Integrated Report 2021
Exxaro Resources Limited
Annual Financial Statements 2021
The directors have pleasure in presenting the group and company annual financial statements of Exxaro Resources Limited for the year ended 31 December 2021 (group and company annual financial statements 2021).
Exxaro is a large South African-based diversified resources group with interests in the coal, energy and ferrous markets. Exxaro's assets include controlled and operated assets, a joint operation 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, Exxaro understands the finite nature of the fossil-fuel sector and changing global imperatives. Exxaro is therefore in the process of transitioning to a sustainable minerals and energy business in a low carbon economy. As part of this transition, Exxaro acquired Tata Power's 50% interest in Cennergi Proprietary Limited on 1 April 2020, giving Exxaro a 100% interest in this utility scale wind-farm energy generation producer. The aim of Exxaro's energy business, branded as Cennergi, is to build a leading global renewable energy solutions business.
Exxaro's investments in associates include its 20.62% (2020: 20.62%) equity interest in SIOC, which extracts and processes iron ore, a 26% (2020: 26%) equity interest in Black Mountain which produces zinc, lead, copper and silver in the Northern Cape; and a 10.26% (2020: 10.26%) effective equity interest in RBCT which is export terminal.
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. Since 2 April 2020, Exxaro's secondary listing on A2X became effective. Exxaro retained its primary listing on the JSE and its issued share capital was unaffected by the secondary listing on A2X.
On 23 February 2021, Tronox Holdings plc exercised its "flip-in" call option over Exxaro's 26% shareholding in Tronox SA, for which Tronox Holdings plc delivered 7 246 035 newly issued Tronox Holdings plc Ordinary Shares to Exxaro on 24 February 2021. This resulted in the derecognition of the investment in Tronox SA and recognition of an additional investment in Tronox Holdings plc (refer note 6.1.4).
On 1 March 2021, Exxaro concluded a public offering in the United States of its 21 975 315 Tronox Holdings plc Ordinary Shares. The shares were sold at a public offering price of US$18.25 per share which was reduced by underwriting discounts and commissions resulting in an achieved price per share of US$17.43. This resulted in the derecognition of the investment in Tronox Holdings plc and the achievement of Exxaro's strategy to monetise its investment in Tronox Holdings plc (refer note 6.1.4).
On 8 April 2021, Exxaro signed an SPA with Overlooked Colliery to dispose of the ECC operation. All conditions precedent to the SPA were fulfilled and the transaction became effective on 3 September 2021 (refer note 8.3).
The disposal process for Leeuwpan continues with definitive legal agreement envisaged to be signed in the first half of 2022, and regulatory approvals obtained thereafter.
Exxaro continues to evaluate its options to dispose of its 26% shareholding in Black Mountain.
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 board of directors drives the Exxaro strategy and budget and sets performance and culture expectations as well as the governance framework for the group. The board of directors is therefore the focal point and custodian of corporate governance for the group. At the core of Exxaro's corporate governance are principles that guide the board of directors in meeting its responsibilities to the company and its stakeholders, to enable the company to achieve the King IV™ governance outcomes and fulfil its purpose to power better lives in Africa and beyond. The board of directors therefore regards good corporate governance as fundamentally important to create value and achieve the recommended governance outcomes in its own ethical and effective leadership. The board of directors assumes ultimate accountability and responsibility for the company's performance and affairs. In so doing, it effectively represents and promotes its legitimate interests. As a responsible corporate citizen, it also considers its material stakeholders' legitimate interests and expectations to make a positive contribution to society at large. Full details on how these principles have been applied in Exxaro are set out in the 2021 integrated report.
The results for the years ended 31 December 2021 and 2020 are not comparable due to the key items as noted in the headline earnings reconciliation (refer note 5.3).
The accounting policies applied during the year ended 31 December 2021 are consistent, in all material respects, with those applied in the group and company annual financial statements for the year ended 31 December 2020. The company accounting policy on inclusions in revenue has been revised and the comparative information has been restated to reflect this revision (refer note 19.2).
The diagram above represents the order of our capital allocation framework. In applying our capital allocation framework, we aim for a gearing ratio of below 1.5 times net debt (excluding ring-fenced project financing) to EBITDA. The capital allocation framework is in line with our commitment to sustainably returning cash to shareholders through the cycle while retaining a strong financial position.
During 2021, we received cash of R25 billion (2020: R10.1 billion), comprising R9.2 billion from our operations (net of tax paid) (2020: R6.8 billion), dividend income received from our equity-accounted investments of R10.0 billion (2020: R3.3 billion) and proceeds received from the disposal of our investment in Tronox Holdings plc of R5.8 billion.
In terms of our capital allocation framework, we utilised this cash, to mainly:
At 31 December 2021, our net cash to EBITDA cover ratio was (0.1) (2020: net debt to EBITDA cover ratio 0.96), which is below our target of 1.5 times. Net cash or debt excludes ring-fenced project financing.
In April 2021, Exxaro successfully refinanced its R8 billion loan facility with various financial institutions, of which R3.25 billion remains undrawn (Refer note 12.1.4 for the salient terms and conditions of the new facilities).
During 2021, Exxaro embarked on and concluded a share repurchase programme of R1.5 billion. The total number of ordinary shares repurchased was 9 401 662 ordinary shares, representing 2.62% of Exxaro's issued ordinary shares prior to the share repurchase programme. The ordinary shares were repurchased at an average price of R159.55 per share.
The share capital of the company is summarised as follows:
| Number of shares | ||
| At 31 December | 2021 | 2020 |
| Authorised ordinary shares of R0.01 each | 500 000 000 | 500 000 000 |
|---|---|---|
| Issued ordinary shares of R0.01 each | 349 305 092 | 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 20: annexure 1.
Our investment in subsidiaries are fully 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 declaration and payment of dividends.
Exxaro's dividend policy comprises the following two components:
Exxaro declared the following dividends relating to 2021:
Interim dividend number 37 of 2 077 cps was approved by the board of directors on 10 August 2021 and declared in South African rand in respect of the six-month period ended 30 June 2021. The dividend payment date was Monday, 4 October 2021, to shareholders recorded on the register of the company at close of business on Friday, 1 October 2021.
Final dividend number 38 of 1 175 cps was approved on 1 March 2022 and declared in South African rand in respect of the year ended 31 December 2021. The final dividend payment date is Monday, 9 May 2022 to shareholders recorded on the register of the company at close of business on Friday, 6 May 2022 (record date). To comply with the requirements of Strate, the last date to trade cum dividend is Tuesday, 3 May 2022. The shares will commence trading ex-dividend on Wednesday, 4 May 2022.
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 dividend payable to shareholders, subject to dividend withholding tax at a rate of 20% amounts to 940.00000 cps. 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.
The events after the reporting period are disclosed in note 18.3.
During 2021, the company welcomed to the board of directors:
With thanks for their years of service to the company, Mr Jeff van Rooyen, who has been an independent non-executive director since August 2008 and also served as chairman of the board of directors, retired at the AGM on 27 May 2021 and Mr Mark Moffett, who resigned as independent non-executive director of the company and member of the Exxaro audit committee, effective 11 May 2021.
In accordance with a clear leadership succession plan, Dr Nombasa Tsengwa was appointed as an executive director to the company's board of directors with the designation CEO-designate, effective 16 March 2021.
In respect of the office of the group company secretary, Ms Saret van Loggerenberg resigned as group company secretary with effect from 18 February 2021, following which Inlexso Proprietary Limited was appointed as the interim group company secretary. The board of directors appointed Ms Andiswa Ndoni as the group company secretary with effect from 1 November 2021.
The company welcomed Dr Pumla Mnganga, Ms Karin Ireton and Mr Billy Magara to the board of directors as independent non-executive directors, effective from 7 February 2022.
The board of directors has approved the early exit of Mr Mxolisi Mgojo with effect from 31 July 2022. The appointment of Dr Nombasa Tsengwa as chief executive officer will be effective as from 1 August 2022. The board of directors thanks Mr Mgojo for his invaluable contribution to Exxaro and wishes him well in his retirement and looks forward to Dr Tsengwa's management of the company.
In addition, Mr Kgabi Masia was appointed in the position of managing director: Minerals, formerly held by Dr Tsengwa. Mr Masia has exposure to Manganese, Coal and Aluminium Operations in his career. He has also worked across multiple functions such as operations, commercial, supply and logistics at a general manager level and brings deep insight of the sector. He has led and executed decarbonisation strategies and exits. He has operated at executive level when he led South32's SA Coal business and has served more broadly on the Minerals Council. Mr Masia's most recent role was president, South Africa Energy Coal for South32 and he has worked for one company his entire career (South32/BHP).
At the date of compilation of this report, the following individuals were directors of the company:
| Mr Geoffrey Qhena (chairman) | Independent non-executive | ||||
| Dr Geraldine Fraser-Moleketi (lead independent director) | Independent non-executive | ||||
| Ms Karin Ireton | Independent non-executive | ||||
| Mr Ben Magara | Independent non-executive | ||||
| Mr Isaac Malevu | Non-executive | ||||
| Mr Billy Mawasha | Independent non-executive | ||||
| Ms Likhapha Mbatha | Non-executive | ||||
| Dr Phumla Mnganga | Independent non-executive | ||||
| Mr Zwelibanzi Mntambo | Non-executive | ||||
| Mr Isaac Mophatlane | Independent non-executive | ||||
| Ms Mandlesilo Msimang | Non-executive | ||||
| Mr Ras Myburgh | Independent non-executive | ||||
| Mr Vuyisa Nkonyeni | Independent non-executive | ||||
| Ms Chanda Nxumalo | Independent non-executive | ||||
| Mr Peet Snyders | Independent non-executive | ||||
| Mr Mxolisi Mgojo (CEO) | Executive | ||||
| Dr Nombasa Tsengwa (CEO – designate) | Executive | ||||
| Mr Riaan Koppeschaar (finance director) | Executive |
Details of the directors in office at the date of this report are set out in the integrated report 2021.
Details of directors' shareholdings are contained in note 14.5.3.
PwC was re-elected as independent external auditor on 27 May 2021 in accordance with section 90 of the Companies Act in respect of the 2021 financial year.
KPMG Consortium, with designated audit partner Ms Safeera Loonat, was appointed at the AGM held on 27 May 2021, as the new independent external auditor of the group for the financial year starting from 1 January 2022.
The audit committee report appears on here, as well as in the 2021 integrated report.
| Group | ||
| 2021 Rm |
2020 Rm |
|
| Amount approved | 49 438 | 48 476 |
|---|---|---|
| Total interest-bearing borrowings | (10 255) | (13 611) |
| Unutilised borrowing capacity | 39 183 | 34 865 |
The borrowing powers were set at 125% of shareholders' funds (equity attributable to owners of the parent) for both the 2021 and 2020 financial years.
Pursuant to the authorisation granted at the AGM held on 27 May 2021, 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 would 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 in the remuneration and nomination committee report of the integrated report 2021 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. Accordingly, the group and company annual financial statements 2021 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.
The company registration number is 2000/011076/06. The registered office is the conneXXion, 263B West Avenue, Die Hoewes, Centurion. Refer chapter 20: annexure 3 for further details.
Absa Bank Limited acted as lead equity sponsor and debt sponsor to the company for the financial year ended 31 December 2021.
Tamela Holding Proprietary Limited acted as joint equity sponsor to the company for the financial year ended 31 December 2021.
Computershare Investor Services Proprietary Limited serves as the South African registrar of the company.
The 21st (twenty first) AGM of shareholders of Exxaro will be held via electronic communication and/or in person (subject to any adjournment or postponement, health and safety protocols) at the conneXXion, 263B West Avenue, Die Hoewes, Centurion, South Africa, at 10:00 on Wednesday, 25 May 2022 to consider and, if deemed fit, pass with or without modification, the resolutions presented thereat.
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