Integrated report 2019
Exxaro Resources Limited
Group and company annual financial statements
for the year ended 31 December 2019
The directors have pleasure in presenting the group and company annual financial statements of Exxaro Resources Limited for the year ended 31 December 2019.
Exxaro is a large South African-based diversified resources group with interests in the coal, TiO2, ferrous and energy markets. Exxaro’s assets vary between controlled and operated assets as well as equity-accounted investments. The major controlled assets are the coal operations, with Exxaro being one of the top five coal producers in South Africa and, in turn, Grootegeluk is acknowledged as one of the most efficient mining operations globally and runs the world’s largest coal beneficiation complex.
While coal is the core of our business now and for decades to come, Exxaro understands the finite nature of the fossil-fuel sector and changing global imperatives. Exxaro therefore holds a 50% (2018: 50%) interest in Cennergi, a wind-farm energy generation company, which aims to be the leading cleaner energy IPP in South Africa. As announced on 17 September 2019, Exxaro has concluded an agreement with Khopoli, a wholly owned subsidiary of Tata Power, to acquire Khopoli’s 50% shareholding in Cennergi for an amount of R1 550 million, subject to normal working capital adjustments. The transaction will result in Exxaro becoming the sole owner of Cennergi. The agreement is subject to, among others, the normal regulatory approvals customary for this type of transaction. The last condition on precedent was met in March 2020.
Exxaro’s investments in associates include its 20.62% (2018: 20.62%) equity interest in SIOC, which extracts and processes iron ore. It also includes a 26% (2018: 26%) equity interest in Tronox SA and a 10.38% (2018: 23.35%) equity interest in Tronox Holdings plc, a vertically integrated mining and inorganic chemical business.
Exxaro is a public company incorporated in South Africa and is listed on the JSE. It is also a constituent of the JSE’s Top 40 index, as well as the top 30 in the FTSE/JSE Responsible Investment Index with headquarters in Centurion, South Africa.
In 2017, Exxaro adopted a strategy to explore new investment opportunities based on three pillars: water security, food security and energy security. Based on our experience since then, we have now changed that strategy to focus solely on new opportunities in the energy security spaces. As we pursue these opportunities, our approach continues to be measured with a view to mitigating potential risks and ensuring that the capital allocation decisions are in line with appropriate metrics.
We are proud to report that Eyesizwe, our BEE shareholder, fully settled its acquisition debt in October 2019, three years earlier than anticipated. The early settlement was funded from dividends received from Exxaro. From an accounting perspective, this resulted in the outside shareholders of Eyesizwe being treated as non-controlling interests for the Exxaro group from 1 November 2019.
Furthermore, we undertook to transfer at least 10% of our 24.9% shareholding in Eyesizwe into structures for the benefit of Exxaro’s employees and communities adjacent to our operations. The transaction agreements have been concluded in the first quarter of 2020 with implementation of the employee scheme expected in April 2020 and the implementation of the community scheme dependent on the registration of the company as a public benefit organisation in terms of section 18A of the Income Tax Act.
Arnot operation
On 22 February 2019, Exxaro signed a transfer agreement with the Arnot OpCo Proprietary Limited Consortium (the consortium), subject to conditions precedent, for the transfer of the Arnot operation. The shareholders of the consortium are former employees of Arnot and Wescoal. This ground-breaking deal will enable the consortium to restart the mine and supply coal to the national electricity provider for its Arnot power station.
On 31 January 2020, the Arnot operation was transferred to Arnot OpCo Proprietary Limited Consortium. The transfer will be recognised in 2020 (refer note 18.3).
Black Mountain
During the second half of 2019, the Exxaro board of directors approved a decision to divest from its 26% interest in Black Mountain. On 30 November 2019, the investment was classified as a non-current asset held-for-sale and the application of the equity method ceased.
Tronox Holdings Plc
In September 2017, the directors of Exxaro formally decided to dispose of the investment in Tronox Holdings plc. As part of this decision, Tronox Limited was required to publish an automatic shelf registration statement of securities of well-known seasoned issuers, which allowed for the conversion of Exxaro’s Class B Tronox Limited ordinary shares to Class A Tronox Limited ordinary shares. Subsequently, Exxaro sold 22 425 000 Class A Tronox Limited ordinary shares during October 2017. During May 2019, Tronox Holdings plc repurchased 14 000 0000 Tronox Holdings plc ordinary shares from Exxaro after Tronox Limited had redomiciled to the UK.
Tronox UK
In February 2019, Exxaro received total cash of R2 057 million from Tronox UK for the redemption of Exxaro’s 26% membership interest, of which R460 million was a members’ distribution.
The integrated report and supplementary information contain material information on the activities and performance of the group and its various divisions. These reports are unaudited. The board of directors acknowledge its responsibility to ensure the integrity of the integrated report and supplemental information. We have accordingly applied our minds to the integrated report and believe the report addresses all material issues, and fairly presents the integrated performance, impact and sustainability of the organisation.
The directors endorse and acknowledge the principles contained in King IV™. The principles are applied by Exxaro and therefore the disclosures made in the integrated report are essential to allow stakeholders to assess whether the principles and recommended practices are integrated into the business processes of Exxaro. Furthermore, we acknowledge that effective corporate governance should form part of everything we say and do. Corporate governance forms part of the foundational layers of our strategy and effective governance is therefore entrenched as a way of doing business. Full details on how these principles are applied in Exxaro are set out in the integrated report 2019.
The results for the years ended 31 December 2019 and 2018 are not comparable due to the key transactions reported in Table 1 of chapter 1.
The accounting policies applied during the year ended 31 December 2019 are consistent, in all material respects, with those applied in the group and company annual financial statements for the year ended 31 December 2018 except for the adoption of IFRS 16 Leases, which became effective for the first time for the year commencing 1 January 2019. The impact of the adoption and the new accounting policies are disclosed in notes 11.1 and 11.2 respectively.
The company registration number is 2000/011076/06. The registered office is the conneXXion, 263B West Avenue, Die Hoewes, Centurion. Refer chapter 19: annexure 3 for further details.
In terms of the capital allocation framework (adopted in 2018), free cash fl ow generated will be prioritised as illustrated in the diagram below.
The framework is in line with Exxaro’s commitment to sustainably returning cash to shareholders through the cycle while retaining a high level of balance sheet strength.
The share capital of the company has remained unchanged and is summarised as follows:
| Number of shares | ||
| At 31 December | 2019 | 2018 |
| Authorised ordinary shares of R0.01 each | 500 000 000 | 500 000 000 |
|---|---|---|
| Issued ordinary shares of R0.01 each | 358 706 754 | 358 706 754 |
| Treasury shares held by Kumba Resources Management Share Trust | 158 218 | 158 218 |
| Treasury shares held by Eyesizwe | 107 612 026 | 107 612 026 |
An analysis of shareholders and the respective percentage shareholdings appears in chapter 19: annexure 1.
The financial information in respect of investments and interests in subsidiaries of the company is disclosed in note 17.6.
The dividend policy is to consider an interim and final dividend for each financial year. At its discretion, the board of directors may consider a special dividend where appropriate. Depending on the perceived need to retain funds for expansion or operating purposes, the board of directors may approve the payment of dividends.
Exxaro’s dividend policy comprises two components: firstly, a pass through of the SIOC dividend received and, secondly, a dividend based on a targeted cover ratio of 2.5 times to 3.5 times core attributable coal earnings.
Exxaro declared the following dividends relating to 2019:
Dividend number 33
Interim dividend number 33 of 864 cents per share was approved by the board of directors on 20 August 2019 and declared in South African rand in respect of the six-month period ended 30 June 2019. The dividend payment date was Monday, 14 October 2019, to shareholders recorded on the register of the company at close of business on Friday, 11 October 2019.
Special dividend
Following the partial disposal of Exxaro’s shareholding in Tronox Holdings plc and the redemption of the membership interest in Tronox UK, a special dividend of 897 cents per share was approved by the board of directors on 20 August 2019. The special dividend payment date was Monday, 14 October 2019, to shareholders recorded on the register of the company at close of business on Friday, 11 October 2019.
Dividend number 34
Final dividend number 34 of 566 cents per share was approved on 10 March 2020 and declared in South African rand in respect of the year ended 31 December 2019. The final dividend payment date is Tuesday, 28 April 2020 to shareholders recorded on the register of the company at close of business on Friday, 24 April 2020 (record date).
To comply with the requirements of Strate, the last date to trade cum dividend is Tuesday, 21 April 2020. The shares will commence trading ex-dividend on Wednesday, 22 April 2020.
The final dividend declared is subject to 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 final dividend payable to shareholders, subject to dividend withholding tax at a rate of 20% amounts to 452.80000 cents per share. The number of ordinary shares in issue at the date of this declaration is 358 706 754. Exxaro company’s tax reference number is 9218/098/14/4.
Subsequent to 31 December 2019, the following notable events occurred:
Refer to the dividends payment section regarding the final dividend declared for 2019.
The directors are not aware of any matter or circumstance that has arisen since the end of the financial year not dealt with in the integrated report 2019 or in the group and company annual financial statements 2019 that would significantly affect the operations or the results of the group and company. Refer note 18.3 for further details.
Details of the directors in office at the date of this report are set out in the integrated report 2019.
Details of directors’ shareholdings are contained in note 14.5.3.
During 2019, two directors resigned from the board of directors: Ms D (Daphne) Mashile-Nkosi who resigned as a non-executive director of the company with effect from 11 October 2019 and Ms MW (Monhla) Hlahla who resigned as an independent nonexecutive director of the company with effect from 31 December 2019. The board of directors will fill these casual vacancies after running a thorough and transparent appointment process through its remuneration and nomination committee.
The importance and promotion of broader diversity at board level is recognised by the board of directors, specifically focusing on the diversity attributes of gender, race, culture, age, field of expertise, skills and experience. The nomination of the new appointments will be executed by the remuneration and nomination committee in accordance with the policy of broad diversity. The nominees will then be subject to approval by the shareholders for appointment.
In accordance with the memorandum of incorporation, the appointments by the board of directors are required to be confirmed through election by the shareholders at the forthcoming AGM to be held on 28 May 2020.
At the date of compilation of this report, the following individuals were directors of the company:
All executive directors’ employment contracts are subject to six calendar months’ notice. Non-executive directors are not bound by service contracts. There are no restraints of trade associated with the service contracts of executive directors. A detailed analysis of the directors’ and prescribed officers’ remuneration is included in note 14.5.
Mrs SE (Saret) van Loggerenberg, a Fellow of the Institute of Chartered Secretaries, is the group company secretary. Contact details of Saret van Loggerenberg appear in chapter 19: annexure 3.
PwC was re-elected as independent external auditor on 23 May 2019 in accordance with section 90 of the Companies Act and
has again been proposed for
re-election in respect of the 2020 financial year to occur at the forthcoming AGM on 28 May 2020.
The audit committee report appears here, as well as in the integrated report 2019.
| Group | ||
| 2019 Rm |
2018 Rm |
|
| Amount approved1 | 43 470 | 52 308 |
|---|---|---|
| Total borrowings (excluding lease liabilities) | (7 041) | (4 414) |
| Unutilised borrowing capacity | 36 429 | 47 894 |
1 Decrease mainly relates to the increase in NCI.
The borrowing powers were set at 125% of shareholders’ funds attributable to owners of the parent for both the 2019 and 2018 financial years.
Pursuant to the authorisation granted at the AGM held on 23 May 2019, shareholders approved, in accordance with section 45 of the Companies Act, the granting of financial assistance to related and inter-related companies of Exxaro.
The directors resolved that the company will satisfy the solvency and liquidity test, as contemplated in section 45 of the Companies Act and detailed in section 4 of the Companies Act, post such assistance. The terms under which such assistance will be provided are fair and reasonable to the company.
Details of the employee incentive schemes are set out in note 14.3 as well as the remuneration and nomination committee report in the integrated report 2019 and the supplementary information.
Details of related-party transactions are set out in note 15.1.
The directors believe that the group and company have adequate financial resources to continue in operation for the foreseeable future and, accordingly, the group and company annual financial statements 2019 have been prepared on a going-concern basis.
The directors are not aware of any new material changes, or any material non-compliance with statutory or regulatory requirements that may adversely impact the group or company.
Absa Limited acted as sponsor to the company for the financial year ended 31 December 2019.
Computershare Investor Services Proprietary Limited serves as the South African registrar of the company.
The 19th (nineteenth) AGM of shareholders of Exxaro will be held (subject to any adjournment or postponement) at the conneXXion, 263B West Avenue, Die Hoewes, Centurion, South Africa, at 11:00 on Tuesday, 28 May 2020 to consider and, if deemed fit, pass with or without modification, the resolutions.
