Integrated report 2020
Exxaro report selector 2020
Exxaro Resources Limited
Integrated report 2020
REPORT SELECTOR
Jeffrey van Rooyen
Chairperson
I begin my 2020 integrated report statement with a commitment to sharpen our strategic resolve in the middle of uncertainty presented by the COVID-19 pandemic. While 2020 presented us with numerous challenges, I am pleased to report that we made significant progress in refining our strategy. Exxaro was founded with a singular purpose – to power better lives in Africa and beyond. Our strategy is designed to deliver on that promise now and into the future.
As an organisation, we take pride in our ability to not only grapple with the challenges we face, but to also find solutions that meet our stakeholders' current and future needs and expectations. This year, as we undertook an extensive strategic review, we remained cognisant of the critical role Exxaro plays in South Africa - powering the country's economic growth. At the same time, we must balance the obligation and opportunity that we have to play an active role in the just energy transition to a low-carbon economy.
In the near term, coal is likely to remain dominant in South Africa. Our strategy allows for the current state of play, proactively creating the future we want. As a whole, our coal business remains robust, delivering high-quality coal safely and efficiently to generate returns for shareholders and meet market requirements.
We have to look at business beyond coal, as envisaged in our approach to a just transition (refer to Our strategy: positioning Exxaro for sustainable growth and impact). We see Exxaro as a diversified organisation with energy and mineral resources capabilities critical and relevant in a world of low-carbon emissions. In 2020 were introduced a different approach to community development to drive impact at scale. We aim to lead better and bigger development initiatives that will arrest and reverse the scourge of poverty in our communities.
Over the past year, we set up the building blocks to establish an energy business of the required size to support our growth ambitions. We assembled a dedicated board of directors and leadership team, as well as allocated capital to drive the energy business forward.
Our energy company board is chaired by independent non-executive director, Mark Moffett. He has been on our board since 2018, has extensive experience in building new businesses, and has a deep understanding of the energy sector.
To help build the required capabilities to grow our energy business successfully, we conducted an extensive global and local search for a suitable managing director. I am pleased to announce that Roland Tatnall was appointed managing director: energy and a member of the executive committee. Roland's multifaceted experience in Africa and South Africa's energy sectors will help sustainably drive our growth.
Together, Mark and Roland, supported by our audit committee chairperson, CEO and finance director, have a strong team to deliver against our strategic priorities.
The third pillar of our diversification strategy is the minerals business, which will be built on commodities with strong fundamentals that are relevant and sustainable in a low-carbon world. A minerals diversification strategy was approved by the Exxaro board of directors during June 2020, to create an Exxaro of the future that is built on three core pillars, coal, minerals and energy. The minerals division’s ambition is to utilise Exxaro’s core competencies to supply minerals that power a cleaner world in a responsible and sustainable manner impacting positively on our stakeholders while providing superior shareholders returns and driving our decarbonisation objectives.
In terms of our capital allocation framework, Exxaro remains disciplined in returning cash to shareholders, managing debt, and selectively reinvesting for the growth and resilience of the business in a low-carbon future. As a result, we are implementing exit strategies for operations that no longer align with our strategic vision. Our intention is not to operate as an investment holding company. As mentioned previously, we undertook a strategic decision to dispose of our total equity interest in Exxaro Coal Central Proprietary Limited (ECC) and Leeuwpan, having identified these assets as non-core to the future objectives of Exxaro. Subsequent to 31 December 2020, Exxaro signed a sale and purchase agreement with Overlooked Colliery Proprietary Limited, who will acquire ECC. The sale will only be effective once all conditions precedent to the sales agreement have been met. The disposal of Leeuwpan continues.
We also announced our intention to exit our shareholding in Tronox, which was finalised after year end, following approval by the Financial Surveillance Department of the South African Reserve Bank. As a result of the transaction, the board of directors resolved to use the proceeds to pay a special dividend of 543 cents per share, approximately R1.9 billion, to external shareholders and to implement a share buyback programme to the value of R1.5 billion.
Our revised strategy, and focus on building our renewable energy business necessitated a review of our dividend policy. Exxaro's declared dividend policy was previously based on two components: a pass through of the SIOC dividend received and a dividend based on a cover ratio of 2.5 times to 3.0 times Exxaro adjusted group earnings, to include earnings contribution from Cennergi.
Following the dividend policy review, the board of directors approved for the targeted cover ratios to be applied on Exxaro group earnings and not only coal earnings. In line with this revised dividend policy, the board has declared a final dividend of 1 243 cents per share.
We need to execute our clearly defined strategy in a way that enables us to build profitable businesses, secure the capital we need and deliver appropriate returns for our investors. To achieve these goals, proper risk management and governance are essential.
We understand that successful growth requires the ability to take appropriate risks and world-class risk management. I believe that we have the knowledge, skills and experience to harness opportunities, while ensuring we remain within our approved risk appetite.
Ethical and effective governance is key in this regard – from how we, as a board, operate and cooperate to how Exxaro works with our stakeholders to deliver on mutual strategies. We continue nurturing collegiality so that we cooperate with each other, sharing our responsibilities with mutual respect and trust.
The world we operate in is more complex than ever. As a leadership team, we recognise this and believe that we must draw on the diverse competencies and knowledge of our board members to successfully address the complex issues we face and identify opportunities inherent in our context.
The board is diverse across a multitude of metrics and as chairperson, I consider it important to ensure we play to the strengths of each board member, all of whom continue to go the extra mile under difficult circumstances.
To strengthen our board, we appointed Chanda Nxumalo in 2020. Chanda has 15 years' experience in the renewable energy and power sector. Subsequent to year end, we appointed Mandlesilo (Mandla) Msimang who has extensive experience in national and international governance and information and communications technology sectors. Mandla and Chanda will both support Exxaro's growth strategy in energy.
The board continuously focuses on ensuring that there is adequate succession planning to maintain ongoing knowledge. In line with this, Mxolisi Mgojo, our CEO, will retire when he reaches the retirement age of 63, on 31 May 2023. To ensure a seamless transition, Dr Nombasa Tsengwa has been appointed as CEO-designate and member of the board effective from 16 March 2021. Her appointment as CEO will become effective once the CEO retires on 31 May 2023.
Dr Tsengwa's appointment forms part of a carefully considered succession plan that has taken place over the past two years. The transition period will ensure a smooth and phased handover of duties and responsibilities. Dr Tsengwa has more than 18 years' executive management and board experience in the public and private sectors and we look forward to her contributions in her new role.
Refer to Board of directors of our ESG report for the board's biographies.
Furthermore, my tenure as chairperson and independent non-executive director of the board of Exxaro will come to an end at the annual general meeting to be held on 27 May 2021. It has been a great honour to serve on the Exxaro board for 12 years, and I wish the organisation all the best as it takes its next strategic evolution. A rigorous search process was conducted and a new chairperson designate has been appointed with effect from 19 April 2021. Mr Mvuleni Geoffrey Qhena is the former CEO of the Industrial Development Corporation (IDC), a significant shareholder of Exxaro. As such, Geoffrey brings with him a clear understanding of the organisation and the mining sector.
Looking ahead, we will continue evaluating the board and leadership to ensure we have the right skills and experience to support Exxaro's growth. We will focus on innovation and technology, climate change and sustainability in the year ahead.
We are currently facing dual crises: COVID-19 and climate change. Both have had a profound impact on society, our business and the communities where we operate. We see ourselves as active participants and responsible stewards of our stakeholders' trust, the natural resources we depend upon and of a sustainable and thriving business.
Throughout the COVID-19 crisis, we remained committed to supporting our stakeholders. Among others, we made monetary donations to several organisations, implemented social distancing and other COVID-19 prevention measures, established testing stations and provided personal protective equipment (PPE). At the date of this report, 12 colleagues had regrettably succumbed to COVID-19. We extend our sincere condolences to their families and friends. We remain committed to doing everything in our power to keep our stakeholders safe. Looking ahead, we plan to work with our stakeholders and partners in government, business and civil society to halt the spread of the virus.
While we have achieved much over the past year, from a strategic, operational and financial perspective, there is still much work to be done. Our revised strategy recognises the impact of climate change and balances our commitment to being an active participant in a just transition. The true tests will come in the years ahead, as we implement our strategic plans and deliver on our purpose. I believe that the foundations laid over the past years will ensure that we remain a resilient and responsive business, providing tangible returns to all our stakeholders.
Thank you to the board and executive team for your continued and unwavering support during the year.
Chairperson
19 April 2021
