \u2014 | 11,741 | 12,218 |
Retirements and transfers | 7 | 132,697 | 217,428 | 615 | (361,110) | (10,363) |
Impairments | \u2014 | 398 | (1,043) | (46) | \u2014 | (691) |
Effect of movements in exchange rates | (1,161) | (8,473) | (11,096) | (1,950) | (1,669) | (24,349) |
Balance at December 31, 2022 | 47,476 | 414,651 | 705,000 | 40,945 | 97,893 | 1,305,965 |
##### | ||||||
DEPRECIATION #### | ||||||
Balance at January 1, 2021 | (19,144) | (83,114) | (331,950) | (24,117) | \u2014 | (458,325) |
Depreciation for the year | (1,844) | (11,743) | (23,037) | (4,532) | \u2014 | (41,156) |
Retirements and transfers | 63 | 689 | 7,531 | 1,823 | \u2014 | 10,106 |
Effect of movements in exchange rates | 587 | 3,101 | 9,905 | 1,353 | \u2014 | 14,946 |
Balance at December 31, 2021 | (20,338) | (91,067) | (337,551) | (25,473) | \u2014 | (474,429) |
Balance at January 1, 2022 | (20,338) | (91,067) | (337,551) | (25,473) | \u2014 | (474,429) |
Depreciation for the year | (1,711) | (13,678) | (23,282) | (4,056) | \u2014 | (42,727) |
Retirements and transfers | \u2014 | 2,057 | 3,770 | 1,226 | \u2014 | 7,053 |
Impairments | \u2014 | (1,996) | (7,623) | (187) | \u2014 | (9,806) |
Effect of movements in exchange rates | 705 | 2,357 | 7,332 | 1,161 | \u2014 | 11,555 |
Balance at December 31, 2022 | (21,344) | (102,327) | (357,354) | (27,329) | \u2014 | (508,354) |
Carrying amounts | ||||||
At January 1, 2021 | 28,013 | 193,399 | 155,737 | 15,990 | 158,787 | 551,926 |
At December 31, 2021 | 26,240 | 187,431 | 141,742 | 13,681 | 324,530 | 693,624 |
At January 1, 2022 | 26,240 | 187,431 | 141,742 | 13,681 | 324,530 | 693,624 |
At December 31, 2022 | 26,132 | 312,324 | 347,646 | 13,616 | 97,893 | 797,611 |
PROPERTY, PLANT AND EQUIPMENT UNDER CONSTRUCTION
During the years ended December 31, 2022 and 2021, the Company embarked on several different expansion projects as well as several required maintenance projects. The largest\u00a0 projects are the spodumene capacity expansion in Brazil and the\u00a0 lithium refinery plant construction in Bitterfeld, Germany. Costs incurred up to December 31, 2022, which are included in construction in progress, totaled $97,893 (2021: $324,530).
BORROWING COSTS
The Company capitalized borrowing costs of $12,218 (2021: $15,577) during 2022 which included $9,448 (2021: $15,138) of interest related to the municipal bond net of $250 (2021: $39) of
cash interest received from the restricted cash.\u00a0 The Company also capitalized $1,488 (2021: $274) of interest for the German lithium refinery and $1,532 of interest for other AMG facilities (2021: $204) from its term loan.
PROPERTY, PLANT AND EQUIPMENT ADDITIONS
At December 31, 2022, the Company had $161,097 in additions, including $17,342 in accounts payable, lease additions of $6,473 and a non-cash transfer of $622 from the provision for restoration costs related to asset retirement obligations. At December 31, 2021, the Company had $182,647 in additions, including $36,915 in accounts payable, lease additions of $7,294 and a non-cash transfer of $250 from the provision for restoration costs related to asset retirement obligations.
DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
Depreciation expense for the year ended December 31, 2022 was $42,727 (2021: $41,156). Depreciation expense is recorded in the following line items in the income statement:
2022 | 2021 | |
Cost of sales | 37,423 | 36,071 |
Selling, general and administrative expenses | 5,304 | 5,085 |
Total | 42,727 | 41,156 |
SALE OF PROPERTY, PLANT AND EQUIPMENT
Certain land, building and equipment were sold in the years ended December 31, 2022 and 2021. In those years, the Company received proceeds of $2,538 and $1,029, respectively. In 2022, the proceeds were more than the book value of the assets and a gain of $592 was recognized during the year (2021: $65).
IMPAIRMENT TESTING
IAS 36 requires that assets be carried at a value no greater than their recoverable amount. To meet this standard, the Company is required to test tangible assets for impairment when indicators of
impairment exist, or at least annually, for goodwill and intangible assets with indefinite useful lives. During the year ended December 31, 2022, the Company recorded a net expense of $10,497 in asset impairments on property, plant and equipment mainly related to our silicon metal plant in Pocking, Germany.\u00a0 The impairment was driven by the Company's decision to place the facility on care and maintenance effective January 1, 2023. The plant will restart and operate one furnace in March of 2023 solely for the purpose of fulfilling an existing contract commitment with one of our customers. Once the commitment is fulfilled, it is expected that the plant will resume its care and maintenance plan.\u00a0 This event is not expected to result in a positive cash flow, and we do not expect an impairment reversal. During the year ended December 31, 2021, the Company recorded a reversal of $691 in asset impairments on property, plant and equipment by one of our German subsidiaries related to prior year impairment.
SECURITY
BORROWING COSTS
The Company capitalized borrowing costs of $12,218 (2021: $15,577) during 2022 which included $9,448 (2021: $15,138) of interest related to the municipal bond net of $250 (2021: $39) of
cash interest received from the restricted cash.\u00a0 The Company also capitalized $1,488 (2021: $274) of interest for the German lithium refinery and $1,532 of interest for other AMG facilities (2021: $204) from its term loan.", "dimensions": { "concept": "ifrs-full:DisclosureOfBorrowingCostsExplanatory", "language": "en", "entity": "scheme:5493006MN6OH67U2YI74", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "id3VybDovL2RvY3MudjEvZG9jOjFiOTE3YTE2NTY0OTQyZDNhOTE0NGI5YzZjMjFmMWVkL3NlYzoxYjkxN2ExNjU2NDk0MmQzYTkxNDRiOWM2YzIxZjFlZF8xMzkvZnJhZzpjZDM3ZGFkNGFkYjU0MjA5YTczMzkyM2I2ZTdmNWI4Ny90ZXh0cmVnaW9uOmNkMzdkYWQ0YWRiNTQyMDlhNzMzOTIzYjZlN2Y1Yjg3XzIxOTkwMjMyNTgzMjI_84b0d61a-2e1c-4f97-bc51-9ce11cb0de9c": { "value": "DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
Depreciation expense for the year ended December 31, 2022 was $42,727 (2021: $41,156). Depreciation expense is recorded in the following line items in the income statement:
2022 | 2021 | |
Cost of sales | 37,423 | 36,071 |
Selling, general and administrative expenses | 5,304 | 5,085 |
Total | 42,727 | 41,156 |
IMPAIRMENT TESTING
IAS 36 requires that assets be carried at a value no greater than their recoverable amount. To meet this standard, the Company is required to test tangible assets for impairment when indicators of
impairment exist, or at least annually, for goodwill and intangible assets with indefinite useful lives. During the year ended December 31, 2022, the Company recorded a net expense of $10,497 in asset impairments on property, plant and equipment mainly related to our silicon metal plant in Pocking, Germany.\u00a0 The impairment was driven by the Company's decision to place the facility on care and maintenance effective January 1, 2023. The plant will restart and operate one furnace in March of 2023 solely for the purpose of fulfilling an existing contract commitment with one of our customers. Once the commitment is fulfilled, it is expected that the plant will resume its care and maintenance plan.\u00a0 This event is not expected to result in a positive cash flow, and we do not expect an impairment reversal. During the year ended December 31, 2021, the Company recorded a reversal of $691 in asset impairments on property, plant and equipment by one of our German subsidiaries related to prior year impairment.", "dimensions": { "concept": "ifrs-full:DisclosureOfImpairmentOfAssetsExplanatory", "language": "en", "entity": "scheme:5493006MN6OH67U2YI74", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "id3VybDovL2RvY3MudjEvZG9jOjFiOTE3YTE2NTY0OTQyZDNhOTE0NGI5YzZjMjFmMWVkL3NlYzoxYjkxN2ExNjU2NDk0MmQzYTkxNDRiOWM2YzIxZjFlZF8xNDIvZnJhZzozNGIyMTM2NjFjNjM0ZjE0YWFjNjllZTE2MGZhMGE3OS90ZXh0cmVnaW9uOjM0YjIxMzY2MWM2MzRmMTRhYWM2OWVlMTYwZmEwYTc5XzIxOTkwMjMyNjQyNTM_cad76b79-84d9-4d5e-89aa-9bf0c5279889": { "value": "11.\u00a0 GOODWILL AND OTHER INTANGIBLE ASSETSCOST | Goodwill | Customer | Capitalized | Mining | Other | Total goodwill |
Balance at January 1, 2021 | 39,162 | 11,861 | 5,137 | 7,363 | 33,356 | 96,879 |
Acquired through business combinations | 580 | \u2014 | \u2014 | \u2014 | 3,774 | 4,354 |
Additions | \u2014 | \u2014 | \u2014 | 156 | 1,107 | 1,263 |
Effect of movements in exchange rates | (762) | (730) | (386) | (505) | (2,183) | (4,566) |
Balance at December 31, 2021 | 38,980 | 11,131 | 4,751 | 7,014 | 36,054 | 97,930 |
Balance at January 1, 2022 | 38,980 | 11,131 | 4,751 | 7,014 | 36,054 | 97,930 |
Additions | \u2014 | \u2014 | \u2014 | 150 | 791 | 941 |
Effect of movements in exchange rates | (575) | (528) | (279) | (410) | (1,777) | (3,569) |
Balance at December 31, 2022 | 38,405 | 10,603 | 4,472 | 6,754 | 35,068 | 95,302 |
#### | ||||||
AMORTIZATION AND IMPAIRMENT ### | ||||||
Balance at January 1, 2021 | (9,548) | (9,912) | (3,726) | (3,314) | (27,172) | (53,672) |
Amortization | \u2014 | (396) | (166) | (310) | (1,657) | (2,529) |
Disposals, reversals and transfers | \u2014 | \u2014 | \u2014 | (54) | \u2014 | (54) |
Effect of movements in exchange rates | \u2014 | 600 | 287 | 263 | 1,859 | 3,009 |
Balance at December 31, 2021 | (9,548) | (9,708) | (3,605) | (3,415) | (26,970) | (53,246) |
Balance at January 1, 2022 | (9,548) | (9,708) | (3,605) | (3,415) | (26,970) | (53,246) |
Amortization | \u2014 | (379) | (147) | (276) | (1,770) | (2,572) |
Impairments | \u2014 | \u2014 | \u2014 | \u2014 | (100) | (100) |
Effect of movements in exchange rates | \u2014 | 439 | 210 | (53) | 1,424 | 2,020 |
Balance at December 31, 2022 | (9,548) | (9,648) | (3,542) | (3,744) | (27,416) | (53,898) |
Carrying amounts | ||||||
At January 1, 2021 | 29,614 | 1,949 | 1,411 | 4,049 | 6,184 | 43,207 |
At December 31, 2021 | 29,432 | 1,423 | 1,146 | 3,599 | 9,084 | 44,684 |
At January 1, 2022 | 29,432 | 1,423 | 1,146 | 3,599 | 9,084 | 44,684 |
At December 31, 2022 | 28,857 | 955 | 930 | 3,010 | 7,652 | 41,404 |
ADDITIONS FOR INTANGIBLE ASSETS
At December 31,\u00a0 2022, the Company had $941 (2021: $1,263) in additions, related to investments in intangible fixed assets.
AMORTIZATION OF INTANGIBLE ASSETS
Amortization expense for the year ended December 31, 2022 was $2,572 (2021: $2,529). Amortization expense is recorded in the following line items in the income statement:
2022 | 2021 | |
Cost of sales | 798 | 880 |
Selling, general and administrative expenses | 1,774 | 1,649 |
Total | 2,572 | 2,529 |
RESEARCH COSTS
Research and development expenses are included in selling, general and administrative expenses and were $4,224 and $4,202 in the years ended December 31, 2022 and 2021, respectively.
IMPAIRMENT TESTING FOR INTANGIBLE ASSETS
(i)Goodwill
For the purposes of impairment testing, goodwill has been allocated to the Company\u2019s cash-generating units as follows:
Segment | 2022 | 2021 | |
AMG Antimony | Critical Minerals | 9,702 | 9,702 |
AMG Chrome | Critical Materials Technologies | 1,510 | 1,510 |
AMG Engineering | Critical Materials Technologies | 13,520 | 14,093 |
AMG Titanium Alloys | Critical Materials Technologies | 4,125 | 4,127 |
Total | 28,857 | 29,432 |
Key assumptions
The calculations of value in use are most sensitive to the following assumptions:
\u2022Global metals pricing - Estimates are obtained from published indices. The estimates are evaluated and are generally used as a guideline for future pricing.
\u2022Discount rate - Discount rates reflect the current market assessment of the time value of money and the risks specific to the asset, based on a comparable peer group.
\u2022Expected future cash flows - Expected future cash flows are based on management\u2019s best estimates of future business conditions but cannot be guaranteed as the Company does not have fixed revenues or costs.
\u2022Growth rate - Growth rates are based on management\u2019s interpretation of published industry research in order to extrapolate cash flows beyond the business plan period. As most businesses follow economic trends, an inflationary factor of 1% was utilized for all entities.
It is possible that the key assumptions used in the business plan will differ from actual results. However, management does not believe that any reasonably possible changes to any of such key assumptions will cause the carrying amount to exceed the recoverable amount. The values assigned to the key assumptions represent management\u2019s assessment of future trends in the metallurgical industry and are based on both external sources and internal sources (historical data).
For the impairment tests for AMG Antimony, AMG Chrome, AMG Engineering and AMG Titanium Alloys' cash-generating units, the recoverable amounts are the value in use. The value in use was determined using the discounted cash flow method. In 2022 and 2021, the carrying amounts of the AMG Antimony, AMG Chrome, AMG Engineering and AMG Titanium Alloys\u2019 cash-generating units were determined to be lower than their recoverable amounts and no impairment losses were recognized.
The following table includes the pre-tax discount rates that were applied in determining the recoverable amount for each cash-generating unit:
2022 | 2021 | |
AMG Antimony | 10.61% | 10.97% |
AMG Chrome | 11.47% | 9.65% |
AMG Engineering | 12.75% | 10.81% |
AMG Titanium Alloys | 11.47% | 11.47% |
Sensitivities related to the value in use calculation for all cash-generating units would imply that a 1% increase in the discount rate or using a 0% growth rate would not have created an impairment.
(ii)Intangibles with finite lives
The determination of whether long-lived assets are impaired requires an estimate of the recoverable amount of the cash- generating unit or group of cash-generating units to which the long-lived assets have been allocated. The recoverable amount is defined as the higher of a cash-generating unit\u2019s fair value less costs of disposal and its value in use. For each of the cash-generating units which tested long-lived assets for recoverability, the recoverable amount was determined as the value in use or fair value less costs to sell as appropriate. The value in use requires the entity to estimate the future cash flows expected to arise from the cash-generating units or group of cash-generating units and to discount these cash flows with a risk adjusted discount rate. Expected future cash flows are based on management\u2019s best estimates of future business conditions but cannot be guaranteed as the Company does not have fixed revenues or costs. The risk adjusted discount rate is estimated using a comparison of peers but can vary based on changes in the debt or equity markets or risk premiums assigned to countries or industries.
As of December 31, 2022, the Company owned 11.3% (2021: 11.3%) ownership interest in a former customer, Global Advanced Metals Pty LTD. The investment is being designated as a financial instrument measured at fair value through other comprehensive income because the Company has not gained significant influence.
The investment had a value of $13,629 at December 31, 2022 (2021: $12,300). The fair value of this investment is estimated by management with reference to the relevant available information. The Company relied on the current financial results of the investment including the current financial statements and current year revenue estimates to determine a fair value for the investment. The Company did not have the relevant data to complete a discounted cash flow model. There was a lack of marketability discount applied of 17.5%. Changes in the valuation methodologies or assumptions could lead to different measurements of fair value. The Company recorded investment gains of $1,329 and $1,008 related to the investment during the years ended December 31, 2022 and 2021, respectively, which is included in other comprehensive income.
Also included in other investments are assets of $15,695 (2021: $17,530) which are designated to fund the non-qualified pension liability. These assets consist of debt securities, equity securities, and insurance contracts which are held at fair value. These assets have been designated as Level 1 and partially Level 3 financial instruments on the fair value hierarchy. The Level 3 investments consist of insurance contracts valued at $7,473 (2021: $6,451). These insurance contracts have been valued using unobservable inputs based on the best available information in the circumstances. The investments are held in a Rabbi Trust and are restricted for use in pension funding. The Company recorded an investment loss of ($1,596)\u00a0(2021: $1,601 gain) related to the investments during the year ended December 31, 2022, which is included in other comprehensive income. See notes 23 and 29 for additional information.
As of December 31, 2022, the Company owned 11.3% (2021: 11.3%) ownership interest in a former customer, Global Advanced Metals Pty LTD. The investment is being designated as a financial instrument measured at fair value through other comprehensive income because the Company has not gained significant influence.
The investment had a value of $13,629 at December 31, 2022 (2021: $12,300). The fair value of this investment is estimated by management with reference to the relevant available information. The Company relied on the current financial results of the investment including the current financial statements and current year revenue estimates to determine a fair value for the investment. The Company did not have the relevant data to complete a discounted cash flow model. There was a lack of marketability discount applied of 17.5%. Changes in the valuation methodologies or assumptions could lead to different measurements of fair value. The Company recorded investment gains of $1,329 and $1,008 related to the investment during the years ended December 31, 2022 and 2021, respectively, which is included in other comprehensive income.
Also included in other investments are assets of $15,695 (2021: $17,530) which are designated to fund the non-qualified pension liability. These assets consist of debt securities, equity securities, and insurance contracts which are held at fair value. These assets have been designated as Level 1 and partially Level 3 financial instruments on the fair value hierarchy. The Level 3 investments consist of insurance contracts valued at $7,473 (2021: $6,451). These insurance contracts have been valued using unobservable inputs based on the best available information in the circumstances. The investments are held in a Rabbi Trust and are restricted for use in pension funding. The Company recorded an investment loss of ($1,596)\u00a0(2021: $1,601 gain) related to the investments during the year ended December 31, 2022, which is included in other comprehensive income. See notes 23 and 29 for additional information.
2022 | 2021 | |
Raw materials | 95,476 | 78,536 |
Work in process | 33,417 | 28,708 |
Finished goods | 132,688 | 99,861 |
Other | 15,730 | 11,215 |
Total | 277,311 | 218,320 |
Other inventory primarily includes spare parts that are maintained for operations.
In the year ended December 31, 2022, the net adjustment to net realizable value amounted to a write-down of $5,233 (2021: $1,929) and was included in cost of sales. The net realizable value write-downs were primarily related to inventory costing adjustments due to variability in metals pricing.
2022 | 2021 | |
Trade receivables, net of allowance for doubtful accounts | 124,754 | 107,682 |
Due from investment in affiliate | 229 | 126 |
Gross amount due from customers for contract work | 335,185 | 269,651 |
Less: progress payments received | (297,620) | (232,024) |
Net receivable from contract work (note 5) | 37,565 | 37,627 |
Total | 162,548 | 145,435 |
At December 31, 2022 and 2021, trade receivables include receivables from customers who have received direct shipments or services from the Company and receivables from customers who have utilized inventory on consignment. Amounts billed to furnace construction contracts customers are also included in the trade and other receivables line item in the statement of financial position. The carrying amount of trade receivables approximates their fair value due to their short-term nature. Trade receivables are generally non-interest bearing and are generally on 30-90 day terms.
At December 31, 2022, receivables in the amount of $82,043 (2021: $69,577) are pledged as collateral to secure the term loan credit facility of the Company (see note 21).
As of December 31, the analysis of trade receivables that were past due but not impaired is as follows:
Total | Neither | Past due but not impaired | |||||
<30 | 30-60 | 60-90 | 90-120 | >120 | |||
2022 | 162,548 | 151,431 | 8,552 | 1,103 | 272 | 504 | 686 |
2021 | 145,435 | 134,519 | 7,515 | 1,621 | 665 | 110 | 1,005 |
At December 31, 2022, trade receivables are shown net of expected credit losses of $970 (2021: $1,268) arising from customer unwillingness or inability to pay. Bad debt charges in the amount of $80\u00a0and $435 were recorded in the years ended December 31, 2022 and December 31, 2021, respectively. These charges were recorded in selling, general and administrative expenses in the consolidated income statement. Refer to note 3(f) for additional details on the Company\u2019s policy for the calculation of expected credit losses.
Movements in the provision for impairment of receivables were as follows:
2022 | 2021 | |
At January 1 | 1,268 | 1,637 |
Charge for the year | 80 | 435 |
Amounts written-off | (315) | (538) |
Amounts recovered/collected | (17) | (155) |
Foreign currency adjustments | (46) | (111) |
At December 31 | 970 | 1,268 |
FACTORING OF RECEIVABLES
As of December 31, 2022 and 2021, the Company had total receivables factored and outstanding of $64,768, and $64,440, respectively. The Company maintains accounts receivable facilities with banks and credit insurance companies in Germany, France and the US. The Company sold receivables in the amount of $427,041 throughout the year which includes security deposits of $2,667 and cash proceeds of $289,086. During 2022, the Company incurred costs of $1,996 in conjunction with the sale of these receivables of which $1,490 were included in finance cost, $137 were recorded to selling, general and administrative expenses, and $369 were recorded to sales on the income statement. This activity is included in cash from operating activities during the year ended December 31, 2022.
Other assets are comprised of the following:
2022 | 2021 | |
Energy contract settlement | 66,291 | \u2014 |
Prepaid inventory | 25,395 | 33,242 |
Prepaid taxes (indirect) | 17,745 | 20,290 |
Insurance | 7,772 | 6,154 |
Deposits | 3,263 | 2,640 |
Maintenance and subscriptions | 1,981 | 930 |
Environmental trusts | 1,924 | 3,200 |
Debt issuance cost | 1,850 | 2,484 |
Other miscellaneous assets | 4,225 | 4,597 |
Total | 130,446 | 73,537 |
Thereof: | ||
Current | 121,834 | 65,066 |
Non-current | 8,612 | 8,471 |
2022 | 2021 | |
Non-current | 5,875 | 85,023 |
Current | 1,045 | 8,411 |
Total | 6,920 | 93,434 |
2022 | 2021 | |
Bank balances | 338,242 | 298,388 |
Money market funds | 7,801 | 31,697 |
Time deposits | \u2014 | 7,792 |
Total cash | 346,043 | 337,877 |
At December 31, 2022\u00a0and\u00a02021, the Company had $7,801 and\u00a0 $31,697 respectively of highly liquid money market funds.
Bank balances earn interest at floating rates based on daily bank deposit rates. In 2021, one of our German subsidiaries utilized time deposits with a maturity of one month for the immediate cash needs of the Company.
SHARE CAPITAL
At December 31, 2022, the Company\u2019s authorized share capital was comprised of 65,000,000 ordinary shares (2021: 65,000,000) with a nominal share value of \u20ac0.02 (2021: \u20ac0.02) and 65,000,000 preference shares (2021: 65,000,000) with a nominal share value of \u20ac0.02 (2021: \u20ac0.02).
At December 31, 2022, the issued and outstanding share capital was comprised of 31,951,492 ordinary shares (2021: 31,878,334), with a nominal value of \u20ac0.02 (2021: \u20ac0.02) which were fully paid. In April 2021, the Company issued 3,136,742 ordinary shares for total proceeds of $118,722, net of issuance costs. The Company also re-issued 32,557 of treasury shares in connection with the settlement of share-based compensation for total proceeds of $4,905. No preference shares were outstanding at December 31, 2022 (2021: nil). The nominal value of the outstanding shares as of December 31, 2022, was $682 (2021: $723) as compared to the value using historical exchange rates which was $853 (2021: $853).
The preference shares carry equal voting rights as ordinary shares and are entitled, if distribution to shareholders is permitted, to a fixed dividend equal to EURIBOR for deposit loans of one year increased with maximum of 400 basis points as determined by the Management Board of the Company and subject to approval by the Supervisory Board. AMG\u2019s dividend policy is to evaluate liquidity needs for alternative uses including funding growth opportunities and funding dividend payments to shareholders. Payment of future dividends to shareholders will be at the discretion of the Management Board subject to the approval of the Supervisory Board after taking into account various factors and is subject to limitations based on the Company\u2019s revolving credit facility. Additionally, payment of future dividends or other distributions to shareholders may be made only if the Company\u2019s shareholders\u2019 equity exceeds the sum of the issued share capital plus the reserves required to be maintained by law.
A roll forward of the total shares outstanding is noted below:
Balance at January 1, 2021 | 28,457,498 |
Share issuance | 3,136,742 |
Shares repurchased | (32,557) |
Re-issuance of treasury shares | 32,557 |
Treasury shares delivered for share-based compensation | 276,551 |
Treasury shares delivered to Supervisory Board | 7,543 |
Balance at December 31, 2021 | 31,878,334 |
Shares repurchased | (41,953) |
Treasury shares delivered for share-based compensation | 107,737 |
Treasury shares delivered to Supervisory Board | 7,374 |
Balance at December 31, 2022 | 31,951,492 |
SHARES ISSUED OR DELIVERED FOR SHARE-BASED COMPENSATION
During the year ended December 31, 2022, 107,737 (2021: 276,551) shares were issued or delivered related to share- based compensation to management. Refer to note 24 for details regarding these plans.
TREASURY SHARES
The Company repurchased shares which are held in treasury for the delivery upon exercise of options and performance share programs and are accounted for as a reduction of shareholders\u2019 equity. On August 11, 2021, the Company retired 2,000,000 treasury shares in accordance with the terms of the share repurchase program.
A roll forward of the treasury share balance is noted below:
Balance at January 1, 2021 | 2,909,924 |
Shares repurchased | 32,557 |
Re-issuance of treasury shares | (32,557) |
Treasury shares retired | (2,000,000) |
Treasury shares delivered for share-based compensation | (276,551) |
Treasury shares delivered to Supervisory Board | (7,543) |
Balance at December 31, 2021 | 625,830 |
Shares repurchased | 41,953 |
Treasury shares delivered for share-based compensation | (107,737) |
Treasury shares delivered to Supervisory Board | (7,374) |
Balance at December 31, 2022 | 552,672 |
SUPERVISORY BOARD REMUNERATION
During the years ended December 31, 2022 and 2021, 7,374 and 7,543 shares were delivered, respectively, as compensation to its Supervisory Board members for services provided in 2022 and 2021. These shares were awarded as part of the remuneration policy approved by the Annual General Meeting.
OTHER RESERVES
Foreign currency translation reserve | Hedging reserve | Cost of hedging reserve | Capitalized development expenditures reserve | Defined benefit obligation reserve | Fair value reserve | Total | |
Balance at January 1, 2021 | (21,644) | 247 | 535 | 1,524 | (90,654) | (601) | (110,593) |
Currency translation differences | (6,218) | \u2014 | \u2014 | \u2014 | 3,998 | \u2014 | (2,220) |
Gain on FVOCI investments | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | 2,609 | 2,609 |
Movement on cash flow hedges | \u2014 | 1,591 | (239) | \u2014 | \u2014 | \u2014 | 1,352 |
Tax effect on net movement on cash flow hedges | \u2014 | (2,800) | 87 | \u2014 | \u2014 | \u2014 | (2,713) |
Actuarial gains on defined benefit plans | \u2014 | \u2014 | \u2014 | \u2014 | 19,819 | \u2014 | 19,819 |
Tax effect on net movement on defined benefit plans | \u2014 | \u2014 | \u2014 | \u2014 | (4,297) | \u2014 | (4,297) |
Transfer to retained deficit | \u2014 | \u2014 | \u2014 | (378) | \u2014 | \u2014 | (378) |
Balance at December 31, 2021 | (27,862) | (962) | 383 | 1,146 | (71,134) | 2,008 | (96,421) |
Balance at January 1, 2022 | (27,862) | (962) | 383 | 1,146 | (71,134) | 2,008 | (96,421) |
Currency translation differences | (4,284) | \u2014 | \u2014 | \u2014 | 2,653 | \u2014 | (1,631) |
Loss on FVOCI investments | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | (267) | (267) |
Movement on cash flow hedges | \u2014 | 29,332 | 520 | \u2014 | \u2014 | \u2014 | 29,852 |
Tax effect on net movement on cash flow hedges | \u2014 | (1,135) | (169) | \u2014 | \u2014 | \u2014 | (1,304) |
Actuarial gains on defined benefit plans | \u2014 | \u2014 | \u2014 | \u2014 | 35,969 | \u2014 | 35,969 |
Tax effect on net movement on defined benefit plans | \u2014 | \u2014 | \u2014 | \u2014 | (10,851) | \u2014 | (10,851) |
Transfer to retained deficit | \u2014 | \u2014 | \u2014 | (216) | \u2014 | \u2014 | (216) |
Balance at December 31, 2022 | (32,146) | 27,235 | 734 | 930 | (43,363) | 1,741 | (44,869) |
RESTRICTIONS ON DISTRIBUTIONS
Certain restrictions apply on equity of the Company due to Dutch legal requirements. Please see note 12 in the parent company financial statements for additional details.
DIVIDENDS
During AMG\u2019s 2021 Annual General Meeting, the Company amended the dividend policy. Given that AMG has cyclical elements in its product mix and that it desires to have a relatively consistent dividend pay-out, the Company revised its policy to allow for stable dividend pay-outs that will target gradual increases to historic dividend levels, provided that such pay-outs and possible increases are supported by AMG\u2019s liquidity and cash flow generation, and subject to prevailing statutory requirements.
The Company intends to propose a full year dividend for 2022 of \u20ac0.70 (2021: \u20ac0.40)\u00a0to the General Meeting of Shareholders for approval as part of the adoption of the 2022 Annual Accounts.
The interim dividend of \u20ac0.30 (2021:\u00a0\u20ac0.10) per ordinary AMG share, paid on August 10, 2022, will be deducted from this amount. The proposed final dividend per ordinary share therefore amounts
TREASURY SHARES
The Company repurchased shares which are held in treasury for the delivery upon exercise of options and performance share programs and are accounted for as a reduction of shareholders\u2019 equity. On August 11, 2021, the Company retired 2,000,000 treasury shares in accordance with the terms of the share repurchase program.
A roll forward of the treasury share balance is noted below:
Balance at January 1, 2021 | 2,909,924 |
Shares repurchased | 32,557 |
Re-issuance of treasury shares | (32,557) |
Treasury shares retired | (2,000,000) |
Treasury shares delivered for share-based compensation | (276,551) |
Treasury shares delivered to Supervisory Board | (7,543) |
Balance at December 31, 2021 | 625,830 |
Shares repurchased | 41,953 |
Treasury shares delivered for share-based compensation | (107,737) |
Treasury shares delivered to Supervisory Board | (7,374) |
Balance at December 31, 2022 | 552,672 |
DIVIDENDS
During AMG\u2019s 2021 Annual General Meeting, the Company amended the dividend policy. Given that AMG has cyclical elements in its product mix and that it desires to have a relatively consistent dividend pay-out, the Company revised its policy to allow for stable dividend pay-outs that will target gradual increases to historic dividend levels, provided that such pay-outs and possible increases are supported by AMG\u2019s liquidity and cash flow generation, and subject to prevailing statutory requirements.
The Company intends to propose a full year dividend for 2022 of \u20ac0.70 (2021: \u20ac0.40)\u00a0to the General Meeting of Shareholders for approval as part of the adoption of the 2022 Annual Accounts.
The interim dividend of \u20ac0.30 (2021:\u00a0\u20ac0.10) per ordinary AMG share, paid on August 10, 2022, will be deducted from this amount. The proposed final dividend per ordinary share therefore amounts
to \u20ac0.40 (2021: \u20ac0.30). This dividend payment was determined appropriate by the Management and Supervisory Boards based on current liquidity and long-term prospects. Dividend payments to shareholders will be at the discretion of the Management Board subject to the approval of the Supervisory Board after taking into account various factors, including business prospects, cash requirements, financial performance, expansion plans, the terms of the Company\u2019s financing facilities and the compliance with applicable statutory and regulatory requirements. Additionally, any payment of dividends (whether interim or after adoption of the annual accounts) or other distributions to shareholders may be made only if the Company\u2019s shareholders\u2019 equity exceeds the sum of the issued share capital plus the reserves required to be maintained by law.Dividends of $19,885, or \u20ac0.60 per share, were paid during the year ended December 31, 2022. Dividends of $7,598, or \u20ac0.20 per share, were paid during the year ended December 31, 2021.", "dimensions": { "concept": "ifrs-full:DisclosureOfDividendsExplanatory", "language": "en", "entity": "scheme:5493006MN6OH67U2YI74", "period": "2022-01-01T00:00:00/2023-01-01T00:00:00" } }, "id3VybDovL2RvY3MudjEvZG9jOjFiOTE3YTE2NTY0OTQyZDNhOTE0NGI5YzZjMjFmMWVkL3NlYzoxYjkxN2ExNjU2NDk0MmQzYTkxNDRiOWM2YzIxZjFlZF8xNjYvZnJhZzo2NTZmMzZmZjdhZTc0ZjZmOGMxM2ViODQ4ZmQ4MTFkNy90ZXh0cmVnaW9uOjY1NmYzNmZmN2FlNzRmNmY4YzEzZWI4NDhmZDgxMWQ3XzIxOTkwMjMyNTc0NDc_7dd4b77c-9abb-490f-949e-822eef3fa7c7": { "value": "19.\u00a0 EARNINGS PER SHAREBASIC EARNINGS PER SHARE
Basic earnings per share amounts are calculated by dividing net profits for the year attributable to ordinary equity holders of the parent by the weighted average of ordinary shares outstanding during the year. As of December 31, 2022 and 2021, the calculation of basic earnings per share is performed using the weighted average shares outstanding for 2022 and 2021, respectively.
DILUTED EARNINGS PER SHARE
Diluted earnings per share are calculated by dividing the net profit attributable to the ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. The only category of potentially dilutive shares at December 31, 2022 and 2021 are AMG\u2019s share options and AMG\u2019s restricted share unit and performance share unit plans. The diluted earnings per share calculation includes the number of shares that could have been acquired at fair value given the exercise price attached to the outstanding options. The calculated number of shares is then compared with the number of shares that would have been issued assuming the exercise of the share options.
For the year ended December 31, 2022, there were 13 (2021: 25) shares related to outstanding stock options that could potentially further dilute basic EPS in future periods but were anti-dilutive in 2022 due to the strike price of the options relative to the average price of the Company's shares for the year.
Earnings | 2022 | 2021 |
Net profit attributable to equity holders for basic and diluted earnings per share | 187,589 | 13,771 |
Number of shares (in 000\u2019s) | ||
Weighted average number of ordinary shares for basic earnings per share | 31,932 | 30,958 |
Dilutive effect of stock options and other share-based compensation | 65 | 60 |
Dilutive effect of performance share units | 725 | 361 |
Weighted average number of ordinary shares adjusted for effect of dilution | 32,722 | 31,379 |
Basic earnings per share | 5.87 | 0.44 |
Diluted earnings per share | 5.73 | 0.44 |
As of December 31, 2022, non-controlling interests totaled $27,296 (2021: $25,718).
On March 30, 2015, the Company sold a 40% equity interest in a German subsidiary, Graphit Kropfm\u00fchl GmbH (\"AMG Graphite\"). This sale resulted in the Company owning 60% of this subsidiary and a non-controlling interest of 40%. The Company has maintained control of the subsidiary and continues to consolidate the financial results. The non-controlling interest has rights to the financial position and results of AMG Graphite in proportion with their ownership. The non-controlling interest also has protective rights which prevent fundamental changes to AMG Graphite as well as restrictions on the ability to transfer cash out of the subsidiary.
The summarized financial information of this subsidiary is provided below. This information is based on amounts before intercompany eliminations:
Summarized financial information as of December 31: | 2022 | 2021 |
Revenues | 74,503 | 74,034 |
Current assets | 67,140 | 64,317 |
Non-current assets | 35,054 | 39,316 |
Current liabilities | 26,303 | 25,056 |
Non-current liabilities | 12,613 | 17,049 |
Total equity | 63,278 | 61,528 |
Attributable to: | ||
Equity holders of parent | 38,946 | 37,949 |
Non-controlling interest | 24,332 | 23,579 |
This note provides information about the contractual terms of the Company\u2019s interest-bearing loans and borrowings. For more information about the Company\u2019s exposure to interest rate and foreign currency risk, see note 28.
Non-current | Interest rate | Maturity | 2022 | 2021 |
Term Loan B1 | LIBOR +3.5% | 11/30/2028 | 336,121 | 338,397 |
Municipal bond | 5.0% | 7/1/2049 | 319,244 | 319,476 |
Subsidiary debt | 2.2% - 8.5% | 1/2023 - 11/2028 | 5,905 | 17,511 |
Total | 661,270 | 675,384 |
Current | Interest rate | Maturity | 2022 | 2021 |
Term Loan B1 | LIBOR +3.5% | 11/30/2028 | 3,500 | 3,500 |
Subsidiary debt | 2.2% - 8.5% | 1/2023 - 11/2028 | 11,664 | 23,841 |
Total | 15,164 | 27,341 |
1 Effective under the 2021 Term Loan B, the interest rate is subject to a 0.50% LIBOR floor.\u00a0 As of December 31, 2022, the effective floating interest rate was 7.9%.
TERM LOAN AND REVOLVING CREDIT FACILITY
On November 30, 2021, the Company entered into a $350,000, 7-year senior secured term loan B facility (\u201cterm loan\u201d) and a $200,000 5-year senior secured revolving credit facility (\u201crevolver\u201d). The total facility amount of $550,000 replaced AMG\u2019s previous credit facility and extended the term loan maturity from 2025 to 2028 and revolver maturity from 2023 to 2026. Proceeds from the facility were used to repay AMG\u2019s previous credit facility in 2021.
As of December 31, 2022, the total outstanding principal on the term loan was $346,500 (2021: $350,000). As of December 31, 2022, available revolver capacity was $186,200 (2021: $170,000). Interest on the revolver is based on current LIBOR (or in the case of any loans denominated in euros, EURIBOR) plus a margin that is dependent on AMG\u2019s corporate credit rating. Additionally, the revolver, as a sustainability-linked loan, is subject to a margin adjustment based on annual CO2 intensity reduction targets. At December 31, 2022 the margin on the revolver was 2.70%. As part of obtaining the revolver the Company is responsible for maintaining Net Debt to EBITDA not to exceed 3.5:1.0. Interest on the term loan is based on current LIBOR plus a margin of 3.5% and is subject to a LIBOR floor of 0.50% as of December 31, 2022.
To mitigate interest rate risk, on November 30, 2021 the Company entered into interest rate swaps totaling $350,000 in connection with the execution of the term loan and revolver.\u00a0 This determination was made as part of the ongoing risk management process as these instruments mitigate the interest rate risk on the Company\u2019s credit facility. See note 29 for additional information on the interest rate hedging activities.
The credit facility is subject to several affirmative and negative covenants including, but not limited to, the following: Net Debt to EBITDA not to exceed 3.5:1.0. EBITDA and Net Debt are defined in the credit facility agreement. The definitions per the credit facility agreement may be different from management definitions. The credit facility limits the amount of cash that can be included in the calculation of Net Debt. AMG\u2019s current cash balance is significantly in excess of the credit facility limit. As a result, the Net Debt to EBITDA ratio as defined by the credit facility as of December 31, 2022 was 0.6:1.0 (2021: 1.6:1.0). As of December 31, 2022, the Company was in compliance with all of its debt covenants.
Mandatory repayment of the credit facility is required upon the occurrence of (i) a change of control or (ii) the sale of all or substantially all of the business and/or assets of the Company whether in a single transaction or a series of related transactions. If the Company were not in compliance with all covenants under the credit facility, the loan could become due in full or the Company could be subject to significant amendment fees.
In July 2017, the United Kingdom\u2019s Financial Conduct Authority, which regulates the London Interbank Offered Rate (LIBOR), announced it intends to phase out LIBOR by June 30, 2023.\u00a0 The Alternative Reference Rates Committee (\u2018ARRC\u2019), a group of private-market participants convened by the Federal Reserve Board and the Federal Reserve Bank of New York to help ensure
a successful transition from U.S. dollar LIBOR (\u2018USD-LIBOR\u2019) to a more robust reference rate, has proposed that the Secured Overnight Financing Rate (\u2018SOFR\u2019) represents the best alternative to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR.\u00a0 The Company\u2019s Credit Agreement and interest rate swaps include a hardwired transition process from LIBOR to SOFR, as the successor benchmark reference rate, the transition will occur before the cessation of LIBOR, on or before June 30, 2023.
Debt issuance costs
In connection with the term loan and revolver that were refinanced in 2021, the Company incurred issuance costs of $7,240, which were deducted from the proceeds of the debt from the term loan or paid by the Company. The amounts have been allocated to the term loans and revolver based on the amount which would have been incurred if the facilities were obtained separately.
The amount allocated to the term loans of $4,703 is shown net against the outstanding term loan balance and are amortized using the effective interest method. The Company recorded amortization expense of $710 (2021: $58)\u00a0during the year ended December 31, 2022 related to these costs. The balance of unamortized costs net against the book value of the term loan was $3,935 (2021: $4,645) as of December 31, 2022.
The amount allocated to the revolver of $2,537 is included in other assets because there were no borrowings outstanding. This amount is being amortized on a straight-line basis over the life of the facility. The Company has recorded amortization expense of $634 during 2022 related to these costs. The balance of unamortized costs recorded in other assets related to the revolving credit facility was $1,850 (2021: $2,484) as of December 31, 2022.
Additionally, the Company recorded amortization of $4,850 related to issuance cost from the previous credit facility in 2021 including $390 in fees incurred during the year.
Original issuance discount
The term loan included an original issue discount (OID) of 100 basis points, or $3,500 which is shown net against the outstanding term loan balance and is amortized using the effective interest method. The Company has recorded amortization expense of $514 (2021: $42) during the year ended December 31, 2022 related to this original issuance discount. The balance of unamortized costs recorded was $2,944 (2021: $3,458) as of December 31, 2022. Additionally, the Company recorded amortization of $964 related to original issuance discount from the previous credit facility in 2021.
MUNICIPAL BOND
On July 11, 2019, the Company entered into a $307,200 municipal bond in the US tax-exempt bond market generating proceeds of $325,000 as the bond was issued by AMG Vanadium LLC at a premium. The bond was issued through the Ohio Air Quality Development Authority for the purpose of constructing a new catalyst recycling facility in Ohio. The bonds have a coupon rate of 5.0% and mature on July 1, 2049. The bonds are fully guaranteed
by the Company. There are no financial covenants related to the bonds. The bonds are unsecured and subordinated to the term loan and revolver.
Under the terms of the loan agreement with the bondholders, the proceeds of the bonds are restricted for the purpose of financing a portion of the cost of the acquisition, construction and equipping of the new spent catalyst recycling facility; paying\u00a0 construction period interest on the bonds; and paying issuance costs of the bond, which are defined as any financial, legal, administrative and other fees incurred by the Company. The funds are held by a third- party trustee and invested in cash and highly liquid money market funds (notes 16 and 28). While the project is under construction, the Company has classified the proceeds of the bonds as restricted cash as a non-current asset in the statement of financial position.
The bonds have several redemption provisions. The Company has an optional redemption whereby it can redeem the bonds beginning on July 1, 2029 through the date of maturity for the par value plus accrued interest at the date of redemption. If upon completion of the project there are excess funds, then the loan agreement indicates that a mandatory redemption of the excess funds shall be used to redeem an equivalent amount of the outstanding bonds. Additionally, the Company will also be required to repay a pro rata amount of the original issue premium in the event of a mandatory redemption. The repayment of the premium is calculated as the number of remaining years until the ten-year call date (July 1, 2029) divided by ten years and multiplied by the amount of the original issue premium on the redeemed bonds.
The municipal bond also grants the holders of the bonds the right to tender their bonds for purchase by the Company upon a change in control of the Company at a purchase price of 101% of the principal amount of the bonds plus accrued interest.
Debt issuance costs
In connection with the issuance of the municipal bonds in July 2019, the Company incurred issuance costs of $4,981, which were deducted from the proceeds of the municipal bonds. These issuance costs are presented net against the outstanding municipal bond balance and are amortized using the effective interest method. The Company recorded amortization expense of $83 (2021: $77) during the year ended December 31, 2022 related to these costs. The balance of unamortized costs was $4,711 (2021: $4,794) as of December 31, 2022.
Bond issuance premium
The municipal bond included a premium of $17,800 which is shown with the outstanding municipal bond balance and is amortized using the effective interest method. The Company recorded amortization of $315 (2021: $300) during the year ended December 31, 2022. The balance of unamortized premium recorded was $16,755 (2021: $17,070) as of December 31, 2022.
SUBSIDIARY DEBT
As of December 31, 2022, a Brazilian subsidiary had $13,743 (2021: $37,274) of fixed and floating rate debt facilities outstanding. These arrangements are denominated in US dollar and Brazilian reais and mature from 2023 through 2025. During 2022, the company repaid $24,373 (2021: $3,203) on these loans and the balance was impacted by $842 (2021: $227) due to foreign exchange movements.
During 2020, a local bank approved a loan to a Chinese subsidiary with a borrowing capacity of \u00a528,000 for the construction of an aluminum master alloys facility in China. The facility matures in 2028 and has an interest rate of 4.9%. As of December 31, 2022, the outstanding balance for this loan was $3,826 (2021: $4,078).
DEBT REPAYMENTS
The Company made debt repayments of $27,873 (2021: $342,781) during 2022.
RECONCILIATION OF MOVEMENTS OF LIABILITIES TO CASH FLOWS ARISING FROM FINANCING ACTIVITIES
Total | |
Balance at January 1, 2021 | 696,654 |
Changes from financing cash flows: | |
Proceeds from loans and borrowings | 348,972 |
Payment of transaction costs related to debt | (5,093) |
Repayment of borrowings | (342,781) |
Total changes from financing cash flows | 1,098 |
The effect of changes in foreign exchange rates | (155) |
Amortization of transaction costs related to loans and borrowings | 5,128 |
Balance at December 31, 2021 | 702,725 |
Balance at January 1, 2022 | 702,725 |
Changes from financing cash flows: | |
Proceeds from loans and borrowings | 82 |
Repayment of borrowings | (27,873) |
Total changes from financing cash flows | (27,791) |
The effect of changes in foreign exchange rates | 509 |
Amortization of premiums, discounts and transaction costs related to loans and borrowings | 991 |
Balance at December 31, 2022 | 676,434 |
DEFINED CONTRIBUTION PLANS
Tax qualified defined contribution plans are offered which cover substantially all of the Company\u2019s salaried and hourly employees at US subsidiaries. All contributions, including a portion that represents a company match, are made in cash into mutual fund accounts in accordance with the participants\u2019 investment elections. The assets of the plans are held separately, under the control of trustees, from the assets of the subsidiaries. When employees leave the plans prior to vesting fully in the Company contributions, the contributions or fees payable by the Company are reduced by the forfeited contributions.
In Europe, the employees are members of state-managed retirement benefit plans operated by the governments in the countries where the employees work. The subsidiaries are required to contribute a specified percentage of payroll costs to the retirement benefit scheme to fund the benefits. The only obligation of the subsidiaries with respect to the retirement benefit plan is to make the specified contributions.
The total expense as of December 31, 2022, recognized in the consolidated income statement of $4,768 (2021: $3,685) represents contributions paid and payable to these plans.
DEFINED BENEFIT PLANS
North America plans
The Company offers tax-qualified, non-contributory defined benefit pension plans for salaried and hourly employees at US subsidiaries covered under collective bargaining agreements. The plans generally provide benefit payments using a formula based on an employee\u2019s compensation and length of service. These plans are funded in amounts at least equal to the minimum funding requirements of the US Employee Retirement Income Security Act.
A non-qualified additional supplemental executive retirement plans (SERPs) also cover four of the Company\u2019s current and former executive officers. Pursuant to the terms of the agreements, these officers earn additional retirement benefits for continued service with the Company. The amounts payable under the SERPs are guaranteed by AMG.
Actuarial assumptions
A majority of the North America plans are frozen to new entrants. As a result, the principal actuarial assumptions for these plans are the rate of discount and mortality rates. The rate of discount utilized as of December 31, 2022 (expressed as a weighted average) was 5.03% (2021: 2.53%). The SERP plan assumptions are developed using specific assumptions about the individual participants.
Assumptions regarding future mortality are based on published statistics and the mortality tables developed by the Society of Actuaries for private sector plans in the United States using MP-2021 as published in October 2021. The valuation was prepared on a going-plan basis. The valuation was based on members in the Plan as of the valuation date and did not take future members into account. No provisions for future expenses were made.
Medical cost trend rates are not applicable to these plans.
The best estimate of contributions to be paid to the plans for the year ending December 31, 2023 is $1,070.
European plans
The Company\u2019s European plans include qualified defined benefit plans in Germany, the UK and France. The plans in Germany and France are partially funded or unfunded while the UK plan is partially funded. Benefits under these plans are based on years of service and the employee\u2019s compensation. Benefits are paid either from plan assets or, in certain instances, directly by AMG. Substantially all plan assets are invested in listed stocks and bonds.
A non-qualified additional supplemental executive retirement plan (SERP) also covers one of the Company\u2019s current executive officers. Pursuant to the terms of the agreement, this officer earns additional retirement benefits for continued service with the Company. The amounts payable under the SERP are guaranteed by AMG.
Actuarial assumptions
Principal actuarial assumptions at the reporting date (expressed as weighted averages) are presented below.
2022 | 2021 | |
% per annum | % per annum | |
Salary increases | 1.40 | 1.12 |
Rate of discount at December 31 | 4.26 | 1.49 |
Pension payments increases | 2.58 | 2.57 |
Assumptions regarding future mortality are based on published statistics and mortality tables including the\u00a0RT 2018G and S3PxA mortality tables.
The best estimate of contributions to be paid to the primary plans for the year ending December 31, 2023 is $9,886.
Presented below are employee benefits disclosures for plans aggregated by geographical location into the North American and European groups.
2022 changes in the defined benefit obligation and fair value of plan assets:
North America | Europe | Total | |||||||
Fair Value of Plan Asset | Defined Benefit Obligation | Total | Fair Value of Plan Asset | Defined Benefit Obligation | Total | Fair Value of Plan Asset | Defined Benefit Obligation | Total | |
January 1, 2022 | 40,337 | (58,188) | (17,851) | 112,834 | (257,611) | (144,777) | 153,171 | (315,799) | (162,628) |
Service costs | \u2014 | (533) | (533) | \u2014 | (3,707) | (3,707) | \u2014 | (4,240) | (4,240) |
Net interest | 690 | (1,424) | (734) | 1,296 | (3,718) | (2,422) | 1,986 | (5,142) | (3,156) |
Subtotal included in profit or loss | 690 | (1,957) | (1,267) | 1,296 | (7,425) | (6,129) | 1,986 | (9,382) | (7,396) |
Benefits paid | (2,951) | 2,951 | \u2014 | (6,889) | 10,525 | 3,636 | (9,840) | 13,476 | 3,636 |
Amounts included in OCI (see following table) | (8,227) | 13,471 | 5,244 | (32,847) | 64,848 | 32,001 | (41,074) | 78,319 | 37,245 |
Contributions by employer | 701 | \u2014 | 701 | 2,830 | \u2014 | 2,830 | 3,531 | \u2014 | 3,531 |
Effect of movements in foreign exchange rates | \u2014 | \u2014 | \u2014 | (11,598) | 20,130 | 8,532 | (11,598) | 20,130 | 8,532 |
Change in the fair value of defined benefit plans that are in net asset position as of December 31, 2022(a) | (157) | \u2014 | (157) | 77 | \u2014 | 77 | (80) | \u2014 | (80) |
Net liability for defined benefits obligations at December 31, 2022 | 30,393 | (43,723) | (13,330) | 65,703 | (169,533) | (103,830) | 96,096 | (213,256) | (117,160) |
(a)$286 included in non-current assets in the Statement of Financial Positions.
2022 subtotal included in OCI:
North America | Europe | Total | |||||||
Fair Value of Plan Asset | Defined Benefit Obligation | Total | Fair Value of Plan Asset | Defined Benefit Obligation | Total | Fair Value of Plan Asset | Defined Benefit Obligation | Total | |
Return on plan assets (excluding amounts included in net interest expense) | (8,227) | \u2014 | (8,227) | (32,847) | \u2014 | (32,847) | (41,074) | \u2014 | (41,074) |
Assets ceiling | \u2014 | \u2014 | \u2014 | \u2014 | 5,318 | 5,318 | \u2014 | 5,318 | 5,318 |
Actuarial changes arising from changes in demographic assumptions | \u2014 | 1,284 | 1,284 | \u2014 | (423) | (423) | \u2014 | 861 | 861 |
Actuarial changes arising from changes in financial assumptions | \u2014 | 11,409 | 11,409 | \u2014 | 65,825 | 65,825 | \u2014 | 77,234 | 77,234 |
Experience adjustments | \u2014 | 778 | 778 | \u2014 | (5,872) | (5,872) | \u2014 | (5,094) | (5,094) |
Subtotal included in OCI | (8,227) | 13,471 | 5,244 | (32,847) | 64,848 | 32,001 | (41,074) | 78,319 | 37,245 |
2021 changes in the defined benefit obligation and fair value of plan assets:
North America | Europe | Total | |||||||
Fair Value of Plan Asset | Defined Benefit Obligation |
| Fair Value of Plan Asset | Defined Benefit Obligation |
| Fair Value of Plan Asset | Defined Benefit Obligation |
| |
January 1, 2021 | 40,749 | (60,699) | (19,950) | 114,866 | (292,074) | (177,208) | 155,615 | (352,773) | (197,158) |
Service costs | \u2014 | (586) | (586) | \u2014 | (3,727) | (3,727) | \u2014 | (4,313) | (4,313) |
Net interest | 710 | (1,274) | (564) | 646 | (2,599) | (1,953) | 1,356 | (3,873) | (2,517) |
Subtotal included in profit or loss | 710 | (1,860) | (1,150) | 646 | (6,326) | (5,680) | 1,356 | (8,186) | (6,830) |
Benefits paid | (2,938) | 2,938 | \u2014 | (6,134) | 10,075 | 3,941 | (9,072) | 13,013 | 3,941 |
Amounts included in OCI (see following table) | 60 | 1,433 | 1,493 | 1,007 | 17,123 | 18,130 | 1,067 | 18,556 | 19,623 |
Contributions by employer | 854 | \u2014 | 854 | 4,096 | \u2014 | 4,096 | 4,950 | \u2014 | 4,950 |
Effect of movements in foreign exchange rates | \u2014 | \u2014 | \u2014 | (1,536) | 13,591 | 12,055 | (1,536) | 13,591 | 12,055 |
Change in the fair value of defined benefit plans that are in net asset position as of December 31, 2021\u00a0(a) | 902 | \u2014 | 902 | (111) | \u2014 | (111) | 791 | \u2014 | 791 |
Net liability for defined benefits obligations at December 31, 2021 | 40,337 | (58,188) | (17,851) | 112,834 | (257,611) | (144,777) | 153,171 | (315,799) | (162,628) |
(a)$210\u00a0 included in non-current assets in the Statement of Financial Positions.
2021 subtotal included in OCI:
North America | Europe | Total | |||||||
Fair Value of Plan Asset | Defined Benefit Obligation | Total | Fair Value of Plan Asset | Defined Benefit Obligation | Total | Fair Value of Plan Asset | Defined Benefit Obligation | Total | |
Return on plan assets (excluding amounts included in net interest expense) | 60 | \u2014 | 60 | 1,007 | \u2014 | 1,007 | 1,067 | \u2014 | 1,067 |
Assets ceiling | \u2014 | \u2014 | \u2014 | \u2014 | (5,218) | (5,218) | \u2014 | (5,218) | (5,218) |
Actuarial changes arising from changes in demographic assumptions | \u2014 | (189) | (189) | \u2014 | 816 | 816 | \u2014 | 627 | 627 |
Actuarial changes arising from changes in financial assumptions | \u2014 | 2,208 | 2,208 | \u2014 | 21,760 | 21,760 | \u2014 | 23,968 | 23,968 |
Experience adjustments | \u2014 | (586) | (586) | \u2014 | (235) | (235) | \u2014 | (821) | (821) |
Subtotal included in OCI | 60 | 1,433 | 1,493 | 1,007 | 17,123 | 18,130 | 1,067 | 18,556 | 19,623 |
Plan assets consist of the following:
North America plans | European plans | Total | ||||
2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |
Equity securities and ownership of equity funds | 4,632 | 8,880 | 41,296 | 68,543 | 45,928 | 77,423 |
Fixed income | 25,083 | 30,629 | \u2014 | \u2014 | 25,083 | 30,629 |
Insurance contracts and other | 930 | 927 | 24,441 | 44,402 | 25,371 | 45,329 |
Total | 30,645 | 40,436 | 65,737 | 112,945 | 96,382 | 153,381 |
The assets of funded plans are generally held in separately administered trusts, either as specific assets or as a proportion of a general fund or insurance contracts. Assets are invested in different classes in order to maintain a balance between risk and return. Investments are diversified to limit the financial effect of the failure on any individual investment. For many of the funded plans, asset- liability matching strategies are not in place, however the fixed income assets are held in investments with varying term lengths.
The assets included in equity securities in the table above consists of securities held at market value. The fixed income assets consist primarily of investment grade and corporate bonds at market value. The insurance contracts and other consist of insurance contracts and other investment vehicles held at market value.
The expense is recognized in the following line items in the income statement:
North America plans\u00a0 | European plans | Total | ||||
2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |
Cost of sales | 377 | 401 | 1,373 | 1,557 | 1,750 | 1,958 |
Selling, general and administrative expenses | 890 | 749 | 4,756 | 4,123 | 5,646 | 4,872 |
Total | 1,267 | 1,150 | 6,129 | 5,680 | 7,396 | 6,830 |
A quantitative sensitivity analysis for significant assumptions as of December 31, 2022 is as shown below:
Assumptions | Discount rate | Future salary increases | Future pension cost increase | |||
Sensitivity level | 1% | 1% | 1% | 1% | 0.5% | 0.5% |
Impact on the net defined benefit obligation North American Plans | (3,561) | 4,157 | 75 | (79) | 91 | (86) |
Impact on the net defined benefit obligation European Plans | (19,002) | 22,045 | 2,024 | (1,817) | 5,965 | (5,531) |
Total impact on the net defined benefit obligation | (22,563) | 26,202 | 2,099 | (1,896) | 6,056 | (5,617) |
The sensitivity analyses above have been determined based on a method that extrapolates the impact on net defined benefit obligation as a result of reasonable changes in key assumptions occurring at the end of the reporting period.
The following payments are expected to be made in the future years out of the defined benefit plan obligation for the year ending December\u00a031:
North America Plans | European Plans | Total | |
2023 | 3,240 | 9,886 | 13,126 |
2024 | 3,170 | 9,888 | 13,058 |
2025 | 3,150 | 10,082 | 13,232 |
2026 | 3,740 | 10,307 | 14,047 |
2027 | 3,700 | 10,564 | 14,264 |
2028-2032 | 18,440 | 53,641 | 72,081 |
The average duration of the defined benefit plan obligation at the end of the reporting period is 12 years (2021: 14 years).
In May 2021, the shareholders of the Company approved an amendment to the Company's Remuneration Policy and long-term incentive program at the Annual General Meeting. Under the terms of the new Remuneration Policy, equity-settled stock options will no longer be awarded, and all awards for members of the Management Board will be in the form of performance share units (\u201cPSU's\u201d). The PSU's will continue to feature a three year service period; however, the new PSU plan will also require an additional two year holding period subsequent to vesting in line with the Dutch Corporate Governance Code. The PSU's will also continue to have a market performance vesting condition based upon the Company's total shareholder return relative to a relevant global peer group. However, the performance share units will no longer vest for performance below the 50th percentile (previously, the awards would fail to vest for performance below the 30th percentile). Only members of the AMG Management Board will receive PSU's. The Company established a new restricted share unit (\"RSU\") plan for the Company's employees outside of the AMG Management Board, which is discussed in detail below. These revisions to the Company's Remuneration Policy were effective on May 6, 2021 and did not impact or modify previously issued share-based payment awards.
EQUITY-SETTLED STOCK OPTIONS
As noted above, equity-settled stock options were discontinued as a result of the Company's amended Remuneration Policy.\u00a0 However, all previously issued and outstanding stock options to the Management Board were subject to the 2009 AMG Option Plan (\u201c2009 Plan\u201d) approved on May 13, 2009 at the Annual General
Meeting. Each option issued under the 2009 Plan entitles the holder to acquire shares at a future date at a price equal to the fair market value of the share at the date on which the option was granted. One half of the options granted to each option holder on any date will vest on each of the third and fourth anniversaries of the grant date. The vesting is subject to a performance condition related to return on capital employed. The options expire on the tenth anniversary of their grant date.
During the year ended December 31, 2022, no options were exercised (2021: 122,137) under the 2009 Plan. There were no new option grants under the 2009 Plan during the years ended December 31,\u00a0 2022 and 2021. During the years ended December 31, 2022 and 2021, there were no grants that expired or forfeited.
All options under the 2009 Plan are equity-settled, in accordance with IFRS 2, by award of options to acquire ordinary shares or award of ordinary shares. The fair value of these awards has been calculated at the date of grant of the award. The fair value, adjusted for an estimate of the number of awards that will eventually vest, is expensed using a graded vesting methodology. The fair value of the options granted was calculated using a Black-Scholes model. Changes in the assumptions can affect the fair value estimate of a Black- Scholes model. The assumptions used in the calculation are set out below.
During the year ended December 31, 2022, AMG recorded compensation expense from equity-settled option transactions of $324 (2021: $915) which is included in selling, general and administrative expenses in the income statement.
Movements
2022 | 2021 | |||
Number of options | Weighted average | Number of options | Weighted average | |
Outstanding at January 1 | 305 | 25.37 | 427 | 20.91 |
Granted during the year | \u2014 | \u2014 | \u2014 | \u2014 |
Exercised during the year | \u2014 | \u2014 | (122) | 9.78 |
Forfeited or expired during the year | \u2014 | \u2014 | \u2014 | \u2014 |
Outstanding at December 31 | 305 | 25.37 | 305 | 25.37 |
Exercisable at December 31 | 132 | 30.66 | 89 | 28.35 |
At December 31, 2022, the number of common shares subject to options outstanding and exercisable was as follows:
Price range | Outstanding | Weighted average | Weighted average | Exercisable | Weighted average |
\u20ac19.31 to \u20ac25.50 | 220,152 | 21.44 | 6.22 | 75,707 | 25.50 |
\u20ac31.43 to \u20ac44.24 | 85,251 | 35.51 | 5.93 | 56,194 | 37.61 |
At December 31, 2021, the number of common shares subject to options outstanding and exercisable was as follows:
Price range | Outstanding | Weighted average | Weighted average | Exercisable | Weighted average |
\u20ac19.31 to \u20ac25.50 | 220,152 | 21.44 | 7.22 | 75,707 | 25.50 |
\u20ac31.43 to\u00a0 \u20ac44.24 | 85,251 | 35.51 | 6.93 | 13,569 | 44.24 |
The maximum number of options that can be granted is 10% of total shares outstanding up to a maximum of 50,000,000. As of December 31, 2022, the total options outstanding under the 2009 Plan were 305,403 (2021: 305,403).
Assumptions
Under IFRS 2, the return on capital employed vesting condition is deemed to be a non-market performance condition. In accounting for non-market performance conditions, the Company recognizes expense based on the number of equity instruments that are expected to vest at the grant date. The Company revises that estimate, if necessary, if subsequent information indicates that the number of equity instruments expected to vest differs from previous estimates. For the year ended December 31, 2020, Management determined that the 2019 awards were unlikely to achieve the required level of return on capital employed based on projections at that point in time due to the ongoing negative effects of the pandemic, and the Company reversed the cumulative previously recognized expense for these awards. However, the 2021 results exceeded those previous projections, and the Company achieved the required level of return on capital employed to allow the awards to vest.\u00a0 As such, the Company recognized an increase of $502 to stock-based compensation in the year ended December 31, 2021 for the cumulative expense related to these awards.
Performance share units
In May 2009, the Annual General Meeting approved a remuneration policy that utilizes share-based payments as a part of compensation. This policy was subsequently amended by the May 2021 Annual General Meeting as discussed previously. In the year ended December 31, 2022, the Company issued 83,357 (2021: 90,161) PSU's under the 2021 Plan to members of the AMG Management Board which are share-settled. The PSU's granted to each employee on any date will vest on the third anniversary of the grant date. As these awards will be equity-settled, the balance is recorded in equity rather than as a liability in accordance with IFRS 2.
AMG utilized a Monte Carlo simulation to develop a valuation of the PSU awards. This calculation was performed on the date of issuance. The following table lists the inputs into the model used to calculate the fair value of the equity-settled performance share units that were granted 2020 through 2022:
2022 Grant | 2021 Grant | 2020 Grant | |
Fair value at grant date | \u20ac35.98 | \u20ac32.49 | \u20ac15.87 |
Share price at date of grant | \u20ac32.74 | \u20ac31.61 | \u20ac19.31 |
Contractual life at issuance (years) | 3.0 | 3.0 | 3.0 |
Expected volatility | 50.20% | 50.30% | 44.00% |
Discount for lack of marketability | 15.00% | 15.00% | \u2014 |
Expected departures at grant | \u2014 | \u2014 | 8% |
The expected volatility was calculated using the average share volatility of the Company (over a period equal to the expected term of the shares). The expected life is the time at which shares
will vest. For the risk-free rate, the Company utilized the relevant central bank rate curve for the currency of its peer group's respective share prices for the 2022 grants. The risk free rate does not have a significant impact on the valuation of the awards.
The Company recorded expense of $3,659 (2021: $8,413) related to these awards during the year, which is net of $73 (2021: $45) of expense that was allocated to non-controlling interests. AMG\u2019s expense related to equity-settled awards is recorded in equity.
In the year ended December 31, 2022, 4,467 PSUs were forfeited (2021: 16,241). The total number of equity-settled PSUs outstanding as of December 31, 2022 was 399,199 (2021:\u00a0456,323).
During the year ended December 31, 2022, the Company adjusted the forfeiture rate on the 2020 awards from 8% to 7%, which approximates the actual departures to date. The 2022 and 2021 awards continue to apply an 8% forfeiture assumption given the historical rate of departures. As discussed above, the 2019 PSU awards are subject to the same return on capital employed non-market performance condition. At December 31, 2020, the Company did not expect the awards to vest. As such, the Company had reversed the cumulative previously recognized expense related to these awards as of December 31, 2020.\u00a0 During the year ended December 31, 2021, the Company achieved the required return on capital employed to allow the 2019 awards to vest and consequently recorded a cumulative expense related to these awards. The impact on the income statement as a result of the decrease in the forfeiture rate and the recognition of the cumulative expense for the 2019 awards resulted in an increase to stock-based compensation expense of 5,755 during the year ended December 31, 2021.
The PSU awards include a performance multiplier which can range from 0x \u2013 1.75x the target award based on the Company\u2019s share price performance relative to its peers.
The Company achieved 0.75x for the 2019 grant which was settled in 2022 (2021: 0.75x). During the year ended December 31, 2022, 107,288 shares (2021: 84,314) were paid out with respect to the vesting of equity-settled performance share units granted in 2019.
RESTRICTED SHARE UNITS
In May 2021, the AMG Management Board approved a new RSU plan that provides share-based payments as a component of compensation to employees of the Company. In the year ended December 31, 2022, the Company issued 79,888\u00a0(2021: 80,057) RSU's to employees which are share-settled under the new plan. The RSU's granted to each employee will vest on the third anniversary of the grant date. The vesting is subject only to service conditions provided that the employee has remained continuously in the employment of the Company or a Group Company until the vesting date. In the event that the Supervisory Board has approved to pay-out any dividends to shareholders of the Company, the equivalent of the cash amount of the dividend will be converted to incremental RSU's to be awarded upon the vesting date to employees.\u00a0 As these awards will be equity-settled, the balance is recorded in equity rather than as a liability in accordance with IFRS
Environmental remediation costs and recoveries | Restructuring | Warranty | Cost | Partial | Restoration | Other | Total | |
Balance at January 1, 2021 | 10,705 | 4,641 | 5,994 | 8,344 | 706 | 9,066 | 2,188 | 41,644 |
Provisions made during the period | 11,941 | 1,377 | 2,855 | 4,353 | 24 | 20 | 436 | 21,006 |
Provisions reversals during the period | \u2014 | (283) | (2,579) | (2,828) | \u2014 | \u2014 | (968) | (6,658) |
Provisions used during the period | (15,384) | (3,482) | (574) | (1,884) | (114) | \u2014 | (155) | (21,593) |
(Decrease)/increase due to discounting | (344) | \u2014 | \u2014 | \u2014 | \u2014 | 235 | \u2014 | (109) |
Currency and transfers | (192) | (516) | (474) | (614) | (52) | (418) | (129) | (2,395) |
Balance at December 31, 2021 | 6,726 | 1,737 | 5,222 | 7,371 | 564 | 8,903 | 1,372 | 31,895 |
Balance at January 1, 2022 | 6,726 | 1,737 | 5,222 | 7,371 | 564 | 8,903 | 1,372 | 31,895 |
Provisions made during the period | 133 | 1,270 | 1,328 | 1,060 | 4 | \u2014 | 299 | 4,094 |
Provisions reversals during the period | \u2014 | (583) | (2,824) | (3,652) | \u2014 | (32) | (90) | (7,181) |
Provisions used during the period | (462) | (1,256) | (616) | (1,039) | \u2014 | (17) | (215) | (3,605) |
Decrease due to discounting | (1,427) | \u2014 | \u2014 | \u2014 | \u2014 | (462) | \u2014 | (1,889) |
Currency and transfers | (147) | (62) | (349) | (482) | (33) | 505 | (84) | (652) |
Balance at December 31, 2022 | 4,823 | 1,106 | 2,761 | 3,258 | 535 | 8,897 | 1,282 | 22,662 |
#### | ||||||||
Non-current | 4,133 | \u2014 | \u2014 | \u2014 | 564 | 8,889 | 712 | 14,298 |
Current | 2,593 | 1,737 | 5,222 | 7,371 | \u2014 | 14 | 660 | 17,597 |
Balance at December 31, 2021 | 6,726 | 1,737 | 5,222 | 7,371 | 564 | 8,903 | 1,372 | 31,895 |
Non-current | 2,430 | \u2014 | \u2014 | \u2014 | 535 | 8,610 | 786 | 12,361 |
Current | 2,393 | 1,106 | 2,761 | 3,258 | \u2014 | 287 | 496 | 10,301 |
Balance at December 31, 2022 | 4,823 | 1,106 | 2,761 | 3,258 | 535 | 8,897 | 1,282 | 22,662 |
ENVIRONMENTAL REMEDIATION COSTS AND RECOVERIES
The Company makes provisions for environmental clean-up requirements, largely resulting from historical solid and hazardous waste handling and disposal practices at its facilities. Environmental remediation provisions exist at the following sites and are discounted according to the timeline of expected payments. Due to timing and low interest rates, the undiscounted and discounted liability amounts do not differ significantly, except for with respect to the liabilities in the US.
Cambridge, OH USA
The most significant items at the Cambridge, Ohio site relate\u00a0 to a 1997 permanent injunction consent order (\u201cPICO\u201d) entered into with the State of Ohio and Cyprus Foote Mineral Company, the former owner of the site. While AMG\u2019s US subsidiary and Cyprus Foote are jointly liable, the Company has agreed to perform and be liable for the remedial obligations. The site contains two on-site
slag piles that are the result of many years of production. These slag piles were capped in 2009, in accordance with the PICO requirements, thereby lowering the radioactive emissions from the piles.
The PICO also required 1,000 years of operations and maintenance expenses (\u201cO&M\u201d) through the year 3009 at the site. The Company has reserved for ongoing O&M which is expected to cost $43,728 on an undiscounted basis and $1,291 (2021: $2,575) on a discounted basis. Annual payments for O&M are expected to be $59 for the next 14 years, declining from that point on. These amounts will be paid out of an environmental trust and annuity which have already been established by the Company. The total value of these trust and annuity assets is $4,862 of which $3,571 has not been recognized due to the liability amount recorded being less than the value of the assets. One additional provision relates to groundwater monitoring. This project is expected to create cash outflows of $56 ($81 on an undiscounted basis), and is expected to be completed within
the next 13 years. Discount rates of 4.73% - 4.01% (depending on the expected timing of payments) were used in determining the liabilities recorded.
There were no environmental expenses recorded in the year ended December 31, 2022 (2021: nil) and payments of $58 (2021: $84) related to the Cambridge site.
Newfield, NJ USA
The Newfield, NJ site is a former manufacturing facility of the Company that ceased operations in 2007.\u00a0 The United States Environmental Protection Agency (the \"US EPA\") and the New Jersey Department of Environmental Protection (\"NJDEP\") are the regulating authorities in regards to remediation of environmental liabilities identified at the site. The US EPA identified three environmental issues requiring remediation pertaining to contaminants in groundwater, contaminants in soil and sediment and perchlorate in groundwater. The liability associated with the non-perchlorate contaminants was transferred to a third-party in 2006. Refer to note 33 for additional details. The Company maintains responsibility for the remediation activities related to the perchlorate in groundwater.
The NJDEP maintains oversight for the remediation of low-level radioactive materials residing at the site. Newfield conducted operations that created a substantial slag pile with low-level radioactive materials. AMG completed negotiations with the NJDEP regarding a removal plan for the Newfield Site in 2016. The remedy consisted of the removal of low level radioactive material for transportation and disposal at an approved licensed disposal facility. During the year ended December 31, 2022, the Company recorded an environmental expense of nil (2021: $11,651) in relation to these activities. During the year ended December 31, 2021, the expense was largely driven by additional slag quantities discovered by the Company's decommissioning contractor that were located below surface level and were not anticipated in earlier estimates. This increase to the provision was offset by payments totaling $16,036 to the environmental provision for remediation efforts performed during the year ended December 31, 2021.\u00a0 As of December 31, 2022, the Company has completed a majority of the requirements under the Decommissioning Plan and made payments of $5,707.\u00a0 Once the final steps are completed, the Company can file for termination of the license to possess low level radioactive materials with the NJDEP.\u00a0 Final license termination is subject to the approval of the NJDEP, and the Company could be required to perform additional activities by the NJDEP before final approval is granted.\u00a0
A balance of $1,058 (2021: $1,374) ($1,172 on an undiscounted basis) remains in the provision at December 31, 2022. These costs are expected to be paid over the next year, subject to negotiations with the regulatory agencies, and primarily relate to activities associated with perchlorate in groundwater. The Company will perform analysis of perchlorate in groundwater over that timeframe, and based on the results of those studies, the Company will submit final reports to the US EPA for remedy selection.\u00a0
The remaining accrual represents Management\u2019s best estimate given the information available. Given the nature of the activities to be performed, there remains potential uncertainty with respect to the ultimate costs for which currently no reliable estimate can be made.
On March 6, 2020 the Company amended its Transportation and Disposal Agreement with one of its major contractors as part of the cost removal for all covered material on our facility in Newfield, NJ. Under the terms of the amendment the Company deferred its payments through 2023 and recorded a long-term liability of nil as of the year ended December 31, 2022 (2021: $6,640). See note 26 for additional details.
In addition to the removal of the slag pile the Company has agreed to an operations and maintenance agreement (O&M) provision of $155 at December 31, 2022 (2021: $221).
Remediation trust funds
The Company\u2019s US subsidiaries have established trust funds for future environmental remediation payments. The amounts are kept by commercial banks, which are responsible for making investments in equity and money market instruments. The trust funds are to be used according to the terms of the trust deed which require that these funds be used for O&M at the two US sites. Amounts are paid out following completion and approval of rehabilitation work. The assets are not available for general use. The trust funds are discounted and are shown within other non-current assets in the consolidated statement of financial position. The recognized values of the trust funds at December 31, 2022 were $1,924 (2021: $3,200). The total amount of the trusts as of December 31, 2022 were $5,495 (2021: $5,285).
Pocking, Germany
An environmental remediation liability exists with respect to the silicon metal operation and its waste storage. As of December 31, 2022, the liability for the remediation of this site is valued at $491 (2021: $540). There was an expense of $43 (2021: $60) and payments of $60 (2021: $11) made during 2022. There are expected payments in 2023 of $484. There was no discount rate used to determine the liability recorded due to closing facility in 2023.
Nuremberg, Germany
Over time, damage to the sewer lines from the plant in Nuremberg, Germany has occurred. Management is working with German authorities in order to repair the sewer lines. In the year ended December 31, 2022, there was an expense of $90 (2021: $230) and payments of $137 (2021: $57). The expected liability for continued work on the sewer rehabilitation project is $1,772 (2021: $1,931). Payments for this project are expected to occur over the next 7 years with spending taking place in a relatively consistent pattern over those years. Discount rates of 0.00% - 0.59% (depending on the expected timing of payments) were used in determining the liabilities recorded.
RESTRUCTURING
During the year ended December 31, 2022, the Company recorded restructuring expenses of $1,165 in cost of good sold and $105 on selling, general and administrative expenses, totaling $1,270 (2021: $1,377) which was offset by a reversal of ($583) (2021: ($283)). The current year net expense was largely driven by restructuring expenses in our production facilities and severance payments on five of our European operations resulting on a headcount reduction of 62.
WARRANTY
The Company\u2019s Engineering business offers warranties related to their furnace construction contracts. These warranties are only provided on select contracts and the provisions are made on a contract by contract basis. Each contractual warranty is expected to be utilized or derecognized within twelve months. The provisions for these warranties are based on the historical return percentages. Warranty payments of $363 (2021: $251) were made and warranty provisions included an expense of $1,328 (2021: $2,447) and reversal of ($2,731) (2021: ($2,579)) recorded in the year ended December 31, 2022. The additional provisions were primarily related to new projects in the turbine blade coating field and plasma melting technologies as well as several special furnaces for various heat treatment and metallurgy applications that were finalized during 2022. Reversal related to expired warranties periods.
Two other German subsidiaries provide warranties for a limited number of products. The provisions are based on actual claims made by customers. There were no additional expenses (2021: $408), a reversal of ($93) (2021: nil) and there were payments of $253 recorded during 2022 (2021: $323).
COST ESTIMATES
AMG Engineering builds a project cost provision for long-term contracts that are completed. The provision is developed on a contract by contract basis and is based on contractor estimates. The provision is utilized or derecognized depending on actual performance of the contracts and expected total of project costs. A provision made of an additional expense of $1,060 (2021: $4,353) and reversal of ($3,652) (2021: ($2,828)) was recorded in 2022 related to new projects related to the turbine blade coating field and plasma melting technologies as well as several special furnaces for various heat treatment and metallurgy applications while $1,039 (2021: $1,884) of provisions were used.
PARTIAL RETIREMENT
The collective agreements for retirement indemnities on our French subsidiary and the corresponding commitments have been valued as of December 31, 2022. There was an expense of $4 (2021: $24), reversal of nil (2021: nil) and there were no payments (2021: $114) recorded as of December 31, 2022. Additional payments of approximately $87 are expected to occur over the next 5 years. Discount rate of 2.9% was used by the Company\u2019s French subsidiary to determine the liabilities recorded. Furthermore, there were no partial retirement obligations expired during 2022.
RESTORATION, REHABILITATION AND DECOMMISSIONING COSTS
Decommissioning provisions represent the accrued cost required to provide adequate restoration and rehabilitation upon the completion of extraction activities. These amounts will be settled when rehabilitation is undertaken, generally at the end of the project\u2019s life.
Hauzenberg, Germany
The Company maintains a recultivation provision related to its graphite mine in Germany. There were no additional expense (2021: $17) and reversal of ($4) (2021: nil) recorded as of December 31, 2022 . The total restoration liability for this mine was $4,600 as of December 31, 2022 (2021: $5,740). A discount rate of 3.8% was used to determine the liability recorded.
Nazareno, Brazil
During the year ended December 31, 2022, there was a net increase in the liability of $1,134, which totaled $4,297 as of December 31, 2022 (2021: $3,163). A discount rate of 9.83% was used to determine the liability recorded. The following table summarizes the activity as of December 31, 2022:
Brazil restoration costs | |
Balance at January 1, 2021 | 2,908 |
Provisions made during the period | 3 |
Increase in fixed assets | 250 |
Increase due to discounting | 205 |
Translation loss | (203) |
Balance at December 31, 2021 | 3,163 |
Balance at January 1, 2022 | 3,163 |
Provisions reversed during the period | (28) |
Provisions used during the periods | (17) |
Increase in fixed assets | 622 |
Increase due to discounting | 336 |
Translation gain | 221 |
Balance at December 31, 2022 | 4,297 |
Non-current | 3,149 |
Current | 14 |
Balance at December 31, 2021 | 3,163 |
Non-current | 4,010 |
Current | 287 |
Balance at December 31, 2022 | 4,297 |
OTHER
ENVIRONMENTAL REMEDIATION COSTS AND RECOVERIES
The Company makes provisions for environmental clean-up requirements, largely resulting from historical solid and hazardous waste handling and disposal practices at its facilities. Environmental remediation provisions exist at the following sites and are discounted according to the timeline of expected payments. Due to timing and low interest rates, the undiscounted and discounted liability amounts do not differ significantly, except for with respect to the liabilities in the US.
Cambridge, OH USA
The most significant items at the Cambridge, Ohio site relate\u00a0 to a 1997 permanent injunction consent order (\u201cPICO\u201d) entered into with the State of Ohio and Cyprus Foote Mineral Company, the former owner of the site. While AMG\u2019s US subsidiary and Cyprus Foote are jointly liable, the Company has agreed to perform and be liable for the remedial obligations. The site contains two on-site
slag piles that are the result of many years of production. These slag piles were capped in 2009, in accordance with the PICO requirements, thereby lowering the radioactive emissions from the piles.
The PICO also required 1,000 years of operations and maintenance expenses (\u201cO&M\u201d) through the year 3009 at the site. The Company has reserved for ongoing O&M which is expected to cost $43,728 on an undiscounted basis and $1,291 (2021: $2,575) on a discounted basis. Annual payments for O&M are expected to be $59 for the next 14 years, declining from that point on. These amounts will be paid out of an environmental trust and annuity which have already been established by the Company. The total value of these trust and annuity assets is $4,862 of which $3,571 has not been recognized due to the liability amount recorded being less than the value of the assets. One additional provision relates to groundwater monitoring. This project is expected to create cash outflows of $56 ($81 on an undiscounted basis), and is expected to be completed within
the next 13 years. Discount rates of 4.73% - 4.01% (depending on the expected timing of payments) were used in determining the liabilities recorded.
There were no environmental expenses recorded in the year ended December 31, 2022 (2021: nil) and payments of $58 (2021: $84) related to the Cambridge site.
Newfield, NJ USA
The Newfield, NJ site is a former manufacturing facility of the Company that ceased operations in 2007.\u00a0 The United States Environmental Protection Agency (the \"US EPA\") and the New Jersey Department of Environmental Protection (\"NJDEP\") are the regulating authorities in regards to remediation of environmental liabilities identified at the site. The US EPA identified three environmental issues requiring remediation pertaining to contaminants in groundwater, contaminants in soil and sediment and perchlorate in groundwater. The liability associated with the non-perchlorate contaminants was transferred to a third-party in 2006. Refer to note 33 for additional details. The Company maintains responsibility for the remediation activities related to the perchlorate in groundwater.
The NJDEP maintains oversight for the remediation of low-level radioactive materials residing at the site. Newfield conducted operations that created a substantial slag pile with low-level radioactive materials. AMG completed negotiations with the NJDEP regarding a removal plan for the Newfield Site in 2016. The remedy consisted of the removal of low level radioactive material for transportation and disposal at an approved licensed disposal facility. During the year ended December 31, 2022, the Company recorded an environmental expense of nil (2021: $11,651) in relation to these activities. During the year ended December 31, 2021, the expense was largely driven by additional slag quantities discovered by the Company's decommissioning contractor that were located below surface level and were not anticipated in earlier estimates. This increase to the provision was offset by payments totaling $16,036 to the environmental provision for remediation efforts performed during the year ended December 31, 2021.\u00a0 As of December 31, 2022, the Company has completed a majority of the requirements under the Decommissioning Plan and made payments of $5,707.\u00a0 Once the final steps are completed, the Company can file for termination of the license to possess low level radioactive materials with the NJDEP.\u00a0 Final license termination is subject to the approval of the NJDEP, and the Company could be required to perform additional activities by the NJDEP before final approval is granted.\u00a0
A balance of $1,058 (2021: $1,374) ($1,172 on an undiscounted basis) remains in the provision at December 31, 2022. These costs are expected to be paid over the next year, subject to negotiations with the regulatory agencies, and primarily relate to activities associated with perchlorate in groundwater. The Company will perform analysis of perchlorate in groundwater over that timeframe, and based on the results of those studies, the Company will submit final reports to the US EPA for remedy selection.\u00a0
The remaining accrual represents Management\u2019s best estimate given the information available. Given the nature of the activities to be performed, there remains potential uncertainty with respect to the ultimate costs for which currently no reliable estimate can be made.
On March 6, 2020 the Company amended its Transportation and Disposal Agreement with one of its major contractors as part of the cost removal for all covered material on our facility in Newfield, NJ. Under the terms of the amendment the Company deferred its payments through 2023 and recorded a long-term liability of nil as of the year ended December 31, 2022 (2021: $6,640). See note 26 for additional details.
In addition to the removal of the slag pile the Company has agreed to an operations and maintenance agreement (O&M) provision of $155 at December 31, 2022 (2021: $221).
Remediation trust funds
The Company\u2019s US subsidiaries have established trust funds for future environmental remediation payments. The amounts are kept by commercial banks, which are responsible for making investments in equity and money market instruments. The trust funds are to be used according to the terms of the trust deed which require that these funds be used for O&M at the two US sites. Amounts are paid out following completion and approval of rehabilitation work. The assets are not available for general use. The trust funds are discounted and are shown within other non-current assets in the consolidated statement of financial position. The recognized values of the trust funds at December 31, 2022 were $1,924 (2021: $3,200). The total amount of the trusts as of December 31, 2022 were $5,495 (2021: $5,285).
Pocking, Germany
An environmental remediation liability exists with respect to the silicon metal operation and its waste storage. As of December 31, 2022, the liability for the remediation of this site is valued at $491 (2021: $540). There was an expense of $43 (2021: $60) and payments of $60 (2021: $11) made during 2022. There are expected payments in 2023 of $484. There was no discount rate used to determine the liability recorded due to closing facility in 2023.
Nuremberg, Germany
Over time, damage to the sewer lines from the plant in Nuremberg, Germany has occurred. Management is working with German authorities in order to repair the sewer lines. In the year ended December 31, 2022, there was an expense of $90 (2021: $230) and payments of $137 (2021: $57). The expected liability for continued work on the sewer rehabilitation project is $1,772 (2021: $1,931). Payments for this project are expected to occur over the next 7 years with spending taking place in a relatively consistent pattern over those years. Discount rates of 0.00% - 0.59% (depending on the expected timing of payments) were used in determining the liabilities recorded.
2022 | 2021 | |
Trade payables | 215,652 | 235,214 |
Trade payables \u2013 contract work | 24,449 | 17,551 |
Total | 240,101 | 252,765 |
The Company has limited exposure to payables denominated in currencies other than the functional currency, and where significant exposure exists enters into appropriate foreign exchange contracts.
\u2022Trade payables are generally non-interest bearing and are normally settled on 30 or 60 day terms except for payables related to furnace construction contracts as well as retainage payables for our expansion project in Zanesville (note 10 and
\u202226) that settle between one month and twelve months. Other payables are non- interest bearing and have an average term of six months.
\u2022Interest payable is normally settled quarterly or semi-annually throughout the financial year.
\u2022For terms and conditions relating to related parties, refer to note 34.
The Company\u2019s principal financial liabilities, other than derivatives, are comprised of loans and borrowings, short-term bank debt and trade and other payables. The main purpose of these financial instruments is to provide capital for the Company\u2019s operations, including funding working capital, capital maintenance and expansion. The Company has various financial assets such as trade and other receivables, cash and cash equivalents and restricted cash, which arise directly from its operations.
The Company enters into derivative financial instruments, primarily interest rate swaps, interest rate caps, cross-currency interest rate swaps, foreign exchange forward contracts and commodity forward contracts. The purpose of these instruments is to manage interest rate, currency and commodity price risks. The Company does not enter into any contracts for speculative purposes.
The Supervisory Board has overall responsibility for the establishment of the Company\u2019s risk management framework while the Management Board is responsible for oversight and compliance within this framework. The Company\u2019s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company\u2019s activities.
The main risks arising from the Company\u2019s financial instruments are: credit, liquidity and market risks.
CREDIT RISK
The Company\u2019s exposure to credit risk with respect to trade and other receivables is influenced mainly by the individual characteristics of each customer. The demographics of the Company\u2019s customer base, including the default risk of the industry and country in which customers operate, has less of an influence on credit risk. No single customer accounts for more than 10% of the Company\u2019s revenue. There are no geographic concentrations of credit risk. It is the Company\u2019s policy that all customers who wish to trade on credit terms are subject to credit verification procedures which ensure their creditworthiness. In addition, receivable balances are monitored on an ongoing basis to ensure that the Company\u2019s exposure to impairment losses is not significant. Collateral is generally not required for trade receivables, although
the Company\u2019s furnace construction contracts do often require advance payments. The Company\u2019s maximum exposure is the carrying amount as discussed in note\u00a014.
With respect to credit risk arising from the other financial assets of the Company, which comprises cash and cash equivalents, restricted cash and derivative instruments, the Company\u2019s exposure to credit risk arises from the default of the counterparty, with a maximum exposure equal to the carrying amount of the instruments. The Company\u2019s treasury function monitors the location of cash and cash equivalents, restricted cash and the counterparties to hedges and monitors the strength of those banks. The Company\u2019s financial assets are held with bank and financial institution counterparties, which all carry investment-grade credit ratings. Impairment on cash and cash equivalents has been measured on a 12-month expected loss basis and reflects the short maturities of the exposures. The Company considers that its cash and cash equivalents have low credit risk based on the external credit ratings of the counterparties. The amount of impairment allowance at December 31, 2022 is $1 (2021: $1). The Company\u2019s maximum exposure is the carrying amounts as discussed in notes 16, 17 and 29.
LIQUIDITY RISK
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company\u2019s approach to managing liquidity is to ensure, as far as possible,
that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company\u2019s reputation.
The Company monitors cash flows at varying levels. At the Company level, this monitoring is done on a bi-weekly basis. However, at several subsidiaries, this type of monitoring is done daily. Typically, the Company ensures that it has sufficient cash on demand to meet expected operational expenses for a period of eight weeks, including the servicing of financial obligations. In addition, the Company maintains various borrowing facilities for working capital and general corporate purposes. The Company\u2019s primary facility includes the following:
\u2022$350,000 term loan B facility and a $200,000 revolving credit facility with a syndicate of banks that is secured by certain assets of the material subsidiaries of the Company. Interest is payable at a base rate plus a spread based on a leverage ratio.
The table below summarizes the maturity profile of the Company\u2019s financial liabilities at December 31, 2022, based on contractual undiscounted payments. The financial derivatives obligations are presented on a net basis for balances where it is appropriate to net the obligation position within a subsidiary for the respective period.
2022 | Contractual cash flows | < 3 | 3-12 | 2024 | 2025 | 2026 | 2027 | > 2027 |
Term loan / revolver | 346,500 | \u2014 | 3,500 | 3,500 | 3,500 | 3,500 | 3,500 | 329,000 |
Cash interest on term loan | 110,407 | 2,832 | 14,288 | 17,133 | 16,820 | 17,119 | 22,041 | 20,174 |
Municipal bond | 307,200 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | 307,200 |
Cash interest on municipal bond | 414,720 | 7,680 | 7,680 | 15,360 | 15,360 | 15,360 | 15,360 | 337,920 |
Other loans and borrowings | 17,569 | 10,227 | 2,005 | 2,483 | 728 | 694 | 694 | 738 |
Cash interest on other loans and borrowings | 671 | 126 | 379 | 164 | 2 | \u2014 | \u2014 | \u2014 |
Financial derivatives | 8,030 | 3,499 | 4,246 | 244 | 41 | \u2014 | \u2014 | \u2014 |
Lease payments | 71,085 | 1,450 | 4,772 | 4,917 | 4,089 | 3,834 | 3,635 | 48,388 |
Trade and other payables | 240,101 | 203,314 | 36,787 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Short-term bank debt | 6,391 | 5,860 | 531 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Total | 1,522,674 | 234,988 | 74,188 | 43,801 | 40,540 | 40,507 | 45,230 | 1,043,420 |
The table below summarizes the maturity profile of the Company\u2019s financial liabilities at December 31, 2021 based on contractual undiscounted payments.
2021 | Contractual cash flows | < 3 | 3-12 | 2023 | 2024 | 2025 | 2026 | > 2026 |
Term loan / revolver | 350,000 | \u2014 | 3,500 | 3,500 | 3,500 | 3,500 | 3,500 | 332,500 |
Cash interest on term loan | 119,625 | 2,813 | 14,480 | 17,121 | 17,133 | 16,819 | 16,767 | 34,492 |
Municipal bond | 307,200 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | 307,200 |
Cash interest on municipal bond | 430,080 | 7,680 | 7,680 | 15,360 | 15,360 | 15,360 | 15,360 | 353,280 |
Other loans and borrowings | 41,352 | 709 | 23,132 | 12,140 | 2,440 | 801 | 798 | 1,332 |
Cash interest on other loans and borrowings | 3,769 | 586 | 1,582 | 774 | 347 | 161 | 132 | 187 |
Financial derivatives | 7,781 | 2,751 | 3,355 | 1,091 | 386 | 198 | \u2014 | \u2014 |
Lease payments | 69,240 | 1,363 | 5,019 | 5,048 | 4,239 | 3,645 | 3,600 | 46,326 |
Trade and other payables | 252,765 | 194,728 | 58,037 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Short-term bank debt | 13,046 | 2,344 | 10,702 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Total | 1,594,858 | 212,974 | 127,487 | 55,034 | 43,405 | 40,484 | 40,157 | 1,075,317 |
The difference between the contractual cash flows and the carrying amount of the term loan noted above is attributable to issuance costs and an original issue discount in the amount of $6,879 and $8,103 as of December 31, 2022 and 2021, respectively, which are offset against the carrying amount of the debt.
The difference between the contractual cash flows and the carrying amount of the municipal bond noted above is attributable to issuance costs and a premium in the amount of $12,044 as of December 31, 2022 (2021: $12,276), which are included in the carrying amount of the debt.
MARKET RISK
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise three types of risk: interest rate, foreign currency, and commodity price risk. Financial instruments affected by market risk include loans and borrowings, derivative financial instruments, trade and other receivables, and trade and other payables.
The sensitivity analyses in the following sections relate to the positions as of December 31, 2022 and 2021.
The sensitivity analyses have been prepared on the basis that the amount of net debt, the ratio of fixed to floating interest rates of the debt and derivatives and the proportion of financial instruments in foreign currencies are all constant and on the basis of the hedge designations in place at December 31, 2022.
The analyses exclude the impact of movements in market variables on the carrying value of pension and other post- retirement obligations, provisions and on the non-financial assets and liabilities of foreign operations.
The following assumptions have been made in calculating the sensitivity analyses:
\u2022The statement of financial position sensitivity relates to derivatives.
\u2022The sensitivity of the relevant income statement item is the effect of the assumed changes in respective market risks.
This is based on the financial assets and financial liabilities held at December 31, 2022 and 2021, including the effect of hedge accounting.
INTEREST RATE RISK
Interest rate risk is the risk that changes in interest rates will affect the Company\u2019s income or the value of its holdings of financial instruments. The Company\u2019s fixed rate borrowings are exposed to a risk of change in their fair value due to changes in interest rates. The Company\u2019s floating rate borrowings are exposed to a risk of change in cash flows due to changes in interest rates. Short-term receivables and payables are not exposed to interest rate risk.
The Company\u2019s policy is to maintain at least 75% of its borrowings as fixed or capped rate borrowings. The Company either enters into fixed rate debt or strives to limit the variability of floating rate instruments through the use of interest rate swaps or caps. These are designed to hedge underlying debt obligations. At December 31, 2022 and 2021, after considering the effect of interest rate hedges, all of the Company\u2019s borrowings are at a fixed or capped rate of interest.
The following table demonstrates the sensitivity to a reasonably possible change in interest rates adjusting for multiple interest rate caps and swaps effective as of December 31, 2022 and 2021, with all other variables held constant, of the Company\u2019s profit before tax (through the impact on floating rate borrowings).
2022 | Increase/decrease | Effect on profit | Effect on equity before tax |
US dollar | +50 | \u2014 | 5,273 |
Brazilian real | +50 | (24) | \u2014 |
US dollar | -50 | \u2014 | (5,273) |
Brazilian real | -50 | 24 | \u2014 |
2021 | Increase/decrease | Effect on profit | Effect on equity before tax |
US dollar | +50 | \u2014 | 5,791 |
Brazilian real | +50 | (36) | \u2014 |
US dollar | -50 | \u2014 | (6,380) |
Brazilian real | -50 | 36 | \u2014 |
See note 21 for loans and borrowings explanations.
At December 31, 2022, the Company\u2019s interest rate derivatives had a fair value of $31,959 (2021: ($2,460)). In November 2021, the Company entered into interest rate swaps with two financial institutions in connection with the execution of its new new credit facility and unwound its prior interest rate caps. The original notional value of the swaps was $350,000, and the notional decreases over the term of the contract to align with the outstanding balance on the Company's term loan B. The objective of the hedge is to eliminate the variability of cash flows in the interest payments associated with the 1-month LIBOR benchmark interest rate of the term loan B. The contract swaps the variable 1-month LIBOR rate to a fixed rate of 1.41% over the expected life of the term loan B. Prior to the execution of the interest rate swaps in November 2021, the Company utilized interest rate cap agreements to hedge its interest rate risk on its prior credit facility that was extinguished in the prior year (refer to note 21). The Company had capped the variable rate of interest for a $350,000 notional value of debt at 3%.
FOREIGN CURRENCY RISK
Foreign currency risk is the risk that changes in foreign exchange rates will affect the Company\u2019s income or the value of its holdings of financial instruments. Many of the Company\u2019s subsidiaries are located outside the US. Individual subsidiaries execute their operating activities in their respective functional currencies which are primarily comprised of the US dollar and euro. Since the financial reporting currency of the Company is the US dollar, the financial statements of those non-US dollar operating subsidiaries are translated so that the financial results can be presented in the Company\u2019s consolidated financial statements.
Each subsidiary conducting business with third parties that leads to future cash flows denominated in a currency other than its functional currency is exposed to the risk from changes in foreign exchange rates. It is the Company\u2019s policy to use forward currency contracts to minimize the currency exposures on net cash flows. For several subsidiaries, this includes managing balance sheet positions in addition to forecast and committed transactions. For these contracts, maturity dates are established at the end of each month matching the net cash flows expected for that month. Another subsidiary hedges all sales transactions in excess of a certain threshold. For this subsidiary, the contracts mature at the anticipated cash requirement date. Most forward exchange contracts mature within twelve months and are predominantly denominated in US dollars, euros, British pound sterling and
Brazilian reais. When established, the forward currency contract must be in the same currency as the hedged item. It is the Company\u2019s policy to negotiate the terms of the hedge derivatives to closely match the terms of the hedged item to maximize hedge effectiveness. The Company seeks to mitigate this risk by hedging a range of 60% to 90% of transactions that occur in a currency other than the functional currency. Starting January 2021, the Company no longer hedged intergroup balance sheet exposures as well as long-term operating costs in Brazil.
The Company deems its primary currency exposures to be in US dollars and euros. The following table demonstrates the sensitivity to a reasonably possible change in the two primary functional currencies of the Company: US dollar and euro exchange rates with all other variables held constant, of the Company\u2019s profit before tax (due to changes in the fair value of monetary assets and liabilities) and the Company\u2019s equity (due to changes in the fair value of forward exchange contracts). Changes in sensitivity rates reflect various changes in the economy year-over-year.
2022 | Strengthening/ weakening in functional rate | Effect on profit before tax | Effect on equity before tax |
US dollar | +10% | (1,838) | 498 |
Euro | +10% | 1,142 | (2,519) |
US dollar | \u201310% | 1,838 | (498) |
Euro | \u201310% | (1,142) | 2,519 |
2021 | Strengthening/ weakening in functional rate | Effect on profit before tax | Effect on equity before tax |
US dollar | +10% | 668 | 316 |
Euro | +10% | 3,350 | (2,213) |
US dollar | \u201310% | (668) | (316) |
Euro | \u201310% | (3,350) | 2,213 |
COMMODITY PRICE RISK
Commodity price risk is the risk that raw materials prices will increase and negatively impact the gross margins and operating results of the Company. The Company is exposed to volatility in the prices of raw materials used in some products and uses forward contracts to manage these exposures for exchange-traded metals when possible. For these exchange-traded metals, the Company aims to maintain a greater than 50% hedged position in order to avoid undue volatility in the sales prices and purchase costs attained in the normal course of business. Commodity forward contracts are generally settled within twelve months of the reporting date. However, most of the metals, alloys and chemicals that the Company processes and sells such as lithium, vanadium, chrome metal, tantalum, graphite, niobium, and antimony trioxide, cannot be hedged on an exchange or there is insufficient liquidity on the exchange. For these materials, the Company mitigates its price exposure by aligning raw materials purchases with sales orders and ensuring that it is managing working capital in a manner that minimizes commodity price exposure.
CAPITAL MANAGEMENT
With regard to its capital structure the primary objective of the Company is to maintain strong capital ratios in order to support its business and maximize shareholder value.
The Company manages its capital structure and makes adjustments to it, in light of economic conditions. Its policy is to ensure that the debt levels are manageable to the Company and that they are not increasing at a level that is in excess of the increases that occur within equity. During the planning process, the expected cash flows of the Company are evaluated and the debt to equity and debt to total capital ratios are evaluated in order to ensure that levels are improving year-over-year. Debt to total capital is a more appropriate measure for the Company due to its initial equity values of the subsidiaries from the combination in 2007. Management deems total capital to include all debt (including short-term and long-term) as well as the total of the equity of the Company, including non-controlling interests.
2022 | 2021 | |
Loans and borrowings | 676,434 | 702,725 |
Short-term bank debt | 6,391 | 13,046 |
Less: cash and cash equivalents and restricted cash | 352,963 | 431,311 |
Net debt | 329,862 | 284,460 |
Total equity | 517,849 | 294,152 |
Total capital | 847,711 | 578,612 |
Debt to total capital ratio | 38.9% | 49.2% |
CREDIT RISK
The Company\u2019s exposure to credit risk with respect to trade and other receivables is influenced mainly by the individual characteristics of each customer. The demographics of the Company\u2019s customer base, including the default risk of the industry and country in which customers operate, has less of an influence on credit risk. No single customer accounts for more than 10% of the Company\u2019s revenue. There are no geographic concentrations of credit risk. It is the Company\u2019s policy that all customers who wish to trade on credit terms are subject to credit verification procedures which ensure their creditworthiness. In addition, receivable balances are monitored on an ongoing basis to ensure that the Company\u2019s exposure to impairment losses is not significant. Collateral is generally not required for trade receivables, although
the Company\u2019s furnace construction contracts do often require advance payments. The Company\u2019s maximum exposure is the carrying amount as discussed in note\u00a014.
With respect to credit risk arising from the other financial assets of the Company, which comprises cash and cash equivalents, restricted cash and derivative instruments, the Company\u2019s exposure to credit risk arises from the default of the counterparty, with a maximum exposure equal to the carrying amount of the instruments. The Company\u2019s treasury function monitors the location of cash and cash equivalents, restricted cash and the counterparties to hedges and monitors the strength of those banks. The Company\u2019s financial assets are held with bank and financial institution counterparties, which all carry investment-grade credit ratings. Impairment on cash and cash equivalents has been measured on a 12-month expected loss basis and reflects the short maturities of the exposures. The Company considers that its cash and cash equivalents have low credit risk based on the external credit ratings of the counterparties. The amount of impairment allowance at December 31, 2022 is $1 (2021: $1). The Company\u2019s maximum exposure is the carrying amounts as discussed in notes 16, 17 and 29.
Other liabilities are comprised of the following:
2022 | 2021 | |
Accrued bonus | 13,600 | 12,658 |
Advanced contributions | 11,000 | \u2014 |
Accrued interest | 8,596 | 8,489 |
Other benefits and compensation | 7,599 | 7,115 |
Accrued employee payroll expenses | 7,354 | 7,983 |
Taxes, other than income | 6,999 | 4,348 |
Accrued professional fees | 6,460 | 4,720 |
Accrued operating costs | 6,146 | 17,670 |
Fiscal contingency | 4,970 | 3,876 |
Construction retainage | 3,407 | 7,296 |
Non-controlling interest dividend | 2,684 | 1,426 |
Acquisition earn-out liability | 2,293 | 2,673 |
Claims | 701 | 971 |
Sales commission | 325 | 307 |
Long-term environmental disposal | \u2014 | 6,640 |
Government grants | \u2014 | 20 |
Other miscellaneous liabilities | 2,792 | 5,578 |
Total | 84,926 | 91,770 |
Thereof: | ||
Non-current | 15,009 | 11,098 |
Current | 69,917 | 80,672 |
The Company agreed to a strategic partnership with JX Nippon Mining & Metals Corporation (\"JXN\") for the production and supply of tantalum concentrate.\u00a0 Per the terms of the agreement, JXN will make a cash contribution of $25,000.\u00a0 $11,000 was received by the Company as of December 31, 2022 and the remaining balance of $14,000 will be contributed to the partnership by the end\u00a0of March 2023.
LIQUIDITY RISK
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company\u2019s approach to managing liquidity is to ensure, as far as possible,
that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company\u2019s reputation.
The Company monitors cash flows at varying levels. At the Company level, this monitoring is done on a bi-weekly basis. However, at several subsidiaries, this type of monitoring is done daily. Typically, the Company ensures that it has sufficient cash on demand to meet expected operational expenses for a period of eight weeks, including the servicing of financial obligations. In addition, the Company maintains various borrowing facilities for working capital and general corporate purposes. The Company\u2019s primary facility includes the following:
\u2022$350,000 term loan B facility and a $200,000 revolving credit facility with a syndicate of banks that is secured by certain assets of the material subsidiaries of the Company. Interest is payable at a base rate plus a spread based on a leverage ratio.
The table below summarizes the maturity profile of the Company\u2019s financial liabilities at December 31, 2022, based on contractual undiscounted payments. The financial derivatives obligations are presented on a net basis for balances where it is appropriate to net the obligation position within a subsidiary for the respective period.
2022 | Contractual cash flows | < 3 | 3-12 | 2024 | 2025 | 2026 | 2027 | > 2027 |
Term loan / revolver | 346,500 | \u2014 | 3,500 | 3,500 | 3,500 | 3,500 | 3,500 | 329,000 |
Cash interest on term loan | 110,407 | 2,832 | 14,288 | 17,133 | 16,820 | 17,119 | 22,041 | 20,174 |
Municipal bond | 307,200 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | 307,200 |
Cash interest on municipal bond | 414,720 | 7,680 | 7,680 | 15,360 | 15,360 | 15,360 | 15,360 | 337,920 |
Other loans and borrowings | 17,569 | 10,227 | 2,005 | 2,483 | 728 | 694 | 694 | 738 |
Cash interest on other loans and borrowings | 671 | 126 | 379 | 164 | 2 | \u2014 | \u2014 | \u2014 |
Financial derivatives | 8,030 | 3,499 | 4,246 | 244 | 41 | \u2014 | \u2014 | \u2014 |
Lease payments | 71,085 | 1,450 | 4,772 | 4,917 | 4,089 | 3,834 | 3,635 | 48,388 |
Trade and other payables | 240,101 | 203,314 | 36,787 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Short-term bank debt | 6,391 | 5,860 | 531 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Total | 1,522,674 | 234,988 | 74,188 | 43,801 | 40,540 | 40,507 | 45,230 | 1,043,420 |
The table below summarizes the maturity profile of the Company\u2019s financial liabilities at December 31, 2021 based on contractual undiscounted payments.
2021 | Contractual cash flows | < 3 | 3-12 | 2023 | 2024 | 2025 | 2026 | > 2026 |
Term loan / revolver | 350,000 | \u2014 | 3,500 | 3,500 | 3,500 | 3,500 | 3,500 | 332,500 |
Cash interest on term loan | 119,625 | 2,813 | 14,480 | 17,121 | 17,133 | 16,819 | 16,767 | 34,492 |
Municipal bond | 307,200 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 | 307,200 |
Cash interest on municipal bond | 430,080 | 7,680 | 7,680 | 15,360 | 15,360 | 15,360 | 15,360 | 353,280 |
Other loans and borrowings | 41,352 | 709 | 23,132 | 12,140 | 2,440 | 801 | 798 | 1,332 |
Cash interest on other loans and borrowings | 3,769 | 586 | 1,582 | 774 | 347 | 161 | 132 | 187 |
Financial derivatives | 7,781 | 2,751 | 3,355 | 1,091 | 386 | 198 | \u2014 | \u2014 |
Lease payments | 69,240 | 1,363 | 5,019 | 5,048 | 4,239 | 3,645 | 3,600 | 46,326 |
Trade and other payables | 252,765 | 194,728 | 58,037 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Short-term bank debt | 13,046 | 2,344 | 10,702 | \u2014 | \u2014 | \u2014 | \u2014 | \u2014 |
Total | 1,594,858 | 212,974 | 127,487 | 55,034 | 43,405 | 40,484 | 40,157 | 1,075,317 |
The difference between the contractual cash flows and the carrying amount of the term loan noted above is attributable to issuance costs and an original issue discount in the amount of $6,879 and $8,103 as of December 31, 2022 and 2021, respectively, which are offset against the carrying amount of the debt.
The difference between the contractual cash flows and the carrying amount of the municipal bond noted above is attributable to issuance costs and a premium in the amount of $12,044 as of December 31, 2022 (2021: $12,276), which are included in the carrying amount of the debt.
MARKET RISK
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise three types of risk: interest rate, foreign currency, and commodity price risk. Financial instruments affected by market risk include loans and borrowings, derivative financial instruments, trade and other receivables, and trade and other payables.
The sensitivity analyses in the following sections relate to the positions as of December 31, 2022 and 2021.
The sensitivity analyses have been prepared on the basis that the amount of net debt, the ratio of fixed to floating interest rates of the debt and derivatives and the proportion of financial instruments in foreign currencies are all constant and on the basis of the hedge designations in place at December 31, 2022.
The analyses exclude the impact of movements in market variables on the carrying value of pension and other post- retirement obligations, provisions and on the non-financial assets and liabilities of foreign operations.
The following assumptions have been made in calculating the sensitivity analyses:
\u2022The statement of financial position sensitivity relates to derivatives.
\u2022The sensitivity of the relevant income statement item is the effect of the assumed changes in respective market risks.
This is based on the financial assets and financial liabilities held at December 31, 2022 and 2021, including the effect of hedge accounting.
FAIR VALUES
The carrying amounts presented in the finan cial statements approximate the fair values for all of the Company\u2019s financial instruments, other than as discussed below.
The fair value of the financial assets and liabilities are included at the price that would be received to sell the instrument in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions.
\u2022Current assets and liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments and as such are not included in the following tables.
\u2022The calculation of fair value for derivative financial\u00a0 instruments depends on the type of instruments: Derivative interest rate contracts are estimated by discounting expected future cash flows using current market interest rates and yield curves over the remaining term of the instrument; Derivative currency and commodity contracts are based on quoted forward exchange rates and commodity prices, respectively.
\u2022The Company's term loan B is a floating rate borrowing and is carried at amortized cost. The fair value of the term loan B\u00a0 was $334,373 (2021: $347,375) at December 31, 2022. The Company's municipal bonds are fixed rate borrowings and are carried at amortized cost. The fair value of those bonds
\u2022was $272,627 (2021: $353,434) at December 31, 2022. The fair value of the term loan and municipal bonds is based on quoted prices for similar securities adjusted for the prevailing market-based yields and are deemed to be Level 2 inputs. The remainder of the Company's borrowings and notes receivable maintain a floating interest rate and approximate fair value. Fair value of the Company\u2019s floating rate loans and borrowings are estimated by discounting expected future cash flows using a discount rate that reflects the Company\u2019s borrowing rate at December 31, 2022.
\u2022The consideration of non-performance risk did not significantly impact the fair values for fixed and floating rate loans and borrowings.
\u2022Contingent consideration is calculated using a valuation model that considers the present value of the expected future payments, discounted using a risk-adjusted discount rate.
FAIR VALUE HIERARCHY
The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data
As of December 31, 2022, the Company held the following financial instruments measured at fair value:
Assets measured at fair value
December 31, 2022 | Total | Level 1 | Level 2 | Level 3 |
Non-current financial assets | ||||
Restricted cash | 5,875 | 5,875 | \u2014 | \u2014 |
Equity investments classified as FVOCI (note 12) | 13,629 | \u2014 | \u2014 | 13,629 |
Other investments (note 12) | 15,695 | 8,222 | \u2014 | 7,473 |
Forward contracts \u2013 hedged | 682 | \u2014 | 682 | \u2014 |
Interest rate derivatives | 32,360 | \u2014 | 32,360 | \u2014 |
Current financial assets | ||||
Restricted cash | 1,045 | 1,045 | \u2014 | \u2014 |
Forward contracts - hedged | 2,502 | \u2014 | 2,502 | \u2014 |
Interest rate derivatives | 70 | \u2014 | 70 | \u2014 |
Energy forward contracts | 944 | \u2014 | 944 | \u2014 |
Liabilities measured at fair value
December 31, 2022 | Total | Level 1 | Level 2 | Level 3 |
Non-current financial liabilities | ||||
Forward contracts \u2013 hedged | 97 | \u2014 | 97 | \u2014 |
Interest rate derivatives | 187 | \u2014 | 187 | \u2014 |
Contingent consideration | 1,658 | \u2014 | \u2014 | 1,658 |
Current financial liabilities | ||||
Forward contracts - hedged | 6,837 | \u2014 | 6,837 | \u2014 |
Interest rate derivatives | 284 | \u2014 | 284 | \u2014 |
Energy forward contracts | 625 | \u2014 | 625 | \u2014 |
Contingent consideration | 635 | \u2014 | \u2014 | 635 |
As of December 31, 2021, the Company held the following financial instruments measured at fair value:
Assets measured at fair value
December 31, 2021 | Total | Level 1 | Level 2 | Level 3 |
Non-current financial assets | ||||
Restricted cash | 85,023 | 85,023 | \u2014 | \u2014 |
Equity investments classified as FVOCI (note 12) | 12,300 | \u2014 | \u2014 | 12,300 |
Other investments (note 12) | 17,530 | 11,079 | \u2014 | 6,451 |
Forward contracts \u2013 hedged | 95 | \u2014 | 95 | \u2014 |
Current financial assets | ||||
Restricted cash | 8,411 | 8,411 | \u2014 | \u2014 |
Forward contracts \u2013 hedged | 4,026 | \u2014 | 4,026 | \u2014 |
Interest rate derivatives | 30 | \u2014 | 30 | \u2014 |
Liabilities measured at fair value
December 31, 2021 | Total | Level 1 | Level 2 | Level 3 |
Non-current financial liabilities | ||||
Forward contracts \u2013 hedged | 574 | \u2014 | 574 | \u2014 |
Interest rate derivatives | 1,490 | \u2014 | 1,490 | \u2014 |
Contingent consideration | 2,015 | \u2014 | \u2014 | 2,015 |
Current financial liabilities | ||||
Forward contracts \u2013 hedged | 5,010 | \u2014 | 5,010 | \u2014 |
Interest rate derivatives | 1,000 | \u2014 | 1,000 | \u2014 |
Contingent consideration | 658 | \u2014 | \u2014 | 658 |
During the years ended December 31, 2022 and 2021, there were no transfers between Level 1, Level 2, and Level 3 fair value measurements.
The following table shows a reconciliation from the opening balances to the closing balances for Level 3 fair values.
Equity Securities | Contingent Consideration | |
Balance at January 1, 2021 | 16,730 | \u2014 |
Purchase of other investments | 990 | \u2014 |
Change in fair value | 1,031 | \u2014 |
Acquired in business combination | \u2014 | 2,759 |
Foreign currency adjustments | \u2014 | (86) |
Balance at December 31, 2021 | 18,751 | 2,673 |
Purchase of other investments | 990 | \u2014 |
Change in fair value | 1,361 | (223) |
Foreign currency adjustments | \u2014 | (157) |
Balance at December 31, 2022 | 21,102 | 2,293 |
HEDGING ACTIVITIES
Interest rate hedges
In November 2021, the Company entered into interest rate swap contracts with two financial institutions in connection with the execution of its new credit facility. The contracts have a notional value equivalent to the total balance of the term loan B. The contracts swap the variable interest payments on the term loan B to fixed payments of interest. The interest rate caps related to the prior credit facility were unwound and replaced by these contracts. The interest rate swaps were executed so that the Company could hedge its exposure to changes in the benchmark interest rate on the term loan B facility. The Company has matched the critical terms of the swaps to the term loan B and consequently has designated the interest rate swaps as effective cash flow hedges. The amount of gains (losses) related to the interest rate hedges included in equity was $30,245 and ($295) in the years ended December 31, 2022 and 2021, respectively. The amount included in equity is anticipated to impact the income statement through November 2026, which is the term of the contracts. During the years ended December 31, 2022 and 2021, ($1,324) and $426 was transferred from equity to the income statement as a (decrease) increase to finance costs. There was no ineffectiveness for contracts designated as cash flow hedges during the years ended December 31, 2022 and 2021, respectively.\u00a0
The Company also continues to maintain derivative contracts with a financial institution to mitigate its exposure to changes in the benchmark interest rate on portions of its Brazilian subsidiary debt. The contracts include interest rate swaps and cross-currency interest rate swaps, which the Company has not designated for hedge accounting. All gains and losses are recognized in profit and loss. During the year ended December 31, 2022, $1,456 (2021: ($636)) of gains (losses) related to these outstanding interest rate derivatives were recorded to finance costs in the income statement.
Commodity forward contracts
The Company is exposed to volatility in the prices of raw materials used in some products and uses commodity forward contracts to manage these exposures. Such contracts generally mature within twelve months. Commodity forward contracts have been designated as cash flow hedges and contracts not designated as cash flow hedges are immediately recognized in cost of sales.
The open US dollar denominated forward contracts to purchase commodities contracts as of December 31, 2022 are as follows:
Metric tons | Average | Fair value | Fair value liabilities | |
Aluminum forwards | 1,475 | 2,388 | 3 | (28) |
The open US dollar denominated forward contracts to purchase commodities contracts as of December 31, 2021 are as follows:
Metric tons | Average | Fair value | Fair value liabilities | |
Aluminum forwards | 2,775 | 2,677 | 445 | (36) |
The amount from the commodity cash flow hedges included in equity was $80 and $384 in the years ended December 31, 2022 and 2021, respectively. The amount included in equity is anticipated to impact the income statement over the next 12 months. During the years ended December 31, 2022 and 2021, $666 and ($2,127), respectively, were transferred from equity to the income statement as increases (decreases) to cost of sales. There was no ineffectiveness for contracts designated as cash flow hedges during the years ended December 31, 2022 and 2021.
Foreign currency forward contracts
At any point in time, the Company also uses foreign exchange forward contracts to hedge a portion of its estimated foreign currency exposure in respect of forecasted sales and purchases. These contracts are negotiated to match the terms of the commitments and generally mature within two years. When necessary, these contracts are rolled over at maturity. Foreign exchange forward contracts that are not part of a hedge relationship are held at fair value with fair value changes recognized through profit or loss.
The open foreign exchange forward sales contracts as of December 31, 2022 are as follows:
Exposure | Notional amount | Contract | Fair | Fair |
Cash Flow Hedges | ||||
EUR (versus USD) | \u20ac19.1 million | 0.96 | 21 | (459) |
USD (versus EUR) | $65.0 million | 1.08 | 1,765 | (1,802) |
The open foreign exchange forward sales contracts as of December 31, 2021 are as follows:
Exposure | Notional amount | Contract | Fair | Fair |
Cash Flow Hedges | ||||
EUR (versus USD) | \u20ac16.0 million | 0.87 | 380 | (115) |
USD (versus EUR) | $76.1 million | 1.20 | 5 | (3,794) |
The open foreign exchange forward purchase contracts as of December 31, 2022 are as follows:
Exposure | Notional amount | Contract | Fair | Fair |
Cash Flow Hedges | ||||
USD (versus EUR) | $52.7 million | 1.037 | 263 | (2,372) |
EUR (versus USD) | \u20ac36.4 million | 0.956 | 1,046 | (39) |
GBP (versus USD) | \u00a327.1 million | 1.290 | \u2014 | (2,090) |
CNY (versus EUR) | \u00a526.3 million | 0.140 | 86 | (144) |
The open foreign exchange forward purchase contracts as of December 31, 2021 are as follows:
Exposure | Notional amount | Contract | Fair | Fair |
Cash Flow Hedges | ||||
USD (versus EUR) | $95.7 million | 1.171 | 3,015 | (87) |
EUR (versus USD) | \u20ac28.5 million | 0.861 | 42 | (679) |
GBP (versus USD) | \u00a324.4 million | 1.386 | 43 | (865) |
CNY (versus USD) | \u00a558.7 million | 0.136 | 191 | (8) |
The amounts from the foreign currency cash flow hedges included in equity were ($2,475) and ($683) in the years ended December 31, 2022 and 2021, respectively. The amount included in equity is anticipated to impact the income statement over the next two years. During the years ended December 31, 2022 and 2021, $5,944 and $2,735, respectively, were transferred from equity to the income statement as increases to cost of sales and selling, general, and administrative expenses. There was nil (2021: nil) recognized in profit or loss during the year ended December 31, 2022 due to ineffectiveness.
Energy forward contracts
The Company is exposed to volatility in the prices of energy that it consumes as part of its operations. The Company enters into fixed price energy forward contracts to manage this exposure. In most cases, the Company enters into forward energy contracts with the expectation that the contract will result in the physical delivery of the underlying gas or electricity in accordance with the Company\u2019s operational usage requirements. As such, the energy forward contracts generally qualify for the\u00a0 scope exemption under IFRS 9 and are not recognized as financial instruments. However, for a German subsidiary, a portion of the contracts will be settled in cash rather than through physical delivery of the underlying energy and do not qualify under the scope exemption of IFRS 9 as a result. Consequently, these specific contracts are recorded as derivative instruments. These contracts generally mature within twelve months. The energy forward contracts have been designated as cash flow hedges.
The open energy forward contracts as of December 31, 2022 are as follows:
Megawatt hours | Average | Fair value | Fair value liabilities | |
Energy forward contracts | 25,313 | \u20ac129.73 | 944 | (625) |
During 2021, the Company incurred acquisition-related costs of $170 on legal fees and due diligence costs. These costs were included in selling, general and administrative expenses.
The following table summarizes the recognized amounts of assets acquired and liabilities assumed at the date of acquisition:
Note | ||
Intangible assets | 11 | 3,774 |
Deferred tax liability | 9 | (1,122) |
Total identifiable net assets acquired | 2,652 |
The valuation techniques used for measuring the fair value of material assets acquired were as follows:
\u2022Intangible assets - multi-period excess earnings method: The multi-period excess earnings method considers the present value of net cash flows that are expected to be generated by the acquired software, by excluding any cash flows related to contributory assets.
LEASES AS LESSEE
The Company has entered into leases for office space, facilities and equipment. The leases generally provide that the Company pays the tax, insurance and maintenance expenses related to the leased assets. These leases have an average original term of 5-7 years with renewal terms at the option of the lessee and lease payments based on market prices at the time of renewal. There are no restrictions placed upon the lessee by entering into these leases.
Set out below are the carrying amounts of the Company\u2019s right-of-use assets, which are included in property, plant and equipment in the statement of financial position, and lease liabilities as well as the movements during the period:
Right-of-use assets | |||||
Land, buildings | Machinery and | Furniture and | Total | Lease liabilities | |
January 1, 2021 | 46,212 | 3,373 | 801 | 50,386 | 51,881 |
Additions | 5,948 | 770 | 576 | 7,294 | 7,294 |
Retirements and transfers | 1,116 | (10) | (2) | 1,104 | (57) |
Depreciation expense | (4,190) | (1,169) | (458) | (5,817) | \u2014 |
Interest expense | \u2014 | \u2014 | \u2014 | \u2014 | 1,807 |
Payments | \u2014 | \u2014 | \u2014 | \u2014 | (7,120) |
Foreign currency translation | (2,956) | (169) | (47) | (3,172) | (3,256) |
December 31, 2021 | 46,130 | 2,795 | 870 | 49,795 | 50,549 |
January 1, 2022 | 46,130 | 2,795 | 870 | 49,795 | 50,549 |
Additions | 4,840 | 1,453 | 180 | 6,473 | 6,473 |
Retirements and transfers | (482) | (14) | (6) | (502) | (509) |
Depreciation expense | (4,125) | (1,127) | (434) | (5,686) | \u2014 |
Interest expense | \u2014 | \u2014 | \u2014 | \u2014 | 1,663 |
Payments | \u2014 | \u2014 | \u2014 | \u2014 | (6,764) |
Foreign currency translation | (2,316) | (122) | (60) | (2,498) | (2,478) |
December 31, 2022 | 44,047 | 2,985 | 550 | 47,582 | 48,934 |
GUARANTEES
The following table outlines the Company\u2019s off-balance sheet guarantees and letters of credit for the benefit of third parties as of December 31, 2022 and 2021:
Guarantees | Letters of | Total | |
2022 | |||
Total amounts committed: | 128,231 | 32,608 | 160,839 |
Less than 1 year | 45,584 | 32,608 | 78,192 |
2\u20135 years | 75,123 | \u2014 | 75,123 |
After 5 years | 7,524 | \u2014 | 7,524 |
Guarantees | Letters of | Total | |
2021 | |||
Total amounts committed: | 118,673 | 26,202 | 144,875 |
Less than 1 year | 42,845 | 26,202 | 69,047 |
2\u20135 years | 68,508 | \u2014 | 68,508 |
After 5 years | 7,320 | \u2014 | 7,320 |
In the normal course of business, the Company has provided indemnifications in various commercial agreements which may require payment by the Company for breach of contractual terms of the agreement. Counterparties to these agreements provide the Company with comparable indemnifications. The indemnification period generally covers, at maximum, the period of the applicable agreement plus the applicable limitations period under the law. The maximum potential amount of future payments that the Company would be required to make under these indemnification agreements is not reasonably quantifiable as some indemnifications are not subject to limitation. However, the Company enters into indemnification agreements only when an assessment of the business circumstances would indicate that the risk of loss is remote.
The Company has agreed to indemnify its current and former directors and officers to the extent permitted by law against any and all charges, costs, expenses, amounts paid in settlement and damages incurred by the directors and officers as a result of any lawsuit or any other judicial administrative or investigative proceeding in which the directors and officers are sued as a result of their service. These indemnification claims will be subject to any statutory or other legal limitation period. The nature of such indemnification prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay to counterparties. The Company has $100,000 in directors\u2019 and officers\u2019 liability insurance coverage.
ENVIRONMENTAL
In 2006, a US subsidiary of the Company entered into a fixed price remediation contract with an environmental consultant, whereby that consultant became primarily responsible for aspects of the environmental remediation. This subsidiary of the Company is still a secondary obligor for this remediation, in the event that the consultant does not perform. The US subsidiary is also still subject to remediate any contamination associated with perchlorate contamination work which commenced in 2019.
The Company has other contingent liabilities related to\u00a0 environmental regulations at several locations. Environmental regulations in France require monitoring of wastewater and potential clean-up to be performed at one of the French subsidiary\u2019s plant sites in Chauny. Although the extent of these issues is not yet known, there is a possibility that the Company could incur remediation costs.
As discussed in note 25, a German subsidiary of the Company has a sewer system liability, which is in the process of being resolved via a sewer replacement project. Based on the liability associated with the sewer, it is also believed that there may be a groundwater contamination issue. This German subsidiary has performed
remediation feasibility trials but has not received a demand from the government with respect to any potential wider groundwater treatment and it has recorded no provision for this, but it is possible that some remediation will eventually be required. The Company believes that the maximum exposure related to this contamination is $10,000.
TAXATION
The Brazilian subsidiary has established provisions related to potential tax exposure matters such as: (i) income tax on previous years calculations and on interests on intergroup loans; (ii) taxes over other revenues; (iii) federal and state VAT credits disallowances and; (iv) mining royalties. Not all of these matters are pending legal action, and some of these matters are maintained pending applicable statute of limitations. The accrued amounts include potential penalties and interest exposure and are based upon the input of the Company\u2019s advisors as to probability evaluation and payable nature to such matters. The amount accrued for all such matters was $4,953 as of December 31, 2022.
LITIGATION
We are party to various pending or threatened legal actions and other proceedings that arise in the ordinary course of our business, including matters arising under provisions relating to the protection of the environment. These types of matters could result in compensatory damages, cost reimbursements or contributions, penalties, non-monetary sanctions, or other relief. We believe the probability is remote that the outcome of each of these matters will have a material adverse effect on the Company as a whole. We cannot predict the outcome of legal or other proceedings with certainty.
OTHER
TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL
Key management personnel compensation
The Company considers the members of the Management Board and the Supervisory Board to be the key management personnel as defined in IAS 24 Related parties. Refer to note 24 for further details.
For remuneration details of the Management Board and the Supervisory Board, see below.
The compensation of the Management Board of the Company comprised:
For the year ended December 31, 2022 | Salaries and | Share-based compensation | Post-employment benefits including contributions to defined contribution plans | Other remuneration (a) | Total |
Heinz Schimmelbusch | 2,710 | 2,024 | 210 | 196 | 5,140 |
Eric Jackson | 1,889 | 775 | 116 | 54 | 2,834 |
Jackson Dunckel | 1,433 | 597 | 406 | 38 | 2,474 |
Total | 6,032 | 3,396 | 732 | 288 | 10,448 |
[a]Other remuneration includes car expenses and insurance paid for by the Company.
For the year ended December 31, 2021 | Salaries and | Share-based | Post-employment benefits including contributions to defined contribution plans | Other remuneration (a) | Total |
Heinz Schimmelbusch | 2,628 | 3,539 | 181 | 175 | 6,523 |
Eric Jackson | 1,814 | 1,252 | 103 | 42 | 3,211 |
Jackson Dunckel | 1,383 | 1,041 | 417 | 41 | 2,882 |
Total | 5,825 | 5,832 | 701 | 258 | 12,616 |
[a]Other remuneration includes car expenses and insurance paid for by the Company.
Each member of the Management Board has an employment contract with the Company which provides for severance in the event of termination without cause. The maximum severance payout is limited to two years base salary and two years of target annual bonus.
The compensation of the Supervisory Board of the Company comprised:
For the year ended December 31, 2022 | Cash remuneration | Share-based remuneration | Total compensation |
Steve Hanke | 110 | 63 | 173 |
Willem van Hassel | 75 | 42 | 117 |
Herb Depp | 80 | 37 | 117 |
Donatella Ceccarelli | 80 | 37 | 117 |
Dagmar Bottenbruch | 65 | 37 | 102 |
Warmolt Prins | 65 | 37 | 102 |
Total | 475 | 253 | 728 |
For the year ended December 31, 2021 | Cash remuneration | Share-based remuneration | Total compensation |
Steve Hanke | 110 | 71 | 181 |
Willem van Hassel | 75 | 47 | 122 |
Herb Depp | 80 | 41 | 121 |
Donatella Ceccarelli | 80 | 41 | 121 |
Frank L\u00f6hner 1 | 22 | 14 | 36 |
Dagmar Bottenbruch | 65 | 41 | 106 |
Warmolt Prins | 43 | 27 | 70 |
Total | 475 | 282 | 757 |
[1]Frank L\u00f6hner stepped down from the Supervisory Board effective May 2021.
Total Management Board and Supervisory Board Compensation for the year ended: | Cash remuneration | Share-based compensation | Post-employment benefits including contributions to defined contribution plans | Other remuneration (a) | Total |
December 31, 2022 | 6,507 | 3,649 | 732 | 288 | 11,176 |
December 31, 2021 | 6,300 | 6,114 | 701 | 258 | 13,373 |
[a]Other remuneration includes car expenses and insurance paid for by the Company.
ENTITIES WITH SIGNIFICANT INFLUENCE OVER THE COMPANY
Foundation
In July 2010, the foundation \u201cStichting Continuiteit AMG\u201d (\u201cFoundation\u201d) was established following the resolution adopted at its Annual Meeting on May 12, 2010. The board of the Foundation consists of three members, all of whom are independent of AMG. The purpose of the Foundation is to safeguard the interests of the parent company, the enterprise connected therewith and all the parties having an interest therein and to exclude as much as possible influences which could threaten, amongst other things, the continuity, independence and identity of the parent company contrary to such interests.
By agreement on December 22, 2010, between the parent company and the Foundation, the Foundation has been granted a call option pursuant to which it may purchase a number of preference shares up to a maximum of the number of ordinary