Integrated report 2020
Exxaro report selector 2020
Exxaro Resources Limited
Group and company annual financial statements for the year ended 31 December 2020
REPORT SELECTOR
2.3 |
REPORT OF THE DIRECTORS |
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The directors have pleasure in presenting the group and company annual financial statements of Exxaro Resources Limited for the year ended 31 December 2020 (group and company annual financial statements 2020). NATURE OF BUSINESS Exxaro is a large South African-based diversified resources group with interests in the coal, energy, ferrous and TiO2 markets. Exxaro's assets vary between controlled and operated assets, 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 and for decades to come, Exxaro understands the finite nature of the fossil-fuel sector and changing global imperatives. Exxaro therefore acquired Tata Power's 50% interest in Cennergi on 1 April 2020 giving Exxaro a 100% interest in the Cennergi group, a wind-farm energy generation producer, which aims to be the leading cleaner energy IPP in South Africa. Exxaro's investments in associates include its 20.62% (2019: 20.62%) equity interest in SIOC, which extracts and processes iron ore. It also includes a 26% (2019: 26%) equity interest in Tronox SA and a 10.26% (2019: 10.38%) equity interest in Tronox Holdings plc, a vertically integrated mining and inorganic chemical business, and a 26% (2019: 26%) equity interest in Black Mountain which produces zinc, lead, copper and silver in the Northern Cape. 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. PERFORMANCE OF REPLACEMENT BEE TRANSACTIONWe are proud to report that during 2020, we implemented Phase II of the Replacement BEE Transaction, by utilising 10% of Exxaro's shares in Eyesizwe for the empowerment of relevant Exxaro employees (ESOP arrangement) and communities (Community arrangement). ESOP arrangement On 27 March 2020, the ESOP arrangement was successfully implemented. Exxaro sold 5% of its shares held in Eyesizwe to the newly established subsidiary, Exxaro ESOP SPV. Exxaro ESOP Trust subscribed for 100% of the ordinary shares of Exxaro ESOP SPV, utilising the contributions received from participating Exxaro business units. Exxaro subscribed for 100% of the A ordinary shares of Exxaro ESOP SPV. The beneficiaries of Exxaro ESOP Trust are the relevant Exxaro employees, which are identified as being qualifying employees in terms of the trust deed. The beneficiaries will participate in distributions from Exxaro ESOP Trust as and when distributions are declared for as long as they are in the employment of one of the relevant employer companies within the Exxaro group. The beneficiaries do not have rights to the allocated units, nor do they retain a right to the allocated units upon leaving the employment of the relevant employer companies. An amount of R51 million has been paid out to the beneficiaries for the year. Community arrangement On 11 May 2020, the Community arrangement was successfully implemented. Exxaro sold 5% of its shares held in Eyesizwe to the newly established subsidiary, Exxaro Community NPC. The share purchase was funded utilising contributions received by Exxaro Community NPC from the participating Exxaro business units. Exxaro Community NPC is a non-profit company established for the benefit of communities in areas where Exxaro and its subsidiaries operate. An additional donation of R30 million was made by Exxaro to Exxaro Community NPC to fund the first project focused on aiding communities negatively impacted by COVID-19. DIVESTMENT OF NON-CORE ASSETS AND INVESTMENTSECC and Leeuwpan As mentioned previously, we undertook a strategic decision to dispose of our total equity interest in ECC and our Leeuwpan operation, having identified these assets as non-core to the future objectives of Exxaro. The resultant sales process is well underway and good progress has been made notwithstanding the COVID-19 environment. We are close to finalising the disposal of ECC with an announcement expected in the first half of 2021. On 31 December 2020, the ECC operation was classified as a non-current asset held-for-sale (refer note 8.4 and 18.4). The disposal process of the Leeuwpan operation continues. Black Mountain Exxaro continues to evaluate its options regarding the disposal of its equity interest in Black Mountain following the suspension of the disposal process in December 2020. 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. Subsequent to 31 December 2020, Exxaro divested from its investments in Tronox (refer note 18.4). Arnot operation On 1 February 2020, the Arnot operation was transferred to Arnot OpCo (refer note 8.6). Curapipe On 9 November 2020, the investment in Curapipe was sold under a deferred compensation offer comprising a cash component of US$1 and a contingent consideration receivable component. The contingent consideration receivable is dependent on the occurrence of certain transactions. INTEGRATED REPORT AND SUPPLEMENTAL INFORMATION 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. CORPORATE GOVERNANCE The directors endorse and acknowledge the principles contained in King IVTM. 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 2020 integrated report. COMPARABILITY OF RESULTS The results for the years ended 31 December 2020 and 2019 are not comparable due to the key items as noted in the headline earnings reconciliation (refer note 5.3). ACCOUNTING POLICIES The accounting policies applied during the year ended 31 December 2020 are consistent, in all material respects, with those applied in the group and company annual financial statements for the year ended 31 December 2019. In addition the group has adopted hedge accounting as described in note 16.1.3. REGISTRATION DETAILS 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. CAPITAL MANAGEMENT Free cash flow
1
Debt service
2
Sustaining capex
3
Expansion capex
4
Dividends
5
Growth
6
Excess cash
The above represents the order of our capital allocation framework. In applying our capital allocation framework, we aim for a net debt to EBITDA (excluding Cennergi) cover ratio of below 1.5 times. The capital allocation framework is in line with our commitment to sustainably returning cash to shareholders through the cycle while retaining a high level of balance sheet strength. During 2020, we received cash of R10.1 billion, comprising R6.8 billion from our operations (net of tax paid) and dividend income received from our equityaccounted investments of R3.3 billion. In terms of our capital allocation framework, we then utilised this cash, to mainly:
At 31 December 2020, our net debt to EBITDA (excluding Cennergi) cover ratio was 0.96 (2019: 1.00), which is comfortably below our target of 1.5 times. SHARE CAPITAL The share capital of the company has remained unchanged and is summarised as follows:
Subsequent to 31 December 2020, the board of directors resolved to implement a share buy-back programme of R1.5 billion, following the disposal of the investment in Tronox Holdings plc. SHAREHOLDERS An analysis of shareholders and the respective percentage shareholdings appears in chapter 19: annexure 1. INVESTMENTS IN SUBSIDIARIES The financial information in respect of investments and interests in subsidiaries of the company is disclosed in note 17.6. DIVIDEND PAYMENTS 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 was previously based on 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. Our strategic approach to build our renewable energy business necessitated a review of our dividend policy. The board of directors therefore approved for the targeted cover ratios to be applied on Exxaro group earnings and not only coal earnings. The revised dividend policy is therefore as follows:
Exxaro declared the following dividends relating to 2020: Dividend number 35 Interim dividend number 35 of 643 cps was approved by the board of directors on 11 August 2020 and declared in South African rand in respect of the six-month period ended 30 June 2020. The dividend payment date was Monday, 28 September 2020, to shareholders recorded on the register of the company at close of business on Friday, 25 September 2020. Dividend number 36 Final dividend number 36 of 1 243 cps was approved on 16 March 2021 and declared in South African rand in respect of the year ended 31 December 2020. The final dividend payment date is Monday, 3 May 2021 to shareholders recorded on the register of the company at close of business on Friday, 30 April 2021 (record date). To comply with the requirements of Strate, the last date to trade cum dividend is Monday, 26 April 2021. The shares will commence trading ex-dividend on Wednesday, 28 April 2021. 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 994.40000 cps. 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. Special dividend Taking into account the proceeds of R5 763 million received from the disposal of Exxaro's shareholding in Tronox Holdings plc, the board of directors has approved to pay a special dividend of 543 cps. The special dividend is payable on 3 May 2021 to shareholders who will be on the register on 30 April 2021. To comply with the requirements of Strate, the last date to trade cum dividend is Monday, 26 April 2021. The shares will commence trading ex-dividend on Wednesday, 28 April 2021. The special 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 434.40000 cps. 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. EVENTS AFTER REPORTING PERIOD 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 2020 or in the group and company annual financial statements 2020 that would significantly affect the operations or the results of the group and company. Refer note 18.4 for further details. DIRECTORATE AND SHAREHOLDINGS OF DIRECTORS Details of the directors in office at the date of this report are set out in the integrated report 2020. Details of directors' shareholdings are contained in note 14.5.3. Ms A (Anuradha) Sing retired from the board of directors at the 2020 AGM held on 28 May 2020. The board of directors embarked on a thorough and transparent appointment process through its remuneration and nomination committee to fill three existing vacancies. In this regard, Ms C (Chanda) Nxumalo was appointed by the board of directors as an independent non-executive director effective 1 February 2021 and Ms M (Mandla) Msimang was appointed by the board of directors as a non-executive director effective 15 March 2021. In line with King IV™, as amended or replaced from time to time, and the Listings Requirements with respect to good corporate governance practices, Exxaro aims to ensure that there is a clear balance of power and authority at board level and to ensure that there is adequate succession planning to maintain ongoing knowledge and experience at board level. The board of directors accordingly announced the following changes to the board of directors:
INDEPENDENT EXTERNAL AUDITOR PwC was re-elected as independent external auditor on 28 May 2020 in accordance with section 90 of the Companies Act and has again been proposed for re-election in respect of the 2021 financial year to occur at the forthcoming AGM on 27 May 2021. AUDIT COMMITTEE The audit committee report appears here as well as in the 2020 integrated report. BORROWING POWERS AND FINANCIAL ASSISTANCE
The borrowing powers were set at 125% of shareholders' funds attributable to owners of the parent for both the 2020 and 2019 financial years. Pursuant to the authorisation granted at the AGM held on 28 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. EMPLOYEE INCENTIVE SCHEMES 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 2020 and the supplementary information. RELATED-PARTY TRANSACTIONS Details of related-party transactions are set out in note 15.1. GOING CONCERN 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 2020 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. SPONSOR Absa Limited acted as sponsor to the company for the financial year ended 31 December 2020. JOINT EQUITY SPONSOR Tamela Holding Proprietary Limited acted as joint equity sponsor from 1 December 2020. TRANSFER SECRETARIES Computershare Investor Services Proprietary Limited serves as the South African registrar of the company. AGM The 20th (twentieth) AGM of shareholders of Exxaro will be held via electronic communication and/or (subject to any adjournment or postponement) at the conneXXion, 263B West Avenue, Die Hoewes, Centurion, South Africa, at 11:00 on Thursday, 27 May 2021 to consider and, if deemed fit, pass with or without modification, the resolutions. |
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