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Business overview
Eskom Holdings SOC Limited
Audited condensed financial results for the year ended
31 March 2015
Business overview
Despite tough operating conditions during the year under review, EBITDA (earnings before interest,
taxation, depreciation and amortisation) increased to R25.2 billion (2013/14: R25.1 billion), reflecting
a marginal increase against the prior year. Even with primary energy costs increasing by 19%, the
EBITDA margin of 17% was maintained, by containing operating costs to a 2% increase year-on-year,
due to internal cost savings of R9 billion in terms of our Business Productivity Programme.
We have communicated for some time that the national power system is constrained due to the
lack of available generating capacity. To balance and protect the power system, we had to resort to
expensive supply-side options, such as the open-cycle gas turbine (OCGT) plant and relying on
independent power producers (IPPs), as well as demand-side options such as interruptible load
agreements, load curtailment by key industrial customers and energy efficiency efforts by other
customers to balance supply and demand. When we could not meet demand, we had to resort to
controlled, rotational load shedding. Notwithstanding this, we still supplied electricity to an average
of 96% of the country when load shedding was implemented in stage 1.
We are fully aware of the negative impact load shedding has on our customers and the economy.
While load shedding is regrettable, we are committed to performing the necessary maintenance to
improve the long-term health of our plant, while attempting to minimise load shedding. We need a
buffer of 3 000MW to 5 000MW for the foreseeable future to enable the maintenance backlog to be
closed and to avoid the need for load shedding into the future.
During November 2014, we developed a Turnaround Strategy to arrest the operational and financial
decline and stabilise the business. The Turnaround Strategy focuses on four key areas, namely
financial sustainability, operational sustainability, sustainable asset creation as well as revenue and
customer sustainability.
Financial sustainability
Electricity revenue rose by 6.9% to R147.7 billion (2013/14: R138.3 billion), with EBITDA increasing
to R25.2 billion (2013/14: R25.1 billion), despite electricity volumes declining by 0.7% to
216 274GWh (2013/14: 217 903GWh). Besides the implementation of load shedding, electricity
volumes were affected by industrial action in the platinum sector, contraction in the gold mining
sector, closure of the Bayside aluminium smelter and depressed commodity prices. Primary energy
costs increased by R13.6 billion, driven by increased use of IPPs and amounts due in terms of the
Medupi coal supply agreement. The utilisation of OCGTs during periods of constrained capacity
remains high, in order to balance supply and demand.
Despite an increase in cash generated by operations to R27.3 billion (2013/14: R23.6 billion), cash
reserves declined by R10.8 billion to R8.9 billion. Debt securities and borrowings increased to
R297.4 billion (2013/14: R254.8 billion) due to funding of R49.5 billion raised in terms of our
borrowing programme, coupled with repayments of capital and interest of R14.4 billion and
R17.1 billion respectively. Two ratings agencies reduced our credit rating to sub-investment grade.
The revenue gap resulting from the MYPD 3 revenue determination and increased primary energy
costs are putting pressure on our liquidity and compromising our financial sustainability. This is
further impacted by an inappropriate return on assets as a result of cost increases above inflation,
lower sales volumes and the lack of a cost-reflective electricity price over a sustained period.
Accordingly, we are working on steps to address our liquidity and future financial sustainability,
including migration to a cost-reflective electricity price, initiating a revenue adjustment application
for 2014/15, the second year of the MYPD 3 period, recovery of arrear customer debt, mainly from
defaulting municipalities and realisation of targeted cost savings under the Business Productivity
Programme. We will continue with our borrowing programme to source additional funding and,
with Government support, we aim to avoid further credit ratings downgrades.
Subsequent to year end, the shareholder approved an equity injection of R23 billion, together with
the conversion of the R60 billion subordinated shareholder loan. Furthermore, we had R191 billion
in unutilised Government guarantees available at year end, which, together with the equity injection,
will improve key financial metrics and assist in easing liquidity pressures.
Operational sustainability
Generation plant availability (EAF) declined to 73.73% for the year, compared to 75.13% in the
previous year. Unplanned maintenance (UCLF) deteriorated from 12.61% in 2013/14 to 15.22%,
partly due to the Duvha Unit 3 incident and the Majuba silo collapse. Plant utilisation (EUF) was at
83.4%, substantially above international norms, as generating units are worked harder and longer.
Nearly two-thirds of our coal-fired power stations are past their mid-life, requiring increased
maintenance to maintain plant performance at desired levels.
Overall coal stock stood at 51 days at 31 March 2015 (2013/14: 44 days), supporting security of
supply. Coal rail performance achieved 12.59Mt (2013/14: 11.6Mt). Particulate emissions of
0.37kg/MWhSO and water usage of 1.38l/kWhSO both declined slightly compared to the previous
year (0.35kg/MWhSO and 1.35l/kWhSO respectively).
Excellent network performance was achieved by Transmission and Distribution. Energy losses
performance continued to improve, ending the year at 8.79% (2013/14: 8.88%).
Total capacity of 5 701MW has been contracted with IPPs at 31 March 2015, and 1 795MW of
renewable energy capacity has already been connected and is providing power to the grid, at an
average load factor of 31%. We purchased 6 022GWh from IPPs during the year, at a cost of
R9.5 billion (2013/14: 3 671GWh costing R3.3 billion). IPPs play an important role in ensuring
security of supply at a time when our generating capacity is closely matched or exceeded by
electricity demand, by providing space for maintenance and reducing the need for load shedding. IPPs
also provide much needed renewable energy to our energy mix.
Sustainable asset creation
Commercial operation of Medupi Unit 6 is expected during the third quarter of 2015. A number of
important milestones have been achieved at Kusile, and Unit 1 is expected to be synchronised in the
first half of 2017. The date of first synchronisation of Unit 3 of Ingula has been revised to the second
half of 2016, due to the work stoppage imposed following the fatal accident in October 2013. Sere
Wind Farm, our first utility-scale renewable project with a generating capacity of 100MW, was
placed into commercial operation on 31 March 2015. A total of 318.6km of transmission lines were
installed and 2 090MVA substation capacity commissioned under the new build programme during
the year.
Since inception of the programme in 2005 to 31 March 2015, we have spent R265 billion on capital
expansion and have added 6 237MW of generation capacity, 5 816km of transmission lines and
29 655MVA of substation capacity. Capital expenditure for the year amounted to R53.1 billion
(2013/14: R59.8 billion), the majority of which was spent on the Medupi, Kusile and Ingula projects,
as well as on extending our transmission and distribution networks. However, the delay in delivering
the new build programme, partly due to poor contractor performance and strike action, has placed
additional pressure on our ageing fleet of power stations to perform at a time when most are due
for major refurbishment.
Revenue and customer sustainability
Municipal arrear debt increased to R5 billion at 31 March 2015 (2013/14: R2.6 billion), while Soweto
debt remained high at R4.2 billion (2013/14: R3.6 billion). The residential revenue management
strategy is driving energy protection and energy loss programmes such as Switch OVA!, and
improving debt collection.
The Eskom KeyCare index for customer satisfaction achieved an above-target score of 108.7,
reflecting continual interaction with key industrial customers. The Enhanced MaxiCare index
improved significantly from 92.7 to 99.8, indicating the impact of our customer service improvement
programme on residential, small and medium customers.
Safety
Tragically, we reported three employee and seven contractor fatalities during the year. The Board
extends its sincere and heartfelt condolences to their family, friends and colleagues. Nevertheless,
we continue our commitment to safety. The lost-time injury rate deteriorated slightly to 0.33
(2013/14: 0.31).
Governance
We have seen significant changes in our governance structures. To stabilise the leadership, the
Minister of Public Enterprises announced the secondment of Mr Brian Molefe from Transnet to
Eskom, as acting Chief Executive, during April 2015. More recently, it was announced that Mr Anoj
Singh, Group Chief Financial Officer of Transnet, will be seconded to Eskom for a period of six
months, with effect from 1 August 2015.
Outlook
Key initiatives in the short term include the sourcing of funding to support liquidity and financial
sustainability. To minimise the impact of load curtailment and load shedding on our stakeholders and
the economy, we will reduce unplanned maintenance through planned maintenance, and enhance
operational efficiencies to reduce unpredictable plant breakdowns, partial load losses and outage
slips. We will also focus on making use of IDM options to reduce electricity demand.
In the medium term, we will commission new generating capacity to alleviate the constrained system
and accommodate demand growth.
Condensed group annual financial information
Condensed group statement of financial position at 31 March 2015
2015 2014
Rm Rm
Assets
Property, plant and equipment and intangibles 458 881 404 389
Liquid assets 17 359 30 583
Working capital 35 488 31 811
Other assets 51 156 38 210
Total assets 562 884 504 993
Equity 122 247 119 784
Liabilities
Debt securities and borrowings 297 434 254 820
Working capital 44 063 44 821
Other liabilities 99 140 85 568
Total liabilities 440 637 385 209
Total equity and liabilities 562 884 504 993
Condensed group income statement for the year ended 31 March 2015
Restated
2015 2014
Rm Rm
Continuing operations
Revenue 147 691 138 313
Profit before net fair value gain/(loss) and net finance cost 9 146 11 649
Net fair value gain/(loss) on financial instruments excluding embedded derivatives 630 (620)
Net fair value gain on embedded derivatives 1 310 2 149
Net finance cost (6 109) (4 058)
Share of profit of equity-accounted investees, net of tax 49 43
Profit before tax 5 026 9 163
Income tax (1 366) (2 137)
Profit for the year from continuing operations 3 660 7 026
Discontinued operations
(Loss)/profit for the year from discontinued operations (42) 63
Profit for the year 3 618 7 089
Condensed group statement of cash flows for the year ended 31 March 2015
Restated
2015 2014
Rm Rm
Net cash from operating activities 27 311 23 642
Net cash used in investing activities (56 386) (56 461)
Net cash from financing activities 17 954 41 519
Cash and cash equivalents at beginning of the year 19 676 10 620
Foreign currency translation 24 (23)
Effect of movements in exchange rates on cash held 284 504
Cash and cash equivalents at beginning of the year attributable to non-current assets held-
for-sale ? (125)
Cash and cash equivalents at end of the year 8 863 19 676
Annual financial statements
The condensed annual financial statements have been prepared under the supervision of the acting Chief
Financial Officer, Ms Nonkululeko Veleti CA(SA), and audited by the group’s independent auditors,
SizweNtsalubaGobodo Inc. in compliance with Section 30 of the Companies Act, 2008.
The group’s independent auditors issued an unmodified audit opinion, which includes an emphasis of matter
related to going concern. Details of the going concern assumptions are disclosed in the group annual financial
statements, under the directors’ report and the notes to the financial statements.
The audited annual financial statements of the group, together with the unmodified audit opinion, are available
for inspection at Eskom's registered office and on the Eskom website (www.eskom.co.za/IR2015).
There were no significant events after the reporting date which impact these results.
Approval by Board of Directors
Signed on behalf of the Board of Directors on 28 May 2015.
Dr Ben Ngubane Ms Chwayita Mabude Ms Venete Klein
Acting Chairman Chairman: Audit and Risk Chairman: Social, Ethics and
Committee Sustainability Committee
Disclaimer
This announcement does not constitute an offer to sell or an invitation of any offer to buy securities of Eskom
Holdings SOC Ltd (Eskom) or any of its subsidiaries in any jurisdiction. Certain statements in this
announcement regarding Eskom's business operations and financial position may constitute forward-looking
statements which are not intended to be a guarantee of future results but instead constitute Eskom's current
expectations based on reasonable assumptions. Actual results could differ materially from those projected in
our forward-looking statements due to risks, uncertainties and other factors.
Head office
Megawatt Park Maxwell Drive Sunninghill Sandton
PO Box 1091 Johannesburg 2000
Tel +27 11 800 2775 Fax +27 86 668 0171
www.eskom.co.za
Eskom Holdings SOC Ltd Reg No 2002/015527
13 August 2015
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