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Exxaro’s half-year earnings soar 145% to R10bn

Thursday, August 18th, 2022

Diversified resources group Exxaro on Thursday reported increased half-year revenue, earnings and sufficient cash flow to fund capital expenditure and dividends.

Group earnings before interest, taxes, depreciation and amortisation (Ebitda) increased by 145% to R10 603-million on mainly the 142% increase in coal Ebitda in the six months to June 30.

Cash flow from operations increased 137% to R9 433-million and, together with the dividends received from its equity-accounted investments of R3 030-million, was sufficient to fund capital expenditure (capex) and ordinary dividends paid.

Total capex decreased to R744-million made up of R710-million sustaining capex and R34-million expansion capex.

During the half-year, international coal prices reached a record high driven by the Russian-Ukraine conflict and the ban on Indonesian coal exports, the JSE-listed Exxaro stated in a stock exchange news service (SENS) announcement accessed by Mining Weekly.

The SENS announcement stated that global trade flows were affected, increasing demand from Europe for South African high-quality coal to reduce the dependency on Russian coal.

In stark contrast to the increased demand from Europe, the higher coal prices reduced demand from Asia, especially from India and Pakistan, owing to affordability factors. This also eroded demand for low calorific value (CV) coal as they opted for cheaper sources of supply, widening the discounts across all low CV products.

The domestic market had, SENS said, also been impacted by higher export prices as the improved attractiveness of alternative export distribution channels allowed for domestic volumes to be sold in the international markets.

Domestic supply tightness was, it added, contributing to a higher domestic price outlook.

Locomotive unavailability remained a huge challenge, which combined with cable theft, vandalism and sabotage of rail infrastructure, was impacting Exxaro’s logistics chain.

Three second-quarter derailments negatively impacted the Mpumalanga region’s performance.

Exxaro railed 2.5-million tonnes of export coal to Richards Bay Coal Terminal (RBCT), compared to 4.1-million tonnes in the first half of last year.

The poor rail performance also negatively impacted steelmaker Arcelor Mittal South Africa’s offtake.

Discussions between Exxaro and the industry are continuing with State rail enterprise Transnet Freight Rail to resolve contractual challenges and to improve rail performance.

The 183%-higher average benchmark API4 RBCT export price of $277/t resulted in a 236% increase in the average realised export price for Exxaro of $262/t compared with $78/t for the corresponding period of last year.

In addition to the favourable price, Exxaro achieved a lower average discount of 5% – compared with 20% last year –to the average benchmark API4 export price, based on its product mix.

ENERGY BUSINESS PERFORMANCE

Wholly owned renewable energy company Cennergi generated 307 GWh electricity compared with 331 GWh in the first half of last year.

Overall performance was below guidance owing to poor wind conditions.

In the South African context – and in other regions such as Europe – wind farms experienced their worst wind conditions for a six-month period.

Cennergi’s average equipment plant availability of 97.4% had, SENS stated, been marginally better than contracted and was in line with normalised levels.

Cennergi’s Ebitda margin was 80%, demonstrating the consistency of earnings underpinned by the long-term offtake agreements.

The Cennergi project financing of R4 637-million at June 30 compared with R4 700-million as at December 31, and would, it added, mature over time and be fully settled by 2031.

Cennergi has no recourse to the Exxaro balance sheet and is hedged through interest rate swaps achieving an effective rate of 12%, up on last year’s 11.2%.

CLIMATE CHANGE RESPONSE STRATEGY IMPLEMENTATION

To strengthen greenhouse gas (GHG) mitigation and business resilience efforts, water security, energy and water efficiency targets have been included as part of the group-wide short-term incentive scheme in 2022.

The energy efficiency targets relate to diesel and electricity usage, with diesel accounting for more than 95% of Exxaro’s Scope 1 GHG emissions, while coal-based electricity is 100% of Exxaro’s Scope 2 emissions.

The inclusion of these two key performance indicators in the company’s incentive scheme is a progression of its climate change response strategy, carbon neutrality 2050 target, and further alignment with the Task Force on Climate-related Financial Disclosures.

COMMUNITY INVESTMENT AND DEVELOPMENT

Exxaro, SENS reported, would continue with community development efforts and investment to alleviate the strain of poverty and unemployment, which continues to weigh heavily on local communities, resulting in community protests at the company’s business units, with demands for employment and procurement opportunities.

However, community protests were peaceful, with timely responses and engagement, thus preventing escalation and eliminating negative impacts on people and production.

Consequently, community investment was focused on procurement and enterprise development opportunities, education and skills development, as well as the provision of infrastructure projects.

INTERIM DIVIDEND

Exxaro’s capital allocation framework balances returns to shareholders, debt management and selective growth reinvestment.

The company’s dividend policy is based on a targeted cover ratio of 2.5 times to 3.5 times adjusted group earnings; and a pass-through of the Sishen Iron Ore Company (SIOC) dividend.

Exxaro continues to target a gearing ratio of below 1.5 times net debt (excluding ring-fenced project financing) to Ebitda.

The board of directors has declared a cash dividend, comprising 2.5 times adjusted group earnings, and a pass-through of the SIOC dividend, of R2 498-million.

A gross half-year cash dividend of 1 593c was declared from income reserves. 

#EXARROEARNINGS

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