NOTES TO THE REVIEWED CONDENSED GROUP INTERIM FINANCIAL STATEMENTS STATEMENTS

Exxaro, a public company incorporated in South Africa, is a diversified resources group with interests in the coal (controlled and non-controlled), energy (controlled) and ferrous (controlled and non-controlled) markets. These reviewed condensed group interim financial statements as at and for the six-month period ended 30 June 2022 (interim financial statements) comprise the company and its subsidiaries (together referred to as the group) and the group's interest in associates and joint ventures.

2.1 Statement of compliance

The interim financial statements have been prepared in accordance with and contain the information required by IFRS (as issued by the IASB), IAS 34 Interim Financial Reporting, the SAICA Financial Reporting Guides (as issued by the Accounting Practices Committee), Financial Reporting Pronouncements (as issued by the Financial Reporting Standards Council), the requirements of the Companies Act of South Africa and the JSE Listings Requirements.

The interim financial statements have been prepared under the supervision of Mr PA Koppeschaar CA(SA), SAICA registration number: 00038621.

The interim financial statements should be read in conjunction with the group annual financial statements as at and for the year ended 31 December 2021, which have been prepared in accordance with IFRS. The interim financial statements have been prepared on the historical cost basis, except for financial instruments, share-based payments and biological assets, which are measured at fair value.

The interim financial statements were authorised for issue by the board of directors on 16 August 2022.

2.2 Judgements and estimates

Management made judgements, 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. The significant judgements and the key source of estimation uncertainty were similar to those applied to the group annual financial statements as at and for the year ended 31 December 2021.

The accounting policies applied are in terms of IFRS and are consistent with those of the previous financial year. The policy for recognising and measuring income taxes in the interim reporting period is consistent with that applied in the previous interim reporting period as described in 3.1 below. A number of new or amended standards became effective for the current reporting period. The group did not have to change its accounting policies nor make retrospective adjustments as a result of adopting these standards.

3.1 Income tax

Income tax expense is recognised based on management's estimate of the weighted average effective annual tax rate expected for the full financial year. Deferred tax balances have been determined taking into account the substantively enacted tax rate of 27%. As such, the effective tax rate used in the interim financial statements may differ from management's estimate of the effective tax rate for the group annual financial statements. The estimated weighted average effective annual tax rate used for the six-month period ended 30 June 2022 is 17.9%, compared to 8.4% for the six-month period ended 30 June 2021.

The main reconciling items, between the current year standard tax rate of 28% and the effective tax rate, result from the share of income of equity-accounted investments and dividend income (-8.9%).

3.2 Impact of new, amended or revised standards issued but not yet effective

New accounting standards, amendments to accounting standards and interpretations issued, that are relevant to the group, but not yet effective on 30 June 2022, have not been early adopted. The group continuously evaluates the impact of these standards and amendments.

3.3 Impact of the Russian-Ukraine conflict

The financial reporting impact of the Russian-Ukraine conflict has been assessed by management and factored in as a consideration in making relevant estimates and assumptions, in particular impairment assessments.

The coal price and rand/US$ exchange rate assumptions used to forecast future cash flows for impairment assessment purposes have been updated to consider the short-term observable impact of the Russian-Ukraine conflict, as well as the forecasted medium and longer-term impact on the world economy and commodity prices.

Refer note 5 for details regarding the number of shares.

The final dividend relating to the 2021 financial year of 1 175 cents per share (R2 838 million to external shareholders) was declared on 1 March 2022 and paid on 9 May 2022.

An interim cash dividend, number 39, for 2022 of 1 593 cents per share, was approved by the board of directors on 16 August 2022. The dividend is payable on 3 October 2022 to shareholders who will be on the register on 30 September 2022. This interim dividend, amounting to approximately R3 848 million (to external shareholders), has not been recognised as a liability in these interim financial statements. It will be recognised in shareholders' equity in the second half of the year ending 31 December 2022.

The interim dividend declared from income reserves, will be subject to a dividend withholding tax of 20% for all shareholders who are not exempt from or do not qualify for a reduced rate of dividend withholding tax. The net local dividend payable to shareholders, subject to dividend withholding tax at a rate of 20%, amounts to 1 274.40000 cents per share.

The number of ordinary shares in issue at the date of this declaration is 349 305 092. Exxaro company's tax reference number is 9218/098/14/4.

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker, who is responsible for allocating resources and assessing performance of the reportable operating segments. The chief operating decision maker has been defined as the executive committees of the group. Segments reported are based on the group's different commodities and operations.

In line with reporting trends, emphasis is placed on controllable costs. Indirect corporate costs are reported on a gross level in the other reportable segment.

The segments, as described below, offer different goods and services, and are managed separately based on commodity, location and support function grouping. The group executive committees review internal management reports on these operating segments at least quarterly.

The comparative segmental information has been re-presented for the equity interest in LightApp, which has been reclassified from the energy segment to the other segment in line with the revised strategic focus of the group.

Coal

The coal operations produce thermal coal, metallurgical coal and SSCC and are made up of the following reportable segments:

Commercial Waterberg: Comprising mainly of the Grootegeluk operation.

Commercial Mpumalanga: Comprising the Belfast and Leeuwpan operations, as well as the 50% (30 June 2021: 50%; 31 December 2021: 50%) joint venture in Mafube with Thungela. The ECC operation, including the 49% equity interest in Tumelo, formed part of this reportable segment until the effective date of disposal on 3 September 2021.

Tied: Comprising of the Matla mine supplying its entire coal supply to Eskom.

Other: Comprising of the other coal affiliated operations, including mines in closure and a 10.26% (30 June 2021: 10.26%; 31 December 2021: 10.26%) equity interest in RBCT.

The export revenue and related export cost items are allocated between the coal reportable segments and disclosed based on the origin of the initial coal production.

Energy

The energy operations generate energy (electricity) from renewable energy technology. The energy reportable segment comprising mainly of the Cennergi controlled operation.

Ferrous

The ferrous operations are made up of the following reportable segments:

Alloys: Comprising of the FerroAlloys operation which manufactures ferrosilicon.

Other: Comprising mainly of the 20.62%; (30 June 2021: 20.62%; 31 December 2021: 20.62%) equity interest in SIOC.

TiO₂

Following the disposal of Tronox Holdings plc and Tronox SA, the TiO₂ reportable segment has been discontinued (refer note 7).

Other

The other operations of the group are made up of the following reportable segments:

Base metals: Comprising of the 26% (30 June 2021: 26%; 31 December 2021: 26%) equity interest in Black Mountain.

Other: Comprising mainly of the corporate office (rendering corporate management services), the Ferroland agricultural operation, the 25.85% (30 June 2021: 25.85%; 31 December 2021: 25.85%) equity interest in Insect Technology and the 28.59% (30 June 2021: 28.59%; 31 December 2021: 28.59%) equity interest in LightApp.

The following tables present a summary of the group's segmental information:

The discontinued operations related to Tronox SA and Tronox Holdings plc.

Financial information relating to the discontinued operations is set out below:

Revenue is derived from contracts with customers. Revenue has been disaggregated based on timing of revenue recognition, major type of goods and services, major geographic area and major customer industries.

The bank overdraft is repayable on demand. Interest is based on current South African money market rates.

Refer note 18 for the amounts repaid and raised in relation to interest-bearing borrowings.

There were no defaults or breaches in terms of interest-bearing borrowings during the reporting periods. The loan facility is subject to the following financial covenants:

• Ratio of consolidated net debt¹ to equity of the group for any measurement period shall be less than 0.8:1
• Ratio of consolidated EBITDA (excluding non-cash BEE credential costs) to net interest paid of the group for any measurement period shall not be less than 4:1
• Ratio of consolidated net debt1 to consolidated EBITDA (excluding non-cash BEE credential costs, including dividends received from equity-accounted investments) of the group for any measurement period shall be less than 3:1

The performance against the financial covenants of the loan facility was as follows:

Below is a summary of the salient terms and conditions of the facilities at 30 June 2022:

The lease liabilities relate to the right-of-use assets. Interest is based on incremental borrowing rates ranging between 6.09% and 10.43% (30 June 2021: 6.08% and 10.43%; 31 December 2021: 6.09% and 10.43%).

Analysis of movement in net cash/(debt):

The group has granted the following loan commitments:

21.1 Fair value hierarchy

The table below analyses recurring fair value measurements for financial assets and financial liabilities. These fair value measurements are categorised into different levels in the fair value hierarchy based on the inputs to the valuation techniques used. The different levels are defined as follows:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that the group can access at the measurement date.

Level 2 - Inputs other than quoted prices included in Level 1 that are either directly or indirectly observable.

Level 3 - Inputs that are not based on observable market data (unobservable inputs).

Reconciliation of financial assets within Level 3 of the hierarchy:

Transfers

The group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the transfer has occurred. There were no transfers between Level 1 and Level 2 nor between Level 2 and Level 3 of the fair value hierarchy.

Valuation process applied

The fair value computations of the investments are performed by the group's corporate finance department, reporting to the finance director, on a six-monthly basis. The valuation reports are discussed with the chief operating decision maker and the audit committee in accordance with the group's reporting governance.

Current derivative financial instruments

Level 2 fair values for simple over-the-counter derivative financial instruments are based on market quotes. These quotes are assessed for reasonability by discounting estimated future cash flows using the market rate for similar instruments at measurement date.

Environmental rehabilitation funds and portfolio investments

Level 2 fair values for debt instruments held in the environmental rehabilitation funds and portfolio investments are based on quotes provided by the financial institutions at which the funds are invested at measurement date.

Interest rate swaps

Level 2 fair values for interest rate swaps are based on valuations provided by the financial institutions with whom the swaps have been entered into and take into account credit risk. The valuations are assessed for reasonability by discounting the estimated future cash flows based on observable ZAR swap curves.

21.2 Hedge accounting: Cash flow hedges

The following tables detail the financial position and performance of the interest rate swaps outstanding at the end of the reporting period and their related hedged items.

21.2.1 Financial performance effects of hedging recognised during the period: