The price for API4 coal rose 17% in FY18 to US$98/tonne, while the price for iron ore fines
62% Fe (CFR (China)) dropped 1%.
Exxaro delivered a solid financial performance for FY18, achieving core EBITDA1 of R7 281 million (FY17: R7 207 million), while unadjusted EBITDA2 rose to R6 924 million (FY17: R2 487 million). Reconciliation from EBITDA to core EBITDA is provided below. We believe these adjustments should be excluded to enable a more meaningful year-on-year comparison.
|EBITDA||6 924||2 487|
|Other||– Receivable for Mayoko iron ore project written off||27|
|– BEE credentials expense and transaction costs||4 339|
|– Fair-value adjustment on contingent consideration relating to acquisition of ECC||357||354||Core EBITDA||7 281||7 207|
|1Core EBITDA is calculated by adjusting EBITDA with once-off items to remove the volatility in profit or loss and make it more comparable. However, these terms are not defined under IFRS and may not be comparable with similarly titled measures reported by other companies.|
|2 EBITDA is calculated by adjusting earnings before interest and tax for depreciation, amortisation, impairment charges and net loss or gain on disposal of investments and assets.|
The prior-year results for income from equity-accounted investments included several headline earnings adjustments. After taking these into consideration, core income from equity-accounted investments increased by 22% to R3 271 million (FY17: R2 688 million).
|Unadjusted equity–accounted income||3 259||2 123|
|Coal||– Post–tax share of equity–accounted investments' remeasurements1||1|
|Ferrous||– Post–tax share of SIOC's loss on disposal of property, plant and equipment1||13||11|
|– Post–tax share of SIOC's reversal of impairment of property, plant and equipment1||(716)|
|TiO2.||– Post–tax share of Tronox's gain on disposal of property, plant and equipment1||(1)||(1)|
|– Post–tax share of Tronox Limited's loss on disposal of Alkali chemicals business1||1 271|
|Energy||– Post–tax share of Cennergi's net gain on disposal of property, plant and equipment1||(1)|
|Core equity–accounted income||3 271||2 688|
|1Excluded from headline earnings.|
We have revised the way in which our coal operations are reported to provide stakeholders with more useful and relevant information. The coal operations have been disaggregated based on their nature - commercial, tied and other - as well as geographical location between the Waterberg and Mpumalanga regions in South Africa.
The key changes to the coal reportable segments are:
Coal export revenue and related export cost items have been allocated to the coal operating segments based on the origin of initial production.
FY17 numbers have been re-presented to reflect these changes.
The key transactions shown below should be considered for a better understanding of the comparability of results between the two years.
Key transactions impacting on comparability (non-core adjustments)
|Total EBITDA impact (refer table 1)||(357)||(4 720)|
|Coal||– Insurance claim received from external parties1||57||3|
|– Gain on disposal of non–core investments1, 2||171|
|– Gain/(loss) on disposal of property, plant and equipment1, 3||121||(62)|
|TiO2||– Loss on dilution of shareholding in Tronox Limited1||(106)|
|– Gain on partial disposal of investment in Tronox Limited1, including recycling of the foreign currency translation reserve, offset by a loss on recycling financial instruments' revaluation reserve to profit or loss1, 4||5 191|
|Other||– Loss on disposal of property, plant and equipment1||(2)|
|– Loss on disposal of financial asset||(2)|
|– Recycling of foreign currency translation reserve on liquidation of foreign entities to profit or loss1||14||(58)|
|Total net operating profit impact||4||246|
|Total post–tax equity–accounted income impact1 (refer table 2)||(12)||(565)|
|Eyesizwe preference dividend accrued (consolidation impact)||(100)||(11)|
|Tax on non–core adjustments||(29)||17|
|Total attributable earnings impact||(137)||(313)|
|1||Excluded from headline earnings.|
|2||Includes R115 million gain on disposal of mineral properties by Matla.|
|3||Comprises gain on disposal of Manyeka (R69 million) and gain on disposal of certain assets and liabilities of NBC (R102 million).|
|4||Tronox Limited was classified as a non-current asset held-for-sale on 30 September 2017.|
Group segment results (Rm)
|Coal||25 302||22 553||7 617||7 374|
|Commercial – Waterberg||13 289||11 328||6 882||6 461|
|Commercial – Mpumalanga||7 984||7 970||1 558||1 388|
|Tied||3 665||2 837||144||140|
|Total||25 491||22 813||7 281||7 207|
|1||Core EBITDA is calculated after adjusting for non-core transactions reflected on Comparability of results|
Group revenue rose 12% to R25 491 million (FY17: R22 813 million), mainly due to higher coal selling prices and higher Eskom commercial volumes at Grootegeluk, based on demand from Medupi power station, partially offset by a lower-quality product mix. The average price per tonne achieved on exports was US$77 (FY17: US$69). The average spot exchange rate realised was marginally stronger at R13.24 to the US dollar (FY17: R13.30).
Headline earnings increased to R6 707 million (FY17: R1 560 million) or 2 672 cents per share (FY17: 502 cents per share), driven by the following non-recurring costs in the prior year:
After adjusting for non-core transactions on Comparability of results, core headline earnings rose 14% to R7 167 million (FY17: R6 295 million) or 2 159 cents per share (FY17: 2 011 cents per share) based on a core weighted average number of shares of 332 million (FY17: 313 million).
Similarly, core equity-accounted income/(loss) is shown below.
Core equity-accounted income/(loss) (Rm)
|Equity-accounted income/(loss)||Dividends received|
|Ferrous: SIOC||2 605||2 598||2 569||1 390|
|TiO2: Tronox SA and UK operations1||491||186|
|TiO2: Tronox Limited2||(559)||69||109|
|Total||3 271||2 688||2 696||1 499|
|1||Application of the equity method of accounting ceased when the Tronox UK investment was classified as a non-current asset held-for-sale on 30 November 2018.|
|2||Application of the equity method of accounting ceased when the investment was classified as a non-current asset held-for-sale on 30 September 2017.|
|3||FY18 includes equity-accounted income or loss for Cennergi (R65 million income) and LightApp (R5 million loss).|
|4||FY18 includes equity-accounted income or loss for AgriProtein (R31 million loss); Curapipe (R3 million loss) and Black Mountain (R70 million income) (FY17 includes only Black Mountain).|
Cash flow and funding
Cash flow generated by operations of R7 024 million (FY17: R6 826 million) plus dividends received from investments of R2 696 million were sufficient to cover our capital expenditure and ordinary dividends as shown below.
Deploying cash generated by operations (Rm)
|Cash generated by operations||7 024||6 826|
|Dividends from investments in associates and joint ventures||2 696||1 499|
|Net finance costs||(289)||(409)|
|Capital expenditure||(5 790)||(3 921)|
|Tax paid||(1 007)||(790)|
|Final/interim ordinary dividends paid||(2 334)||(2 227)|
Total capital expenditure increased by R1 869 million mainly for investments in Grootegeluk's GG6 Phase 2 expansion and Belfast projects.
SIOC declared a final dividend on 14 February 2019, totalling R1 369 million for Exxaro's 20.62% shareholding. This will be reflected in our 1H19 results.
The group had net debt of R3 867 million at 31 December 2018 compared to net cash of R69 million at 31 December 2017.
Net debt includes the preference share liability of R609 million (FY17: R2 478 million) for Eyesizwe.
In addition to cash flow items noted above, a gross special dividend of R4 502 million (R3 149 million paid to external shareholders) was paid to shareholders on 5 March 2018 after the partial disposal of our shareholding in Tronox Limited in October 2017.
Coal production and sales volumes (000 tonnes)
|Thermal||44 417||42 843||43 967||43 258|
|Commercial – Waterberg||27 375||23 406||25 364||22 466|
|Commercial – Mpumalanga||10 433||12 037||4 033||5 777|
|Exports commercial||7 965||7 612|
|Tied||6 609||7 400||6 605||7 403|
|Commercial – Waterberg||2 323||2 132||1 197||1 190|
|Total coal||46 740||44 975||45 164||44 448|
|Total coal (excluding buy–ins)||46 763||45 061||45 197||44 536|
|Thermal coal buy–ins||1 049||504|
|Total coal (including buy–ins)||47 812||45 565||45 197||44 536|
Trading conditions in the domestic market were strong in FY18, resulting in all premium product being sold at stable prices. Our supply to Eskom increased in line with contractual commitments while all other markets remained stable.
The international export market recorded strong demand for most of 2018. India increased its demand for South African lower-grade material up to 3Q18, when the market became oversupplied with coal from Indonesia and Australia after the ban on coal imports by China. Demand from South Korea slowed in 2018 as South African coal could not compete with Colombian material, but new opportunities came from Japan after Exxaro shipped a trial cargo to a power plant and received a new order for 2019. In Pakistan, new coal-fired power plants were commissioned in 2018, increasing annual coal demand to 6Mtpa from the traditional 4Mtpa. We made further inroads into the Pakistan market, supplying both the power plant and cement industries.
China has recently relaxed the ban on coal imports. However, there is still a strong indication that it will continue to protect its domestic market by limiting coal imports. If China imposes a further ban on imports, this will have a negative impact on coal pricing, especially into India.
In addition to favourable domestic and international trading conditions, we realised year-on-year operational excellence improvements and successfully implemented two key initiatives, namely visualisation of our mining value chain and the integrated operations centre at some of our major mines, focused on eliminating systemic waste.
Production and sales volumes
Overall coal production volumes (excluding buy-ins and semi-coke) were up 1 765kt (4%), mainly attributable to higher production at Grootegeluk due to the ramp-up of Medupi. Sales were only 716kt (2%) higher due to strategic stock-building at Grootegeluk to compensate for disrupted production while constructing the GG6 expansion project.
Production at Grootegeluk rose 3 969kt (17%), mainly due to the ramp-up of Medupi. This also resulted in an increase in sales of 2 898kt (13%).
The commercial Mpumalanga mines' thermal coal production was 1 604kt (13%) lower, driven by:
The decrease was partly offset by:
The commercial Mpumalanga mines' thermal coal sales were down 1 744kt (30%), driven by:
Export sales increased by 5% to 7 965kt as buy-ins more than doubled.
Coal production and sales from Matla were 11% lower. Lower production of 791kt was largely affected by the mine 2 wall halting production mid-March (-1 393kt), partly offset by mine 3 (+601kt ) after implementing an additional section in the review period.
Grootegeluk's metallurgical coal production increased by 191kt (9%), resulting in higher export sales. Our operational excellence initiatives (focusing on the seven-day work week, plant throughput, plant discard and coal fragmentation) contributed to higher production. Sales were in line with FY17.
Semi-coke production was 63kt (73%) lower due to a fire in March 2018 at the reductant plant, resulting in lower sales of 55kt (63%).
Capex and projects
Exxaro's capital for its coal business increased by 50% compared to FY17. This is mainly due to:
The higher capex is partly offset by:
Coal capex (Rm)
|Sustaining||2 779||3 203||–13|
|Commercial: Waterberg||1 904||2 687||–29|
|Commercial: Waterberg||1 987||440|
|Total coal capex||5 722||3 804||+50|
Revenue and core EBITDA
Coal revenue of R25 302 million rose by 12% (FY17: R22 553 million). Higher revenue from our commercial mines reflects higher selling prices, an increase in Eskom sales volumes and higher exports. This was partly offset by lower domestic sales and a lower product quality mix.
Coal EBITDA of R7 617 million (FY17: R7 374 million) rose 3%, driven by:
The increase was partly offset by:
Mafube, a 50% joint venture with Anglo, recorded lower core equity-accounted income of R113 million (FY17: R259 million), mainly due to ramping down at Springboklaagte and ramping up at the Nooitgedacht reserve.
After adjusting for non-core transactions, equity-accounted income from SIOC was R2 605 million (FY17: R2 598 million).
An interim dividend of R1 263 million was received from SIOC in FY18 (FY17: R1 390 million). A final dividend, of which Exxaro's share will be R1 369 million, was declared on 14 February 2019.
After adjusting for non-core transactions, core equity-accounted income from Tronox SA and Tronox UK increased by R305 million to R491 million compared to FY17. This is mainly due to improved operating performance and foreign currency exchange gains.
We are committed to monetising our remaining 23.4% interest in Tronox Limited to focus on core activities, repay debt, fund capital commitments and make distributions to shareholders by applying our capital allocation framework. Accordingly, on 26 November 2018, Exxaro and Tronox Limited agreed to address the following key matters:
The investment in Tronox Limited continues to meet the criteria to be classified as a non-current asset held-for-sale. In addition, Exxaro's membership interest in Tronox UK was classified as a non-current asset held-for-sale as of 30 November 2018, when all the requirements of IFRS 5 were met, and application of the equity method ceased.
On 15 February 2019, Tronox Limited confirmed completion of the first stage of its redomiciliation, in which it has acquired Exxaro's 26% ownership interest in Tronox UK for R2.1 billion.
On 8 March 2019, Tronox Limited announced that the shareholders of Tronox Limited approved the transaction to redomicile to the United Kingdom from Australia, which was effectively implemented on 28 March 2019.
Equity-accounted investments - Cennergi
Core equity-accounted income from Cennergi, a 50% joint venture with Tata Power, increased from R2 million in FY17 to R65 million in FY18.
Financial results were boosted by fair value adjustments on derivative instruments, as well as a change in the useful life (from 20 years to 30 years) of property, plant and equipment at the two wind farms, which reduced the depreciation charge.
In FY18, Exxaro received dividends of R58 million as well as R186 million for the settlement of shareholder loans.
Equity-accounted investments - other
On 31 May 2018, Exxaro entered into a share-purchase agreement to obtain an equity interest in AgriProtein, incorporated in the UK. The purchase price of US$52.5 million comprises initial cash of US$14.5 million (R184.2 million) paid on 1 June 2018 and a deferred consideration of US$38 million (R482.8 million), which will be paid over the next two years. The timing of the deferred consideration depends on AgriProtein's capital expenditure requirements. Transaction costs of R6.6 million were capitalised to the cost of the investment. AgriProtein develops municipal organic waste-conversion plants to generate high-quality, natural protein sold for use in animal feed and agriculture.
On 18 September 2018, Exxaro finalised a share-purchase agreement for an equity interest in LightApp. The purchase price of US$10 million comprises initial cash of US$5 million (R71.9 million), paid on 27 September 2018, and a deferred consideration of US$5 million (R70.7 million) which will be paid over the next two years. Transaction costs of R0.6 million were capitalised to the cost of the investment. LightApp is one of the leading start-ups in industrial energy analytics. It is a software company that develops and deploys an energy management system for industrial customers. The LightApp solution enables continuous collection and analysis of energy consumption data together with production indicators from sensors on the production floor. This analysis leads to improved energy management and efficiency through deeper insights and alerts. While LightApp is a global business, Exxaro will also use the LightApp platform to improve energy management at its own operations, with the first deployment under way at the FerroAlloys facility in Pretoria.
To optimise Exxaro's coal portfolio, we concluded a sale-of-shares agreement with Universal Coal for the 100% shareholding in Manyeka, including the 51% interest in Eloff. The transaction closed on 31 July 2018. Exxaro received net cash of R75 million, resulting in a gain on disposal of R69 million.
On 2 March 2018, Exxaro concluded a sale-of-asset agreement with North Block Complex Proprietary Limited to dispose of certain assets and liabilities of NBC. Given the composition of the assets, two section 11 applications were submitted to the DMR to transfer the mineral rights. Although the section 11 for the Paardeplaats mining right has not yet been granted, it was agreed with the buyer to close the transaction on 31 October 2018. Exxaro received proceeds of R17 million for the Glisa and Eerstelingsfontein reserves, resulting in a gain on disposal of R102 million.
The sale of Paardeplaats will be concluded once the section 11 approval has been obtained.
Exxaro's revised dividend policy is based on two components: a pass-through of the SIOC dividend received and a targeted cover ratio of 2.5 times to 3.5 times core attributable coal earnings.
Additionally, we are targeting a gearing ratio below 1.5 times net debt to EBITDA.
The board has declared a cash dividend comprising:
Notice is given that a gross final cash dividend, number 32 of 555 cents per share, for the financial year ended 31 December 2018 was declared, payable to shareholders of ordinary shares.
24 April 2019