Reviewed condensed group and company interim financial statements for the six months ended 30 September 2011 CONTENTS Page Page Currency of financial statements IFC Selected notes to the condensed group and company financial Group business overview 1 statements Financial performance overview 2 1 General information 18 Liquidity and capital resources 4 2 Basis of preparation and measurement 18 Capital expenditure (excluding interest capitalised) 4 3 Significant accounting policies 18 Funding update 4 4 Income tax expense 18 Technical performance 4 5 Seasonality of interim results 18 Safety performance 6 6 Unusual changes impacting the statements of financial Environmental performance 6 position, income, comprehensive income and cash flows 18 Climate change 7 7 Critical accounting estimates and judgement 18 Integrated demand management and internal energy effeciency 7 8 Issuances, repurchases and repayments of debt securities 18 Supplier development and localisation 7 9 Dividend paid 18 Outlook 7 10 Segment information 19 Board of directors 8 11 Material events subsequent to 30 September 2011 22 Approval of the condensed group and company interim 12 Material changes in contingent liabilities 22 financial statements 9 13 Material changes in capital commitments 22 Auditor’s review report 9 14 Issued share capital 22 Condensed group and company statements of financial position 10 15 Related party transactions 22 Condensed group and company income statements 12 16 Employee benefit expense 22 Condensed group and company statements of comprehensive 17 Cash generated from operations 23 income 13 18 Restatement of interim comparative information 24 Condensed group and company statements 19 Pro-forma revaluation of property, plant and equipment to of changes in equity 14 align with regulatory accounting 28 Condensed group and company statements of cash flows 16 Contact information IBC Currency of financial statements The condensed group and company interim financial statements are expressed in South African rand (R). The following are approximate values of R1.00 to the selected currencies and one unit of the selected currencies to the rand: R1.00 to the selected currencies one unit of the selected currencies to the rand 30 September 2011 31 March 2011 30 September 2010 30 September 2011 31 March 2011 30 September 2010 Euro 0.09 0.10 0.11 10.88 9.61 9.52 United States dollar 0.12 0.15 0.14 8.10 6.78 6.98 Pound sterling 0.08 0.09 0.09 12.61 10.87 11.01 (United Kingdom) Swiss franc 0.11 0.13 0.14 8.95 7.41 6.99 Japanese yen 9.09 12.50 11.96 0.11 0.08 0.08 2 Eskom Holdings SOC Limited Reviewed condensed group and company interim financial statements Group business overview Securing energy supply • No load shedding Driving generating • Commissioned 160MW of generation capacity, 263km of high-voltage transmission lines and 250MVA of new capacity transformer capacity • Medupi: First unit expected 2013. Eskom is doing a detailed assessment of the schedule to ensure that contractors meet timelines, as the schedule is at risk • R25.7 billion of capital expenditure (excluding interest capitalised) Improving financial • Discussions with relevant stakeholders to find a solution to the last remaining commodity-linked power agreement health continue • R300 billion funding plan well advanced and more than 74% of sources of funds secured • 2 AfDB loans (USD365 million) were signed on 25 September 2011 and a World Bank loan (USD250 million) was signed on 14 November 2011 in respect of renewable projects Safety • Six employees, seven contractors and nine public fatalities during the six months • The safety of people remains fundamental to Eskom’s business Regulatory changes • The Independent System and Market Operator (ISMO) Bill was tabled in Parliament on 13 May 2011 • A phased approach to be taken New growth path • 78% local content in new build contracts placed in current period • Learner pipeline of 5 173 learners and bursars • More than R31.8 billion (65,8% of attributable spend) sourced from B-BBEE compliant companies in current period 1 Eskom Holdings SOC Limited Reviewed condensed group and company interim financial statements Group business overview continued Financial performance overview Six months to Six months to Six months to and as at and as at and as at 30 September 30 September 30 September Key ratios – group Measure 2011 2010 2009 Electricity revenue per kWh cents/kWh 55.33 44.57 33.96 Electricity operating costs per kWh (including depreciation and amortisation) cents/kWh 38.25 30.57 26.60 Arrear debts as percentage of revenue % 0.89 0.85 0.72 Interest cover Ratio 3.49 3.88 1.68 Free funds from operations (FFO) Rm 22 755 14 635 8 241 FFO/gross debt % 11.4 10.1 8.1 Gross debt/EBITDA Ratio 8.3 7.5 20.8 Working capital ratio Ratio 0.97 1.12 1.14 Debt: equity including long-term provisions Ratio 1.40 1.46 1.52 Return on average total assets % 3.66 3.57 0.53 Return on average equity % 13.39 12.44 1.82 Average debtors days: Transmission Days 15.49 16.20 18.50 Average debtors days: Distribution large power users Days 21.04 20.30 19.40 Average debtors days: Distribution small power users Days 40.54 40.00 39.30 Average days coal stock Days 41 46 45 2 Eskom Holdings SOC Limited Reviewed condensed group and company interim financial statements Results of operations producers and municipalities. Power producer agreements were signed for Eskom achieved a group net profit for the six months to 30 September 2011 373 MW with Sasol, Sappi Saiccor, Sappi Ngodwana, IPSA and Tangent of R12.8 billion (2010: R9.5 billion). The seasonality of Eskom’s business Mining. They are all operational except Tangent Mining. should be considered when reviewing the half-year results. Due to higher winter tariffs, higher energy demands and therefore less maintenance Independent System and Market Operator (ISMO) Bill activities, Eskom achieves higher profits in the first six months of the year. The Independent System and Market Operator (ISMO) Bill was tabled in The operating profit for the six months, before fair value gains and losses on Parliament on 13 May 2011. A phased approach towards the end-state is embedded derivatives and net finance costs for the Eskom group was being followed. R19.8 billion (2010: R17.2 billion). Operating costs Eskom’s electricity revenue per kWh sold improved on average by 24.1% Operating costs consisted of the following: (from 44.6 cents to 55.3 cents per kWh period-on-period), while Eskom’s electricity-related operational costs per kWh sold increased by 25.1% (from Employee benefits: 30.6 c/kWh to 38.3 c/kWh period-on-period). Group employee numbers were 41 756 (2010: 40 165) as at 30 September 2011. Revenue Group revenue for the six months to 30 September 2011 was R63.9 billion Group gross employee costs for the six months to 30 September 2011 (2010: R51.1 billion). Included in revenue is the environmental levy amounted to R11.4 billion (2010: R10.0 billion). Employee costs of R2.0 billion (2 c/kWh) charged to customers of R2.2 billion (2010: R2.3 billion). (2010: R1.9 billion) were capitalised to capital projects during the period. The sale of electricity for the period amounted to 114 043 GWh (2010: Arrear debt 113 072 GWh), representing an increase of 0.9% when compared to the Arrear bad debt as a percentage of external revenue was 0.89% for the six prior comparative period. The slower than anticipated recovery of the months to September 2011 (2010: 0.85%). Arrear debt is an area that will economy, downscaling of certain mines and smelters during winter, good receive continuous focus over the forthcoming years as the tariff increases rainfalls, and international customers able to source alternative electricity and an increasing defaulting municipality debt trend is emerging. supplies contributed to the lower growth rate. The lower growth rate is projected to continue for the rest of the year. Repairs and maintenance Other operating expenses for the period, which amounted to R7.5 billion Primary energy costs (2010: R4.4 billion), consist primarily of repairs and maintenance and are Primary energy costs for the six months amounted to R21.9 billion (2010: monitored closely. The increase from the prior period was as a result of R17.2 billion). The costs include the environmental levy (2011: 2.5 c/kWh; limited maintenance being conducted during the 2010 FIFA World Cup™. 2010: 2 c/kWh) of R3.2 billion (2010: R2.4 billion). Primary energy as a Ensuring that the outage plan is executed timeously remains a challenge, percentage of electricity revenue was 34.6% (2010: 34.1%). given the tight electricity demand and supply situation. Primary energy costs increased by 26.0% from 15.21 c/kWh in 2010 to Net fair value loss on financial instruments, excluding embedded 19.17 c/kWh for the six months to 30 September 2011. The 3.96 c/kWh derivatives increase was due to: cost of coal burnt increases of 1.94 c/kWh, the The net fair value loss on financial instruments, excluding embedded environmental levy increase contributed 0.66 c/kWh while the cost of IPPs derivatives, was R1.1 billion for the period (2010: R0.6 billion). These losses contributed a 1.35 c/kWh increase. consist primarily of the costs attributable to the rolling over of forward exchange contracts (FECs). The coal stock days at 30 September 2011 was 41 days (2010: 46 days) maintaining the 31 March 2011 level. The projected coal stock days for Profit on embedded derivatives 31 March 2012 is 48 days. The net impact on the income statement of changes in the fair value of the embedded derivatives (relating to the one remaining special pricing agreement) Eskom is committed to facilitating the entry of independent power producers was a fair value profit for the six months to 30 September 2011 of R0.3 billion (IPPs) and will continue to sign agreements with IPPs within the framework (2010: loss of R1.5 billion). The embedded derivative liabilities amounted to of the integrated resource plan and the tariff determination for the R5.6 billion (2010: R6.1 billion). Discussions continue with relevant stakeholders multi-year pricing determination. During the period, Eskom purchased to find a solution regarding the remaining commodity-linked supply agreement. 1 044 GWh and 1 089 GWh respectively from independent power 3 Eskom Holdings SOC Limited Reviewed condensed group and company interim financial statements Group business overview continued Net finance cost The debt : equity ratio (including long-term provisions) improved from The net finance charges for the six months to 30 September 2011, after the 1.46 as at 30 September 2010 to 1.40 at 30 September 2011.The free funds capitalisation of borrowing costs and including unwinding of interest, from operations (FFO) as a percentage of gross debt for the six months was R2.1 billion (2010: R2.4 billion). Finance income for the period was ended 30 September 2011 improved to 11.43% (2010: 10.13%). R1.8 billion (2010: R1.0 billion). Capital expenditure (excluding interest capitalised) Gross finance costs for the period were R7.8 billion (2010: R6.4 billion). The Eskom has spent a total of R141.5 billion (2010: R105.1 billion) on the amount of borrowing costs capitalised was R4.9 billion (2010: R3.0 billion). capacity expansion programme since its inception in 2005. In terms of the The unwinding of interest (not included in gross finance cost) amounted to programme, Eskom has installed 160 MW of generation capacity, 263 km of R1.0 billion (2010: R0.9 billion). transmission lines and 250 MVA of transformers in the six months ended 30 September 2011. The weighted annualised average cost of borrowings pre-tax for the six months was 9.84%, compared to 9.24% in the comparative period. Both Medupi and Kusile are working hard to make up for lost time and plans are in place to mitigate the risk. The commissioning date for Medupi’s first Taxation unit has been revised to 2013, while Kusile’s first unit is still expected to go The effective tax rate for the period was 28.6% (2010: 28.9%), which is in line live at the end of 2014. It is expected that the completion of all the units of with the current statutory tax rate of 28%. Medupi will meet the IRP 2010 planned dates. Liquidity and capital resources Funding update The cash and cash equivalents increased from R12.1 billion at 31 March 2011 Eskom remains well placed from a funding view-point, with healthy liquidity to R14.4 billion at 30 September 2011. Liquid assets, which include cash and reserves at 30 September 2011. The major focus during the period has been cash equivalents and investments in securities, amounted to R54.2 billion at negotiating access to the Clean Technology Fund, supported and co-financed 30 September 2011 (2010: R38.0 billion). Investments in securities consist with other development finance institutions in order to finance the Sere mainly of RSA Government bonds and money market assets. wind farm and the Upington concentrating solar plant. Cash flows from operating activities During November 2011, Moody’s revised the outlook of South Africa’s The net cash inflow from operating activities for the six months was Sovereign as well as Eskom’s credit rating from stable to negative. R21.3 billion (2010: 17.1 billion). The cash generated from an increase in profitability was offset by an increase in working capital since 31 March 2011. Technical performance The working capital ratio was 0.97 (2010: 1.12). Generation Generation’s overall availability performance (EAF) for the six months to Cash flows utilised in investing activities 30 September 2011 is slightly worse when compared to the previous Cash flows utilised in investing activities for the six months were R25.5 billion comparative period. In general the quality of coal supplied to the power (2010: R20.2 billion). The capital expenditure cash flows included in this line stations have improved but requires dedicated attention. item, excluding capitalised interest, amounted to R24.6 billion (2010: R18.8 billion) due primarily to the progress of the capacity expansion programme. Cash flows from financing activities The net cash inflows from financing activities were R6.6 billion (2010: R16.1 billion). The raising of borrowings and the issuing of securities have been slowed down to match the reduced capital expenditure spend. 4 Eskom Holdings SOC Limited Reviewed condensed group and company interim financial statements Technical performance Year-end Year to date Year to date Actual target actual actual year-end Measure Description Mar 2012 Sept 2011 Sept 2010 Mar 2011 Unit capability factor UCF measures the plant availability and 85.10% 87.19% 87.95% 85.87% (UCF) indicates how well the plant is operated and maintained Energy availability factor EAF measures plant availability (UCF above), 84.10% 86.28% 86.68% 84.59% (EAF) plus energy losses not under the control of plant management (external) and internal non-engineering constraints Unplanned capability loss UCLF measures the lost energy due to 6.50% 6.76% 5.41% 6.14% factor (UCLF) unplanned production interruptions resulting from equipment failures and other plant conditions Generation load factor GLF indicates the extent to which the 66.90% 66.86% 67.24% 66.39% (GLF) generation fleet was loaded on average over the year to produce the energy demanded Planned capability loss PCLF-planned energy loss is energy that was 8.40% 6.05% 6.64% 7.98% factor (PCLF) not produced during the period because of planned shutdowns or load reductions due to causes under plant management control Unplanned automatic UAGS/7000 indicates the amount of 2.80 2.80 3.72 3.62 grid separations/ unplanned unit trips per 7000 operating 7000 hours hours The reserve margin for the 2011 calendar year of 16.9% (2010 calendar year maintenance activities is currently limited due to the imbalance between the of 14.9%) is based on the peak winter demand of 36 543 MW during May demand for electricity versus the electricity supply capacity and the reserve 2011. margin, as well as contingency requirements imposed by security of supply considerations.   This contributes to an increase in the maintenance backlog. The higher than target unplanned plant unavailability (UCLF) is mainly A strategy to deal with the reduction of maintenance backlog is being attributed to the Duvha Unit 4 turbine incident and boiler tube failures. formulated. Tube failures occur as a result of fly ash and soot blower erosion and thermal, mechanical and vibration-induced fatigue. Duvha Unit 4 (return to service) The process is underway to engage the original equipment manufacturer for Planned maintenance (PCLF) is lower that target. Generation requires a the rebuild and commissioning of the turbine, which is expected during the planned capability loss factor (PCLF) of approximately 10% per annum in winter of 2012. Generation have made use of the opportunity to conduct order to complete the required maintenance (including backlog). The necessary maintenance on other areas of Unit 4 not damaged by the turbine opportunity to shut down power station units to perform planned incident. 5 Eskom Holdings SOC Limited Reviewed condensed group and company interim financial statements Group business overview continued Transmission and Distribution Technical performance Year-end Year to date Year to date Actual target actual actual year-end Description Unit of measure Mar 2012 Sept 2011 Sept 2010 Mar 2011 SAIFI Number per annum ≤ 22.00 26.30 24.07 25.31 SAIDI Hours per annum ≤ 49.00 53.82 53.51 52.61 Number of major Records number of incidents with a severity 2 1 0 0 incidents greater than one system minute Slower than anticipated benefit realisation for Distribution’s network Electrification performance improvement initiatives, resource constraints as well as the Since the inception of the electrification programme in 1991, a total of impact of conductor/equipment theft on resources and network 4 092 027 (2010: 3 940 252) homes and 12 654 (2010: 12 393) grid schools performance, have affected Distribution’s performance, which has and clinics have been electrified. Year to date 41 059 (2010: 39 198) homes deteriorated compared to the prior period. Eskom has put in place five key were electrified. strategies to address the performance. Energy losses NERSA Actual Actual Actual target year to date year to date year-end Mar 2012 Sept 2011 Sept 2010 Mar 2011 % % % % Distribution loss ≤ 6.00 5.94 5.76 5.68 Transmission loss ≤ 3.40 3.14 3.30 3.27 Total Eskom loss ≤ 8.75 8.52 8.46 8.25 The reduction of energy losses continues to be a key focus area in the •  nine public fatalities (two vehicle, six electrical contact, one other) business. compared to 12 in the six months to September 2010 Safety performance The actual lost-time incident rate (LTIR) performance was 0.45 compared Eskom is committed to provide and maintain a safe and healthy working with a target of 0.40 (2010: 0.52). environment for all employees and contractors and members of the public and has invested R5.2 million in public safety campaigns in the six months to Eskom’s strategy to shift safety performance is based on visible, felt leadership 30 September 2011. Despite significant efforts, Eskom’s occupational health and behavioural culture change. and safety performance remains unacceptable. Accidents still occur, which not only affect Eskom’s employees, but also contractors and members of the The new build construction environment continues to be a challenge with public. over 25 000 contractor employees on the various sites across the country. Safety forums are held with contractors to ensure that safety is a top priority. Eskom safety performance as at September 2011 compared to the same period last year was as follows: Environmental performance • six employee fatalities (two due to electrical contact, two due to vehicle Eskom continues to ensure it operates as a responsible corporate citizen in accidents and two other) compared to two employees in the six months South Africa and therefore has an overall commitment to environmental to September 2010 duty of care. • seven contractor fatalities (four vehicle, three other) compared to six in the six months to September 2010 6 Eskom Holdings SOC Limited Reviewed condensed group and company interim financial statements The following highlights are mentioned: Outlook • water use, as part of the process to generate electricity, has improved The South African electricity supply-demand balance will remain tight in the from 1.32 (end September 2010) to 1.29 litres/kWh in 2011 near future. While it will take substantial effort from many stakeholders to • relative particulate emissions performance has stabilised from overcome South Africa’s current electricity challenges, we resolve to prevent 0.31 kg/MWh (end September 2010) to 0.30 kg/MWh sent out in 2011 load shedding through playing a leading role and actively partnering with all • sulphur dioxide (SO2) emissions decreased to 911.1 kt for the six months key stakeholders, including the people of South Africa. A major focus will be ended 30 September 2011(2010: 929.3 kt) on creating an enabling environment for other players to participate. • carbon dioxide (CO2) emissions of 117.6 Mt during the six months ended However, there are still significant risks which need to be managed. 30 September 2011 (2010: 117.7 Mt) The progress of the project initiated to accelerate the return to service of Climate change Duvha power station Unit 4, in Mpumalanga, had been substantial with South Africa will host the COP17/CMP7 climate change negotiations in completion expected by winter next year. Plans to mitigate the effect of the Durban from 28 November 2011 to 9 December 2011. During the past expected delays in the commissioning of the first unit of Medupi to 2013 are six months Eskom has engaged with relevant stakeholders, including business, being put in place. NGOs and government, on both logistical arrangements and policy related issues to prepare for the event. The tracking of safety performance is fundamental to Eskom’s business, to monitor and minimise the impact of safety incidents, both in terms of the Integrated demand management and internal energy health and safety of those involved, as well as the impact on Eskom’s efficiency operations and production. Eskom deeply regrets the tragic loss of lives and The integrated demand management strategy resulted in 26 MW demand has escalated its efforts in making safety a priority within the organisation. savings and 116 GWh energy savings. Measured and verified savings for all internal projects implemented from inception to date amount to 61.9 GWh. Further energy efficiency and renewable energy projects are in the process of being implemented in the run up to COP17. Additional security Supplier development and localisation measures are also being implemented, especially at key Eskom facilities. At the end of September 2011, the Group achieved a localisation spend of 66% (R31.8 billion) towards B-BBEE compliant suppliers (2010: 42.6%, (R14.8 billion)) against the annual target of 60%. The local content portion for new build contracts placed in this period (R4.0 billion) have a committed local content portion of 78% (R3.15 billion) against a target of 52%. A total of 25 437 individuals have worked on the different new build project sites since the inception of new build projects, of which 10 664 are employed from local districts. If we all save as much as we can, we’ll all have as much as we need 7 Eskom Holdings SOC Limited Reviewed condensed group and company interim financial statements Board of directors The directors as at 16 November 2011: The following board members retired on 27 June 2011: ZA Tsotsi PM Makwana (Chairman) – appointed 28 June 2011 (Chairman) BA Dames LCZ Cele (Chief executive) (Non-executive director) PS O’ Flaherty SD Dube (Executive director responsible for finance) (Non-executive director) Dr BL Fanaroff LG Josefsson (Non-executive director) (Non-executive director) RMQ Gungubele HB Lee (Non-executive director) – appointed 24 August 2011 (Non-executive director) N Lesela WE Lucas-Bull (Non-executive director) – appointed 28 June 2011 (Non-executive director) B Luthuli J Mirenge (Non-executive director) – appointed 24 August 2011 (Non-executive director) C Mabude JRD Modise (Non-executive director) – appointed 28 June 2011 (Non-executive director) Y Masithela U Zikalala (Non-executive director) – appointed 28 June 2011 (Non-executive director) MC Matjila (Non-executive director) – appointed 28 June 2011 Dr B Mehlomakulu (Non-executive director) ME Mkhwanazi (Non-executive director) – appointed 28 June 2011 PQ Sedibe (Non-executive director) – appointed 28 June 2011 DEL Zondo (Non-executive director) – appointed 1 October 2011 8 Eskom Holdings SOC Limited Reviewed condensed group and company interim financial statements Approval of the condensed group and company interim financial statements The condensed group and company interim financial statements from page 10 to page 27 for the six months ended 30 September 2011 have been prepared in accordance with International Financial Reporting Standards International Accounting Standard 34 Interim Financial Reporting. The condensed group and company interim financial statements have been prepared under the supervision of the finance director, PS O’Flaherty CA(SA), and approved by the board of directors and signed on its behalf by: ZA Tsotsi BA Dames PS O’Flaherty Chairman Chief executive Finance director 16 November 2011 16 November 2011 16 November 2011 Auditor’s review report The condensed group and company statements of financial position at 30 September 2011 and the related condensed group and company income statements, statements of comprehensive income, statements of changes in equity and statements of cash flows for the six months then ended and selected notes were reviewed by KPMG Inc and SizweNtsaluba vsp.   Their unmodified review report is available for inspection at the registered office of the company. 9 Eskom Holdings SOC Limited Reviewed condensed group and company interim financial statements Condensed group and company statements of financial position at 30 September 2011 Group Company Reviewed Audited Reviewed Reviewed Audited Reviewed 30 September 31 March1 30 September1 30 September 31 March1 30 September1 2011 2011 2010 2011 2011 2010 Rm Rm Rm Rm Rm Rm Assets Non-current assets 288 737 265 183 223 414 282 864 260 277 219 459 Property, plant and equipment 263 081 236 724 207 733 262 675 236 217 206 919 Intangible assets 1 430 1 377 1 231 1 315 1 303 1 114 Investment in equity-accounted investees 236 220 204 95 95 95 Investment in subsidiaries – – – 2 337 2 337 2 337 Future fuel supplies 4 313 4 089 3 616 4 313 4 089 3 616 Deferred tax assets 68 59 76 – – – Investment in securities 7 621 13 259 2 108 7 621 13 259 2 108 Loans receivable 6 681 5 958 5 164 – – – Derivatives held for risk management 1 231 6 3 1 232 6 3 Finance lease receivables 566 570 521 566 570 521 Payments made in advance 2 681 2 396 2 731 2 691 2 387 2 731 Trade and other receivables 829 525 27 19 14 15 Current assets 82 152 62 258 64 441 81 289 60 914 62 201 Financial instruments with group companies – – – 4 553 3 806 2 969 Inventories 9 659 8 904 8 957 9 550 8 809 8 798 Taxation 89 59 85 – – – Investment in securities 32 103 24 546 7 336 29 075 22 310 5 093 Loans receivable 95 100 107 – – – Derivatives held for risk management 4 340 116 180 4 330 116 180 Finance lease receivables 16 15 13 16 15 13 Payments made in advance 1 101 1 651 1 830 1 577 1 627 1 655 Trade and other receivables 15 109 10 953 12 902 13 691 9 568 11 767 Financial trading assets 5 202 3 827 4 454 4 616 3 197 3 868 Cash and cash equivalents 14 438 12 087 28 577 13 881 11 466 27 858 Non-current assets held-for-sale 832 704 18 – – – Total assets 371 721 328 145 287 873 364 153 321 191 281 660 10 Eskom Holdings SOC Limited Reviewed condensed group and company interim financial statements Group Company Reviewed Audited Reviewed Reviewed Audited Reviewed 30 September 31 March1 30 September1 30 September 31 March1 30 September1 2011 2011 2010 2011 2011 2010 Rm Rm Rm Rm Rm Rm Equity Capital and reserves attributable to owner of the company 104 132 87 259 83 084 100 445 83 787 79 226 Liabilities Non-current liabilities 220 938 196 270 162 186 218 575 194 470 159 766 Debt securities issued 90 222 84 396 68 481 89 992 84 031 67 718 Borrowings 77 354 63 380 45 926 76 918 62 940 45 378 Embedded derivative liabilities 4 702 5 357 5 553 4 702 5 357 5 553 Derivatives held for risk management 69 4 576 4 292 69 4 576 4 292 Deferred tax liabilities 14 588 7 931 8 522 14 145 7 503 7 865 Deferred income 9 200 8 395 7 624 9 200 8 395 7 624 Retirement benefit obligations 7 800 7 317 7 517 7 619 7 140 7 343 Provisions 12 345 11 203 10 508 12 237 11 118 10 191 Finance lease liabilities 516 521 627 846 865 974 Trade and other payables 2 251 1 508 1 325 973 859 1 018 Payments received in advance 1 891 1 686 1 811 1 874 1 686 1 810 Current liabilities 45 675 43 756 42 603 45 133 42 934 42 668 Financial instruments with group companies – – – 1 492 1 462 1 577 Debt securities issued 3 221 2 880 2 281 1 778 1 574 1 392 Borrowings 7 690 9 654 10 519 7 654 9 571 10 463 Embedded derivative liabilities 908 516 530 907 515 529 Derivatives held for risk management 599 1 404 3 548 599 1 404 3 548 Deferred income 591 638 454 591 638 454 Retirement benefit obligations 234 234 205 234 234 205 Provisions 4 441 4 021 1 942 3 992 3 503 1 427 Finance lease liabilities 9 8 53 40 37 78 Trade and other payables 20 328 18 876 17 517 20 177 18 480 17 547 Payments received in advance 1 324 1 221 1 078 1 354 1 212 994 Taxation 15 – 22 – – – Financial trading liabilities 6 315 4 304 4 454 6 315 4 304 4 454 Non-current liabilities held-for-sale 976 860 – – – – Total liabilities 267 589 240 886 204 789 263 708 237 404 202 434 Total equity and liabilities 371 721 328 145 287 873 364 153 321 191 281 660 1. Restated – refer note 18. 11 Eskom Holdings SOC Limited Reviewed condensed group and company interim financial statements Condensed group and company income statements for the six months ended 30 September 2011 Group Company Reviewed Reviewed Audited Reviewed Reviewed Audited six months six months year six months six months year ended ended ended ended ended ended 30 September 30 September1 31 March1 30 September 30 September1 31 March1 2011 2010 2011 2011 2010 2011 Note Rm Rm Rm Rm Rm Rm Continuing operations Revenue 63 882 51 114 91 447 63 362 50 609 90 873 Primary energy2 (21 858) (17 199) (35 795) (21 858) (17 199) (35 795) Employee benefit expense 16 (9 367) (8 121) (16 695) (8 567) (7 398) (15 360) Depreciation and amortisation expense (4 071) (3 418) (7 219) (4 015) (3 305) (7 059) Net impairment loss (565) (468) (788) (559) (398) (734) Other operating expenses (7 531) (4 393) (12 070) (8 618) (6 262) (14 628) Operating profit before net fair value loss and net finance cost 20 490 17 515 18 880 19 745 16 047 17 297 Other income 395 351 587 859 739 1 688 Net fair value loss on financial instruments, excluding embedded derivatives (1 126) (625) (1 816) (1 106) (632) (1 887) Net fair value gain/(loss) on embedded derivatives 263 (1 471) (1 261) 263 (1 471) (1 261) Operating profit before net finance cost 20 022 15 770 16 390 19 761 14 683 15 837 Net finance cost (2 106) (2 366) (4 741) (2 098) (2 380) (4 770) Finance income 1 812 1 030 2 436 1 810 1 016 2 425 Finance cost (3 918) (3 396) (7 177) (3 908) (3 396) (7 195) Share of profit of equity- accounted investees, net of tax 16 8 24 – – Profit before tax 17 932 13 412 11 673 17 663 12 303 11 067 Income tax (5 129) (3 879) (3 261) (5 064) (3 568) (3 116) Profit for the period from continuing operations 12 803 9 533 8 412 12 599 8 735 7 951 Discontinued operations Profit/(loss) for the period from discontinued operations 7 – (56) – – – Profit for the period 12 810 9 533 8 356 12 599 8 735 7 951 Attributable to: Owner of the company 12 810 9 533 8 356 12 599 8 735 7 951 12 Eskom Holdings SOC Limited Reviewed condensed group and company interim financial statements Condensed group and company statements of comprehensive income for the six months ended 30 September 2011 Group Company Reviewed Reviewed Audited Reviewed Reviewed Audited six months six months year six months six months year ended ended ended ended ended ended 30 September 30 September1 31 March1 30 September 30 September1 31 March1 2011 2010 2011 2011 2010 2011 Rm Rm Rm Rm Rm Rm Profit for the period 12 810 9 533 8 356 12 599 8 735 7 951 Other comprehensive income 4 063 (1 421) (2) 4 059 (1 378) 34 Available-for-sale financial assets – net change in fair value 166 200 (40) 168 198 (36) Cash flow hedges Effective portion of changes in fair value 5 439 (1 912) (1 031) 5 439 (1 912) (1 031) Changes in fair value 5 439 (1 912) (1 025) 5 439 (1 912) (1 025) Ineffective portion of changes in fair value reclassified to profit or loss – – (6) – – (6) Net amount transferred to initial carrying amount of hedged items 108 (41) 246 108 (41) 246 Foreign currency translation differences for foreign operations 6 (45) (33) – – – Net actuarial (loss)/gain on post- retirement medical aid benefits (78) (160) 408 (78) (160) 408 Income tax on other comprehensive income (1 578) 537 448 (1 578) 537 447 Total comprehensive income for the period 16 873 8 112 8 354 16 658 7 357 7 985 Attributable to: Owner of the company 16 873 8 112 8 354 16 658 7 357 7 985 1. Restated – refer note 18. 2. Primary energy relates to the acquisition of coal, uranium, water, gas and diesel that are used in the generation of electricity. 13 Eskom Holdings SOC Limited Reviewed condensed group and company interim financial statements Condensed group and company statements of changes in equity for the six months ended 30 September 2011 Attributable to owner of the company Share Equity Cash Avail- Un- Insur- Foreign Accu- Total capital1 reserve2 flow able- realised ance currency mulated equity hedge for-sale fair value reserve6 trans- profit8 reserve3 reserve 4 reserve 5 lation reserve7 Rm Rm Rm Rm Rm Rm Rm Rm Rm Group Balance at 31 March 2010 (audited) – 21 837 (750) (153) (1 084) 55 25 50 292 70 222 Prior year restatement – – 494 – – – – (494) – Restated balance at 31 March 2010 – 21 837 (256) (153) (1 084) 55 25 49 798 70 222 Profit for the period – – – – – – – 9 533 9 533 Other comprehensive (loss)/income, net of tax – – (1 406) 145 – – (45) (115) (1 421) Available-for-sale financial assets Net change in fair value – – – 145 – – – – 145 Cash flow hedges Effective portion of changes in fair value – – (1 377) – – – – – (1 377) Net amount transferred to initial carrying amount of hedged items – – (29) – – – – – (29) Foreign currency translation differences on foreign operations – – – – – – (45) – (45) Net actuarial loss on post-retirement medical aid benefits – – – – – – – (115) (115) Subordinated loan from shareholder – 4 750 – – – – – – 4 750 Transfer between reserves – – – – 404 18 – (422) – Balance at 30 September 2010 (reviewed) – 26 587 (1 662) (8) (680) 73 (20) 58 794 83 084 Profit for the period – – – – – – – (1 177) (1 177) Other comprehensive income/(loss), net of tax – – 1 173 (174) – – 12 408 1 419 Available-for-sale financial assets Net change in fair value – – – (174) – – – – (174) Cash flow hedges Effective portion of changes in fair value – – 967 – – – – – 967 Net amount transferred to initial carrying amounts of hedged items – – 206 – – – – – 206 Foreign currency translation differences on foreign operations – – – – – – 12 – 12 Net actuarial gain on post-retirement medical aid benefits – – – – – – – 408 408 Subordinated loan from shareholder – 3 933 – – – – – – 3 933 Transfer between reserves – – 2 364 (597) 37 – 194 – Balance at 31 March 2011 (audited) – 30 520 (487) 182 (1 277) 110 (8) 58 219 87 259 Profit for the period – – – – – – – 12 810 12 810 Other comprehensive income/(loss), net of tax – – 3 994 119 – – 6 (56) 4 063 Available-for-sale financial assets Net change in fair value – – – 119 – – – – 119 Cash flow hedges Effective portion of changes in fair value – – 3 916 – – – – – 3 916 Net amount transferred to initial carrying amount of hedged items – – 78 – – – – – 78 Foreign currency translation differences on foreign operations – – – – – – 6 – 6 Net actuarial loss on post-retirement medical aid benefits – – – – – – – (56) (56) Transfer between reserves – – – – 2 427 41 – (2 468) – Balance at 30 September 2011 (reviewed) – 30 520 3 507 301 1 150 151 (2) 68 505 104 132 14 Eskom Holdings SOC Limited Reviewed condensed group and company interim financial statements Attributable to owner of the company Share Equity Cash Avail- Un- Accu- Total capital1 reserve2 flow able-for- realised mulated hedge sale fair value profit8 reserve3 reserve4 reserve5 Rm Rm Rm Rm Rm Rm Rm Company Balance at 31 March 2010 (audited) – 21 837 (748) (159) (1 083) 47 272 67 119 Prior year restatement – – 494 – – (494) – Restated balance at 31 March 2010 – 21 837 (254) (159) (1 083) 46 778 67 119 Profit for the period – – – – – 8 735 8 735 Other comprehensive (loss)/income, net of tax – – (1 406) 143 – (115) (1 378) Available-for-sale financial assets Net change in fair value – – – 143 – – 143 Cash flow hedges Effective portion of changes in fair value – – (1 377) – – – (1 377) Net amount transferred to initial carrying amount of hedged items – – (29) – – – (29) Net actuarial loss on post-retirement medical aid benefits – – – – – (115) (115) Subordinated loan from shareholder – 4 750 – – – – 4 750 Transfer between reserves – – – – 404 (404) – Balance at 30 September 2010 (reviewed) – 26 587 (1 660) (16) (679) 54 994 79 226 Profit for the period – – – – – (784) (784) Other comprehensive income/(loss), net of tax – – 1 173 (169) – 408 1 412 Available-for-sale financial assets Net change in fair value – – – (169) – – (169) Cash flow hedges Effective portion of changes in fair value – – 967 – – – 967 Net amount transferred to initial carrying amount of hedged item – – 206 – – – 206 Net actuarial gain on post-retirement medical aid benefits – – – – – 408 408 Subordinated loan from shareholder – 3 933 – – – – 3 933 Transfer between reserves – – – 366 (598) 232 – Balance at 31 March 2011 (audited) – 30 520 (487) 181 (1 277) 54 850 83 787 Profit for the period – – – – – 12 599 12 599 Other comprehensive income/(loss), net of tax – – 3 994 121 – (56) 4 059 Available-for-sale financial assets Net change in fair value – – – 121 – – 121 Cash flow hedges Effective portion of changes in fair value – – 3 916 – – – 3 916 Net amount transferred to initial carrying amount of hedged items – – 78 – – – 78 Net actuarial loss on post-retirement medical aid benefits – – – – – (56) (56) Transfer between reserves – – – – 2 427 (2 427) – Balance at 30 September 2011 (reviewed) – 30 520 3 507 302 1 150 64 966 100 445 1. Nominal amount. 2. The equity reserve comprises the day-one gain on initial recognition of the subordinated loan from the shareholder. 3. The cash flow hedge reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments (comprising forward exchange contracts, interest rate swaps and cross currency swaps) related to hedged transactions that have not yet occurred. The cross-currency swaps hedge foreign exchange rate risk of the future interest payments and the principal repayment on fixed rate bonds and loans (denominated in US dollar, euro and yen). 4. The available-for-sale reserve comprises the cumulative net change in the fair value of available-for-sale financial assets until the investments are derecognised. 5. The cumulative net change in the fair value of derivatives that have not been designated as cash flow hedging instruments is recognised in profit or loss. The unrealised portion of the net change in fair value is not distributable and has been reallocated from a distributable reserve (accumulated profit) to a non-distributable reserve. 6. The insurance reserve is a contingency reserve created in terms of the Short-term Insurance Act, 1998. 7. The foreign currency translation reserve comprises exchange differences resulting from the translation of the results and financial position of foreign operations. 8. Accumulated profit is the amount of cumulative profit retained in the business after tax. 15 Eskom Holdings SOC Limited Reviewed condensed group and company interim financial statements Condensed group and company statements of cash flows for the six months ended 30 September 2011 Group Company Reviewed Reviewed Audited Reviewed Reviewed Audited six months six months year six months six months year ended ended ended ended ended ended 30 September 30 September1 31 March1 30 September 30 September1 31 March1 2011 2010 2011 2011 2010 2011 Note Rm Rm Rm Rm Rm Rm Cash flows from operating activities Cash generated from operations 17 22 122 18 131 28 738 21 738 16 632 27 847 Net cash flows (invested in)/from financial trading assets (1 505) 1 975 2 925 (1 511) 1 997 2 929 Net cash flows from/(invested in) financial trading liabilities 1 929 (1 437) (1 456) 1 929 (1 437) (1 456) Net cash flows invested in current derivatives held for risk management (1 213) (1 429) (7 212) (1 217) (1 423) (7 212) Net cash flows invested in non-current assets held-for-sale – – (97) – – – Income taxes paid (73) (110) (151) – – – Net cash from operating activities 21 260 17 130 22 747 20 939 15 769 22 108 Cash flows from investing activities Proceeds from disposal of property, plant and equipment 45 78 135 39 63 144 Acquisitions of property, plant and equipment (24 333) (18 704) (43 975) (24 355) (18 651) (44 098) Acquisitions of intangible assets (219) (52) (350) (165) (51) (374) Expenditure on future fuel supplies (708) (467) (1 079) (708) (467) (1 079) Proceeds from disposal of investment in subsidiary companies – 4 – – 4 4 (Increase)/decrease in non- current trade and other receivables (301) (8) (509) (3) 8 6 Increase in non-current loans receivable (1 077) (1 242) (1 469) – – – Decrease/(increase) in finance lease receivables 14 11 (20) 14 11 (20) Net cash flows from non-current assets and liabilities held-for-sale – – (10) – – – Dividends received – non-current assets held-for-sale – 5 – – – – Dividends received – other 21 8 26 13 5 15 Increase in non-current trade and other payables 1 032 191 793 404 221 481 Net cash applied to investing activities (25 526) (20 176) (46 458) (24 761) (18 857) (44 921) 16 Eskom Holdings SOC Limited Reviewed condensed group and company interim financial statements Group Company Reviewed Reviewed Audited Reviewed Reviewed Audited six months six months year six months six months year ended ended ended ended ended ended 30 September 30 September1 31 March1 30 September 30 September1 31 March1 2011 2010 2011 2011 2010 2011 Note Rm Rm Rm Rm Rm Rm Cash flows from financing activities Debt raised 14 419 27 431 69 191 13 679 27 222 61 534 Debt securities 3 857 9 475 26 144 3 857 9 346 26 144 Subordinated loan from shareholder – 10 000 20 000 – 10 000 20 000 Borrowings 10 562 7 956 23 047 9 822 7 876 15 390 Debt repaid (4 554) (834) (9 189) (3 807) (834) (1 648) Debt securities (1 125) (787) (641) (1 125) (787) (778) Borrowings (3 429) (47) (8 548) (2 682) (47) (870) Net cash flows from financial instruments with group companies – – – (710) (1 362) (1 771) Net cash flows from non-current assets held-for-sale – – 43 – – – Increase in investment in securities (782) (4 479) (33 693) (433) (3 452) (32 564) Decrease in finance lease liabilities (24) (31) (17) (38) (14) (41) Net cash flows from/(invested in) non-current derivatives held for risk management 133 (2 112) (89) 132 (2 112) (89) Interest received 1 275 980 2 353 1 266 959 2 331 Interest paid (3 850) (4 873) (8 269) (3 852) (4 332) (8 344) Net cash from financing activities 6 617 16 082 20 330 6 237 16 075 19 408 Net increase/(decrease) in cash and cash equivalents 2 351 13 036 (3 381) 2 415 12 987 (3 405) Cash and cash equivalents at beginning of the period 12 087 15 541 15 541 11 466 14 871 14 871 Cash and cash equivalents transferred from non-current assets held-for-sale – – (73) – – – Cash and cash equivalents at end of the period 14 438 28 577 12 087 13 881 27 858 11 466 1. Restated – refer note 18. 17 Eskom Holdings SOC Limited Reviewed condensed group and company interim financial statements Selected notes to the condensed group and company financial statements for the six months ended 30 September 2011 1. General information 5. Seasonality of interim results Eskom Holdings Limited changed its name to Eskom Holdings The sale of electricity is subject to seasonal fluctuations, SOC Limited (Eskom) in terms of the Companies Act, 71 of where revenue is normally higher in the first six months of 2008, which came into operation on 1 May 2011. Eskom, a the financial year (winter months), as compared to the public company and holding company of the group, is summer months, both in terms of tariff charged and peak incorporated and domiciled in the Republic of South Africa. demand. Eskom is a vertically integrated operation that generates, transmits and distributes electricity to industrial, mining, In addition, repairs and maintenance, which are included commercial, agricultural, redistributors, and residential under other operating expenses, are carried out primarily in customers and to international customers in southern summer months, due to the reduced peak demand. Africa. 6. Unusual changes impacting the 2. Basis of preparation and measurement statements of financial position, income, The condensed group and company interim financial comprehensive income and cash flows statements of Eskom as at and for the six months ended There have not been any unusual changes impacting the 30 September 2011 comprise the company and its condensed interim statements of financial position, income subsidiaries (together referred to as the group) and the statements, statements of comprehensive income and group’s interest in associates and joint ventures. The statements of cash flows during the six months ended condensed group and company interim financial statements 30 September 2011. do not include all of the information required for full annual financial statements and should be read in conjunction with 7. Critical accounting estimates and the Eskom Holdings SOC Limited 31 March 2011 financial judgement statements. The annual financial statements of the group and Estimates and judgements are evaluated continually and are company as at and for the year ended 31 March 2011 are based on historical experience and other factors, including available on the Eskom website at www.eskom.co.za. These expectations of future events that are believed to be condensed group and company interim financial statements reasonable under the circumstances. The group makes are prepared in accordance with International Financial estimates and assumptions concerning the future. The Reporting Standards (IFRS) IAS 34 Interim Financial resulting accounting estimates will, by definition, seldom equal Reporting, and in the manner required by the Companies the related actual results. Act, 71 of 2008. The significant estimates and judgements made by 3. Significant accounting policies management in applying the accounting policies and the key The accounting policies applied by the group and company in sources of estimating uncertainty were the same as those these condensed group and company interim financial applied to the financial statements as at and for the year statements are consistent with those applied by the group ended 31 March 2011. and company in the audited financial statements as at and for the year ended 31 March 2011. 8. Issuances, repurchases and repayments of debt securities With the exception of the revised IAS 24 Related Parties, The nature of the group’s issuances, repurchases and there were no new and revised standards and interpretations repayments of debt securities are consistent with those effective during the six months ended 30 September 2011 reported previously.   The details of the debt raised and repaid that were relevant to the group. The revised IAS 24 Related by the group are disclosed in the statements of cash flows. Parties provides a partial exemption for government-related entities. The revised standard still requires disclosures that 9. Dividend paid are important to users of financial statements, but eliminates No dividend was paid to the shareholder during the six requirements to disclose information that is costly to gather months ending 30 September 2011 (March 2011: nil, and of less value to users.The amendment will be considered September 2010: nil). for the 31 March 2012 year-end results. 4. Income tax expense Income tax expense for the interim periods is recognised based on management’s best estimate of the weighted average annual income tax rate expected for the full financial year, which is applied to the pre-tax income of the interim period. 18 Eskom Holdings SOC Limited Reviewed condensed group and company interim financial statements 10. Segment information Management has determined the reportable segments based on the reports regularly provided, reviewed and used by the group executive committee (Exco) to make strategic decisions and assess performance of the segments. The group’s reportable segments are strategic divisions that offer different services. The segment information provided to Exco for the reportable segments is as follows: Gener- Trans- Distri- Eskom Other Corporate Inter- Group 30 September 2011 (reviewed) ation mission bution Enter- operating and segment prises segments other trans- group actions Rm Rm Rm Rm Rm Rm Rm Rm Continuing operations External revenue – 24 184 39 162 193 343 – – 63 882 Inter-segment revenue 42 629 7 086 – 2 775 487 – (52 977) – Total revenue 42 629 31 270 39 162 2 968 830 – (52 977) 63 882 Primary energy (19 155) (2 684) (19) – – – – (21 858) Employee benefit expense (3 014) (605) (3 402) (784) (16) (1 546) – (9 367) Depreciation and amortisation expense (2 248) (401) (1 247) (111) – (119) 55 (4 071) Net impairment (loss)/reversal (1) (148) (412) (4) (2) 2 – (565) Inter-segment purchases (1 296) (23 877) (26 542) (45) – (1 217) 52 977 – Operating expenditure (3 581) (588) (3 486) (1 993) (626) 2 215 528 (7 531) Operating profit/(loss) before net fair value gain/(loss) and net finance cost 13 334 2 967 4 054 31 186 (665) 583 20 490 Other income 176 3 260 53 15 471 (583) 395 Net fair value gain/(loss) on financial instruments, excluding embedded derivatives 1 072 6 4 1 (26) (2 188) 5 (1 126) Net fair value gain on embedded derivatives – 263 – – – – – 263 Operating profit/(loss) before net finance costs 14 582 3 239 4 318 85 175 (2 382) 5 20 022 Net finance cost (905) (141) (97) 77 (87) (953) – (2 106) Finance income 9 49 159 101 90 1 596 (192) 1 812 Finance cost (914) (190) (256) (24) (177) (2 549) 192 (3 918) Share of profit of equity-accounted investees – – – 2 – 14 – 16 Profit/(loss) before tax 13 677 3 098 4 221 164 88 (3 321) 5 17 932 Income tax (3 917) (888) (1 209) (46) (20) 952 (1) (5 129) Profit/(loss) for the period from continuing operations 9 760 2 210 3 012 118 68 (2 369) 4 12 803 Discontinued operations Profit for the period from discontinued operations – – – 7 – – – 7 Profit/(loss) for the period 9 760 2 210 3 012 125 68 (2 369) 4 12 810 Other information Segment assets 193 139 39 433 57 189 6 427 12 360 75 371 (13 266) 370 653 Investments in equity-accounted investees – – – 21 – 95 120 236 Non-current assets held-for-sale – – – 832 – – – 832 Total assets 193 139 39 433 57 189 7 280 12 360 75 466 (13 146) 371 721 Segment liabilities 159 792 31 260 34 424 3 303 10 624 39 260 (11 074) 267 589 Capital expenditure (including borrowing costs capitalised) 21 905 3 441 4 468 162 – 722 (126) 30 572 19 Eskom Holdings SOC Limited Reviewed condensed group and company interim financial statements Selected notes to the condensed group and company financial statements continued for the six months ended 30 September 2011 10. Segment information (continued) 30 September 20101 (reviewed) Gener- Trans- Distri- Eskom Other Corporate Inter- Group ation mission bution Enter- operating and segment prises segments other trans- group actions Rm Rm Rm Rm Rm Rm Rm Rm Continuing operations External revenue – 19 717 30 892 272 233 – – 51 114 Inter-segment revenue 35 194 3 035 – 2 717 523 – (41 469) – Total revenue 35 194 22 752 30 892 2 989 756 – (41 469) 51 114 Primary energy (15 877) (1 317) (5) – – – – (17 199) Employee benefit expense (2 723) (549) (2 830) (708) (13) (1 298) – (8 121) Depreciation and amortisation expense (1 709) (349) (1 132) (112) – (116) – (3 418) Net impairment reversal/(loss) 3 (124) (278) (61) (9) 1 – (468) Inter-segment purchases (1 211) (17 829) (21 015) (15) – (1 399) 41 469 – Other operating expenses (2 539) (492) (2 473) (2 075) (489) 2 423 1 252 (4 393) Operating profit/(loss) before net fair value (loss)/gain and net finance cost 11 138 2 092 3 159 18 245 (389) 1 252 17 515 Other income 111 69 127 31 43 477 (507) 351 Net fair value (loss)/gain on financial instruments, excluding embedded derivatives (1 222) 45 (11) (5) 13 555 – (625) Net fair value loss on embedded derivatives – (1 471) – – – – – (1 471) Operating profit before net finance costs 10 027 735 3 275 44 301 643 745 15 770 Net finance cost (2 157) (125) (182) 89 (78) 87 – (2 366) Finance income 16 39 136 116 87 828 (192) 1 030 Finance cost (2 173) (164) (318) (27) (165) (741) 192 (3 396) Share of profit of equity-accounted investees – – – – – – 8 8 Profit before tax 7 870 610 3 093 133 223 730 753 13 412 Income tax (2 533) (242) (910) (39) (60) 115 (210) (3 879) Profit for the period 5 337 368 2 183 94 163 845 543 9 533 Other information Segment assets 75 605 20 278 48 744 6 980 9 375 137 044 (10 375) 287 651 Investments in equity-accounted investees – – – 19 – 95 90 204 Non-current assets held-for-sale – – – 18 – – – 18 Total assets 75 605 20 278 48 744 7 017 9 375 137 139 (10 285) 287 873 Segment liabilities 123 533 26 671 28 946 3 378 7 694 23 343 (8 776) 204 789 Capital expenditure (including borrowing costs capitalised) 14 363 2 941 3 576 78 – 2 014 (23) 22 949 20 Eskom Holdings SOC Limited Reviewed condensed group and company interim financial statements 31 March 20111 (audited) Gener- Trans- Distri- Eskom Other Corporate Inter- Group ation mission bution Enter- operating and segment prises segments other trans- group actions Rm Rm Rm Rm Rm Rm Rm Rm Continuing operations External revenue – 35 646 55 137 576 88 – – 91 447 Inter-segment revenue 63 549 6 744 – 5 638 1 206 – (77 137) – Total revenue 63 549 42 390 55 137 6 214 1 294 – (77 137) 91 447 Primary energy (32 530) (3 254) (11) – – – – (35 795) Employee benefit expense (5 564) (1 129) (5 993) (1 303) (30) (2 676) – (16 695) Depreciation and amortisation expense (3 768) (733) (2 311) (206) – (247) 46 (7 219) Net impairment losses (74) (184) (474) (52) (2) (2) – (788) Inter-segment purchases (2 617) (33 620) (38 007) (134) – (2 759) 77 137 – Other operating expenditure (5 933) (1 095) (5 794) (4 244) (1 022) 4 906 1 112 (12 070) Operating profit/(loss) before net fair value profit/(loss) and net finance cost 13 063 2 375 2 547 275 240 (778) 1 158 18 880 Other income 268 92 270 13 37 1 136 (1 229) 587 Net fair value (loss)/ gain on financial instruments, excluding embedded derivatives (3 243) (169) (20) (7) 77 1 546 – (1 816) Net fair value loss on embedded derivatives – (1 261) – – – – – (1 261) Operating profit before net finance cost 10 088 1 037 2 797 281 354 1 904 (71) 16 390 Net finance (cost)/income (3 863) (279) (350) 174 (149) (274) – (4 741) Finance income 32 83 292 208 177 2 022 (378) 2 436 Finance cost (3 895) (362) (642) (34) (326) (2 296) 378 (7 177) Share of profit of equity-accounted investees – – – – – 24 – 24 Profit/(loss) before tax 6 225 758 2 447 455 205 1 654 (71) 11 673 Income tax (2 355) (612) (572) (116) (48) 423 19 (3 261) Profit/(loss) for the period from continuing operations 3 870 146 1 875 339 157 2 077 (52) 8 412 Discontinued operations Loss for the period from discontinued operations – – – (56) – – – (56) Profit/(loss) for the period 3 870 146 1 875 283 157 2 077 (52) 8 356 Other information Segment assets 177 680 40 863 51 535 6 442 10 638 63 501 (23 438) 327 221 Investments in equity-accounted investees – – – 19 – 201 – 220 Non-current assets held-for-sale – – – 704 – – – 704 Total assets 177 680 40 863 51 535 7 165 10 638 63 702 (23 438) 328 145 Segment liabilities 154 555 34 899 31 766 3 319 8 969 28 727 (21 349) 240 886 Capital expenditure (including borrowing costs capitalised) 40 595 6 485 8 474 208 – 117 (422) 55 457 Inter-segment purchases and revenue were allocated between the Generation, Transmission and Distribution segments based on cost recovery plus return on assets. Management assesses the performance of the operating segments based on a measure of profit or loss consistent with that of the financial statements. The amounts provided to Exco with respect to total assets and liabilities are measured in terms of IFRS.   These assets and liabilities are allocated to segments based on the operation of the segment and the physical location of the assets. 1. Restated – refer note 18. 21 Eskom Holdings SOC Limited Reviewed condensed group and company interim financial statements Selected notes to the condensed group and company financial statements continued for the six months ended 30 September 2011 10. Segment information (continued) Group Revenues Non-current assets Geographical information Reviewed Reviewed Audited Reviewed Audited Reviewed 30 September 30 September 31 March 30 September 31 March 30 September 2011 2010 2011 2011 2011 2010 Rm Rm Rm Rm Rm Rm South Africa 61 313 49 077 87 199 271 688 244 755 215 361 Foreign countries 2 569 2 037 4 248 53 51 154 63 882 51 114 91 447 271 741 244 806 215 515 The group’s business segments operate mainly in South Africa, which is Eskom’s country of domicile. Revenue is allocated based on the country in which the customer is located after eliminating inter-company transactions.   There are no significant revenues derived from a single external customer by any of the reportable segments. Non-current assets disclosed for geographical information comprise non-current assets other than deferred tax assets and financial instruments. 11. Material events subsequent to 30 September 2011 There were no material events after the interim reporting date that may have an impact on the group’s financial position at 30 September 2011. 12. Material changes in contingent liabilities There were no significant changes in contingent liabilities during the six months ended 30 September 2011 from those reported in the annual financial statements as at and for the year ended 31 March 2011. 13. Material changes in capital commitments Capital commitments increased by R8 377 million for the group and R8 776 million for the company during the six months ended 30 September 2011 as compared to those disclosed in the annual financial statements as at and for the year ended 31 March 2011. The increase is mainly due to the placing of additional contracts relating to the capacity expansion programme. 14. Issued share capital There was no change in the issued share capital during the six months ended 30 September 2011. 15. Related-party transactions The nature of related-party transactions is consistent with those reported previously. 16. Employee benefit expense Group Company Reviewed Reviewed Audited Reviewed Reviewed Audited six months six months year six months six months year ended ended ended ended ended ended 30 September 30 September1 31 March1 30 September 30 September1 31 March1 2011 2010 2011 2011 2010 2011 Rm Rm Rm Rm Rm Rm Gross employee benefit expense 11 412 9 999 20 380 10 612 9 276 19 045 Employee benefit expense capitalised to property, plant and equipment (2 045) (1 878) (3 685) (2 045) (1 878) (3 685) 9 367 8 121 16 695 8 567 7 398 15 360 22 Eskom Holdings SOC Limited Reviewed condensed group and company interim financial statements 17. Cash generated from operations Group Company Reviewed Reviewed Audited Reviewed Reviewed Audited six months six months year six months six months year ended ended ended ended ended ended 30 September 30 September1 31 March1 30 September 30 September1 31 March1 2011 2010 2011 2011 2010 2011 Rm Rm Rm Rm Rm Rm Profit before tax 17 932 13 412 11 673 17 663 12 303 11 067 Adjustments for: 9 495 9 579 19 424 9 423 9 401 19 283 Depreciation and amortisation expense 4 071 3 418 7 219 4 015 3 305 7 059 Depreciation expense – primary energy 7 7 14 7 7 14 Amortisation and write-off of future fuel 5 5 10 5 5 10 Net impairment loss (excluding bad debts recovered) 571 473 798 564 403 744 Net fair value loss on financial instruments, including embedded derivatives 863 2 096 3 077 843 2 103 3 148 Net deficit/(surplus) on disposal of property, plant and equipment 9 ( 43) ( 52) ( 24) ( 39) ( 68) Dividend income ( 21) ( 8) ( 26) ( 13) ( 5) ( 15) Increase in provisions 2 014 1 417 4 294 2 038 1 333 4 176 Decrease in deferred income ( 61) ( 58) ( 108) ( 61) ( 58) ( 108) Payments made in advance recognised in profit or loss 236 142 296 235 114 296 Payments received in advance recognised in profit or loss ( 287) ( 228) ( 819) ( 287) ( 147) ( 747) Other non-cash items 3 – 4 3 – 4 Finance income (1 812) (1 030) (2 436) (1 810) (1 016) (2 425) Finance cost 3 918 3 396 7 177 3 908 3 396 7 195 Share of profit of equity- accounted investees ( 16) ( 8) ( 24) – – – Non-current assets held-for-sale ( 5) – – – – – 27 427 22 991 31 097 27 086 21 704 30 350 Changes in working capital (5 305) (4 860) (2 359) (5 348) (5 072) (2 503) Increase in payments made in advance (1 635) (1 494) (3 512) (2 153) (1 319) (3 508) Increase in inventories ( 393) ( 849) ( 721) ( 379) ( 768) ( 694) Increase in trade and other receivables (4 731) (3 883) (2 871) (4 693) (3 817) (1 981) (Increase)/decrease in loans receivable ( 88) 546 643 – – 549 Increase in trade and other payables 1 324 1 018 3 256 1 620 1 009 2 172 Expenditure incurred on provisions (1 389) (1 358) (2 108) (1 371) (1 252) (1 995) Increase in payments received in advance 1 607 1 160 2 954 1 628 1 075 2 954 22 122 18 131 28 738 21 738 16 632 27 847 1. Restated – refer note 18. 23 Eskom Holdings SOC Limited Reviewed condensed group and company interim financial statements Selected notes to the condensed group and company financial statements continued for the six months ended 30 September 2011 18. Restatement of interim comparative information Voluntary change in accounting policy with respect to the presentation of foreign exchange gains and losses Previously, the group presented foreign gains and losses that relate to loans and receivables, debt securities issued and borrowings in profit or loss within finance income or finance cost. With effect from 1 April 2011, the group presents foreign gains and losses in profit or loss within net fair value gain/(loss) on financial instruments, excluding embedded derivatives. This change in accounting policy was considered appropriate to give a fairer presentation of the group’s risk management policy of hedging foreign transactions by disclosing the impact on profit or loss of foreign exchange differences in the same line in profit or loss as where gains and losses on derivatives held for risk management are disclosed, which is within net fair value gain/(loss) on financial instruments, excluding embedded derivatives. Restatement of comparative information for the statements of cash flows The comparative cash flow statements have been reclassified to enhance disclosure. The impact of the restatement of interim comparative information as follows: Six months Six months Six months Year Year Year ended ended ended ended ended ended 30 September 30 September 30 September 31 March 31 March 31 March 2010 2010 2010 2011 2011 2011 Previously Adjustment Restated Previously Adjustment Restated reported reported Rm Rm Rm Rm Rm Rm Group Statements of financial position Non-current assets 7 272 – 7 272 19 217 – 19 217 Investment in securities 2 514 ( 406) 2 108 13 259 – 13 259 Loans receivable 4 758 406 5 164 5 958 – 5 958 Current assets 7 443 – 7 443 24 646 – 24 646 Investment in securities 7 435 ( 99) 7 336 24 546 – 24 546 Loans receivable 8 99 107 100 – 100 Income statements Operating profit before net fair value loss and net finance cost 17 515 – 17 515 18 880 – 18 880 Other income 351 – 351 587 – 587 Net fair value loss on financial instruments, excluding embedded derivatives (1 303) 678 ( 625) (3 691) 1 875 (1 816) Net fair value loss on embedded derivatives (1 471) – (1 471) (1 261) – (1 261) Operating profit before net finance cost 15 092 678 15 770 14 515 1 875 16 390 Net finance cost (1 688) ( 678) (2 366) (2 866) (1 875) (4 741) Finance income 1 030 – 1 030 2 436 – 2 436 Finance cost (2 718) ( 678) (3 396) (5 302) (1 875) (7 177) Share of profit of equity-accounted investees, net of tax 8 – 8 24 – 24 Profit before tax 13 412 – 13 412 11 673 – 11 673 Income tax (3 879) – (3 879) (3 261) – (3 261) Profit for the period from continuing operations 9 533 – 9 533 8 412 – 8 412 Profit for the period from discontinued operations – – – ( 56) – ( 56) Profit for the period 9 533 – 9 533 8 356 – 8 356 24 Eskom Holdings SOC Limited Reviewed condensed group and company interim financial statements Six months Six months Six months Year Year Year ended ended ended ended ended ended 30 September 30 September 30 September 31 March 31 March 31 March 2010 2010 2010 2011 2011 2011 Previously Adjustment Restated Previously Adjustment Restated reported reported Rm Rm Rm Rm Rm Rm Company Statements of financial position Non-current assets 2 108 – 2 108 13 259 – 13 259 Investment in securities 2 108 – 2 108 13 259 – 13 259 Loans receivable – – – – – – Current assets 5 093 – 5 093 22 310 – 22 310 Investment in securities 5 093 – 5 093 22 310 – 22 310 Loans receivable – – – – – – Income statements Operating profit before net fair value loss and net finance cost 16 047 – 16 047 17 297 – 17 297 Other income 739 – 739 1 688 – 1 688 Net fair value loss on financial instruments, excluding embedded derivatives (1 310) 678 ( 632) (3 762) 1 875 (1 887) Net fair value loss on embedded derivatives (1 471) – (1 471) (1 261) – (1 261) Operating profit before net finance cost 14 005 678 14 683 13 962 1 875 15 837 Net finance cost (1 702) ( 678) (2 380) (2 895) (1 875) (4 770) Finance income 1 016 – 1 016 2 425 – 2 425 Finance cost (2 718) ( 678) (3 396) (5 320) (1 875) (7 195) Share of profit of equity-accounted investees, net of tax – – – – – Profit before tax 12 303 – 12 303 11 067 – 11 067 Income tax (3 568) – (3 568) (3 116) – (3 116) Profit for the period from continuing operations 8 735 – 8 735 7 951 – 7 951 Profit for the period from discontinued operations – – – – – – Profit for the period 8 735 – 8 735 7 951 – 7 951 25 Eskom Holdings SOC Limited Reviewed condensed group and company interim financial statements Selected notes to the condensed group and company financial statements continued for the six months ended 30 September 2011 18. Restatement of interim comparative information continued Six months Six months Six months Year Year Year ended ended ended ended ended ended 30 September 30 September 30 September 31 March 31 March 31 March 2010 2010 2010 2011 2011 2011 Previously Adjustment Restated Previously Adjustment Restated reported reported Rm Rm Rm Rm Rm Rm Group Cash flow statements Cash flows from operating activities Cash generated from operations 17 435 696 18 131 28 275 463 28 738 Other net cash flows from operating activities (1 001) – (1 001) (5 991) – (5 991) Net cash generated from operating activities 16 434 696 17 130 22 284 463 22 747 Cash flows from investing activities Acquisitions of property, plant and equipment (19 477) 773 (18 704) (43 975) – (43 975) Increase in deferred income 921 ( 921) – 463 ( 463) – Increase in non-current loans receivable ( 657) ( 585) (1 242) (1 469) – (1 469) Other net cash flows invested in investing activities ( 230) – ( 230) (1 014) – (1 014) Net cash used in investing activities (19 443) ( 733) (20 176) (45 995) ( 463) (46 458) Cash flows from financing activities Debt raised 31 351 (3 920) 27 431 78 758 (9 567) 69 191 Borrowings 11 876 (3 920) 7 956 32 614 (9 567) 23 047 Other debt raised 19 475 – 19 475 46 144 – 46 144 Debt repaid (4 754) 3 920 ( 834) (18 756) 9 567 (9 189) Borrowings (3 967) 3 920 ( 47) (18 115) 9 567 (8 548) Other debt raised ( 787) – ( 787) ( 641) – ( 641) Decrease in investment in securities (4 516) 37 (4 479) (33 693) – (33 693) Other net cash flows from financing activities (6 036) – (6 036) (5 979) – (5 979) Net cash from financing activities 16 045 37 16 082 20 330 – 20 330 Net decrease in cash and cash equivalents 13 036 – 13 036 (3 381) – (3 381) Cash and cash equivalents at beginning of the period 15 541 – 15 541 15 541 – 15 541 Cash and cash equivalents attributable to non-current assets held-for-sale – – – ( 73) – ( 73) Cash and cash equivalents at end of the period 28 577 – 28 577 12 087 – 12 087 26 Eskom Holdings SOC Limited Reviewed condensed group and company interim financial statements Six months Six months Six months Year Year Year ended ended ended ended ended ended 30 September 30 September 30 September 31 March 31 March 31 March 2010 2010 2010 2011 2011 2011 Previously Adjustment Restated Previously Adjustment Restated reported reported Rm Rm Rm Rm Rm Rm Company Cash flow statements Cash flows from operating activities Cash generated from operations 16 483 149 16 632 27 384 463 27 847 Other net cash flows from operating activities ( 863) – ( 863) (5 739) – (5 739) Net cash generated from operating activities 15 620 149 15 769 21 645 463 22 108 Cash flows from investing activities Acquisitions of property, plant and equipment (19 423) 772 (18 651) (44 098) – (44 098) Increase in deferred income 921 ( 921) – 463 ( 463) – Increase in non-current loans receivable – – – – – – Other net cash flows invested in investing activities ( 206) – ( 206) ( 823) – ( 823) Net cash used in investing activities (18 708) ( 149) (18 857) (44 458) ( 463) (44 921) Cash flows from financing activities Debt raised 31 142 (3 920) 27 222 71 101 (9 567) 61 534 Borrowings 11 796 (3 920) 7 876 24 957 (9 567) 15 390 Other debt raised 19 346 – 19 346 46 144 – 46 144 Debt repaid (4 754) 3 920 ( 834) (11 215) 9 567 (1 648) Borrowings (3 967) 3 920 ( 47) (10 437) 9 567 ( 870) Other debt raised ( 787) – ( 787) ( 778) – ( 778) Decrease in investment in securities (3 452) – (3 452) (32 564) – (32 564) Other net cash flows from financing activities (6 861) – (6 861) (7 914) – (7 914) Net cash from financing activities 16 075 – 16 075 19 408 – 19 408 Net decrease in cash and cash equivalents 12 987 – 12 987 (3 405) – (3 405) Cash and cash equivalents at beginning of the period 14 871 – 14 871 14 871 – 14 871 Cash and cash equivalents attributable to non-current assets held-for-sale – – – – – – Cash and cash equivalents at end of the period 27 858 – 27 858 11 466 – 11 466 27 Eskom Holdings SOC Limited Reviewed condensed group and company interim financial statements Selected notes to the condensed group and company financial statements continued for the six months ended 30 September 2011 19. Pro-forma revaluation of property, plant and equipment to align with regulatory accounting The group currently accounts for its property, plant and equipment using the cost model under IAS 16 Property, plant and equipment. The cost model requires that property, plant and equipment should be measured at cost (including borrowing cost in respect of qualifying assets), less accumulated depreciation and impairment. However, the cost model does not reflect the true economic value of the group’s property, plant and equipment and the basis on which the electricity tariff is calculated by the Regulator. Therefore, a summary has been provided below reflecting what the impact on the financial statements would be if the group’s property, plant and equipment was measured using the revaluation model. Borrowing costs were not included in the carrying amount of property, plant and equipment when determining the increase or decrease in the revaluation surplus and have therefore been expensed. The fair values determined using the depreciated replacement cost model were reviewed for possible impairment loss in order to determine whether or not the net future cash inflows related to the use of property, plant and equipment are less than the calculated fair value of property, plant and equipment. The fair values disclosed below are net of the adjustment made for the tariff shortfall in the first few years. This shortfall is expected to disappear once the electricity tariff determined in terms of the regulatory methodology, which is based on the depreciated replacement values, is fully phased in by the National Energy Regulator of South Africa (NERSA). Historical Adjustment After Historical Adjustment After cost revaluation cost revaluation 2011 2011 2011 2010 2010 2010 Rm Rm Rm Rm Rm Rm Summarised group statements of financial position at 30 September 2011 Assets 371 721 279 540 651 261 287 873 304 216 592 089 Property, plant and equipment 263 081 258 888 521 969 207 733 294 786 502 519 Deferred tax 68 20 652 20 720 76 9 430 9 506 Other assets 108 572 – 108 572 80 064 – 80 064 Equity and liabilites 371 721 279 540 651 261 287 873 304 216 592 089 Total equity 104 132 186 400 290 532 83 084 212 246 295 330 Deferred tax 14 588 93 140 107 728 8 522 91 970 100 492 Other liabilities 253 001 – 253 001 196 267 – 196 267 Summarised group income statements for the period ended 30 September 2011 Operating profit before depreciation and amortisation expense, net impairment loss and other operating expenses 32 189 – 32 189 24 049 – 24 049 Depreciation and amortisation expense (4 071) (7 308) (11 379) (3 418) (7 298) (10 716) Net impairment loss ( 565) - ( 565) ( 468) 18 ( 450) Other operating expenses (7 531) ( 225) (7 756) (4 393) ( 87) (4 480) Operating profit/(loss) before net finance cost 20 022 (7 533) 12 489 15 770 (7 367) 8 403 Net finance cost (2 106) (4 855) (6 961) (2 366) (2 985) (5 351) Share of profit of equity-accounted investees, net of tax 16 – 16 8 – 8 Profit/(loss) before tax 17 932 (12 388) 5 544 13 412 (10 353) 3 059 Income tax (5 129) 3 469 (1 660) (3 879) 2 899 ( 980) Profit/(loss) for the period from continuing operations 12 803 (8 919) 3 884 9 533 (7 454) 2 079 Profit for the period from discontinued operations 7 – 7 – – – Profit/(loss) for the period 12 810 (8 919) 3 891 9 533 (7 454) 2 079 28 Eskom Holdings SOC Limited Reviewed condensed group and company interim financial statements Contact information Telephone Eskom head office +27 11 800 8111 Eskom Group Communications +27 11 800 2323 Eskom Development Foundation +27 11 800 8111 Investor relations +27 11 800 2277 Ethics office advisory service +27 11 800 2791/3187 Confidential fax line +27 11 507 6358 Websites Eskom website: www.eskom.co.za Eskom integrated report: www.eskom.co.za/annreport11/ Eskom Development Foundation: www.eskom.co.za/csi Email Eskom contact@eskom.co.za Investor relations investor.relations@eskom.co.za Eskom environmental envhelp@eskom.co.za Ethics office advisory service ethics@eskom.co.za Promotion of Access to Information Act PAIA@eskom.co.za Physical address Eskom Megawatt Park 2 Maxwell Drive Sunninghill Sandton 2157 Postal address Eskom PO Box 1091 Johannesburg 2000 Eskom Holdings SOC Limited, Secretariat Bongiwe Mbomvu (Company secretary) PO Box 1091 Johannesburg 2000 Company registration number 2002/015527/06 29 Eskom Holdings SOC Limited Reviewed condensed group and company interim financial statements www.eskom.co.za