Salungano : 2023 Annual Financial Statement

• PURPOSE-DRIVEN
  APPROACH TO
  SUSTAINABILITY

CONSOLIDATED

AND SEPARATE ANNUAL FINANCIAL STATEMENTS

for the year ended 31 March 2023

Contents

Consolidated and separate annual financial statements

Directors' responsibilities and approval	3
CEO's and CFO's responsibility statement	4
Declaration by the company secretary	5
Directors' report	6
Audit, risk and compliance committee report	11
Independent auditor's report	14
Statements of financial position	19
Statements of profit or loss and other	20
comprehensive income
Statements of changes in equity	21
Statements of cash flows	22
Notes to the consolidated and separate	23
financial statements

Shareholders' information

Analysis of ordinary shareholders	114
General information	119

Level of assurance

These consolidated and separate financial statements have been audited in compliance with the applicable requirements of the Companies Act of South Africa 71 of 2008 ("Companies Act").

Preparer

The consolidated and separate annual financial statements were compiled by HT Kganane CA(SA) and HTCO Financial Services Proprietary Limited under the supervision of the chief financial officer ("CFO"), KM Maroga CA(SA).

Published

21 May 2024

Contact

Any queries regarding the annual financial statements or its contents should be directed to:

KM Maroga, Chief financial officer

Email: [e-mail]

Tel: [phone]

Fax: [phone]

Head office: First Floor, Building 10

Woodmead Business Park, 142 Western Service Road Woodmead, Sandton 2191, South Africa

2

Salungano Group Limited

Consolidated and separate annual financial statements for the year ended 31 March 2023

DIRECTORS' RESPONSIBILITIES AND APPROVAL

The directors are required in terms of the Companies Act of South Africa, 71 of 2008 ("Companies Act") to maintain adequate accounting records and are responsible for the content and integrity of the consolidated annual financial statements and related financial information included in this report. It is their responsibility to ensure that the consolidated and separate annual financial statements fairly present the state of affairs of the group and company as at the end of the financial year and the results of its operations and cash flows for the period then ended, in conformity with IFRS Accounting Standards. The external auditor is engaged to express an independent opinion on the consolidated and separate financial statements.

The consolidated and separate financial statements are prepared in accordance with IFRS Accounting Standards and are based on appropriate accounting policies consistently applied and supported by reasonable and prudent judgements and estimates.

The directors acknowledge that they are ultimately responsible for the system of internal financial control established by the group and place considerable importance on maintaining a strong control environment to enable the directors to meet these responsibilities. The board sets standards for internal control aimed at reducing the risk of error or loss in a cost- effective manner. The standards include the proper delegation of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties to ensure an acceptable level of risk. These controls are monitored throughout the group and all employees are required to maintain the highest ethical standards in ensuring that the group's business is conducted in a manner that, in all reasonable circumstances, is above reproach. The focus of risk management in the group is on identifying, assessing, managing and monitoring all known forms of risk across the group. While operating risk cannot be fully eliminated, the group endeavours to minimise it by ensuring that appropriate infrastructure, controls, systems and ethical behaviour are applied and managed within predetermined procedures and constraints.

The directors are of the opinion, based on the information and explanations given by management, that the system of internal control provides reasonable assurance that the financial records may be relied on for the preparation of the consolidated annual financial statements. Any system of internal financial control, however, can provide only reasonable, and not absolute, assurance against material misstatement or loss. It is also the responsibility of the company to maintain controls over the maintenance and integrity of the company's website.

The directors have reviewed the group's cash flow forecast for the year to March 2026 and, in light of this review and the current financial position, they are satisfied that the group has or had access to adequate resources to continue in operational existence for the foreseeable future.

The external auditor is responsible for independently auditing and reporting on the consolidated and separate financial statements. The consolidated and separate financial statements have been examined by the group's external auditor and their report is presented on pages 14 to 15.

The consolidated and separate annual financial statements set out on pages 16 to 111, which have been prepared on the going concern basis, were approved by the board of directors on

16 May 2024 and were signed on their behalf by:

Robinson Ramaite	Kabela Maroga
Chief executive officer	Chief financial officer
("CEO")	("CFO")

We have removed all signatures from this document to protect the security and privacy of all our signatories.

Salungano Group Limited

Consolidated and separate annual financial statements for the year ended 31 March 2023

3

CHIEF EXECUTIVE OFFICER'S AND CHIEF FINANCIAL OFFICER'S RESPONSIBILITY REPORT

Each of the directors, whose names are stated below, hereby confirm that:

• the annual financial statements, set out on pages 16 to 111, fairly present in all material respects the financial position, financial performance and cash flows of the issuer in terms of IFRS Accounting Standards;
• to the best of our knowledge and belief, no facts have been omitted or untrue statements made that would make the annual financial statements false or misleading;
• internal financial controls have been put in place to ensure that material information relating to the issuer and its consolidated subsidiaries has been provided to effectively prepare the financial statements of the issuer;
• the internal financial controls are adequate and effective and can be relied upon in compiling the annual financial statements,

having fulfilled our role and function as executive directors with primary responsibility for the implementation and execution of controls;

• where we are not satisfied, we have disclosed to the audit, risk and compliance committee and the auditor any deficiencies in design and operational effectiveness of the internal financial controls and have taken steps to remedy the deficiencies; and
• we are not aware of any fraud involving directors.

Robinson Ramaite	Kabela Maroga
Chief executive officer	Chief financial officer
20 May 2024

4

Salungano Group Limited

Consolidated and separate annual financial statements for the year ended 31 March 2023

DECLARATION BY THE COMPANY SECRETARY

In terms of section 88(2)(e) of the Companies Act, I hereby certify that, to the best of my knowledge and belief, Salungano Group Limited ("Salungano") has lodged with the Companies and Intellectual Property Commission, for the financial year ended 31 March 2023, all such returns and notices as required in terms of the Companies Act, and that all such returns and notices are true, correct and up to date.

Yolande Lemmer

Company secretary

20 May 2024

Salungano Group Limited

Consolidated and separate annual financial statements for the year ended 31 March 2023

5

DIRECTORS' REPORT

The directors herewith submit the consolidated and separate annual financial statements of Salungano for the year ended 31 March 2023 ("the FY23 statements").

Matters material to shareholders

As set out in more detail under "post financial year-end events" later in this report, shareholders are aware that trading in the company's shares has been suspended by the JSE on 21 August 2023, as the company did not publish its audited financial results for the year ended 31 March 2023 within the prescribed period stipulated in the JSE Listings Requirements. The publication of these statements will serve to support the upliftment of the suspension.

The directors have noted that the KPMG audit report contains a disclaimer of opinion, based on material uncertainties related to the company's going concern status as detailed in the Auditors report (pages 14). The directors evaluated the appropriateness of the going-concern assumptions used in the preparation of the consolidated annual financial statements (discussed in detail later in this report) and remain satisfied that the company can continue to operate as a going concern. The consolidated annual financial statements were therefore prepared on this basis.

The Board has noted the reportable irregularities referred to IRBA by KPMG (as set out in more detail in note 47 to the FY23 statements).

Main business and operations

The main business of the company is that of an investment and management company with operating subsidiaries engaged in the mining, processing and trading of coal. The group operates principally in South Africa. The operating results and state of affairs of the group and company are fully set out in the consolidated and separate annual financial statements.

Group results

For the year ended 31 March 2023, the group incurred a loss of R692 million (FY22: R37 million). The EBITDA for the year is R99 million (FY22: R646 million).

The main contributing factors to the poor performance were as follows:

• High cost of sales due to low production at the Vanggatfontein colliery ("VGF") and Khanyisa operations. VGF was placed under care and maintenance in February 2022 as the Eskom Coal Supply Agreement ("CSA") was not extended;
• The life of mine at Khanyisa has ended and the group is currently awaiting approval from Transnet Pipelines to mine within 50 meters of the pipeline;
• Lower sales volumes as a result of the Eskom CSA not being extended at VGF and Elandspruit;

• Transport challenges to the ports for export sales and related logistic constrains;.
• Low production at Elandspruit due to ongoing issues with the mining contractor. The performance deteriorated significantly in the second half of FY23; and
• Inventory losses due to slow moving stock. An amount of R131 million was recognised as an expense in FY23 profit and loss and other comprehensive income , due to inventory losses.

The cash generated from operations of R260 million (FY22: R672 million) allowed the group to settle R246 million of the interest-bearing borrowings in the current year.

Going concern

As at 31 March 2023, the group had a net overdraft of R61 million (FY22: R172 million cash and cash equivalents) and the available facilities on the general banking facility amounted to R0 (FY22: R2 million).

Although the group did not meet its financial covenants for the last quarter of the financial year, the lenders continue to support the group's debt restructuring. At the anniversary of the facility agreement (28 June 2023) the group had not yet secured the refinancing or settled the outstanding debt due. Although this is considered a material uncertainty casting doubt on the group's ability to continue as a going concern, the group has been engaging financial institutions to refinance long-term funding of between R350 million and R450 million. Due to the quantum being significantly lower than the previous financing transaction and security held in a security special purpose vehicle, the re- financing should be a lot simpler to implement. The lenders have provided a draft term sheet to refinance the debt of R433 million subject to final credit approval. The execution has however, taken longer than anticipated due to uncertainties that arose from liquidation applications against Wescoal Mining Proprietary Limited ('Wescoal Mining') and Keaton Mining Proprietary Limited ("Keaton Mining") at the time of the refinancing negotiations. These have largely been mitigated by Wescoal Mining being placed under voluntary business rescue and Keaton Mining filing notices of intention to oppose the liquidation applications, as well as payment plans being agreed with creditors where applicable. The refinancing is now expected to be concluded by June 2024.

As at 31 March 2023, the assets exceeded the total liabilities of the group by R121 million (FY22: R812 million) which indicates that the group is still solvent. The business rescue of Wescoal Mining and downscaling of operations at VGF have reduced the group's liquidity constraints. Cash generation from Neosho Trading 86 Proprietary Limited (in respect of the Moabsvelden mine) continues in a positive trajectory as operations ramp up. These factors form the basis for the company's cash flows assumptions for the next 18 months. Further details on solvency and liquidity are set out in note 40 of the FY23 statements.

6

Salungano Group Limited

Consolidated and separate annual financial statements for the year ended 31 March 2023

Based on the above, the consolidated and separate financial statements have been prepared on a going concern basis.

Post-financialyear-end events

Lending arrangements

On 3 April 2023, the group received funding through a shareholder loan from RBFT Investments Proprietary Limited of R50 million. The loan agreement has been entered into on normal commercial terms and on an unsecured basis. The loan bears interest at prime plus 2% and is repayable no later than 12 months from effective date.

Resignation of Directors

The following Directors resigned post year-end, with effect from

30 June 2023:

• N Mnxasana (Independent non-executive);
• A Mabizela (Independent non-executive);and
• N Siyotula (Lead independent non-executive).

Following the abovementioned directors' resignations, the Board embarked on a process to find suitable replacements and appointed Mr Themba Tshikovhi, Ms Sinesipho Maninjwa and Mr Mzimkulu Malunga as independent non-executive directors with effect from 1 March 2024.

Resignation and appointment of sponsor

Nedbank Corporate and Investment Banking resigned as sponsors with effect from 31 July 2023, and Merchantec Capital was appointed as the new sponsor to the Company with effect from 1 August 2023.

Draft term sheet for R433 million issued by Lenders

As mentioned previously, on 28 July 2023 the lenders issued the group with a draft term-sheet for R433 million senior secured debt facilities and discussions regarding the re-financing are still on going.

Business rescue of a subsidiary

On 10 August 2023, a mining contractor of Wescoal Mining, IPP Mining and Materials Handling Proprietary Limited ("IPP") applied for the provisional winding-up of Wescoal Mining. Wescoal Mining filed a notice of opposition to the liquidation application.

On 24 August 2023, Wescoal Mining and IPP agreed to settle the matter and the terms of the settlement agreement were made an order of the court. The liquidation application was withdrawn and Wescoal Mining agreed to commence with a voluntary business rescue process based on a board resolution in terms of Section 129(1) of the Companies Act. The business rescue proceedings commenced on 25 August 2023.

Appointment of Chief Restructuring officer

On 11 August 2023, the Salungano Board appointed a Chief Restructuring Officer ("CRO"), Mr Stefan Smyth, Managing Director of Kroll South Africa Proprietary Limited, in a non-fiduciary capacity. Mr Smyth and his team of experienced restructuring experts are currently serving as lead Independent Financial Advisors to advise and guide the Board to successfully restructure and refinance the affairs of the Salungano Group as soon as possible. The CRO mandate was concluded with effect 29 March 2024.

Suspension of listing

As mentioned in the introductory paragraph ("Matters material to shareholders"), the JSE has suspended the listing of the Company's securities with effect from 21 August 2023, due to the Company's failure to comply with the JSE Listings Requirements by not publishing its audited annual financial results for the year ended 31 March 2023 within the prescribed period stipulated in the JSE Listings Requirements.

Liquidation applications of a subsidiary

In October 2023, a number of creditors submitted liquidation applications against Keaton Mining. These claims encompass services related to contractor mining operations, advance payments received for coal delivery, and maintenance and servicing of mining equipment. Keaton Mining has filed notices of opposition to the liquidation and has actively engaged all affected creditors with a view of settling all the matters.

The provisional regulation was heard on 26 February 2024 and the proceedings were suspended due to Keaton Energy Holdings Limited ("KEH") applying for business rescue. KEH Limited holds 100% shares in Keaton Mining. The business rescue application was heard on 28 March 2024 and judgment was delivered on 2 April 2024, in terms whereof the Business rescue application was dismissed. A notice of appeal has been lodged.

Directors' interests in contracts

During the year ended 31 March 2023, the CEO had the following indirect interests in contracts with the company:

• Loan agreements to the company and its subsidiaries;
• A sponsorship agreement with Venda Football Academy; and
• A lease agreement with the Simeka Investment Group.

The directors are not aware of any other material events arising since the end of the reporting period in the financial statements, which could significantly affect the financial position of the group at 31 March 2023 or the results of its operations or cash flows for the year then ended.

Salungano Group Limited

Consolidated and separate annual financial statements for the year ended 31 March 2023

7

Directors' report continued

Compliance with financial reporting standards

The Salungano Group and company consolidated annual financial statements comply with IFRS Accounting Standards, the Companies Act and the JSE Listings Requirements.

Borrowing limitations

In terms of the Memorandum of Incorporation of the company, the directors may exercise all the powers of the company to borrow money as they consider appropriate.

Share capital

Authorised

The authorised share capital of the company has changed from 500 000 000 to 1 000 000 000 during the year, as approved by shareholders at the annal general meeting of the company held on 4 October 2022.

Issued

The movement of shares during the year was as follows (excluding treasury shares):

	R'000
Reported as at 1 April 2022	410 408
Reported as at 31 March 2023	410 408

Major shareholders of the company

	2023		2022
Shareholder	Number of shares	% of shares	Number of shares	% of shares
Beneficial holder
K2016316243 (SA) Proprietary Limited	213 628 122	50.87	213 628 122	50.87
RBFT Investments Proprietary Limited	86 626 187	20.63	64 879 829	15.45
MR Ramaite	23 193 301	5.52	23 193 301	5.52
Wescoal Share Incentive Trust	9 508 000	2.26	9 508 000	2.26
Rutendo Holdings Proprietary Limited	8 640 396	2.06	8 640 396	2.06
M Marageni	7 016 988	1.67

The percentage of share calculation based on the issued share capital of 419 916 854 shares includes treasury shares (FY22: 419 916 854). The increase in RBFT Investment Proprietary Limited's shareholding follows a minority buy-out offer, as well as the buying of shares in the open market.

Share buy-back

There were no shares repurchased during the financial year.

Corporate governance

The directors acknowledge the importance of sound corporate governance and the guidelines set out in King IV™ and recommended practices. The directors therefore embrace

King IV™ as far as it is appropriate, having regard for the size and nature of the various companies making up the group. The board will continue to take such measures as are practicable to comply with King IV™, including the appointment of the independent non-executive directors as mentioned earlier herein. The King IVTM application register is available on the company's website at www.salunganogroup.com

Listing

The abbreviated name under which the company is listed on the Main Board of the JSE has changed from "Wescoal" with the short code" WSL" to "Salungano" and the short code is "SLG".

• Copyright and trademarks are owned by the Institute of Directors South Africa NPC ("IoDSA") and all of its rights are reserved.

8

Salungano Group Limited

Consolidated and separate annual financial statements for the year ended 31 March 2023

Directors

Name	Designation	Changes	Nationality
HLM Mathe	Chairman, independent non-executive*	Appointed 1 August 2013	South African
MR Ramaite	Chief executive officer*	Appointed 20 November 2007	South African
JM Speckman	Chief financial officer**	Appointed 1 February 2021	South African
A Mabizela	Independent non-executive#	Appointed 5 December 2019	South African
Mzimkulu Malunga	Independent non-executive	Appointed 1 March 2024	South African
Sineshipho Maninjwa	Independent non-executive	Appointed 1 March 2024	South African
KM Maroga	Non-executive***	Appointed 1 July 2013	South African
C Maswanganyi	Non-executive	Appointed 17 November 2017	South African
N Mnxasana	Independent non-executive#	Appointed 5 December 2019	South African
ET Mzimela	Non-executive	Appointed 17 November 2017	South African
N Siyotula	Lead independent non-executive#	Appointed 14 February 2019	South African
Themba Tshikovhi	Independent non-executive	Appointed 1 March 2024	South African
T Tshithavhane	Executive	Appointed 4 April 2016	South African

• Appointed as CEO from 1 April 2022.

• Resigned on 14 April 2022, effective 30 September 2022.
• Appointed as CFO with effect from 1 October 2022.

• Resigned on 30 June 2023.

Company secretary

Yolande Lemmer and Computershare Investor Services Proprietary Limited are the company secretary and transfer secretary, respectively.

Resolutions

The following resolutions were approved by shareholders at an annual general meeting of the company held 4 October 2022:

Ordinary resolutions

• Re-electionof director: Andile Mabizela;
• Re-electionof director: Nomavuso Patience Mnxasana;
• Re-electionof director: Humphrey Mathe;
• Reappointment of the members of the audit, risk and compliance committee of the Company: Nonzukiso ("Zukie") Siyotula, Andile Mabizela, Nomavuso Patience Mnxasana;
• Reappointment of KPMG Inc ("KPMG") as the independent registered auditor of the company for the 2023 financial year, and the appointment of Ms Brenda Jajula as the designated auditor for the FY23 financial year;
• Advisory endorsement of the remuneration policy;
• Advisory endorsement of the remuneration implementation report;
• Directors' authority to control authorised but unissued ordinary share capital; and
• The authorisation for any director of the company to implement the resolutions taken at the annual general meeting.

Special resolutions

• Approval for the company to grant inter-group financial assistance in terms of sections 44 and 45 of the Companies Act;
• Approval of the remuneration of non-executive directors;
• Approval of the acquisition of the company's own shares; and
• Amendment to the company's MoI to increase the Company's authorised ordinary share capital.

Independent auditor

The company has reappointed KPMG as the external auditors for the 31 March 2023 financial year, with the designated audit partner being Ms Brenda Jajula.

Salungano Group Limited

Consolidated and separate annual financial statements for the year ended 31 March 2023

9

Directors' report continued

Directors' interests in the issued share capital (number of shares)

	2023		2022
	Direct	Indirect
	Direct	Indirect
	shareholding	shareholding	shareholding	shareholding
Director	'000	'000	'000	'000
MR Ramaite	23 193	194 990	23 193	209 637
ET Mzimela	-	33 112	-	33 110
T Tshithavhane	852	-	852	-
KM Maroga	2 451	-	2 215	-
Total	26 496	228 102	26 240	242 747

There have been no changes to the directors' shareholdings between Salungano's financial year-end (31 March 2023) and the date of approval of the annual financial statements. The increase in MR Ramaite's indirect shareholding is due to a minority buy-out offer (and shares bought in the open market by an associate). KM Maroga acquired additional shareholding in the current financial year.

Directors' remuneration

Executive

		Medical and				IFRS 2
	Re-	provident		Fringe		share
	fund	Annual	and other	Cash	option
	muneration	contributions	bonus	benefits	total	expense
	R'000	R'000	R'000	R'000	R'000	R'000
2023
MR Ramaite	4 100	-	-	-	4 100	-
JM Speckman*	1 799	165	-	-	1 964	-
T Tshithavhane	3 578	567	-	49	4 194	5
KM Maroga**	1 414	216	1 500	-	3 130	-
	10 891	948	1 500	49	13 388	5
2022
MR Ramaite	2 809	-	-	-	2 809	-
JM Speckman*	2 775	225	250	4	3 254	-
T Tshithavhane	3 656	296	329	60	4 341	207
	9 240	521	579	64	10 404	207

• Resigned as CFO and executive director on 6 April 2022, effective 30 September 2022. ** Appointed as CFO with effect from 1 October 2022.

Non-executive

Group

	2023	2022
	R'000	R'000
HLM Mathe	707	582
KM Maroga*	236	881
C Maswanganyi	405	358
ET Mzimela	431	400
N Siyotula**	942	931
N Mnxasana**	605	612
A Mabizela**	586	558
	3 912	4 322

• KM Maroga was appointed as CFO with effect from 1 October 2022. ** Resigned 30 June 2023.

10

Salungano Group Limited

Consolidated and separate annual financial statements for the year ended 31 March 2023