HIGHLIGHTS (FY21 VS FY22)
- 0.05 LTIFR, ahead of target of 0.06
- Regrettably one fatality after 5 years and 5 months without a fatality
- Group revenue up 41% to R46 369 million [FY21: 32 771 million]
- EBITDA up 78% to R19 002 million [FY21: R10 671 million]
- HEPS up 28% at R60.16 [FY21: R46.83]
- Net cash position of R9 653 million, excluding Cennergi’s net debt of R4 412 million (FY21: net cash of R764 million, excluding Cennergi’s net debt of R4 482 million)
- Final cash dividend of 1 136 cps (FY21: 1 175 cps), down 39 cents y-o-y
16 March 2023, Exxaro Resources Limited (Exxaro), the black empowered diversified resources and renewable energy group, reported a record 78% increase in EBITDA to R19 002 million (FY21: R32 771 million), and a 28% increase in HEPS at R60.16 (FY21: RR46.83) for the financial year ended 31 December 2022, a resilient performance mainly due to the exceptional performance of its coal business, driven by high-quality product mix, and increases in export and domestic sales prices.
CEO, Nombasa Tsengwa said, “In spite of the obstacles we have faced this year, Exxaro has once again displayed its agility in navigating through the challenging business operating environment. I am very pleased to present these impressive results, which once again demonstrate the quality and resilience of our people and their consistent and timely implementation of our operational excellence, as well as management’s ability to take decisive action in a dynamic environment.
Our commitment to continuing to create long-term value for all stakeholders through focusing on our early value strategy and capital excellence journey has placed us in a strong financial position to enable us to navigate through the current uncertain operating environment and to announce a final cash dividend distribution of 1 136 cps.
While the ongoing logistical constraints continue to substantially impact our ability to produce and export coal at desired levels, resulting in a year-on-year decline of 32% in our export volumes, we have prioritised short-term solutions to evacuate our product by pursuing alternative markets and logistical channels to sell our product in the export and local market to mitigate this negative impact. We are also focused on finding permanent logistical solutions which will de-risk our business from the dependency on Transnet.
We continue to reap the benefits of our Early Value Strategy which makes us more competitive due to optimised high value product mix. This, coupled with our Market to Resource optimisation initiatives, has enabled us to increase the average price realised to a record 93% against the API4 index, across total export volumes.
The inflationary environment continues to underscore the importance of focusing on efficiencies in order to contain costs and remain cost competitive, and I commend the team’s efforts in implementing continuous improvement initiatives and operational efficiency drives which have continued to achieve a cost performance increase of below mining inflation.
For Exxaro, ESG is an integral part of our value system that we uphold across the organization. Exxaro has strengthened its leading ESG rating in the FTSE Russell ESG Index, with an overall rating of 4 out of 5, testament to the work we have done to embed ESG into the DNA of our business.
Safety and zero harm remain critical performance indicators for our business sustainability and are amongst key social performance indicators in these index ratings. Regrettably, after a record performance of 5 years and 5 months without a fatality, on 15 August 2022, Exxaro recorded a fatality at Belfast Coal. One of our colleague, Mr Mathews Moanalo, was fatally injured. An investigation on the circumstances of the accident has been concluded, with learnings being implemented across our operations. We offer our deepest condolences to his family on their loss.
This year our LTIFR improved to 0.05, against a set target of 0.06, a 37.5% improvement compared to the same period in FY21.”
Dr Nombasa Tsengwa was appointed as Chief Executive Officer, effective 1 August 2022.
Financial results: Group revenue for FY22 increased 41% to R 46 369 million (FY21: R32 771 million) mainly due to the exceptional performance of the coal business driven by high-quality value product mix, and higher export and domestic sales prices, despite the ongoing logistical challenges. The increase in group revenue was the main driver for the 78% increase in Group EBITDA to R19 002 million (FY21: R10 671 million).
Revenue growth was attributed to the following business segments: coal: R44 971 million (FY21: R31 395 million), energy: R1 159 million (FY21: R1 193 million), ferrous: R224 million (FY21:R168 million), and other: R15 million (FY21: R15 million) which includes some non-core operations.
Headline earnings increased 26% to R14 558 million (FY21: R11 568 million) driven mainly by the 78% increase in group EBITDA, which was partially offset by the 26% decrease in equity-accounted income. SIOC’s adjusted equity-accounted income was 46% lower because of lower iron ore prices, lower volumes and higher operating expenses, partly offset by a weaker currency. The significant increase in equity-accounted income from Mafube was driven by higher coal sales volumes as well as higher API4 prices.
The increase in earnings translated into headline earnings per share (HEPS) of 6 016 cents, (FY21: 4 683 cents), 28% higher than the prior year.
EBITDA of R19 002 million was attributed to the following business segments: coal: R19 023 million (FY21: R10 671 million), energy: R828 million (FY21: R913 million), ferrous: R56 million (FY21: 24 million), and other was relatively flat with a loss of R905 million (FY21: loss of R937 million).
Exxaro remains prudent in its capital allocation framework, in terms of returning cash to shareholders, managing debt, and selectively reinvesting for the growth of the business in a low carbon future.
In line with the dividend policy, based on a targeted cover ratio of between 2.5 times to 3.5 times adjusted group earnings and a pass-through of the SIOC dividend, the board declared a gross final cash dividend, number 40 of 1 136 cents per share, for the year ended 31 December 2022, comprising: 2.5 times adjusted group earnings and a pass through of SIOC dividend receivable of R1 419 million.
Cash generated by operations was up 79% to R18 863 million (FY21: R10 552 million) and, together with the dividends received from our equity-accounted investments of R5 903 million (FY21: R9 991 million), was sufficient to fund capital expenditure, taxation paid and ordinary dividends paid. Positive operational results and strong cash generation resulted in a net cash position of R9 653 million (excluding Cennergi’s net debt of R4 412 million) compared to net cash of R764 million (excluding Cennergi’s net debt of R4 482 million) at 31 December 2021.
Coal business performance: Coal production volumes from operated mines (excluding buy-ins) increased by 879 kt (2%) to 43.1 Mt, mainly due to higher production at Grootegeluk, Leeuwpan and Matla, offset by the lower production at Belfast due to the fatality in August 2022, as well as the divestment of ECC on 3 September 2021.
Sales volumes decreased by 666 kt (-2%) to 42 093Mt, mainly on export volumes, which declined 32% to 5.2Mt due to logistical constraints linked to lower rail performance, but this was partly offset by higher domestic sales due to export coal being diverted to the local market.
Coal revenue increased 43%, largely driven by an increase in revenue from our commercial mines as we achieved higher sales prices in all markets.
Coal EBITDA of R19 023 million (FY21: R10 671 million) increased 78%, at an EBITDA margin of 42%, driven mainly by higher commercial revenue (+R14 866 million) and realised and unrealised exchange rate gains (+R441 million). The increase in coal EBITDA was partially offset by inventory drawdown and higher buy-in costs from Mafube JV, mainly due to the higher prices in line with the high API4 price (-R2 248 million); inflationary pressures (-R1 952 million), driven by diesel, explosive and electricity tariff increases, which were significantly above the PPI inflation rate; higher royalties (-R786 million), in line with higher profitability; and higher selling and distribution costs (-R788 million), due to the use of road transport and alternative ports.
Energy business performance: Cennergi’s EBITDA margin was 80% (FY21: 83%), showing the consistency of earnings underpinned by the long-term off-take agreements.
Cennergi generated 671 GWh of electricity in FY22 (FY21: 724 GWh), which is in line with December guidance of 675 GWh due to persisting low wind conditions. In the South African context, wind farms have experienced their lowest wind conditions over the past twelve months. Globally, wind farms have also experienced below-normal wind conditions over the same period. Average equipment availability was 98%, better than contracted levels and in line with normalised levels.
The Cennergi project financing of R4 554 million (FY21: R4 700 million) will mature and be fully settled in 2031. It has no recourse to the Exxaro balance sheet and is hedged through interest rate swaps at an effective rate of 12.3% (FY21:11.9%). Hedge accounting is applied and therefore has limited volatility on the income statement. Tsengwa concluded, “Exxaro is well positioned for a meaningful role in the South African energy transition and we remain fully committed to achieving our aspiration for the current and future business to be carbon neutral by 2050. While the energy generation mix in South Africa will continue to be dominated by coal, our renewables business Cennergi will play a massive role in enabling us to achieve this decarbonisation aspiration through self-generation at our operations and avoiding future emissions.
We remain committed to our strategy to grow into a global diversified minerals business. Copper, bauxite and manganese, are the three prioritised minerals which are critical to support the energy transition and future economic development. The long-term fundamentals of our three chosen commodities remain attractive and we have an active pipeline of possible targets that we are evaluating against prudent, disciplined capital allocation criteria to ensure that we create value in growing and diversifying our business.”
Exxaro CEO, Dr Nombasa Tsengwa will be hosting a webcast and call today, 16 March 2023 at 10h00 CAT to discuss the results.
The webcast can be accessed via the following link: https://www.corpcam.com/Exxaro16032023
Participants can register for the conference call by navigating to https://services.choruscall.za.com/DiamondPassRegistration/register?confirmationNumber=6401672&linkSecurityString=e24b63f08
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