POSITIONING THE BUSINESS FOR GROWTH | Performance against our 2020 strategy | Next: Understanding our key strategic trade-off considerations

Positioning the business for growth
Performance against our 2020 strategy

Our 2020 strategic objectives guided our actions in a resourceconstrained environment which was exacerbated by the impacts of COVID-19.

Our trade-offs are outlined in Understanding our key strategic trade-off considerations and our material matters are in Chairperson's statement and in Our material matters. The following tables outline our strategic objectives that guided our actions and achieved performance.

OPTIMISING OUR PORTFOLIO

What this means
Related material themes

We remain focused on ensuring we have an optimal portfolio to deliver on our purpose — powering better lives in Africa and beyond. This requires tough calls on our assets to ensure we are responsibly extracting the maximum value from these investments. These must be robust and profitable against volatile market conditions and resilient to climate change pressure.

KPIs and performance
Performance in 2020

Portfolio optimisation remains a strategic objective to ensure a simplified business structure that will reduce the holding discount in our valuation. In relation to the coal business, we also want to keep a portfolio of assets that will withstand market price volatility with highquality reserves providing flexibility under changing market conditions for coal products.

Business of Tomorrow: No further investments in Business of Tomorrow. Current Business of Tomorrow investments are held for possible future divestment at an appropriate time.

Black Mountain Proprietary Limited (Black Mountain): Exxaro continues to evaluate its options to dispose of its shareholding in Black Mountain following the suspension of the sales process in December 2020.

Coal operations

As part of our sustainable growth approach, we conducted an internal review to evaluate and optimise our current portfolio of coal operations and investments. We took a strategic decision to dispose of our ECC and Leeuwpan operations, having identified these assets as non-core to Exxaro’s future objectives. 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 process for Leeuwpan continues.

Refer to our operational performance in Operational performance for more information.

Looking forward
Related SDGs

A key component of our new strategy revolves around optimising our strategy to ensure the viability of our business into the future. We will continue aligning our portfolio to these plans. Exxaro’s deepest roots and expertise lie in energy. As energy security is critical to food and water security, we determined that we can most powerfully move the needle by sharpening our focus on energy and gaining nearer-term traction in that area and ensuring water security for our current and future mineral operations.

See Our strategy: Positioning Exxaro for sustainable growth and impact for more information on our Sustainable Growth and Impact strategy.


South Africa struggled with national lockdowns to halt the spread of the COVID-19 virus, but our focus remained on delivering against our strategic objectives in a safe and sustainable manner.

ENSURING THE SUSTAINABILITY OF OUR BUSINESS

What this means
Related material themes

We continue refining our sustainability strategy and sustainable development approach in the context of the just transition.

Our embedded safety and health strategies and stakeholder relations enabled us to respond timeously and effectively to COVID-19.

KPIs and performance
Performance in 2020

Target: top quartile FTSE Russell ESG Index

Health: managing lives and livelihoods

Exxaro’s coal operations and Cennergi were declared essential services to ensure continued coal and wind supply for electricity generation during the national lockdown in 2020. Consequently, we were able to maintain 100% operating capacity for most of our operations since the start of the lockdowns. However, our Matla operation operated at 80% until the beginning of October 2020. As such, employee and community safety and health were paramount to, firstly, minimise the spread of COVID-19 while maintaining production performance and secondly, respond promptly to ensure effective recovery.

See Year in review for more COVID-19-related information.

Just transition journey — a holistic response to climate change

Our TCFD analysis highlighted the increasing risk of carbon price exposure as Global Climate Action is focused on meeting the Paris Agreement target of 2°C (and below) by the end of the century. We are confident that attaining our carbon-neutrality target for scope 1 and scope 2 emissions by 2050, combined with making our business portfolio climate resilient in a low-carbon world through our Sustainable Growth and impact strategy, will mitigate the financial impact of carbon exposure risk. Our considered social interventions include sustainable impact strategies that will involve, among others, regenerative rehabilitation and repurposing relevant assets such as our land, to develop new industries beyond coal mining for the livelihoods of local communities.

We are committed to implementing the TCFD recommendations, which will support our communicated strategic direction. We started with an assessment process prior to the national lockdown and due to the setback from the pandemic, the publication of the recommendation report was delayed.

Refer to Our environment: stewardship and compliance for more information.

Looking forward
Related SDGs

We remain focused on improving our overall ESG performance with responsible stewardship and managing our sustainability. Our focus remains on health and safety, our social licence to operate and including human rights best practice, environmental stewardship and managing and responding to climate change.

See Our strategy: Positioning Exxaro for sustainable growth and impact for more information on our Sustainable Growth and Impact strategy.


DELIVERING OPERATIONAL EXCELLENCE

What this means
Related material themes

Operational excellence refers to the drive to improve how we do business. While our primary measure remains on our cost per tonne mined, this strategic objective stretches across all operations and reflects the constraints of the environment we operate in and our drive to maximise efficiency in this context.

KPIs and performance
Performance in 2020

Target: limit increase to mining inflation (R/tonne)

We continue rolling out our integrated operations centres across our BUs, enabling operational insights and in-time decision making. These centres assist us on our journey to improving our safety, productivity and cost performance. Our investments in digitalisation, innovation and technology support these goals, and we continued to seek opportunities to ensure costcompetitive production and improved efficiency for higher volumes.

Responsible and safe operations are a key component of delivering operational excellence and we continue investing in programmes that support a safe and healthy working environment, responsible environmental stewardship and protecting our social licence to operate.

More information can be found in our business resilience and people sections in Business resilience and Our people respectively.

Looking forward
Related SDGs

Our goal is to ensure our coal operations will be best-in-class and cost-competitive. Supported by our companywide drive to achieve operational excellence, we continue meeting our customers’ expectations of volumes, quality and price.

See Our strategy: Positioning Exxaro for sustainable growth and impact for more information on our Sustainable Growth and Impact strategy.

We are planning for a below consumer price index (CPI) +2% (mining inflation) increase in production unit costs per tonne, acknowledging inflation costs, with improving volume efficiencies. Cash cost performance and free cash flow generation (as our expansion capex comes to an end) will be material measures of operational success.


PRUDENTLY OPTIMISING CAPITAL

What this means
Related material themes

Cautiously allocating our capitals, particularly our financial capital, is a critical part of our value creation process and, as such, forms part of our strategic objectives. Our leadership teams are charged with prudently allocating capital to ensure we deliver on our current strategic priorities, as well as position the business for future growth.

KPIs and performance
Performance in 2020

Target: return on capital employed (ROCE) of >20%. Dividend policy: 2.5 times to 3.5 times group core net profit after tax (excluding SIOC core equity-accounted income) less non-controlling interests (NCI) of Exxaro subsidiaries (excluding NCI of Eyesizwe) “adjusted group earnings” and a pass through of the Sishen Iron Ore Company Proprietary Limited (SIOC) dividend.

Exxaro’s improved capital allocation programme continued delivering on commitments related to capital expenditure for its production growth through project delivery and return of cash to shareholders with the near conclusion of our expansion programme. Our focus remains on optimising and implementing our portfolio of growth and sustaining capital.

In relation to capital expenditure and project delivery, other than GG6, all projects were on schedule and on budget. On the GG6 expansion project, the overall schedule was impacted by the COVID-19 national lockdown period and contractor performance, resulting in an overall 12-month delay from the originally approved timeline, and an estimated 10% capital overrun. The project and operations teams continue seeking opportunities to optimise capital expenditure and mitigate negative impacts on the business.

Grootegeluk’s rapid load-out station project is aligned with the TFR north-west corridor expansion project. On 30 September 2020, it was successfully handed over to the Grootegeluk complex for operation.

We are in the process of finalising our options regarding the future of the Thabametsi mine, given the latest announcements that the Independent power producer (IPP) is unlikely to continue due to the withdrawal of key stakeholders.

Debt management (balance sheet): In order to manage its capital expenditure programme, Exxaro sources funds in both the Debt Capital and traditional banking markets. Alternative sources of funding allow Exxaro to fund its obligations in terms of the capital expenditure programme with a blend of interest rates which results in a lower interest cost.

Looking forward
Related SDGs

We continue ensuring we align with shareholder expectations — protecting returns, prudently allocating capital to our existing business and ensuring transparency regarding our future capital allocation plans.

Refer to Our strategy: Positioning Exxaro for sustainable growth and impact for more information on our Sustainable Growth and Impact strategy.