Exxaro Resources Limited
Annual Financial Statements 2022
The directors have pleasure in presenting the group and company annual financial statements of Exxaro Resources Limited for the year ended 31 December 2022 (group and company annual financial statements 2022).
Exxaro is a large South African-based diversified resources group with interests in the coal, energy and ferrous markets. Exxaro's diversified asset portfolio 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 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 aims to build a leading global renewable energy solutions business, branded Cennergi, and which portfolio currently houses two utility scale wind farms.
Exxaro's investments in associates and joint ventures primarily include its 20.62% (2021: 20.62%) equity interest in SIOC, which extracts and processes iron ore, a 26% (2021: 26%) equity interest in Black Mountain which produces zinc, lead, copper and silver in the Northern Cape, a 10.26% (2021: 10.26%) effective equity interest in RBCT which is an export terminal as well as a 50% (2021: 50%) joint venture in Mafube with Thungela, which produces coal.
Exxaro is a public company incorporated in South Africa and is listed on the JSE and has a secondary listing on the A2X. 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.
Exxaro initiated the Leeuwpan divestment process as part of its ongoing portfolio optimisation strategy to ensure the future resilience of the coal business. The progress on the divestment stalled and the process was stopped in the third quarter of 2022 to ensure stability at the mine.
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 IVTM 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 group and 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 2022 integrated report.
The results for the years ended 31 December 2022 and 2021 are not comparable due to the key items as noted in the reconciliation of headline earnings (refer note 5.3).
The accounting policies applied during the year ended 31 December 2022 are consistent, in all material respects, with those applied in the group and company annual financial statements for the year ended 31 December 2021.
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 return cash to shareholders through the cycle while retaining a strong financial position.
During 2022, we received cash of R20.6 billion (2021: R25 billion), comprising R14.7 billion from our operations (net of tax paid) (2021: R9.2 billion) and dividend income received from our equity-accounted investments of R5.9 billion (2021: R10.0 billion).
In terms of our capital allocation framework, we utilised this cash to mainly:Exxaro issued no new shares nor entered into any share repurchase transactions during 2022.
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 remained unchanged and is summarised as follows:
| Number of shares | ||
| At 31 December | 2022 | 2021 |
| Authorised ordinary shares of R0.01 each | 500 000 000 | 500 000 000 |
|---|---|---|
| Issued ordinary shares of R0.01 each | 349 305 092 | 349 305 092 |
| 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.
Our investments 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 2022:
Interim dividend number 39 of 1 593 cents per share was approved by the board of directors on 16 August 2022 and declared in South African rand in respect of the six-month period ended 30 June 2022. The dividend payment date was Monday, 3 October 2022, to shareholders recorded on the register of the company at close of business on Friday, 30 September 2022.
Final dividend number 40 of 1 136 cents per share was approved on 14 March 2023 and declared in South African rand in respect of the year ended 31 December 2022. The final dividend payment date is Monday, 8 May 2023 to shareholders recorded on the register of the company at close of business on Friday, 5 May 2023 (record date). To comply with the requirements of Strate, the last date to trade cum dividend is Tuesday, 2 May 2023. The shares will commence trading ex-dividend on Wednesday, 3 May 2023.
The final dividend declared from income reserves will be 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 908.80 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.
The events after the reporting period are disclosed in note 18.3.
With thanks for his years of service to the company, Mr Ras Myburgh, who has been an independent non-executive director since September 2016 and also served as chairman of the remuneration committee, member of the nomination committee, risk and business resilience committee, and a member of the audit committee, retired at the AGM on 25 May 2022.
The board welcomed Dr Nombasa Tsengwa as CEO of Exxaro from 1 August 2022, and expressed confidence in her expertise and leadership as Exxaro's first female CEO, taking the company further on its journey to achieving its Sustainable Growth and Impact strategy. She succeeds Mr Mxolisi Mgojo who retired on 31 July 2022. The board thanked Mr Mgojo, who received a Business Leader of the Year award in 2022, for his invaluable contribution and wished him well in his retirement.
Ms Medupe's appointment as an independent non-executive director and audit committee member, effective 3 January 2023, follows Mr Nkonyeni's decision to stand down as a member and chairperson of the audit committee, due to long tenure, at the upcoming AGM. Ms Medupe's appointment will be submitted for shareholder approval at the AGM on 18 May 2023.
As announced on 15 March 2023, Mr Vuyisa Nkonyeni and Mr Isaac Mophatlane will retire by rotation, as independent non-executive directors of Exxaro, with effect from the AGM to be held 18 May 2023. Mr Nkonyeni will also on such date retire as chairman of the audit and member of the investment committee. The board of directors extended its gratitude to Mr Nkonyeni for his valuable and outstanding contribution to Exxaro over the years. In addition, Mr Mophatlane will retire as chairman of the investment committee and member of the audit and social, ethics and responsibility committees. Similarly, the board of directors extended its gratitude to Mr Mophatlane for his valued contribution to Exxaro.
At the date of compilation of this report, the following individuals were directors of the company:
| Mr Mvuleni 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 | ||
| Ms Nondumiso Medupe | Independent 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 Vuyisa Nkonyeni | Independent non-executive | ||
| Ms Chanda Nxumalo | Independent non-executive | ||
| Mr Peet Snyders | Independent non-executive | ||
| Dr Nombasa Tsengwa (CEO) | 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 2022.
Details of directors' shareholdings, remuneration and service fees are contained in note 14.5.3.
KPMG Inc., with designated audit partner Ms Safeera Loonat, was approved for appointment as independent external auditor for the financial year ending 31 December 2022 at the AGM held on 27 May 2021. The appointment was further confirmed at the AGM held 25 May 2022, as the new independent external auditor of the group for the financial year starting from 1 January 2022.
The audit committee report appears above, as well as in the 2022 integrated report.
| Group | ||
| 2022 Rm |
2021 Rm |
|
| Amount approved | 58 524 | 49 438 |
|---|---|---|
| Total interest-bearing borrowings | (9 093) | (10 255) |
| Unutilised borrowing capacity | 49 431 | 39 183 |
The borrowing powers were set at 125% of shareholders' funds (equity attributable to owners of the parent) for both the 2022 and 2021 financial years.
Pursuant to the authorisation granted at the AGM held on 25 May 2022, shareholders approved, in accordance with section 45 of the Companies Act, with provisions 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 were 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 report of the 2022 integrated report 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 2022 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 19: 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 2022.
Tamela Holding Proprietary Limited acted as joint equity sponsor to the company for the financial year ended 31 December 2022.
JSE Investor Services Proprietary Limited has been appointed to serve as the South African registrar of the company with effect from 15 September 2022, (formerly Computershare Investor Services Proprietary Limited).
The 22nd (twenty second) 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 Thursday, 18 May 2023 to consider and, if deemed fit, pass with or without modification, the resolutions presented thereat.
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