Group annual results for the year ended 31 March 2022 The results presentation is available at 23 December 2022 www.eskom.co.za/investors/integrated-results/ Disclaimer This presentation does not constitute or form part of and should not be construed as, an offer to sell, or the solicitation or invitation of any offer to buy or subscribe for or underwrite or otherwise acquire, securities of Eskom Holdings SOC Ltd (Eskom), any holding company or any of its subsidiaries in any jurisdiction or any other person, nor an inducement to enter into any investment activity. No part of this presentation, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever. This presentation does not constitute a recommendation regarding any securities of Eskom or any other person. Certain statements in this presentation regarding Eskom’s business operations may constitute “forward looking statements”. All statements other than statements of historical fact included in this presentation, including, without limitation, those regarding the financial position, business strategy, management plans and objectives for future operations of Eskom are forward looking statements. Forward-looking statements are not intended to be a guarantee of future results, but instead constitute Eskom’s current expectations based on reasonable assumptions. Forecasted financial information is based on certain material assumptions. These assumptions include, but are not limited to continued normal levels of operating performance and electricity demand in the Distribution and Transmission Divisions and operational performance in the Generation Division consistent with historical levels, and incremental capacity additions through the Group Capital Division at investment levels and rates of return consistent with prior experience, as well as achievements of planned productivity improvements throughout the business activities. Actual results could differ materially from those projected in any forward-looking statements due to risks, uncertainties and other factors. Eskom neither intends to nor assumes any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In preparation of this document certain publicly available data is used. While the sources used are generally regarded as reliable the content has not been verified. Eskom does not accept any responsibility for using any such information. 1 PERFORMANCE OVERVIEW Key points Improve the income statement Looking ahead Operations recovery Generation performance  Net loss after tax  51% EBITDA  61% Legal separation EAF reduced to 62.02% (2021: 64.19%) R12.3 billion (2021: R25 billion) R52.4 billion (2021: R32.6 billion) Delays in external 65 days loadshedding (2021: 47 days) Financial results have improved across Due to higher revenue decisions and key all key profitability metrics and improved cost control dependencies have pushed Transmission and distribution  out Transmission network performance improved Operating profit  238% Sales volumes  3% operationalisation targeted for April 2023 One new build unit operational 198 281GWh (2021: 191 852GWh) R20.4 billion (2021: R6 billion) One new build unit synchronised ✔ Distribution: April 2024 With many sectors recovering Unsustainably high finance costs Generation: 2025 * Defects correction process continues post-COVID erode Eskom’s profitability March 2023 outlook Particulate emissions  Strengthen the balance sheet Forecast net loss after tax 0.34kg/MWhSO (2021: 0.38kg/MWhSO) Gross debt and borrowings Arrear municipal debt R20.1 billion  (2022: R12.3 billion loss) R396.3 billion  1% R44.8 billion  27% Decline in sales volumes, People and culture (2021: R401.8 billion) (2021: R35.3 billion) increased maintenance spend as well as higher spend on Headcount 40 421  Capital repaid Interest paid Government support received OCGTs and fuel oil due to (2021: 42 749) continued low EAF and Mainly due to natural attrition & VSPs R38.9 billion R32.5 billion R31.7 billion ✔ capacity constraints * Dates are subject to various external dependencies and decisions 2 OPERATING PERFORMANCE Generating plant and network performance GENERATION PERFORMANCE Generation performance NETWORK AND NEW BUILD Generation performance • Plant availability declined to 62.02% (2021: % • Transmission system minutes performance 35 % % 64.19%), with unplanned load losses rising 100 30 30 improved to 2.88 minutes (2021: 3.48 minutes), to 25.35% (2021: 20.04%) and planned 25 90 25 with two major incidents (2021: two) maintenance at 10.23% (2021: 12.26%) 20 80 20 • Distribution network performance remained 15 15 • Loadshedding curtailed load by 1 605GWh 70 10 stable, although energy losses remain too high 10 or 0.71% of demand (2021: 1 034GWh). 60 5 • Medupi Unit 1 achieved commercial operation 5 Notwithstanding this, gas turbine usage 0 0Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar 0 on 31 July 2021, while Kusile Unit 4 was 2017 2018 2019 2020 2021 2022 remained high, at a cost of energy for Planned losses FY2021 Unplanned losses FY2021 synchronised to the grid on 23 December 2021 Eskom and IPP-owned OCGTs of Coallosses Planned EUF FY2022 EAF PCLF UnplannedUCLF losses FY2022 • Boiler modifications completed at all six Medupi R14.7 billion (2021: R7 billion) Network performance Network performance units and at Kusile Units 1 to 4 • Generation recovery plan and reliability Minutes 5.0Minutes Events/hours Events/hours 40 • Kusile Unit 5 progress delayed by a year due to maintenance recovery programme continue. 5.0 40 a gas air heater fire on 17 September 2022 Unless EUF reduces to acceptable levels, 4.0 4.0 30 30 • Contracts for the first phase of 800MWh of the EAF will not improve 3.0 3.0 20 2.0 20 battery storage project were awarded for the • Major incident at Medupi Unit 4 on 2.0 1.0 10 first three packages 8 August 2021 (generator explosion) 1.0 10 0.0 0 • World Bank approved Medupi FGD extension • Koeberg Unit 2 refuelling outage completed 0.0 Sep 2017 Sep 2018 Sep 2019 Sep 2020 Mar 2021 Sep 2021 0 2017 2018 2019 2020 2021 2022 to June 2027. Key priorities are completing the • Average coal stock reduced to 42 days System minutes lost for events <1 minute System SAIFI SAIDI technology selection and resolving funding SAIFI = minutes lost for interruption System average events <1 minute SAIFI frequency index SAIDI (2021: 50 days), and well within Grid Code SAIFI SAIDI==System Systemaverage averageinterruption interruptionfrequency index duration index constraints. The project is moving forward SAIDI = System average interruption duration index requirements 3 OPERATING PERFORMANCE Environmental performance, people and society ENVIRONMENTAL PERFORMANCE Environmental performance PEOPLE AND SOCIETY • Relative particulate emissions performance kg/MWh l/kWh • Sadly, four employee and two contractor sent out sent out improved to 0.34kg/MWh sent out 0.50 1.50 fatalities were recorded (2021: three (2021: 0.38kg/MWhSO) 0.45 1.45 employees and eight contractors) 0.40 1.40 • Poor emissions performance at Duvha, Kendal, • Group lost-time injury rate worsened slightly 0.35 1.35 Lethabo, Matimba, Matla and Tutuka, mainly 0.30 1.30 to 0.24 (2021: 0.22) due to poor coal quality and poor performing 1.25 • Headcount continued to decline to 40 421 dust handling and SO3 plant 0.00 1.20 2017 2018 2019 2020 2021 2022 (2021: 42 749), primarily due to natural • Although Kendal emissions performance has attrition and voluntary separation packages Relative particulate emissions Water consumption improved, challenges continue. Criminal court • Racial and gender equity continued to proceedings postponed to February 2023 Safety performance improve, with racial equity at professional/ • DFFE minister established a participative panel 20 Number Index 0.40 middle management level at 81.68% to consider Eskom’s MES appeals 15 0.30 (2021: 80.10%) • Water consumption at power stations 10 0.20 • Disability equity stable at 2.94% (2021: 2.93%) deteriorated slightly to 1.45l/kWhSO 5 0.10 • 97 947 electrification connections completed (2021: 1.42l/kWhSO) (2021: 106 669) 0 0.00 • A total of 65 environmental legal 2017 2018 2019 2020 2021 2022 • CSI spend improved to R75.1 million (2021: contravention incidents recorded (2021: 81), Fatalities (employees & contractors) LTIR R67.4 million) with 48 being water-related • Achieved preferential procurement spend of 75.89% (2021: 64.51%) 4 GOVERNANCE PERFORMANCE Governance improvements • Fraud, corruption, sabotage and other criminal conduct have taken root within Eskom and, unless we take decisive action to eradicate this type of conduct, it will continue to fester and see the downfall of Eskom with catastrophic impacts to South Africa. • We will be enforcing our policy of zero tolerance for corruption robustly to eradicate corrupt elements within the organisation and we will take appropriate legal action and apply consequence management as required • We have embarked on a rigorous campaign to bolster integrity, ethics, compliance and governance programmes at Eskom, with a focus on rooting out fraud, corruption and sabotage. The following initiatives are in progress: o Crime risk management: With the support of ENSafrica, we are conducting a full assessment of the crime risk management landscape within Eskom, including combatting bribery and corruption, financial crime, physical assets crime, cybercrime and anti-money laundering. The intent is that once this assessment is concluded, a crime risk management programme will be embedded as part of Eskom’s standard operating procedures to manage this critical risk. o Single investigative unit: The current model of managing fraud and corruption using multiple investigative functions operating in silos, uncoordinated and with a reactive approach towards addressing fraud and corruption, is not yielding the desired results. Accordingly, the establishment of a single investigative unit to manage all investigative matters related to fraud and corruption is under way 5 GOVERNANCE PERFORMANCE Governance improvements (continued) • Initiatives (continued) o Business integrity function: A revised framework for the management of matters of integrity is being developed. This revised Business Integrity Framework proposes an end-to-end process to manage matters of integrity within Eskom, and would include fraud, corruption, collusion, breaches of the conflict-of-interest policy, and the management of the Whistleblower hotline and internal complaints regarding integrity breaches. It proposes centralised management of employee and supplier discipline for integrity breaches to ensure accountability and uniform treatment o Automated procurement systems: Eskom is implementing automated systems in the procurement of goods and services to better manage procurement spend and protect against integrity breaches, including tools such as PriceCheck, the digitilisation of stock control, the use of an augmented procurement model in certain business areas, and the use of e-auctions. Eskom will continue to monitor technology developments and will introduce suitable tools, as needed o “Know Your Supplier” campaign: It is critically important for Eskom to understand who we are doing business with. As part of this drive, we will be implementing a “Know Your Supplier” campaign that will entail properly screening all business partners, be it through detailed due diligence exercises, audits or proactive screening of directors. We need to ensure that, as examples, our suppliers are truly value-adding and not simply strawman entities; that neither they nor their affiliated companies or their directors are on official blacklists or sanctions lists; that their own supply chains are legitimate, ethical and reliable; that there are no signs of collusion with other suppliers nor any signals that they may be acting on privileged information; that their work does not involve unethical or illegal behaviour; and that payments to them are made based on verified quantity, quality and price, to a verifiable bank account 6 FINANCIAL PERFORMANCE External audit findings Qualified opinion based on: PRIOR PERIOD RESTATEMENTS • Correction of valuation curve methodology for hedging • PFMA information disclosed in the annual financial statements instruments; reclassification of net fair value losses from OCI to Material uncertainty relating to: profit and loss due to hedges no longer meeting the hedge • Eskom’s ability to continue as a going concern effectiveness criteria in terms of IFRS Emphasis of matters regarding: • Reclassification of a portion of coal inventory from current to • Restatement of corresponding figures non-current assets based on a review of the quantity and usage • Events after the reporting period of coal at power stations, resulting in decline in current ratio • Significant new accounting policy on investigations into possible corruption PFMA INFORMATION Restated Financial indicator 2021 2 2021 Irregular expenditure • Prior year PFMA qualification issues not movement, R billion 2022 EBITDA, R million 32 608 32 813 adequately addressed 2021 closing balance 37.2 Net fair value and foreign exchange • Loss Control Department established from (8 932) 883 Restatements 1 (loss)/gain, R million 22.0 1 April 2021; increased identification and Opening balance 1 59.2 quantification of historical irregular expenditure, Net loss after tax, R million (25 016) (18 934) Historical incidents 8.1 leading to restatement of PFMA information Inventory (non-current), R million 11 001 – New incidents in 2022 0.3 • Progress in obtaining condonations of irregular Inventory (current), R million 22 481 37 527 Condoned (0.5) expenditure remains slow. Until condoned, Current ratio 0.95 1.27 removed or expired, the expenditure on Closing balance 67.1 affected contracts remains irregular 1. Refer to note 51 of the annual financial statements for additional PFMA disclosure, including restatements of PFMA information 2. Detailed disclosure for the prior period restatements is provided in note 48 of the annual financial statements 7 FINANCIAL PERFORMANCE Key financial indicators Profitability Gearing Financial indicator 2022 2021 1 R billion % Debt/equity Gross debt/EBITDA Revenue, R million 246 520 ▲ 204 326 60 30 4.0 16 40 25 EBITDA, R million 52 374 ▲ 32 608 20 3.0 12 20 15 2.0 8 EBITDA margin, % 21.25 ▲ 15.96 0 10 -20 1.0 4 5 Operating profit (EBIT), R million 20 365 ▲ 6 023 -40 0 0.0 0 2017 2018 2019 2020 2021 2022 2017 2018 2019 2020 2021 2022 Net loss after tax, R million (12 330) ▲ (25 016) EBITDA, R billion EBITDA margin, % Gross debt/EBITDA ratio Debt/equity ratio Net profit/(loss) before tax, R billion Pre-tax nominal return on assets, % 3.05 ▲ 0.92 • Financial indicators improved significantly despite navigating a very challenging operating Cash interest cover, ratio 1.68 ▲ 0.85 Solvency environment R billion Ratio Debt service cover, ratio 0.76 ▲ 0.30 60 2.0 • Increase in tariffs and partial recovery of sales 50 volumes contributed to the positive EBITDA Gross debt/EBITDA, ratio 8.63 ▲ 13.98 40 1.5 and operating cash flow performance Debt/equity (including long-term 30 1.0 • Gearing ratios improved due to Government provisions), ratio 1.82 ▲ 2.04 20 0.5 equity support and better EBITDA performance Gearing, % 65 ▲ 67 10 • Solvency ratios improved due to a recovery in 0 0.0 Free funds from operations (FFO) 2017 2018 2019 2020 2021 2022 operating cash flows, although cash flows as % of gross debt 13.98 ▲ 9.42 Cash from operations, R billion Debt service cover ratio remain inadequate to meet all debt servicing ▲ Performance improved ▼ Performance declined Cash interest cover ratio requirements on a standalone basis 1. Restatements are disclosed in note 48 of the annual financial statements 8 FINANCIAL PERFORMANCE Group income statement for the year ended 31 March 2022 FINANCIAL COMMENTARY R million 2022 2021 1 % Revenue 246 520 204 326 21▲ • Revenue: 15.06% tariff increase, supported by 3.4% growth in sales volumes Other income 1 494 2 662 • Primary energy: higher fuel prices and fuel oil use, write-off Primary energy (132 439) (115 492) 15▲ of diesel rebate receivable, coupled with higher production Net employee benefit expenses (32 985) (32 887) – required to meet the recovery in demand Net impairment loss (1 436) (1 795) • Employee benefit cost: stable as costs were controlled Other expenses (28 780) (24 206) 19▲ through headcount reduction; offset by lower capitalisation as EBITDA (before net fair value loss) 52 374 32 608 61▲ new build units are commissioned Depreciation and amortisation expenses (32 009) (26 585) 20▲ • Other expenses: R1.7 billion increase in repairs and Operating profit (EBIT) 20 365 6 023 238▲ maintenance to address plant performance, compensation Net fair value and foreign exchange loss (3 126) (8 049) 61▼ event provision and write offs due to Medupi Unit 4 damage Net finance cost (33 063) (31 142) 6▲ • Depreciation: increase due to commissioned new build plant Share of profit of equity-accounted investees 52 71 • Net finance cost: less finance costs capitalised; gross finance costs were contained through an overall reduction in debt Loss before tax (15 772) (33 097) 52▼ Income tax credit 3 442 8 081 R3.6 billion receivable written off as Eskom lost its appeal Net loss for the year (12 330) (25 016) 51▼ with SARS to claim diesel rebates disallowed over several years R1.1 billion written off on Medupi Unit 4 for damage from ▲ Income/gain increased ▼ Income/gain declined the explosion in August 2021. R2.7 billion provision raised ▼ Expense/loss declined ▲ Expense/loss increased for a compensation claim event at Koeberg Power Station 1. Restatements are disclosed in note 48 of the annual financial statements 9 FINANCIAL PERFORMANCE Sales and revenue Revenue, R million 2022 2021 % Sales and revenue • Recovery of 6.4TWh (3.4%▲) in sales Local R billion TWh volumes due to the phased easing of 240 683 202 429 19▲ 280 215 COVID-19 lockdown restrictions and International 11 450 10 383 10▲ 260 210 the return to operations of many 240 Gross electricity 205 sectors of the economy 252 133 212 812 18▲ 220 revenue 200 200 • Improvement in sales seen across Net revenue not 180 195 nearly all customer categories, with (7 672) (6 177) 24▲ recognised (IFRS 15) 0 2017 2018 2019 2020 2021 2022 2023 190 the industrial, rail and mining sectors Capitalised (1 074) (3 991) 73▼ Target most positively affected by the Sales, TWh Electricity revenue, R billion Net electricity recovery of commodity markets 243 387 202 644 20▲ revenue Sales volumes per • Due to the long-lasting impact of the Other revenue 3 133 1 682 86▲ category, TWh 2022 2021 % economic recession, generation Distributors 83.9 82.4 1.8▲ Total revenue 246 520 204 326 21▲ capacity constraints as well as Residential 1 10.5 10.9 3.9▼ customer self-generation, sales are Commercial 9.9 9.7 1.8▲ not expected to recover to Sales volumes, GWh 2022 2021 % Industrial 45.1 40.9 10.4▲ pre-COVID-19 levels for the Local 184 983 178 355 4▲ Mining 28.0 27.0 3.8▲ foreseeable future International 13 298 13 497 1▼ Agriculture 5.4 5.5 1.4▼ Rail 2.1 1.9 10.2▲ Total sales 198 281 191 852 3▲ International 13.3 13.5 1.5▼ ▲ Revenue/sales increased ▲ Non-recognition/capitalisation increased Total ▼ Revenue/sales declined ▼ Non-recognition/capitalisation declined 198.3 191.9 3.4▲ 1. Prepaid electricity and public lighting are included in the residential category 10 FINANCIAL PERFORMANCE Primary energy analysis COST PRODUCTION UNIT COST • Total energy produced increased by 6.4TWh BASE-LOAD COAL AND R80 595 million 191 507GWh R424/MWh 5%▲ (2021: R74 496 million) (2021: 190 040GWh) (2021: R404/MWh) (2.9%▲) to meet higher electricity demand OTHER 1 • Coal plant impacted by frequent breakdowns R1 228 million 12 355GWh R99/MWh requiring higher use of diesel and fuel oil for NUCLEAR (2021: R1 040 million) (2021: 9 903GWh) (2021: R105/MWh) 5%▼ unit start-up procedures • Average coal purchase price increase limited to R10 097 million 1 826GWh R4 708/MWh ESKOM OCGTs 2 19%▲ 2.1%, which will help control future coal costs DIESEL (2021: R4 125 million) (2021: 1 457GWh) (2021: R3 951/MWh) • Improved availability of nuclear plant led to increased production R4 649 million 899GWh R4 574/MWh IPP OCGTs 3 (2021: R2 911 million) (2021: 704GWh) (2021: R3 578/MWh) 28%▲ • Diesel production sources account for 11.1% of total cost but only 1.2% of total GWh R30 554 million 15 073GWh R2 027/MWh produced; reliance on diesel is unsustainable RENEWABLE IPPs (2021: R27 921 million) (2021: 12 821GWh) (2021: R2 178/MWh) 7%▼ • Average diesel price, before rebates, of R15.70/ℓ (2021: R12.12/ℓ) for the year R5 316 million 8 500GWh R625/MWh IMPORTS (2021: R4 998 million) (2021: 8 812GWh) (2021: R567/MWh) 10%▲ • Total primary energy costs increased (14.7%▲) due to reliance on more expensive OCGT and IPP sources to alleviate supply constraints TOTAL 4 R132 439 million 230 161GWh R575/MWh 11%▲ experienced and avoid or minimise (2021: R115 492 million) (2021: 223 738GWh) (2021: R516/MWh) loadshedding during the year ▼ Unit cost declined ▲ Unit cost increased 1. Includes Eskom coal-fired, pumped storage, hydro and wind production. The unit cost is calculated by excluding Medupi and Kusile pre-commissioning production of 1 369GWh (2021: 5 735GWh) for units synchronised to the grid, but not yet commissioned 2. OCGT unit cost is calculated on fuel and start-up cost, and excludes storage and demurrage charges. Storage and demurrage of R108 million (2021: R79 million) is included in the total cost shown. The total cost for 2022 also includes R3.6 billion relating to write-off of the diesel rebate receivable. For comparability, the unit cost calculation is shown gross of rebates 3. The IPP OCGT unit cost is calculated on fuel cost (variable cost) only, and excludes maintenance and capacity charges. Maintenance and capacity charges of R535 million (2021: R391 million) are included in the total cost shown 11 4. Total energy available for distribution amounted to 226 226GWh (2021: 219 423GWh), after accounting for pumping of 6 434GWh (2021: 6 625GWh) as well as wheeling of 2 499GWh (2021: 2 310GWh) FINANCIAL PERFORMANCE Investment in infrastructure Repairs and maintenance expenditure Eskom funded capital expenditure R billion +10% R billion 20 60 50 15 40 +26% 10 19.1 30 60.0 17.4 48.0 14.1 14.0 14.1 14.0 20 5 33.9 30.2 10 23.4 23.9 0 0 2017 2018 2019 2020 2021 2022 2017 2018 2019 2020 2021 2022 Repairs and maintenance per division, R million 2022 2021 1 % • Capital maintenance spend, relating to outage and refurbishment Generation 14 694 13 403 9.6▲ projects, increased to R11.1 billion (2021: R10.5 billion) Transmission 770 661 16.5▲ • Total capital expenditure has shown a declining trend since 2017 due Distribution 3 637 3 378 7.7▲ to ramping down of projects as new build units are commissioned Total 19 101 17 442 9.5▲ • Liquidity constraints and procurement challenges have resulted in delays in the release of capital funds and procurement of long-lead • Net repairs and maintenance comprised planned maintenance items, leading to the deferral of projects, thereby exacerbating of R15.1 billion and unplanned maintenance of R4 billion operational challenges (2021: R14.2 billion and R3.2 billion, respectively) • Capital savings and enhanced management of the capital portfolio are being implemented to deliver improved capital efficiency 1. Restatements are disclosed in note 48 of the annual financial statements 12 FINANCIAL PERFORMANCE Group statement of financial position at 31 March 2022 R million FINANCIAL COMMENTARY 2022 2021 1 % • Net working capital: declined due to increase in Property, plant and equipment and intangible assets 668 694 665 350 1▲ current compensation event provisions, offset by Working capital – current inventory and receivables 2 49 036 46 694 5▲ growth in municipal and metro debtor receivables. Liquid assets – cash and cash equivalents and Initiatives to improve inventory management under way investments 33 203 18 442 80▲ • Liquidity: improved largely due to Government Derivatives held for risk management 8 509 12 543 32▼ support and EBITDA performance, although cash Other assets 3 42 143 34 229 23▲ remains constrained due to debt servicing and working capital requirements Total assets 801 585 777 258 3▲ • Derivatives: derivatives used in hedging activities Equity 4 235 314 215 304 9▲ declined due to fair value movements Debt securities and borrowings 396 294 401 826 1▼ • Equity: share capital of R31.7 billion issued relating to Working capital – current payables 54 534 49 049 11▲ Government support, reduced by the loss Derivatives held for risk management 9 978 8 274 21▲ • Debt: foreign-denominated borrowings declined due to the strengthening of the Rand; repayments exceeded Other liabilities 5 105 465 102 805 3▲ debt raised for the year Total equity and liabilities 801 585 777 258 3▲ Current ratio Debt/equity ratio ▲ Asset increased ▼ Asset declined 0.90 ▼ (2021: 0.95) 1.82 ▼(2021: 2.04) ▼ Liability declined ▲ Liability increased USD/ZAR exchange rate EUR/ZAR exchange rate 1. Restatements are disclosed in note 48 of the annual financial statements 2. A portion of coal inventory was reclassified from current assets to non-current assets based on operational needs R14.59 ▼(2021: R14.75) R16.19 ▼(2021: R17.32) 3. Mainly comprises future fuel supplies, deferred tax and non-current inventory and receivables 4. Includes Government support of R31.7 billion received for the year (2021: R56 billion) 5. Mainly comprises non-current provisions, employee benefit obligations, contract liabilities and lease liabilities 13 FINANCIAL PERFORMANCE Net debt and net finance cost overview R million • Efforts to reduce Eskom’s debt burden were aided by 2022 2021 1 % Government support, leading to an overall reduction in Debt securities and borrowings 396 294 401 826 1▼ gross debt of R5.5 billion (1%▼) Lease liabilities 8 603 8 969 4▼ • Foreign-denominated borrowings (approximately 40% of Net market making liabilities 2 2 portfolio) positively impacted by the strengthening of the Cash and cash equivalents 2 (15 885) (4 041) 293▲ Rand; derivatives held for risk management similarly impacted by exchange rate movements to offset volatility Payments made in advance 2 (778) (1 137) 32▼ • Net finance costs remain the second largest cost after Net derivatives held for risk management 2 903 (4 868) 119▼ primary energy and increased (6%▲) mainly due to lower Net debt 389 139 400 751 3▼ capitalisation as well as higher average cost of borrowing, ▲ Asset increased ▼ Asset declined despite slightly lower debt balance ▼ Liability declined ▲ Liability increased Debt securities and borrowings, R billion 2022 R million 2022 2021 1 % Opening balance 401.8 Gross finance cost 43 611 45 258 4▼ Debt raised (net of 33.0 commercial paper) Finance income (2 364) (2 400) 2▼ Debt repaid (38.9) Borrowing costs capitalised to assets (8 184) (11 716) 30▼ Average cost of debt Exchange rate movements (3.6) 10.02% ▲ (2021: 9.66%) Net finance cost 33 063 31 142 6▲ Other (accruals, interest 4.0 and discounting) Average investment return ▲ Income/capitalisation increased ▼ Income/capitalisation declined ▼ Expense declined ▲ Expense increased Closing balance 396.3 3.92% ▲ (2021: 3.87%) 1. Restatements are disclosed in note 48 of the annual financial statements 2. In this table, assets are reflected as negative amounts. Only payments made in advance to secure debt raised and hedging for debt securities and borrowings are shown 14 FINANCIAL PERFORMANCE Funding plan progress 2022 2023 Guarantee utilisation at 30 Nov 2022 Funding Secured Funding Secured R billion R billion plan 1 at year end plan 1 to date 350 DFIs 7.9 6.3 6.4 6.2 ECAs 0.7 0.4 – – 297 Domestic bonds and notes 8.5 7.1 18.0 18.0 28 Commercial paper 0.5 0.6 – – 25 Total Government Drawn down Committed not Available Private placements 7.0 7.0 8.8 – guarantees drawn down Syndicated loans 10.3 14.4 23.8 15.0 International bonds 7.0 – – – Debt maturity profile at 30 Nov 2022 3 Derivative loans 1.0 – 1.5 1.5 R billion Total funding 2 42.9 35.8 58.5 40.7 32 29 20 % secured 83% 70% 26 49 46 22 49 37 Debt servicing costs of R81 billion for 2023, reducing to an average of 15 around R60 billion per year thereafter, before accounting for the Mar-23 Mar-24 Mar-25 Mar-26 Mar-27 National Treasury debt relief solution to be announced in February 2023 Interest Capital 1. Targeted funding sources are subject to change depending on requirements 2. The table above includes gross commercial paper and committed funding, whereas the debt raised figure in the statement of cash flows is net of commercial paper and accounts for amounts drawn down 3. Based on existing debt only, using forward rates and net of swaps 15 FINANCIAL PERFORMANCE Overview of cash flow movements KEY TAKEAWAYS Cash flows for the year ended 31 March 2022 R billion • Net cash increase of 247 R11.8 billion • Cash from operations remained (90) Primary energy, controllable insufficient to meet debt servicing and some capital investment (43) Primary energy, non-controllable1 Debt servicing of requirements R72 billion comprising: Capital repayments of R39 billion • Eskom’s capital and (33) Employee benefits Interest payments of R33 billion tariff structure must (10) Working capital Repairs, maintenance Debt service gap of be resolved to (18) and operations ±R20 billion ensure long-term (194) without support (33) financial 53 21 sustainability (35) 33 (39) 32 Government support of (14) (20) R32 billion was Revenue Operating Operating Interest repaid Balance before Capital Balance Debt raised Debt repaid Debt service gap Government received to alleviate cashflows surplus investing expenditure before funding support and other some of the cash flow pressure 1. Non-controllable primary energy includes renewable IPP costs and environmental levies 2. Debt raised for the year is reported net of commercial paper in the statement of cash flows 16 FINANCIAL PERFORMANCE Arrear debt management Invoiced arrear municipal debt • Arrear municipal debt (including interest) escalated by a further R9.5 billion (27%▲) Our municipal debt management strategy R billion % +27% focuses on 50 90 • Payment level of 78% by municipalities, excluding 40 metros (2021: 83%). Payment level of 46% for CURRENT ACCOUNT MANAGEMENT 85 30 top 20 defaulting municipalities (2021: 53%) Stop defaulting and enforce payment of current amounts 80 20 44.8 • Regrettably, very little progress being made by 35.3 FUTURE DEBT MANAGEMENT 10 19.9 28.0 75 Political Task Team in dealing with the top 20 9.4 13.6 defaulting municipalities Reduce and/or eliminate overdue debt 0 70 2017 2018 2019 2020 2021 2022 • Eskom’s legal right to payment for services ARREAR DEBT MANAGEMENT Arrear municipal debt, R billion Municipal payment levels, % rendered to municipalities affirmed by Supreme Prevent future defaulting through pre-emptive action Court of Appeal; a positive step towards arrear Soweto small power user (SPU) debt debt collection efforts Project office established to drive the active % R billion • Invoiced Soweto SPU debt (including interest) partnering model; two active partnering 20 26 decreased to R4.6 billion, due to write-off of agreements in place 24 15 22 prescribed debt and in duplum interest 10 -39% 20 • Exploratory engagements under way with the City Payment agreements at 31 March 2022 18.2 18 12.8 15.4 12.8 16 of Johannesburg and the City of Cape Town for the 34 active payment agreements in place, with 5 7.5 transfer of customers in certain areas only 10 fully honoured 4.6 14 0 12 • Other than municipal and residential arrear debt, This includes nine of the top 20 defaulting municipalities, 2017 2018 2019 2020 2021 2022 with only one fully honoured only two large customers owe amounts in excess Total invoiced Soweto SPU debt, R billion Soweto SPU payment levels, % Non-adherence to payment agreements continues to of R100 million – Transnet (R437 million) and EDM contribute to the increase in arrear municipal debt (R579 million, of which R350 million is in dispute) 1. Soweto debt prior to 2019 includes prescribed debt and in duplum components that were not written off at the time 17 FINANCIAL PERFORMANCE Segment information • Segment information for the three operating divisions is presented below. The “Other” column includes information for corporate and support functions, as well as subsidiary information and intergroup eliminations • Note that only selected line items are presented R million Generation Transmission Distribution Other Eskom group INCOME STATEMENT Total revenue 157 536 54 646 34 391 (53) 246 520 Primary energy (91 920) (40 509) (10) – (132 439) Employee benefit expense (10 921) (2 422) (11 323) (8 319) (32 985) Other expenses (28 037) (2 533) (9 506) 11 296 (28 780) Profit before depreciation and amortisation expense and fair 26 143 9 365 13 516 3 350 52 374 value adjustments (EBITDA) Depreciation and amortisation expense (24 067) (3 125) (4 391) (426) (32 009) (Loss)/profit before net finance cost (2 284) 5 730 10 723 3 070 17 239 Net finance cost (26 291) (4 143) (2 438) (191) (33 063) (Loss)/profit before tax (28 575) 1 587 8 285 2 931 (15 772) BALANCE SHEET Total assets 544 427 79 450 120 496 57 212 801 585 Total liabilities 1 85 499 19 408 50 038 411 326 566 271 Additions to property, plant and equipment and intangible assets 20 944 2 890 4 531 163 28 528 1. Segment information is prepared in accordance with IFRS 8. Debt securities and borrowings held by the Treasury Department of Eskom Holdings SOC Ltd are reported in “Other” and have not been allocated to Generation, Transmission and Distribution 18 OUTLOOK Financial outlook for the 2023 financial year Actual Projection • Financial performance expected to deteriorate due to Financial indicator March 2022 March 2023 decline in EAF to 56.16% (2022: 62.02%), lack of generation Revenue, R million 246 520 ▲ 262 991 capacity, high use of OCGTs and global fuel price pressures • Anticipated spend of R10.4 billion on OCGTs and EBITDA, R million 52 374 ▼ 42 625 R8.9 billion on fuel oil contributing significantly to the EBITDA margin, % 21.25 ▼ 16.21 expected loss, together with increased repairs and maintenance and IPP spend Operating profit (EBIT), R million 20 365 ▼ 11 345 • Tariff increase of 9.61% awarded for 2023, although sales Net loss after tax, R million (12 330) ▼ (20 105) volumes of 190.1TWh expected (2022: 198.3TWh) (4%▼) Cash interest cover, ratio 1.68 ▼ 1.17 • Biggest financial challenges remain lack of cost-reflective tariffs, excessive use of OCGTs due to poor operational Debt service cover, ratio 0.76 ▼ 0.48 performance, arrear municipal debt and Eskom’s debt Gross debt/EBITDA, ratio 8.63 ▼ 11.69 • Government debt relief solution expected to address Debt/equity (including long-term provisions), ratio 1.82 ▼ 1.93 one-third to two-thirds of Eskom’s debt; details and conditions to be announced in Feb 2023 Budget Speech Free funds from operations (FFO) as % of gross debt 13.98 ▼ 9.52 ▲ Positive trend expected ▼ Negative trend expected We welcome the June 2022 Supreme Court of Appeal decision on the timing of the recovery of the R59 billion incorrectly deducted by NERSA in MYPD 4, as well as the October 2022 Government support of R87.9 billion committed High Court decision to set aside NERSA’s decision on the valuation of the RAB for 2023. until 2026, with R21.9 billion allocated to 2023 Eskom is awaiting NERSA’s decision on 2024 and 2025 of the MYPD 5 application 19 OUTLOOK Financial performance compromised as NERSA’s tariff decisions don’t allow for adequate recovery of OCGT costs and arrear debt growth Actual March 2021 Actual March 2022 OCGT expenditure Arrear debt impairment 1 OCGT expenditure Arrear debt impairment 1 R million R million R million R million 4 075 7 297 10 033 9 316 6 035 9 020 7 859 950 3 125 1 262 1 013 1 457 2021 NERSA decision Shortfall 2021 NERSA decision Shortfall 2022 NERSA decision Shortfall 2022 NERSA decision Shortfall actual actual actual actual Total shortfall EBITDA Loss before tax Total shortfall EBITDA Loss before tax R9.2 billion R32.6 billion R33.1 billion R16.9 billion R52.4 billion R15.8 billion • Inadequate decisions by NERSA result in Eskom starting the financial year with a Projection March 2023 deficit; projected shortfall of R17 billion for 2023 on OCGTs and arrear debt alone, OCGT expenditure Arrear debt impairment 1 which continues to place pressure on profitability as well as liquidity R million R million • Although Eskom can recover some of the cost of OCGTs through the RCA, Eskom 10 404 10 367 10 367 3 753 0 must carry the shortfall for several years; the cost is never fully recovered 6 651 • NERSA’s decision of 9.61% for 2023 includes no allowance for arrear debt and only allows partial recovery of projected OCGT spend. Should operational challenges 2023 NERSA decision Shortfall 2023 NERSA decision Shortfall projection projection persist, the gap will widen even further Eskom MYPD 5 application for 2024 and 2025 Government must address Total shortfall EBITDA Loss before tax includes R16.9 billion and R17.7 billion for Eskom’s arrear debt challenges, R17 billion R42.6 billion R27.4 billion OCGTs. NERSA’s 12 January 2023 decision is which is escalating in the region critical to improve our financial performance of R10 billion per year 1. Arrear debt impairment comprises net revenue not recognised and finance income not recognised 20 OUTLOOK Restoring Eskom to serve South Africa • New Board appointed from 1 October 2022 to reposition Eskom in the evolving energy landscape, deal with immediate loadshedding issues, procurement challenges, the elimination of corruption and, most importantly, deliver on Eskom’s mandate of ensuring reliable electricity supply in the medium to long term • Continued focus on Generation recovery plan and reliability maintenance recovery to improve plant performance, as well as initiatives under the National Energy Crisis Committee, including efforts to secure additional generation capacity • Implementation plan in place to address findings from Zondo Commission, with key focus on civil recoveries; consequence management related to suppliers, former employees and former directors; in-depth risk assessment and review of policies and procedures to eradicate fraud and corruption • Require a reduction in debt and an improvement in EBITDA margin to be able to achieve independent financial sustainability; financial results will be positively affected by an improvement in operational performance • Loadshedding is unavoidable until capacity of 4 000MW to 6 000MW is added to the grid • Migration towards a cost-reflective tariff is necessary to recover our cost of capital. This, combined with cost efficiencies, improving repayment of municipal debt and reducing Eskom’s debt levels, will restore financial sustainability 21 The results presentation is available at www.eskom.co.za/investors/integrated-results/