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Exxaro annual results for the financial year-ending 31 December 2020

Highlights
  • Group revenue up 12% to R28.9 billion (FY19: 25.7 billion)
  • Core HEPS up 26% at R29.73 (FY19: R23. 54)
  • Core EBITDA up 25% to R7 291 million (FY19: R5 832 million)

Exxaro Resources Limited – the black empowered diversified resources group – reported a 25% increase in core EBITDA to R7 291 million (FY19: R5 832 million), and a 26% increase in core HEPS at R29.73 (FY19: R23.54) for the financial year ended 31 December 2020, a notable achievement in the face of the Covid-19 pandemic, a destressed local economy and relatively low thermal coal pricing.  The Group also announced a record dividend distribution and achieved significant safety milestones.

CEO Mxolisi Mgojo says: “These are very pleasing results and I must commend all our people for this resilient performance. The Covid-19 pandemic has highlighted the deeply connected nature of our society and emphasised the importance of an integrated sustainable development approach.” Exxaro is focussed on agile responses to short-term challenges, while continuing to support a just transition towards a low carbon economy and sustainable communities. “Our embedded safety and health strategies and stakeholder relations enabled us to respond timeously and effectively to the pandemic.”

The company navigated significant headwinds and new risks brought about by the Covid-19 pandemic during the year. Preventative measures such as in-house diagnostic capabilities for screening, testing and tracing as well as a comprehensive management of cases through the Covid-19 call centre, provision of oximeters, isolation facilities and integrated employee assistance support were all in place soon after the National State of Disaster was announced in the first quarter of 2020. Notably all Exxaro operations returned to full capacity from 2H20 with Matla at 80% until end 3Q20 which played out positively for the record export volumes and increase in the mix of RB1 coal. The company maintained its leading position in ESG performance in line with the long-term goal of positioning Exxaro for low carbon future through its robust risk management and value creation approach.

Our key priority for sustainable development is safety performance. “We commend all our teams for continuing to drive zero harm so effectively.” The Group achieved a record 48 months without a fatality as at 1 March 2021 and we continued to operate uninterrupted with no section 54’s. “I am pleased to report a 58% year-on-year improvement in our LTIFR which is a company record”, says Mgojo. The company achieved an LTIFR of 0.05 that was 55% ahead of the set target of 0.11. Our ability to create value for stakeholders is anchored around our safety performance.

Financial Results: Consolidated group revenue increased 12% to R28 924 million (FY19: R25 726 million), mainly due to higher coal revenue and record export volumes, as well as the 9 months consolidation and contribution from 100% owned Cennergi from 1 April 2020. The 25% increase in consolidated group core EBITDA to R7 291 million (FY19: R5 832 million) was operationally driven by volumes, exports and disciplined cost management.

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Revenue growth was attributed to the following business segments: coal R27 875 million (FY19: R25 582 million), energy R889 million, ferrous R148 million (FY19: R130 million), and other R12 million (FY19: R14 million) includes some non-core assets.

Headline earnings were 2% lower at R7 417 million (FY19: R7 559 million). The decrease in the headline earnings is mainly due to the accounting of non-controlling interest of the external shareholders and BBBEE partners of Eyesizwe RF). This equates to basic headline earnings per share of 2 955 cents per share (FY19: R3 027 cents per share). The weighted average number of shares [WANOS] for both financial years was 251 million. After adjusting for non-core items, core headline earnings increased by 1% to R7 462 million (FY19: R7 402 million).

Core EBITDA of R7 291 million was attributed to the following business segments: coal R7 707 million (FY19: R6 849 million), energy R648 million, ferrous R12 million (FY19: 11 million), and other was relatively flat with a loss of R1 076 million (FY19: loss of R1 028 million).

In terms of its 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. Exxaro’s strategic approach to build a renewable energy business necessitates a review of the dividend policy. The board has approved cover ratios (2.5 times to 3.5 times) to be applied to the Exxaro adjusted group earnings and not only coal earnings.

Capital expenditure decreased to R3 175 million (FY19: R6 076 million) as the capital expenditure programme draws to a conclusion this year.  The decline in capex consisted of a R2 624 million decrease in expansion capital and a R277 million decrease in sustaining and environmental capex.  Exxaro is entering a harvesting phase from the R17 billion capex expansion programme which means that there is likely to be an improving ROCE and more free cash flow available for distribution to shareholders going forward.

After taxes and net finance costs, cash generated by operations was R7 770 million up from the prior year which reported R5 273 million. Dividends received from our continuing equity-accounted investments of R3 263 million was down versus FY19: R4 146 million but sufficient to cover ordinary dividends.

The balance sheet remains strong with a net debt managed at R6 335 million (excluding Cennergi’s net debt of R4 632 million) compared to R5 810 million at 31 December 2019. The increase is attributed to a cash flow of R1 739 million for the acquisition of the remaining 50% shareholding of Cennergi (including the contingent consideration paid). Net debt (excluding Cennergi) to core EBITDA was 0.95 times (FY19: 1.0 times), which is comfortably below target of 1.5 times.

Overall coal production volumes (excluding buy-ins) increased by 4% to 47.4Mt, mainly attributable to higher production at Grootegeluk and the Belfast mine, which was fully ramped-up from March 2020. The increase was partly offset by lower production at Leeuwpan and ECC due to the Covid-19 lockdown. Sales improved by 5% to 46.8Mt as a result of increased exports as well as higher domestic sales from Grootegeluk, offset somewhat, by lower domestic sales at Leeuwpan and ECC.

Cennergi was fully consolidated for 9 months of the reporting year and represents a significant manifestation of ESG value creation. The capacity and capabilities as a provider of clean energy solutions will position the company to participate in the global clean energy market that is projected to grow at around 5% p.a. to 2025. Exxaro intends leveraging existing assets, capabilities and relationships to create a scalable provider of utility and distributed energy solutions and services. As Cennergi already has one of South Africa’s largest renewable asset bases and is an established leading manager of renewable energy assets, this is a solid platform for expansion.

Mgojo adds: “Exxaro is well positioned to take advantage of momentum to liberalise South Africa’s energy sector. The combination of energy production and asset management will create an annuity income stream in the long-term for the Group. In the short-term, the aim is to establish credentials as distributed energy solutions producer while reducing Exxaro’s carbon footprint.”

Mgojo concludes: “Exxaro recognises and acknowledges the risks associated with climate change, as well as the opportunities it brings for future development.” says Mgojo. We will also ensure our response strategy to Climate Change develops and progresses alongside our stakeholders and we will share more details of progress in this at our Capital Markets Day later this year.”

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