In my 2018 integrated report statement, I wrote that my expectations for 2019, at a macro-level, would be more of the same in terms of trade wars and Brexit-related events. To a large extent, this was so. However, there was much I could not have anticipated.
What I did not foresee was the forceful rise in negative sentiment towards fossil fuels during the year, especially towards coal as an energy input and its contribution to carbon emissions and climate change, which has presented an existential crisis and impact on life as we know it. Nor could anyone of us have foreseen the massive economic and social impact of COVID-19.
We have responded to the COVID-19 crisis by contributing R20 million to the Solidarity Fund to support government's drive to bolster its health response and to augment both the private and public healthcare sector, humanitarian efforts and to enhance the work of the fund for awareness on behavioural change to "flatten the curve". Our own efforts at operations, which have functioned at approximately 50% capacity as an essential service, have thus far proven effective at preventing infections among our employees.
In such volatile and uncertain times, it is critical that we work both as individuals and collectively to ensure sustainable development. Exxaro was founded with a singular purpose - to power better lives in Africa and beyond. Since its founding, Exxaro has lived up to and exceeded that promise. Like any business that competes to win, Exxaro has taken many successful actions, while others have served as opportunities to learn and sharpen its focus. At no point, however, has Exxaro lost sight of its purpose to serve its stakeholders - shareholders, employees, communities, partners and society at large.
This drastic shift in sentiment has prompted us to sharpen our strategic resolve.
With careful consideration of the future prospects that the reality of climate change presents to coal-mining companies, Exxaro has sought to re-evaluate its strategic direction. We have done this through a process of robust engagement with a broad spectrum of stakeholders to enable the development of a strategy that will support the global ambition of transitioning to a low-carbon economy while seeking to meet immediate energy needs, thereby rewarding shareholders for their confidence in our decision-making abilities and capital allocation.
THE WORLD IS AT A CROSSROADS
More and more people understand that dramatic statements about our global future are justifiable.
We were well aware that the horizon for our coal business was limited when we embarked on our Business of Tomorrow strategy in 2018 with a view to responsible investment in mining, energy, water and food production. After engagements with investors and other key stakeholders, it became clear that we needed to refine our focus.
Diversification is our carefully chosen course, which we will navigate by maximising our existing portfolio with considerable knowledge of the coal-mining landscape. Any new ventures we undertake must be scalable to ensure that we are able to deliver a beneficial return on the investment within three to five years. In this regard, we have also decided to cease all further investments in our Business of Tomorrow programme, which was based on acquiring start-up companies and scaling them over time. Instead, our strategic approach going forward will see us focus our efforts on building a second core business in the energy space at scale.
Exxaro is in a favourable position with profitable operations and a strong balance sheet, including a substantial dividend from our passive investment in Sishen Iron Ore Company Proprietary Limited (SIOC) every year. However, we will carefully assess all ventures against our purpose and long-term strategic ambitions.
For a reinvention journey to reach its intended milestones, there needs to be a shift in mindset. Exxaro will reinvest in appropriately skilled people. As such, we are currently mapping the organisation's capabilities and will recruit accordingly - drawing not only from the South African pool of expertise but also from insights available in the energy field abroad. By introducing diverse stakeholder perspectives, we will be more alert to opportunities in the rest of Africa and beyond. At the same time, we will strengthen our existing human resources to ensure that our current employees are leading the way.
Furthermore, we recognise that unique skill sets are required to lead the business forward in response to climate change and the fourth industrial revolution. As with every company across sectors, Exxaro is affected by modernisation. We have responded by embracing technology, thanks largely to our CEO Mxolisi Mgojo, whose leadership keeps the company at the forefront of efficiency-enhancing measures in the mining sector. One only has to look at progress made by our Belfast mine for evidence
( see macro-economic factors and commodity markets details).
Gratitude should also be extended to Exxaro's energetic executive committee members who contribute immensely to the safe development of the company and delivery of satisfactory results despite the difficult operating environment.
The world is at a crossroads. More and more people understand that dramatic statements about our global future are justifiable. The role we seek for ourselves is that of stewards; of our investors' trust and financial resources, stewards of a sustainable business, and stewards of a sustainable South Africa.
Look closely at our mining enterprises today, at the strategy behind our divestments, at our measured steps toward building a renewable energy base and we are confident that you will see a company capable of producing better lives into the future.
Much is anticipated during this decade - politically and economically. With two local and national government elections scheduled, we can expect that the politics of our country will have an impact on the expected outcomes of the 2030 National Development Plan. The ambition to reduce emissions will intensify as the outlines of the path to net zero by 2050 become clearer. Furthermore, the combined effects of the lockdown in response to COVID-19 and the sovereign downgrade on the economy will be dire and hence demand resolute and collaborative action among government, business and civil society to support economic recovery and improved societal morale to shorten the path to investment grade status.
Given the prospects for Exxaro and our efforts towards investing in the future, we are confident that we will remain a resilient and responsive business, continuing to provide tangible returns to all our stakeholders.
Jeff van Rooyen
20 April 2020