Reflecting on our rich history of innovation and resilience, this past year has further solidified Exxaro's dedication to sustainable growth and impact amid the complex tapestry of global economic challenges. I am pleased to present the progress we have achieved, the obstacles overcome, and the forward-looking vision that guides our journey ahead.
Dr Nombasa Tsengwa
CEO
Despite the anticipated downturn in China's property sector, the seaborne iron ore market found support as expected cuts in steel capacity proved modest, and the easing of the property market policy later in the year bolstered sector sentiment.
Thermal coal markets witnessed a resurgence in Indian demand, spurred by economic growth and increased energy requirements. This coincided with China's heightened coal imports after the Australian trade ban was lifted in 2020. Conversely, European and northeast Asian demand softened, with ample coal and gas stocks leading to price reductions.
Stronger renewables availability further curtailed Europe's dependency on gas and coal. Yet, as the year concluded, new uncertainties from geopolitical conflicts and potential natural gas supply issues contributed to volatile energy market dynamics.
Domestically, challenges persisted with Transnet's operational issues, resulting in a multi-decade low in RBCT coal exports. Additionally, Eskom's operational hurdles curtailed coal offtake, particularly from the Waterberg region. Although production saw a 1.4% reduction, this outcome still stands as a testament to our team's capability, especially in navigating and mitigating the impacts of the logistical constraints that have affected our export sales.
Our operating contextWind energy generated from the Cennergi operations increased by 8% compared to 2022 as wind conditions improved in 2023. Although Tsitsikamma experienced an Eskom distribution line fault in the first half of the year, resulting in 15GWh of lost generation over a one-month period, an improvement in wind performance was noted and the average plant availability of 97.3% was above the contracted 97%.
While group EBITDA decreased by 29% to R13.4 billion, this was our second highest EBITDA following record thermal coal prices in 2022. This was driven primarily by lower export prices and lower sales volumes for domestic and export. We delivered headline earnings of R46.81 per share, 22% lower than in 2022. The coal business's EBITDA margin decreased by 9% from 42% to 33%, while Cennergi's operational EBITDA margin remained stable at 80%. We achieved an annualised ROCE of 35%.
This achievement is attributable to our high basket price performance and efforts in efficient capital deployment and cost management. These will be critical performance areas as we embark on our growth journey ahead.
While Exxaro's legacy is steeped in our country's industrial growth, we have a responsibility to transition to support a sustainable future. Our tangible growth is reflected in the robust expansion of our market capitalisation, escalating from R20 billion at our inception in 2006 – when we set out to achieve our purpose of powering better lives in Africa and beyond – to R71 billion today. Today, we are transitioning from a history rich in mining to engaging with the energy landscape of tomorrow, drawing on the same commitment that steered us through past challenges and successes.
Our strategy champions the outcomes of energy security, endorses resources powering a clean world, and upholds an energy transition that ensures the path to carbon neutrality by 2050 is both viable and responsible.
Aligned with our commitment to ensuring energy security – meeting today's needs while supporting a sustainable future for all – our early value strategy focuses on optimising coal reserves to minimise the risk of stranded high-value assets while improving operational cost efficiency. In this regard, we concluded a capital excellence programme to improve our capital project delivery and enhance value during the year.
Our assets remained cost competitive and continue to deliver operational EBITDA margins of 80%. The group's augmented capital investment in Grootegeluk and Belfast saw a 57% increase over the previous year, which also speaks to the fact that the strategy is working. Our early value strategy and market to-resource optimisation enabled us to achieve the record average price realisation of 97% against the API4 index – an increase of 4% compared to 2022.
Business resilienceThe success of our coal business bolsters our financial resilience, enhances our capital strategy, and positions the group to capitalise on new opportunities and drive innovation for sustainable profitability and growth.
Pursuing our ambition to deliver resources powering a clean world, we seek to evolve from our coal-centric beginnings towards future-focused minerals and energy resources.
This transition is epitomised by our wholly owned subsidiary Cennergi, founded in 2009, delivering 229MW of clean energy to Eskom.
We aim to grow the business to become a leading energy solutions provider with a 1.6GW generation capacity by 2030. With the financial close of the LSP, Exxaro has further cemented our investment in energy, exemplifying our dedication to sustainable solutions.
Our venture into resilient, energy transition minerals is equally strategic, building on a legacy that adapts to ever-changing market dynamics. Our cash generation remains robust at R13.3 billion, enabling us to bolster our net cash position with R5.2 billion to R10.5 billion, putting us on a solid footing to execute our growth strategy.
The insights garnered through meticulous evaluations of potential opportunities in critical minerals and energy sectors over the past years have honed our expansion strategy. Continuous investment in market intelligence and capability strengthening positions us to forge partnerships that are as robust as they are insightful, ensuring judicious execution of the most value-accretive deals.
It therefore gives me great pleasure to welcome our new chief growth officer, Richard Lillieke. With his extensive banking and investment management background, Richard has successfully led numerous merger and acquisition transactions across the continent. We are delighted to have him join our executive team and excited about the leadership and expertise he will bring to our minerals and energy growth strategy.
As we unlock value and invest in areas with significant growth potential that align with our vision for sustainable impact, we have commenced the divestiture of the FerroAlloys business, which we identified as non-core to our future direction. With a focus on enhancing black economic participation, the sale of FerroAlloys is targeted to promote black ownership – a sale process we anticipate concluding in the second half of 2024.
An energy transition remains central to our ethos. As we shift towards a low-carbon business model, we must do so in a manner that is equitable and inclusive for all stakeholders. Our commitment to this transition is not only about reducing our environmental footprint but also about ensuring that the shift supports equitable socio-economic development, particularly in the areas where we operate.
Exxaro is investing in a greener future and creating a foundation for enduring social equity and economic vitality. To ensure that no one is left behind as we transition, we offer access to social development opportunities to all, in particular those in our host communities.
We are pleased to report a 17% increase in community investments, totalling R1.9 billion. Of this, 71% (R1.48 billion) was directed towards supporting black SMMEs through local procurement and ESD. Our ESD programme has been empowering youth and women-led businesses since 2018, benefiting communities across Limpopo, Mpumalanga and KwaZulu‑Natal. Our Social Impact strategy is aligned to the UN SDGs and seeks to create a lasting positive impact on communities and reduce poverty by combining multidimensional approaches that address education, economic wellbeing and access to land for economic activity.
Social impactPleasingly, our environmental stewardship and social responsibility initiatives have garnered recognition, as evidenced by our second-place accolade in the 2023 ESG Investing Awards for Social Responsibility, among our other many accolades.
The wellbeing of our people is a fundamental priority that underpins every facet of Exxaro's operations. This financial period, we recorded zero fatalities. Regrettably, we recorded 11 LTIs, resulting in a frequency rate of 0.07 against our target of 0.05. Even though we have observed a downturn in HPIs, indicating a movement towards our goal of an incident-free workplace, there is no room for complacency.
The team initiated enhanced safety campaigns across all our operations. We believe in creating a culture where safety and accountability are paramount, and every team member actively participates in safeguarding their wellbeing and that of their colleagues. Looking back at the year, we are proud of the six safety awards received at the COALSAFE Awards by the South African Colliery Managers' Association, reflecting our commitment to operationalising zero harm at our operations and beyond the mine gate.
Building momentum with peopleOur dedication to our people extends beyond safety. As the first female CEO in Exxaro's history, I am incredibly proud of our progress in DEI and the transformational power of our succession planning. The representation of black women in senior and middle management has improved by over 75% in the past six years. We are fostering an environment where DEI is woven into the fabric of our corporate culture. This commitment has not gone unnoticed; Exxaro was honoured as a Top Employer in South Africa for the fourth time by the Top Employer's Institute.
I am grateful for the recognition of the Gender Icon Award at the 2023 Standard Bank Top Women Awards and the Trailblazing Women in Mining Award. At the Top Empowerment Awards, we were also recognised in the DEI category, affirming our position as leaders in creating a workplace where we all feel like we belong. Additionally, being included in the 2023 Bloomberg Gender-Equality Index is not just an honour but a benchmark that drives us towards greater inclusivity and equality in our industry.
These awards and accolades received are not just symbols of honour but are testaments to the values we uphold and the inclusive future we are building.
As we navigate the complexities of our industry and the broader environmental and socio-economic challenges, our Sustainable Growth and Impact strategy is more relevant than ever. We are committed to transitioning Exxaro into a diversified minerals business, focusing on manganese, bauxite, and copper, among others, to build a sustainable and resilient future. Our energy initiatives and the strategic selection of minerals for diversification reflect our proactive approach to the global energy transition and our contribution to a carbon-neutral future by 2050.
Our achievements and strategic direction are a testament to our team's dedication and hard work, the support of our stakeholders, and the strength of our vision. As we look to the future, we remain focused on driving operational excellence, pursuing sustainable growth, and contributing positively to the global energy transition.
I sincerely thank our investors, board members, partners, and stakeholders for their unwavering support and commitment; and especially the women and men who continue to contribute to the business's success. I would like to thank each and every one of them for their dedication, resilience and loyalty. They know that we are #cruising nicely!
Dr Nombasa Tsengwa
CEO
10 April 2024
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