20 CONDENSED GROUP INTERIM FINANCIAL STATEMENTS for the six months ended 30 September 2022 22 Powering growth ... sustainably i | CONDENSED GROUP INTERIM FINANCIAL STATEMENTS | 30 SEPTEMBER 2022 CONTENTS APPROVAL OF THE CONDENSED GROUP INTERIM FINANCIAL STATEMENTS Approval of the condensed group interim financial statements 1 Basis of preparation The unaudited condensed group interim financial statements from page 2 to page 22 for the six months ended 30 September 2022 have Condensed group statement of financial position 2 been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards (IFRS), the presentation and disclosure requirements of International Accounting Standards (IAS) 34 Interim financial reporting and in the manner Condensed group income statement 3 required by the Companies Act. Condensed group statement of comprehensive income 3 Going concern Condensed group statement of changes in equity 4 The board made an assessment of the ability of the group to continue as a going concern in the foreseeable future. The considerations, challenges and risks assessed by the board are detailed in note 2.1. Condensed group statement of cash flows 5 Notes to the condensed group interim financial statements 6 The board considered the risks relating to the group’s going-concern status and acknowledges the challenges it faces and the various dependencies and uncertainties that exist both from a timing of intervention perspective as well as whether the plans will materialise as 1 Structure and activities 6 anticipated. The events, conditions and assumptions described above inherently include material uncertainties that may cast significant doubt on the going concern. 2 Basis of preparation 6 The board has a reasonable expectation that the risks will be satisfactorily addressed with the mitigation strategies in place. The board 3 Significant changes in accounting policies 7 continues to manage these strategies as a priority as it is important that they materialise as envisaged. The board has assessed the current 4 Critical accounting estimates and judgements 7 cash flow projections considering that future capital costs will be funded from cash from operation. The board concluded after carefully considering the progress of the initiatives above and the continued financial support from the government, including the finalisation of 5 Segment information 8 the debt relief package, that there is a reasonable expectation that the group has access to adequate resources and facilities to be able to 6 Issuances, repurchases and repayments of debt securities and borrowings and share capital 9 continue its operations and fund the capital programme for the foreseeable future as a going concern. The condensed group interim financial statements have therefore been prepared on a going-concern basis. 7 Dividend paid 9 8 Significant events and transactions 10 Approval The board is of the opinion, based on the information available to date, that the condensed group interim financial statements fairly present 9 Seasonality of interim results 10 the financial position of the group at 30 September 2022 and the results of the operations and cash flow information for the six months then ended. The condensed group interim financial statements have been approved by the board and signed on its behalf on 30 March 2023 by: 10 Revenue 10 11 Primary energy 11 12 Employee benefit expense 11 13 Finance cost 11 PM Makwana C Cassim 14 Income tax 11 Chairman Acting group chief executive 15 Accounting classification and fair value 12 16 Assets and liabilities held-for-sale 16 17 Material events subsequent to 30 September 2022 16 18 Restatement of comparatives 18 19 Exchange rates 21 20 Reportable irregularities 21 21 New standards and interpretations 21 The condensed group interim financial statements for the six months ended 30 September 2022 have been prepared under the supervision of the acting chief financial officer (CFO), JM Buys CA(SA) and were published on 31 March 2023. The condensed group interim financial statements for the six months ended 30 September 2022 and 30 September 2021 have not been audited, reviewed or reported on by the external auditors of the group. The financial information for the year ended 31 March 2022 is as reflected in the audited financial statements. iii | CONDENSED GROUP INTERIM FINANCIAL STATEMENTS | 30 SEPTEMBER 2022 ESKOM HOLDINGS SOC LTD | 1 CONDENSED GROUP STATEMENT OF FINANCIAL POSITION CONDENSED GROUP INCOME STATEMENT at 30 September 2022 for the six months ended 30 September 2022 Unaudited Audited1 Unaudited1 Unaudited Unaudited1 Audited1 30 September 31 March 30 September six months ended six months ended year ended 2022 2022 2021 30 September 30 September 31 March Rm Rm Rm 2022 2021 2022 Note Rm Rm Rm Assets Non-current 723 303 720 155 715 372 Revenue 10 144 841 135 426 247 594 Other income 2 053 849 1 494 Property, plant and equipment and intangible assets 670 312 671 082 669 457 Primary energy 11 (77 261) (62 150) (132 933) Future fuel supplies 5 934 6 304 4 700 Employee benefit expense 12 (16 241) (16 762) (32 985) Investment in equity-accounted investees 390 418 402 Impairment and writedown of assets (414) (214) (1 436) Inventories 12 086 11 516 10 984 Other expenses (15 021) (12 587) (28 780) Deferred tax 8 043 9 326 3 220 Derivatives held for risk management and embedded derivatives 19 912 8 868 14 113 Profit before depreciation and amortisation expense and net fair Payments made in advance 1 961 2 064 1 660 value and foreign exchange gain (EBITDA)2 37 957 44 562 52 954 Trade, finance lease, loan and other receivables 4 665 10 577 10 836 Depreciation and amortisation expense (15 801) (15 378) (32 066) Net fair value and foreign exchange gains/(losses) 582 2 023 (3 126) Current 102 338 83 173 95 037 Profit before net finance cost 22 738 31 207 17 762 Inventories 23 271 23 086 24 266 Net finance cost (17 476) (16 309) (33 063) Derivatives held for risk management and embedded derivatives 12 575 580 2 418 Payments made in advance 2 029 749 1 064 Finance income 1 471 1 050 2 364 Trade, finance lease, loan and other receivables 29 716 25 517 30 661 Finance cost 13 (18 947) (17 359) (35 427) Investments and financial trading assets 18 038 17 318 15 985 Share of profit of equity-accounted investees, net of tax 50 36 52 Taxation 42 38 232 Cash and cash equivalents 16 667 15 885 20 411 Profit/(loss) before tax 5 312 14 934 (15 249) Income tax 14 (1 473) (4 329) 3 319 Assets held-for-sale 8 173 – – Profit/(loss) for the period 3 3 839 10 605 (11 930) Total assets 833 814 803 328 810 409 Equity Capital and reserves 246 920 237 057 259 027 Liabilities Non-current 453 438 453 876 472 339 CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME for the six months ended 30 September 2022 Debt securities and borrowings 350 448 345 490 366 098 Derivatives held for risk management 324 5 415 2 857 Unaudited Unaudited1 Audited Deferred tax 788 348 2 227 six months ended six months ended year ended Employee benefit obligations 16 018 16 404 15 976 30 September 30 September 31 March Provisions 49 258 49 257 48 905 2022 2021 2022 Trade and other payables and lease liabilities 8 376 8 861 8 910 Rm Rm Rm Payments received in advance, contract liabilities and deferred income 28 226 28 101 27 366 Profit/(loss) for the period3 3 839 10 605 (11 930) Current 132 467 112 395 79 043 Other comprehensive income 2 024 82 647 Debt securities and borrowings 73 190 50 804 26 011 Derivatives held for risk management 1 084 4 563 1 018 Items that may be reclassified subsequently to profit or loss 1 233 (478) (690) Employee benefit obligations 4 334 3 450 4 294 Cash flow hedges 1 606 (703) (950) Provisions 4 042 8 944 4 670 Foreign currency translation differences on foreign operations 61 28 5 Trade and other payables and lease liabilities 43 043 38 565 37 556 Income tax thereon (434) 197 255 Payments received in advance, contract liabilities and deferred income 6 411 5 801 5 492 Taxation 363 266 – Items that may not be reclassified subsequently to profit or loss 791 560 1 337 Financial trading liabilities – 2 2 Re-measurement of benefits 1 083 778 1 737 Liabilities held-for-sale 989 – – Income tax thereon (292) (218) (400) Total liabilities 586 894 566 271 551 382 Total comprehensive income/(loss) for the period3 5 863 10 687 (11 283) Total equity and liabilities 833 814 803 328 810 409 1. Restated. Refer to note 18. 2. Non-GAAP measure. 3. A nominal amount is attributable to the non-controlling interest in the group. The remainder is attributable to the owner of the group. 2 | CONDENSED GROUP INTERIM FINANCIAL STATEMENTS | 30 SEPTEMBER 2022 ESKOM HOLDINGS SOC LTD | 3 CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY CONDENSED GROUP STATEMENT OF CASH FLOWS for the six months ended 30 September 2022 for the six months ended 30 September 2022 Share Cash flow Unrealised Foreign Accumulated Total Unaudited Unaudited1 Audited1 capital hedge fair value currency profit equity six months ended six months ended year ended reserve reserve translation 30 September 30 September 31 March reserve 2022 2021 2022 Rm Rm Rm Rm Rm Rm Rm Rm Rm Balance at 31 March 2021 as restated 188 000 (163) (10 855) 9 39 656 216 647 Cash flows from operating activities Previously reported 188 000 (163) (10 855) 9 38 313 215 304 Profit/(loss) before tax 5 312 14 934 (15 249) Prior year restatements, net of tax1 – – – – 1 343 1 343 Adjustment for non-cash items 34 683 31 867 79 745 Profit for the period – – – – 10 605 10 605 Depreciation 15 801 15 378 32 066 Other comprehensive income, net of tax – (506) – 28 560 82 Finance cost 18 947 17 359 35 427 Share capital issued 31 693 – – – – 31 693 Other (65) (870) 12 252 Transfer between reserves – – 4 439 – (4 439) – Changes in working capital (7 332) (10 977) (9 771) Balance at 30 September 2021 as restated 219 693 (669) (6 416) 37 46 382 259 027 Cash generated from operations 32 663 35 824 54 725 Previously reported 219 693 1 400 (7 527) 37 45 000 258 603 Net cash used in derivatives held for risk management (154) (366) (899) Prior year restatements, net of tax1 – (2 069) 1 111 – 1 382 424 Finance income received 298 229 441 Finance cost paid (88) (7) (25) Loss for the period – – – – (22 535) (22 535) Income taxes paid (369) (135) (218) Other comprehensive income, net of tax – (189) – (23) 777 565 Transfer between reserves – – (3 255) – 3 255 – 32 350 35 545 54 024 Balance at 31 March 2022 219 693 (858) (9 671) 14 27 879 237 057 Cash flows used in investing activities Profit for the period – – – – 3 839 3 839 Disposals of property, plant and equipment and intangible assets 274 147 331 Other comprehensive income, net of tax – 1 172 – 61 791 2 024 Acquisitions of property, plant and equipment and intangible assets (13 332) (14 008) (29 016) Share capital issued 4 000 – – – – 4 000 Acquisitions of future fuel supplies (1 411) (827) (2 468) Transfer between reserves – – 728 – (728) – Disposals of insurance investments 15 499 10 108 18 543 Acquisitions of insurance investments (16 543) (11 680) (21 144) Balance at 30 September 2022 223 693 314 (8 943) 75 31 781 246 920 Cash used in provisions (1 309) (477) (318) Net cash from/(used in) derivatives held for risk management 33 (110) 178 Finance income received 791 584 1 150 Other cash from investing activities 176 209 341 (15 822) (16 054) (32 403) Cash flows used in financing activities Debt securities and borrowings raised 837 10 519 33 036 Payments made in advance (139) (244) (471) Debt securities and borrowings repaid (5 990) (24 425) (38 854) Share capital issued 4 000 31 693 31 693 Net cash from/(used in) derivatives held for risk management 1 150 (4 200) (2 769) Cash used in lease liabilities (403) (268) (417) Net cash used in financial trading instruments (2) – – Finance income received 333 230 656 Finance cost paid (15 473) (16 342) (32 547) Taxes paid (29) (31) (66) (15 716) (3 068) (9 739) Net increase in cash and cash equivalents 812 16 423 11 882 Cash and cash equivalents at beginning of the period 15 885 4 041 4 041 Foreign currency translation 61 28 5 Effect of movements in exchange rates on cash held 39 (81) (43) Assets and liabilities held-for-sale (130) – – Cash and cash equivalents at end of the period 16 667 20 411 15 885 1. Restated. Refer to note 18. 4 | CONDENSED GROUP INTERIM FINANCIAL STATEMENTS | 30 SEPTEMBER 2022 ESKOM HOLDINGS SOC LTD | 5 NOTES TO THE CONDENSED GROUP INTERIM FINANCIAL STATEMENTS for the six months ended 30 September 2022 1. Structure and activities The challenges that the group is facing are being addressed by the following mitigation strategies and actions: Eskom Holdings SOC Ltd (Eskom), a state-owned company and holding company of the group, is incorporated and domiciled in • Continuous engagement is taking place with the shareholder and National Treasury to ensure that the challenges that impact the the Republic of South Africa. Eskom is a vertically integrated operation that generates, transmits and distributes electricity to group’s going-concern status are addressed satisfactorily within a reasonable timeframe. Government believes that it is critical that local industrial, mining, commercial, agricultural, redistributor (metropolitan and other municipalities) and residential customers, a credible, comprehensive and long-term strategy (which incorporates addressing municipal receivables, providing greater clarity and to international customers in southern Africa. Eskom also purchases electricity from Independent Power Producers (IPPs) and transparency in tariff pricing, addressing operational efficiencies and unbundling) is developed to fully optimise Eskom’s balance and international suppliers in southern Africa. These represent the significant activities of the group. The business focus of the sheet. The debt relief for 2024 to 2025 will assist in putting Eskom on a path to long-term financial stability. subsidiaries is primarily to support the electricity business. • The group’s generation capacity is managed as a critical focus area to ensure appropriate steps are being taken to manage the performance challenges. A further worsening of generating plant performance could negatively impact cash flow due to lost revenue and an increase in costs, in particular the level of spend required on open cycle gas turbine plant. 2. Basis of preparation • The President announced the appointment of Dr KS Ramokgopa as the new Minister of Electricity on 6 March 2023 who will The condensed group interim financial statements of Eskom as at and for the six months ended 30 September 2022 comprise the focus on solving the power crisis at Eskom. It is expected that his primary task will be to reduce the severity and frequency of company, its subsidiaries, joint ventures, associates and structured entities (together, the group). The condensed group interim financial loadshedding and to oversee the electricity crisis response. He will have political responsibility over all aspects of the energy action statements do not include all of the information required for full financial statements and should be read in conjunction with the Eskom plan, expediting various regulatory processes for energy projects; and enable Eskom to undertake critical maintenance more Holdings SOC Ltd 31 March 2022 group annual financial statements. The annual financial statements of the group as at and for the year quickly and efficiently. The roles and responsibilities of key role players are still unclear at the moment. ended 31 March 2022 are available for inspection at the company’s registered office and on the Eskom website at www.eskom.co.za. • The Eskom roadmap released by the Department of Public Enterprise (DPE) on 20 October 2019 provides a degree of clarity on The condensed group interim financial statements are prepared in accordance with the recognition and measurement requirements the role that Eskom will play in the unfolding future of the country’s electricity supply industry. of IFRS, the presentation and disclosure requirements of IAS 34 Interim financial reporting, and in the manner required by the • Progress has been made to prepare the business for the legal separation. There are only two remaining conditions to give effect to Companies Act. the suspensive sale agreement of National Transmission Company South Africa SOC Ltd (NTCSA), namely the licenses to operate and obtaining lender consent where required. The issuing of the relevant licenses by NERSA to allow NTCSA to operate is eminent The condensed group interim financial statements are prepared on the historical-cost basis except for the following items which are (expected in April 2023). Government is in the process of revising the Electricity Regulation Act to allow other players to enter measured at fair value: the electricity market. Discussions are ongoing with lenders from whom consent is required and requests for consent will be made • derivatives held for risk management for conclusion by 30 April 2023. • embedded derivatives • Court proceedings were lodged against NERSA regarding tariff and Regulatory Clearing Account (RCA) decisions. Parties • certain investments and financial trading instruments retracted their urgent application against certain portions of the revenue determination, which allowed DPE to table the 18.65% increase in Parliament before 15 March 2023. There was also a positive outcome in March 2023 on the RCA relating to the 2021 2.1 Going concern financial year, although NERSA has not implemented previous court order decisions in this RCA decision. The timing and extent The board made an assessment of the ability of the group to continue as a going concern in the foreseeable future. The board: of the impact of the revenue decisions have not been considered in the cash flow forecast for the next 18 months. • Reviewed the performance of the group for the period ended 30 September 2022, including the net profit after tax of R3 839 million • The cost structures and capital programme of the group are continuously reviewed to extract cost savings and improve cash flows. and the net current liabilities of R30 129 million. • There is continued focus on implementing various strategies in an effort to recover overdue trade receivables, including • Noted the deterioration in some of the group’s financial indicators compared to 31 March 2022. participation with the multi-disciplinary revenue committee of the Eskom political task team. The successful outcomes of these • Noted the improvement in the cash and cash equivalents balance of R16.7 billion from R15.9 billion at 31 March 2022 which were strategies are uncertain. applied towards settling Eskom’s debt obligations. • The group is aware of the impact of large capital projects on its statement of financial position and will only engage in such projects • Considered the impact of the cash flow forecast for the 18 months ending 31 March 2024 and the projected net loss before tax for in compliance with the conditions attached in the Eskom Debt Relief Bill and with full disclosure and support of the shareholder. 2023, estimated at R32 431 million. • There is continued focus on implementing various strategies in an effort to recover overdue trade receivables. The successful • Considered that Eskom is in a debt reliant liquidity situation that resulted from low tariffs, stagnant and contracting sales volumes, outcome of these strategies remains uncertain. National Treasury is finalising a proposal to address the overdue amounts and above inflation cost increases, constrained generating plant performance and the capital programme to increase and replace non-payment from customers. generating and transmitting capacity. • There is continued focus to address the shortcomings relating to the completeness of the irregular expenditure reporting process • Noted the continued equity support from government, with R21.9 billion committed and received by January 2023. This support in terms of the Public Finance Management Act (PFMA) (resulted in the qualified audit opinion in recent years) and the clean-up assisted Eskom in maintaining a positive liquidity position during the period. of the related challenges in the commercial environment. The impact of changes to disclosure requirements issued by National • Noted the debt relief announced by the Minister of Finance in February 2023 which will provide total debt relief of R254 billion to Treasury in January 2023 is currently being evaluated by management. Eskom over the next three years. The debt relief arrangement, which is going through the legislative process, is subject to certain conditions and will provide support of R78 billion in 2024, R66 billion in 2025 and R40 billion in 2026 to address Eskom’s debt and The board considered the risks relating to the group’s going-concern status and acknowledges the challenges it faces and the various interest payments as they fall due, together with the takeover of R70 billion in Eskom debt in 2026. The support will take the form dependencies and uncertainties that exist both from a timing of intervention perspective as well as whether the plans will materialise of an interest-free subordinated loan and will be settled in Eskom ordinary shares upon complying with the conditions, allowing as anticipated. The events, conditions and assumptions described above inherently include material uncertainties that may cast Eskom to better manage its liquidity position. significant doubt on the going concern. • Noted that no new borrowings will be allowed from 1 April 2023 until the end of the debt relief period, unless approved by the The board has a reasonable expectation that the risks will be satisfactorily addressed with the mitigation strategies in place. The Minister of Finance. The government guarantee facility of R350 billion which expires on 31 March 2023 will reduce in line with the board continues to manage these strategies as a priority as it is important that they materialise as envisaged. The board has assessed debt-relief package. The expiry of the guarantee facility does not impact the existing guarantees issued which will remain in place the current cash flow projections considering that future capital costs will be funded from cash from operation. The board concluded until settlement of the guaranteed debt. after carefully considering the progress of the initiatives above and the continued financial support from the government, including • Noted that there is a need to secure funding of R60 billion in 2023 (77% of funding for 2023 has been secured by February 2023). the finalisation of the debt relief package, that there is a reasonable expectation that the group has access to adequate resources The balance of the funding will be raised through a private placement subject to market conditions to allow for a liquidity buffer and facilities to be able to continue its operations and fund the capital programme for the foreseeable future as a going concern. The until the Eskom Debt Relief Bill (B5-2023) has been enacted. All other spending will be financed through operational cash flows condensed group interim financial statements have therefore been prepared on a going-concern basis. and drawdowns from existing project related loan agreements with new funding being restricted. • Considered the positive outlook by a rating agency on Eskom after the announcement in February 2023 of the Eskom debt relief measures. 3. Significant changes in accounting policies • Considered the impact of the continuous deteriorating generation plant performance and increased reliance on more expensive The accounting policies are consistent with those applied in the audited financial statements as at 31 March 2022, except for the sources, IPPs and open-cycle gas turbines, to manage supply and demand. changes relating to IAS 16 Property, plant and equipment: proceeds before intended use amendment as set out in note 18. • Considered the impact of the continuous increase in overdue electricity receivables (including the impact of non-recoverability of long outstanding electricity receivables). • Acknowledged that an acceptable price increase and improved plant performance are critical factors in the going-concern 4. Critical accounting estimates and judgements assessment. The revenue determination decision by National Energy Regulator of South Africa (NERSA) on 12 January 2023 The significant estimates and judgements made by management in applying the accounting policies and the key sources of estimation that gave rise to an average standard tariff increase of 18.65% and 12.74% for 2024 and 2025 respectively as well as the debt uncertainty were substantially the same as those applied to the financial statements as at and for the year ended 31 March 2022. relief measures announced in February 2023 will alleviate pressure on Eskom’s operating cash flow, thereby enabling expenditure on capital to restore the energy availability of the fleet of power stations and to strengthen and expand the transmission and distribution networks. • Recognised that Eskom continues to face various challenges that resulted from mismanagement and corruption that could have an influence on stakeholder sentiment. Progress has been made in cleaning-up irregularities, improving processes and strengthening controls, but it is taking time to identify all issues and take appropriate corrective action and implement consequence management. • Considered the possible impact if key risks materialise and acknowledged that improved plant performance, addressing the escalating overdue electricity receivables as well as Eskom’s ability to manage its liquidity position until the enactment of the Eskom Debt Relief Bill are critical factors in the going-concern assessment. 6 | CONDENSED GROUP INTERIM FINANCIAL STATEMENTS | 30 SEPTEMBER 2022 ESKOM HOLDINGS SOC LTD | 7 NOTES TO THE CONDENSED GROUP INTERIM FINANCIAL STATEMENTS (continued) for the six months ended 30 September 2022 5. Segment information The segment information provided to Exco for the reportable segments is as follows: Management has determined the reportable segments based on the reports regularly provided, reviewed and used by Executive Committee (Exco) to make strategic decisions and assess performance of the segments. Exco assesses the performance of the Generation Transmission Distribution All other Reallocation and Group operating segments based on a measure of profit or loss consistent with that of the financial statements. The amounts provided to segments inter–segment Exco with respect to total assets and liabilities are measured in terms of IFRS. These assets and liabilities are allocated based on the transactions operation of the segment and the physical location of the assets. Rm Rm Rm Rm Rm Rm The operations in each of the group’s reportable segments are as follows: 30 September 2022 External revenue – 5 224 139 617 609 (609) 144 841 Segment Operations Inter-segment revenue/recoveries 89 168 29 139 (118 272) 7 171 (7 206) – Generation Consists of the following components: Total revenue 89 168 34 363 21 345 7 780 (7 815) 144 841 • primary energy procurement • electricity generation (Loss)/profit before tax (5 276) 6 913 6 988 1 386 (4 699) 5 312 • planning, development, execution and monitoring of generation-related capital projects Income tax – – – (2 741) 1 268 (1 473) Transmission Consists of the following components: (Loss)/profit for the period (5 276) 6 913 6 988 (1 355) (3 431) 3 839 • transmission grids and the integrated demand management area. These functions operate and maintain the transmission network for transmitting electricity and also sell bulk electricity to international customers Segment assets 550 682 81 032 124 901 109 381 (32 182) 833 814 • the southern African energy and energy planning and market development areas. Their activities include Segment liabilities 81 544 20 683 52 414 463 552 (31 299) 586 894 systems operations, purchase or sale of electricity from or to southern African countries, purchase of 30 September 2021 electricity from IPPs and wholesale energy for the purposes of energy trading Restated Distribution Consists of five operating clusters who provide, operate and maintain the distribution network for distributing External revenue – 5 976 129 450 529 (529) 135 426 electricity as well as a retail function that sells electricity to local large and small power users Inter-segment revenue/recoveries 82 548 31 604 (114 125) 6 820 (6 847) – All other segments Relates to operating segments which are below the quantitative thresholds for determining a reportable Total revenue 82 548 37 580 15 325 7 349 (7 376) 135 426 segment in terms of IFRS 8 Operating segments which includes the group’s subsidiaries as well as all service and strategic functions which do not qualify as a reportable segment in terms of IFRS 8 (Loss)/profit before tax (2 196) 12 943 3 423 (50) 814 14 934 Income tax – – – (3 918) (411) (4 329) The revenue earned by subsidiaries is presented in the segment note in line with what is reported in the respective subsidiary (Loss)/profit for the period (2 196) 12 943 3 423 (3 968) 403 10 605 financial statements. Inter-segment transfer pricing for the flow of electricity from generator to consumer is allocated between the generation, transmission and distribution segments based on cost recovery plus a return on assets informed by the regulatory Segment assets 544 352 79 983 123 687 87 126 (24 739) 810 409 determination. All direct corporate overhead costs are allocated to the relevant segments and a cost driver apportionment is used to Segment liabilities 78 343 19 155 49 732 430 946 (26 794) 551 382 split the remaining overhead costs on an equal basis between segments. Net finance costs, net fair value and foreign exchange gains/ (losses) are allocated to segments based on divisional funding requirements. 31 March 2022 Restated Inter-segment revenue/recoveries for September 2021 have been restated as a profit equalisation entry, that resulted in a consistent External revenue – 11 022 236 572 1 252 (1 252) 247 594 return on assets between the generation, transmission and distribution segments to reflect the NERSA return that was made at an Inter-segment revenue/recoveries 158 610 43 624 (202 181) 14 106 (14 159) – Eskom level, was previously presented in the segment report but not reflected in the reports reviewed internally. The impact of the error was a reduction of R10 897 million and R1 269 million in the generation and distribution segments respectively and an increase Total revenue 158 610 54 646 34 391 15 358 (15 411) 247 594 in the transmission segment of R12 166 million on the inter-segment revenue/recoveries line (net impact of zero); with a resultant impact on EBITDA, (loss)/profit before net finance (cost)/income as well as (loss)/profit before and after tax. (Loss)/profit before tax (28 052) 1 587 8 285 1 768 1 163 (15 249) Income tax – – – 3 794 (475) 3 319 The 30 September 2021 and 31 March 2022 segment information have also been updated in line with the restatements presented in note 18. (Loss)/profit for the period (28 052) 1 587 8 285 5 562 688 (11 930) Segment assets 546 815 79 450 120 496 82 631 (26 064) 803 328 Segment liabilities 85 499 19 408 50 038 439 858 (28 532) 566 271 6. Issuances, repurchases and repayments of debt securities and borrowings and share capital 6.1 Debt securities and borrowings The nature of the group’s issuances, repurchases and repayments of debt securities and borrowings are consistent with those reported previously. The debt raised and repaid by the group is disclosed in the statement of cash flows. 6.2 Share capital Unaudited Audited Unaudited six months ended year ended six months ended 30 September 31 March 30 September 2022 2022 2021 Shares Shares Shares Authorised ordinary shares 300 000 000 000 300 000 000 000 300 000 000 000 Issued ordinary shares Balance at beginning of the period 219 692 945 001 188 000 000 001 188 000 000 001 Share capital issued 4 000 000 000 31 692 945 000 31 692 945 000 Balance at end of the period 223 692 945 001 219 692 945 001 219 692 945 001 7. Dividend paid No dividend was paid to the shareholder during the six months ended 30 September 2022 nor in the comparative periods presented. 8 | CONDENSED GROUP INTERIM FINANCIAL STATEMENTS | 30 SEPTEMBER 2022 ESKOM HOLDINGS SOC LTD | 9 NOTES TO THE CONDENSED GROUP INTERIM FINANCIAL STATEMENTS (continued) for the six months ended 30 September 2022 8. Significant events and transactions The following significant movements occurred in the six months ended 30 September 2022: 8.1 Movements in debt securities and borrowings and derivatives held for risk management Unaudited Unaudited1 Audited1 The debt securities and borrowings balance and derivatives held for risk management net asset position (which hedges foreign debt and six months ended six months ended year ended borrowings) increased because of exchange fluctuations caused by the weakening of the Rand against major currencies. 30 September 30 September 31 March 2022 2021 2022 8.2 Share capital issued Rm Rm Rm Refer to note 6.2 for details about share capital issued in the period. 8.3 Provisions 11. Primary energy Provisions decreased mainly because of payments and lower actual versus expected settlements for compensation event claims during Own generation costs 54 557 43 393 92 414 the period. International electricity purchases 2 856 2 450 5 316 Independent power producers 19 848 16 307 35 203 8.4 Trade and other payables Trade and other payables increased because of higher accruals relating to IPP charges and open-cycle gas turbine fuel costs as well a 77 261 62 150 132 933 higher Value Added Tax (VAT) payable as a result of the higher electricity revenue at 30 September 2022 compared to March 2022. 12. Employee benefit expense 8.5 Other income Gross employee benefit expense 17 206 17 803 35 041 Other income increased because of the proceeds on the insurance claim relating to the hydrogen explosion at Unit 4 of Medupi Capitalised to property, plant and equipment (965) (1 041) (2 056) power station on 8 August 2021. 16 241 16 762 32 985 9. Seasonality of interim results The results of the group are impacted by the following seasonal fluctuations: 13. Finance cost Gross finance cost 22 813 21 465 43 611 • Revenue from electricity sales and consequently electricity receivables are normally higher during the first six months of the Capitalised to property, plant and equipment (3 866) (4 106) (8 184) financial year (winter months) as compared to the summer months arising from higher sales volume, tariff energy charges and peak demand. Sales volumes continue to be impacted negatively by the ongoing loadshedding and load curtailment. 18 947 17 359 35 427 • Primary energy costs associated with renewable IPP purchases are lower in the winter months (first six months of the financial year) due to a lower proportion of power being produced from renewable sources during this time. Plant performance issues 14. Income tax continued to have a negative impact on cost because of the higher use of open-cycle gas turbines. Income tax for the interim period is recognised based on management’s best estimate of the weighted average annual income tax • Less routine maintenance work (and consequently lower costs) is undertaken during the winter months which coincides with the rate expected for the full financial year which is applied to the pre-tax income of the interim period. The new tax rate of 27% was first six months of the financial year. substantively enacted by 31 March 2022 and has therefore been applied to all deferred tax balances that are expected to reverse after 1 April 2022. Unaudited Unaudited1 Audited1 six months ended six months ended year ended 30 September 30 September 31 March 2022 2021 2022 Rm Rm Rm 10. Revenue Redistributors 60 806 55 155 98 063 Invoiced to customers 66 002 60 398 105 369 Amounts not meeting revenue recognition criteria (8 931) (8 039) (13 849) Recognised on a cash received basis 3 735 2 796 6 543 Residential 3 829 3 808 7 091 Invoiced to customers 4 008 4 045 7 457 Amounts not meeting revenue recognition criteria (216) (237) (366) Recognised on a cash received basis 37 – – Industrial 28 513 24 772 48 204 Mining 22 065 20 571 36 630 Commercial 9 879 9 120 16 723 Agricultural 5 965 5 925 11 600 International 5 435 6 219 11 450 Other customers 2 025 1 999 3 734 Post-paid electricity sales 138 517 127 569 233 495 Prepaid electricity sales 5 537 5 649 10 966 Total electricity sales 144 054 133 218 244 461 Other 787 2 208 3 133 144 841 135 426 247 594 Sales of electricity to local customers are included in the distribution operating segment. International sales are included in the transmission segment. Other revenue consists of reconnection fees and ad hoc sundry revenue. Connections occur mainly within the transmission and distribution operating segments. 1. Restated. Refer to note 18. 10 | CONDENSED GROUP INTERIM FINANCIAL STATEMENTS | 30 SEPTEMBER 2022 ESKOM HOLDINGS SOC LTD | 11 NOTES TO THE CONDENSED GROUP INTERIM FINANCIAL STATEMENTS (continued) for the six months ended 30 September 2022 15. Accounting classification and fair value 15.1 Accounting classification 30 September 2022 (unaudited) 31 March 2022 (audited) Fair value Amortised Other assets Total Fair value Amortised Other assets Total through profit cost and liabilities1 through profit cost and liabilities1 or loss or loss Rm Rm Rm Rm Rm Rm Rm Rm Financial assets Financial assets Investments and financial trading assets 1 900 16 138 – 18 038 Investments and financial trading assets 2 145 15 173 – 17 318 Negotiable certificates of deposit – 16 138 – 16 138 Negotiable certificates of deposit – 15 173 – 15 173 Listed shares 1 900 – – 1 900 Listed shares 2 145 – – 2 145 Derivatives held for risk management and Derivatives held for risk management and embedded derivatives 20 107 – 12 380 32 487 embedded derivatives 5 649 – 3 799 9 448 Foreign exchange contracts 3 824 – 224 4 048 Foreign exchange contracts 24 – 19 43 Cross-currency swaps 15 166 – 12 156 27 322 Cross-currency swaps 4 494 – 3 780 8 274 Commodity forwards 11 – – 11 Credit default swaps 5 – – 5 Credit default swaps 5 – – 5 Inflation-linked swaps 187 – – 187 Inflation-linked swaps 287 – – 287 Embedded derivatives 939 – – 939 Embedded derivatives 814 – – 814 Trade, finance lease, loan and other receivables – 32 534 293 32 827 Trade, finance lease, loan and other receivables – 30 599 273 30 872 Loans receivable – 8 149 – 8 149 Loans receivable – 24 – 24 Finance lease receivables – – 293 293 Finance lease receivables – – 273 273 Trade and other receivables – 24 385 – 24 385 Trade and other receivables – 30 575 – 30 575 Cash and cash equivalents – 15 885 15 885 – Cash and cash equivalents – 16 667 – 16 667 Bank balances – 7 877 – 7 877 Bank balances – 7 843 – 7 843 Fixed deposits – 8 008 – 8 008 Fixed deposits – 8 824 – 8 824 7 794 63 592 4 092 75 478 22 007 63 404 12 653 98 064 Financial liabilities Financial liabilities Debt securities and borrowings – 396 294 – 396 294 Debt securities and borrowings – 423 638 – 423 638 Eskom bonds – 161 635 – 161 635 Eskom bonds – 164 294 – 164 294 Commercial paper – 1 058 – 1 058 Eurorand zero coupon bonds – 6 712 – 6 712 Eurorand zero coupon bonds – 6 318 – 6 318 Foreign bonds – 76 415 – 76 415 Foreign bonds – 61 916 – 61 916 Development financing institutions – 135 276 – 135 276 Development financing institutions – 124 438 – 124 438 Export credit facilities – 17 698 – 17 698 Export credit facilities – 17 735 – 17 735 Other loans – 23 243 – 23 243 Other loans – 23 194 – 23 194 Derivatives held for risk management 692 – 716 1 408 Derivatives held for risk management 5 015 – 4 963 9 978 Foreign exchange contracts 76 – 118 194 Foreign exchange contracts 3 531 – 436 3 967 Cross-currency swaps 216 – 598 814 Cross-currency swaps 1 403 – 4 527 5 930 Commodity forwards 188 – – 188 Credit default swaps 81 – – 81 Credit default swaps 212 – – 212 Trade and other payables and lease liabilities – 36 796 8 603 45 399 Trade and other payables and lease liabilities – 39 594 8 202 47 796 Lease liabilities – – 8 603 8 603 Lease liabilities – – 8 202 8 202 Trade and other payables – 36 796 – 36 796 Trade and other payables – 39 594 – 39 594 Financial trading liabilities Repurchase agreements 2 – – 2 692 463 232 8 918 472 842 5 017 433 090 13 566 451 673 1. Other assets and liabilities include derivatives held for risk management designated as hedges measured at fair value through other comprehensive income and finance leases measured at 1. Other assets and liabilities include derivatives held for risk management designated as hedges measured at fair value through other comprehensive income and finance leases measured at amortised cost. The total assets measured at amortised cost amounts to R63 677 million and the total liabilities measured at amortised cost amounts to R471 434 million. amortised cost. The total assets measured at amortised cost amounts to R63 885 million and the total liabilities measured at amortised cost amounts to R441 693 million. 12 | CONDENSED GROUP INTERIM FINANCIAL STATEMENTS | 30 SEPTEMBER 2022 ESKOM HOLDINGS SOC LTD | 13 NOTES TO THE CONDENSED GROUP INTERIM FINANCIAL STATEMENTS (continued) for the six months ended 30 September 2022 15. Accounting classification and fair value (continued) The group is involved in various principal markets because of the unique funding activities undertaken where the fair value 15.1 Accounting classification (continued) is determined by each participant in the different principal markets. The principal markets include capital and money markets, development financing institutions and export credit agencies. 30 September 2021 (unaudited) Restated Valuation techniques and levels Fair value through Amortised Other assets Total Financial instrument Valuation technique profit or loss cost and liabilities1 Rm Rm Rm Rm Level 1: Quoted prices (unadjusted) in active markets Investments and financial trading assets (listed shares Quoted bid price in active markets. A market is regarded as active when Financial assets and government bonds) and financial trading liabilities it is a market in which transactions for the asset or liability take place Investments and financial trading assets 1 935 14 050 – 15 985 (short-sold government bonds) with sufficient frequency and volume to provide pricing information on Negotiable certificates of deposit – 14 050 – 14 050 an ongoing basis. Listed shares 1 935 – – 1 935 Level 2: Observable inputs other than quoted prices included within level 1 Derivatives held for risk management and Financial trading liabilities (repurchase agreements) A discounted cash flow technique is used which uses expected cash embedded derivatives 11 245 – 5 286 16 531 flows and a market-related discount rate. Foreign exchange contracts 1 530 – 7 1 537 Derivatives held for risk management Valuation determined with reference to broker quotes as well as use of Cross-currency swaps 8 611 – 5 279 13 890 discounted cash flow and option pricing models. Broker quotes are tested Commodity forwards 12 – – 12 for reasonableness by discounting expected future cash flows using a market interest rate for a similar instrument at the measurement date. Credit default swaps 5 – – 5 Inflation-linked swaps 186 – – 186 Valuations of cross-currency swaps include the credit risk of Eskom Embedded derivatives 901 – – 901 (known as debit value adjustment) and counterparties (known as credit value adjustment) where appropriate. A stochastic modelling approach is Trade, finance lease, loan and other receivables – 38 751 310 39 061 followed where the expected future exposure to credit risk for Eskom Loans receivable – 8 235 – 8 235 and its counterparties (considering default probabilities and recovery Finance lease receivables – – 310 310 rates derived from market data) is modelled. Trade and other receivables – 30 516 – 30 516 Trade and other payables and cash and cash equivalents Fair values have not been disclosed for financial instruments where the Cash and cash equivalents – 20 411 – 20 411 carrying amounts are a reasonable approximation of fair value. Bank balances – 5 889 – 5 889 Level 3: Unobservable inputs Fixed deposits – 14 522 – 14 522 Embedded derivative liabilities Fair valued using unobservable inputs. 13 180 73 212 5 596 91 988 There were no changes in the valuation techniques applied nor transfers between level 1, 2 or 3 of the fair value hierarchy during the six months ended 30 September 2022 nor in the comparative periods presented. Financial liabilities Debt securities and borrowings – 392 109 – 392 109 Fair value hierarchy The fair value hierarchy of financial instruments that are measured at fair value in the statement of financial position is as follows: Eskom bonds – 159 809 – 159 809 Commercial paper – 1 146 – 1 146 30 September 2022 31 March 2022 30 September 2021 Eurorand zero coupon bonds – 5 949 – 5 949 (unaudited) (audited) (unaudited)1 Foreign bonds – 64 007 – 64 007 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Development financing institutions – 130 623 – 130 623 Rm Rm Rm Rm Rm Rm Rm Rm Rm Export credit facilities – 20 971 – 20 971 Financial assets Other loans – 9 604 – 9 604 Investments and financial Derivatives held for risk management 898 – 2 977 3 875 trading assets Listed shares 1 900 – – 2 145 – – 1 935 – – Foreign exchange contracts 186 – 194 380 Cross-currency swaps 486 – 2 783 3 269 Derivatives held for risk management Commodity forwards 2 – – 2 and embedded derivatives – 31 673 814 – 8 509 939 – 15 630 901 Credit default swaps 224 – – 224 Foreign exchange contracts – 4 048 – – 43 – – 1 537 – Trade and other payables and lease liabilities – 33 827 8 717 42 544 Cross-currency swaps – 27 322 – – 8 274 – – 13 890 – Commodity forwards – 11 – – – – – 12 – Lease liabilities – – 8 717 8 717 Credit default swaps – 5 – – 5 – – 5 – Trade and other payables – 33 827 – 33 827 Inflation-linked swaps – 287 – – 187 – – 186 – Financial trading liabilities Embedded derivatives – – 814 – – 939 – – 901 Repurchase agreements 2 – – 2 Financial liabilities 900 425 936 11 694 438 530 Derivatives held for risk management – 1 408 – – 9 978 – – 3 875 – 15.2 Fair value Foreign exchange contracts – 194 – – 3 967 – – 380 – Valuation processes and principal markets Cross-currency swaps – 814 – – 5 930 – – 3 269 – The group has a control framework in place for the measurement of fair values. It includes a valuation team that ultimately reports Commodity forwards – 188 – – – – – 2 – to the CFO and has overall responsibility for all significant fair value measurements. Credit default swaps – 212 – – 81 – – 224 – The valuation team regularly reviews significant unobservable inputs and valuation adjustments. Where third-party information, such Financial trading liabilities as broker quotes or pricing services, is used to measure fair value, this information is assessed as to whether it provides adequate Repurchase agreements – – – – 2 – – 2 – support for the accounting treatment applied including the level of the fair value hierarchy assigned to it. 1. Other assets and liabilities include derivatives held for risk management designated as hedges measured at fair value through other comprehensive income and finance leases measured at Restated. Refer to note 18. amortised cost. The total assets measured at amortised cost amounts to R73 522 million and the total liabilities measured at amortised cost amount to R434 653 million. 14 | CONDENSED GROUP INTERIM FINANCIAL STATEMENTS | 30 SEPTEMBER 2022 ESKOM HOLDINGS SOC LTD | 15 NOTES TO THE CONDENSED GROUP INTERIM FINANCIAL STATEMENTS (continued) for the six months ended 30 September 2022 15. Accounting classification and fair value (continued) Dr KS Ramokgopa was appointed as Minister of Electricity on 6 March 2023. He will be responsible for overseeing all aspects of the 15.3 Day-one gain/loss electricity crisis response, including the work of the National Energy Crisis Committee, and to reduce the severity and frequency The group recognises a day-one gain/loss on the initial recognition of cross-currency and inflation-linked swaps held as hedging of loadshedding. instruments where applicable. Support from government Cross-currency Inflation-linked Total Eskom received R4 billion of the R21.9 billion equity support for 2023 by 30 September 2022, with the remaining balance received swaps swaps by January 2023. Rm Rm Rm The Minister of Finance announced the draft Eskom Debt Relief Bill during the 2023 National Budget in February 2023 which will Loss at 31 March 2021 (1 516) (19) (1 535) provide total debt relief of R254 billion to Eskom during 2024 to 2026. The debt relief arrangement is subject to certain conditions Day-one loss recognised (197) – (197) and will provide support of R78 billion in 2024, R66 billion in 2025 and R40 billion in 2026 to address Eskom’s debt and interest Amortised to profit or loss 39 1 40 payments as they fall due, together with the takeover of R70 billion of Eskom debt in 2026. The support will take the form of an interest-free subordinated loan and will be settled in Eskom ordinary shares upon complying with the conditions. Loss at 30 September 2021 (1 674) (18) (1 692) Day-one loss recognised (70) – (70) Court rulings relating to NERSA applications Amortised to profit or loss 155 2 157 There were the following developments after 30 September 2022 regarding Eskom’s court review applications against NERSA revenue determination decisions: Loss at 31 March 2022 (1 589) (16) (1 605) Amortised to profit or loss 123 1 124 • Revenue decision for the 2023 to 2025 financial years (MYPD 5) The High Court set aside NERSA’s revenue decision in respect of the valuation of the regulatory asset base (RAB) for 2023 on Loss at 30 September 2022 (1 466) (15) (1 481) 24 October 2022 and ordered NERSA to apply the Multi-Year Price Determination (MYPD) methodology to redetermine the valuation of the RAB which will form the basis for the NERSA decision for 2024 and 2025. 16. Assets and liabilities held-for-sale NERSA announced its revenue decision for 2024 and 2025 on 12 January 2023, awarding Eskom an average standard tariff increase The Minister of Public Enterprises requested Eskom in July 2022 to re-commence with the disposal process of Eskom Finance of 18.65% and 12.74% for 2024 and 2025 respectively. NERSA published its reasons for decision on 17 February 2023. Company SOC Ltd (EFC). The investment and finance committee approved the disposal strategy in August 2022. A request for • RCA decision for the 2021 financial year proposal was issued in September 2022 and expressions of interest were received from various parties. The bidding process closed Eskom submitted its RCA application for the 2021 financial year on 19 November 2021 with a balance of R10.7 billion. NERSA in November 2022 and a preferred bidder was approved in December 2022 by the investment and finance committee. had originally planned to make a decision by April 2022, although this was later postponed. NERSA communicated its decision in The preferred bidder was notified, and the terms of the disposal have been finalised. The next step will be final approval from the March 2023, reflecting a RCA balance of approximately R200 million in favour of the consumer. It is evident that NERSA has not Eskom Holdings Board with final approval from the Department of Public Enterprises and National Treasury thereafter. Approval implemented previous court order decisions in this RCA decision. Eskom received the reasons for decision in March 2023 and is from the Competition Commission will also be required. in the process of evaluating its options regarding the way forward. The disposal of EFC is expected to be concluded within the first quarter of the 2024 financial year. EFC is included under all other Provision for compensation events segments in the segment report. Certain claims relating to compensation events between Eskom and its suppliers were finalised by the Dispute Adjudication Board after 30 September 2022. The provision for compensation events decreased by R581 million to account for the differences between 30 September 2022 (unaudited) the actual and expected settlements recorded on 30 September 2022. Eskom Finance Intercompany Company transactions Total Diesel rebate claimed from SARS Rm Rm Rm The South African Revenue Services (SARS) disallowed certain refunds of fuel and road accident levies on diesel used at the Gourikwa and Ankerlig power stations to generate electricity based on its view that Eskom did not maintain certain supporting documentation Summarised statements of financial position required to claim the refunds. Eskom submitted an internal administrative appeal to SARS against this decision on 1 June 2020. SARS Assets advised Eskom that its appeal has been disallowed on 25 October 2022. Eskom is considering the appropriate action regarding this Loans receivable 8 062 – 8 062 matter, including following a litigation process, alternative dispute resolution process or review. Trade and other receivables 45 12 33 Payments made in advance 3 – 3 Plant incidents Deferred tax 13 – 13 A flue gas duct failure was experienced at Kusile unit 1 on 23 October 2022 while the unit was offline for repairs. Units 2 and 3 were also affected. The Minister of Forestry, Fisheries and the Environment granted Eskom exemption in March 2023 from certain Cash and cash equivalents 100 38 62 requirements in terms of its application to build temporary stacks at Kusile power station. The exemption allows Eskom to submit 8 223 50 8 173 its application to operate the stacks based on presently available information and with a reduced public participation process. Eskom intends to submit its final application, based on the exemption provided, to the relevant authorities in April 2023 for approval to Liabilities operate the temporary stacks which are expected to be completed by 30 November 2023. The repair of the damaged stacks is Debt securities and borrowings 6 611 5 639 972 expected to be completed by December 2024. The necessary steps will be implemented to mitigate the impact of SO2 emissions on Trade and other payables 23 6 17 air quality during the repair process. 6 634 5 645 989 Closure and repurposing of Komati power station Komati power station reached the end of its operating life on 31 October 2022 and is used as a pilot for the repowering and repurposing of a power station on Eskom land using existing infrastructure, in line with the Eskom Just Energy Transition strategy. 17. Material events subsequent to 30 September 2022 The installation of a microgrid assembly plant as well as an agrivoltaic plant to demonstrate the simultaneous use of land for power The following significant events occurred after 30 September 2022: generation and agriculture has started. An environmental impact assessment for a solar photovoltaic plant supported by battery storage is in progress. Changes in board The group chief executive, Mr AM de Ruyter, resigned from Eskom effective 28 February 2023. Mr C Cassim is currently acting as Settlement agreement by the National Prosecuting Authority the group chief executive. Mr JM Buys is assisting with the operational duties of the chief financial officer while Mr Cassim is acting The National Prosecuting Authority announced in December 2022 that a settlement agreement was concluded with ABB Ltd to pay as the group chief executive. over R2.5 billion in punitive reparations to South Africa as restitution for fraud and corruption relating to its contracts with Eskom. The settlement will be paid into the South Africa Criminal Asset Recovery Account and will be used as restitution for victims and to National energy crisis assist in building capacity and resources in the country’s ongoing fight against corruption. Eskom does not have any further details The President declared a national state of disaster on 9 February 2023 relating to the impact of the severe electricity supply regarding the investigation and settlement, including any potential restitution to Eskom. constraints on the country. The disaster management regulations were gazetted on 27 February 2023 and intend to enable government to minimise the impact of loadshedding on critical infrastructure where technically possible, to reduce and manage the Changes to PFMA reporting requirements impact of loadshedding on service delivery, and to provide measures to enable the connection of new generation supply and improve National Treasury issued Instruction No. 4 of 2022/23 on PFMA Compliance and Reporting in January 2023. The instruction limits annual Eskom’s plant performance. financial statement disclosure to irregular expenditure and fruitless and wasteful expenditure incurred in the current and comparative financial years. All other PFMA information that was previously disclosed will be included in the Eskom Integrated Report. 16 | CONDENSED GROUP INTERIM FINANCIAL STATEMENTS | 30 SEPTEMBER 2022 ESKOM HOLDINGS SOC LTD | 17 NOTES TO THE CONDENSED GROUP INTERIM FINANCIAL STATEMENTS (continued) for the six months ended 30 September 2022 18. Restatement of comparatives Previously The statements of financial position, income statements, statements of comprehensive income and statements of cash flows have Adjustments Restated reported been restated as a result of the amendment to IAS 16 (30 September 2021 and 31 March 2022) as well as prior period errors Note Rm Rm Rm (30 September 2021) as follows: Statements of financial position at 31 March 2022 Previously Assets Adjustments Restated reported Non-current Note Rm Rm Rm Property, plant and equipment and intangible assets (a) 668 694 2 388 671 082 Group statement of financial position at Deferred tax (d) 9 971 (645) 9 326 30 September 2021 Equity Assets Capital and reserves 235 314 1 743 237 057 Non-current Group income statement for the period ended Property, plant and equipment and intangible assets (a) 667 554 1 903 669 457 30 September 2021 Future fuel supplies (b) 4 816 (116) 4 700 Revenue 134 982 444 135 426 Inventories (c) – 10 984 10 984 Primary energy (61 766) (384) (62 150) Deferred tax (d) 3 691 (471) 3 220 Other expenses (12 253) (334) (12 587) Derivatives held for risk management and embedded Depreciation and amortisation expense (15 583) 205 (15 378) derivatives 12 644 1 469 14 113 Net fair value and foreign exchange gains 373 1 650 2 023 Derivatives held for risk management (e) 12 644 698 13 342 Finance cost (17 671) 312 (17 359) Embedded derivatives (f) – 771 771 Profit before tax 13 041 1 893 14 934 Payments made in advance (g) 1 787 (127) 1 660 Income tax (3 800) (529) (4 329) Trade, finance lease, loan and other receivables 8 752 2 084 10 836 Profit for the year 9 241 1 364 10 605 Trade and other receivables (h) 558 2 084 2 642 Finance lease receivables 272 – 272 Group income statement for the period ended 31 March 2022 Loans receivable 7 922 – 7 922 Revenue 246 520 1 074 247 594 Current Primary energy (132 439) (494) (132 933) Inventories (c) 39 295 (15 029) 24 266 Depreciation and amortisation expense (32 009) (57) (32 066) Derivatives held for risk management and embedded derivatives 2 049 369 2 418 Loss before tax (15 772) 523 (15 249) Income tax 3 442 (123) 3 319 Derivatives held for risk management (e) 2 049 239 2 288 Embedded derivatives (f) – 130 130 Loss for the year (12 330) 400 (11 930) Payments made in advance (g) 1 355 (291) 1 064 Group statement of comprehensive income for the period ended 30 September 2021 Trade, finance lease, loan and other receivables (h) 32 745 (2 084) 30 661 Profit for the year 9 241 1 364 10 605 Equity Items that may be reclassified subsequently to profit or loss 1 273 (1 751) (478) Capital and reserves 258 603 424 259 027 Cash flow hedges (e) 1 729 (2 432) (703) Share capital 219 693 – 219 693 Foreign currency translation differences on foreign operations 28 – 28 Cash flow hedge reserve (e) 1 400 (2 069) (669) Income tax thereon (e) (484) 681 197 Unrealised fair value reserve (e) (7 527) 1 111 (6 416) Items that may not be reclassified subsequently to profit or loss 560 – 560 Foreign currency translation reserve 37 – 37 Accumulated profit 45 000 1 382 46 382 Total comprehensive profit for the year 11 074 (387) 10 687 Liabilities Group statement of cash flows for the period ended Non-current 30 September 2021 Derivatives held for risk management (e) 2 292 565 2 857 Cash flows from operating activities 35 498 47 35 545 Deferred tax (d) 2 058 169 2 227 Cash flows used in investing activities (16 007) (47) (16 054) Provisions (b) 51 091 (2 186) 48 905 Cash flows used in financing activities (3 068) – (3 068) Payments received in advance, contract liabilities and deferred Cash and cash equivalents at beginning of the year 4 041 – 4 041 income (f) 26 652 714 27 366 Foreign currency translation 28 – 28 Current Effect of movements in exchange rates on cash held (81) – (81) Provisions (b) 5 758 (1 088) 4 670 Cash and cash equivalents at end of the year 20 411 – 20 411 Payments received in advance, contract liabilities and deferred income (f) 5 412 80 5 492 Group statement of cash flows for the period ended 31 March 2022 Cash flows from operating activities 53 444 580 54 024 Cash flows used in investing activities (31 823) (580) (32 403) Cash flows used in financing activities (9 739) – (9 739) Cash and cash equivalents at beginning of the year 4 041 – 4 041 Foreign currency translation 5 – 5 Effect of movements in exchange rates on cash held (43) – (43) Cash and cash equivalents at end of the year 15 885 – 15 885 18 | CONDENSED GROUP INTERIM FINANCIAL STATEMENTS | 30 SEPTEMBER 2022 ESKOM HOLDINGS SOC LTD | 19 NOTES TO THE CONDENSED GROUP INTERIM FINANCIAL STATEMENTS (continued) for the six months ended 30 September 2022 18. Restatement of comparatives (continued) (g) Payments made in advance The impacted notes to the condensed interim financial statements have been updated where relevant because of the restatements. Payments made in advance relating to commitment fees incurred on debt facilities that expired prior to the previous reporting The restatements also resulted in various consequential restatements in the segment reporting and fair value disclosures. period were written off to the income statement and had an overall impact of zero between payments made in advance and finance costs in the cash flows used in financing activities in the statements of cash flows. The details of the restatements on the financial statements related to changes to IAS 16 (30 September 2021 and 31 March 2022) as well as a result of prior periods errors (30 September 2021) are disclosed below. (h) Trade and other receivables A review of payment levels indicated that certain receivables (VAT portion paid over to SARS for municipalities and Soweto (a) Property, plant and equipment and intangible assets recorded on a cash basis) are not expected to be realised within 12 months after the reporting period because of the low Various adjustments were made to property, plant and equipment including assets for which incorrect useful lives have been payment levels experienced. The related VAT receivable was also reclassified as a non-financial instrument because the related used, extension of asset useful lives not accounted for, completed assets under construction not timeously transferred to sales did not meet the collectability criterion and it is expected that the VAT will ultimately be recovered from SARS once the commercial operation, additional insurance expenditure from the group insurance entity and writeoff of aged assets under outstanding customer debt is written off. construction where there are no further expected future economic benefits. The reclassification of critical spares from inventory had an impact on the cash flow statement resulting in a movement between 19. Exchange rates changes in working capital under operating activities and acquisitions of property, plant and equipment under investing activities. Unaudited Audited Unaudited The proceeds from electricity sales and the cost to produce the electricity were previously allocated to the cost of the power 30 September 31 March 30 September station under construction. The related pre-commissioning revenue and cost are now accounted for in profit and loss in terms 2022 2022 2021 of the amendment to IAS 16 that became effective from 1 April 2022. Euro 17.55 16.19 19.67 The carrying amount of property, plant and equipment increased (September 2021: R2.1 billion, March 2022: R2.4 billion) United States dollar 17.97 14.59 17.82 with an increase in revenue (September 2021: R0.4 billion, March 2022: R3.6 billion) and an increase in primary energy Pound sterling 19.96 19.18 22.17 (September 2021: R0.2 billion, March 2022: R1.1 billion) to account for the cumulative impact relating to items made available Japanese yen 0.12 0.12 0.16 for use on or after 1 April 2021. There was a reallocation (September 2021: R0.7 billion, March 2022: R0.6 billion) between acquisitions of property, plant and equipment under investing activities and cash generated from operations under operating activities as a result of the restatement. 20. Reportable irregularities (b) Future fuel supplies and provisions There have been no significant changes to reportable irregularities as disclosed in the annual financial statements for the year ended A single discount rate was previously used in the valuation of power station-related environmental restoration and mine-related 31 March 2022. closure, pollution control and rehabilitation provisions. These provisions were restated to align the discount rates used in the valuation with the expected timing of the associated cash flows per location, with a related impact in property, plant and 21. New standards and interpretations equipment, future fuel supplies, finance costs and other expenses. The group is in the process of evaluating the detailed requirements of the amendments to assess the impact on the accounting policy The nuclear plant decommissioning and spent fuel provisions were adjusted because certain assumptions in the calculation disclosures. relating to labour, foreign currency and inflation rates were not updated to reflect current market information. A further overstatement resulted from the inclusion of a portion of the spent fuel management cost in both the spent fuel and plant Topic Summary of requirements Impact decommissioning provisions. IFRS 17 Insurance contracts and IFRS 17 introduces one accounting model for all The group is preparing for the amendments to IFRS 17 (1 January insurance contracts in all jurisdictions that apply transition to IFRS 17 with effect A coal off-take provision was restated to correct an overprovision as management incorrectly determined the contractual 2023) IFRS. Once effective, IFRS 17 will replace IFRS 4 from 1 April 2023. termination date of a coal supply agreement. Insurance contracts. (c) Inventories It requires an entity to measure insurance contracts It is not expected that IFRS 17 A portion of coal inventory held at power stations was reclassified from current to non-current with a related increase in using updated estimates and assumptions that will have a significant impact on the primary energy cost following a review of the quantity and usage of coal at power stations. It was concluded that a portion of the reflect the timing of cash flows and take into group. The standard will mainly coal inventory is not expected to be used within 12 months as certain inventory are at higher levels than required for compliance account any uncertainty relating to insurance impact the individual financial with the electricity grid code and emergencies to ensure security of supply. contracts. The financial statements of an entity will statements of Escap SOC Ltd. A significant part of the coal inventory, which is separately stock-piled, resulted from coal purchases in terms of take-or-pay have to reflect the time value of money of estimated arrangements in excess of required coal levels over a number of years. The weighted average price relating to these stockpiles payments required to settle incurred claims. were separately calculated, resulting in a restatement to correct the overstatement of coal inventory. Insurance contracts will be measured only on the obligations created by the contracts. An entity will (d) Deferred tax also be required to recognise profits as an insurance Tax impact of the restatements. service is delivered, rather than on receipt of premiums. (e) Derivatives held for risk management The derivatives held for risk management were restated to correct the curve methodology and resultant fair values as the Disclosure of accounting policies – The amendments aim to help entities provide The group is in the process valuation curve methodology used in determining the fair values of the financial instruments were not aligned to market practice amendments to IAS 1 and IFRS Practice accounting policy disclosures that are more useful of evaluating the detailed in prior years. statement 2 Making materiality by replacing the requirement for entities to disclose requirements of the amendments judgements (1 January 2023) their significant accounting policies with to assess the impact on the The cash flow hedge reserve was restated because of the incorrect application of certain requirements of IFRS in previous a requirement to disclose their material accounting policy disclosures. years. The calculation of the hedge effectiveness and the quantification of the resultant hedging reserve contained errors from accounting policies. the incorrect inclusion of certain limiting rules, not including credit adjustments in measuring hedge effectiveness and the impact of the incorrect curve methodology as noted above. The correction of certain of these errors resulted in certain hedge The practice statement provides guidance and It is expected that there could be a relationships that were historically considered as effective no longer meeting the hedge effectiveness requirements of IFRS, examples on how entities apply the concept of reduction in the detail disclosed in resulting in the immediate unwinding of the cash flow hedge reserve. The correction of the errors also resulted in changes to materiality in making decisions about accounting the accounting policies. the quantification of the cash flow hedge reserve. policy disclosures. (f) Embedded derivatives and payments received in advance, contract liabilities and deferred income A correction was made to account for a new agreement that Eskom entered into on 1 August 2021 to supply electricity to an electricity-intensive business that gave rise to an option-based embedded derivative that was not accounted for at 30 September 2021. 20 | CONDENSED GROUP INTERIM FINANCIAL STATEMENTS | 30 SEPTEMBER 2022 ESKOM HOLDINGS SOC LTD | 21 NOTES TO THE CONDENSED GROUP INTERIM FINANCIAL STATEMENTS (continued) for the six months ended 30 September 2022 CONTACT DETAILS 21. New standards and interpretations (continued) Topic Summary of requirements Impact Telephone numbers Websites and email addresses Definition of accounting estimate – The amendments to IAS 8 introduces a definition of The amendments are not expected www.eskom.co.za amendments to IAS 8 Accounting accounting estimates. to have a material impact on the Eskom head office +27 11 800 8111 Eskom website Contact@eskom.co.za policies, changes in accounting estimates group. and errors (1 January 2023) +27 11 800 3343 The amendments clarify the distinction between The group will apply the definitions Eskom Media Desk +27 11 800 3378 Eskom Media Desk MediaDesk@eskom.co.za changes in an accounting estimate, changes in where applicable. +27 11 800 6103 accounting policies and the correction of errors. The use of measurement techniques and inputs to Investor Relations +27 11 800 2775 Investor Relations InvestorRelations@eskom.co.za develop accounting estimates are also clarified. Eskom whistle-blowing hotline 0800 112 722 Forensic investigations Investigate@eskom.co.za Deferred tax related to assets and Targeted amendments were made to IAS 12 to The amendments are not expected www.thehotlineapp.co.za liabilities arising from a single clarify how companies should account for deferred to have a material impact on the DPE whistle-blowing hotline 0800 111 628 DPE whistle-blowing website DPE@thehotline.co.za transaction – amendments to tax on certain transactions eg leases and group as the group already comply IAS 12 Income taxes (1 January 2023) decommissioning provisions. with these requirements. The Eskom Development www.eskom.co.za/csi Eskom Development Foundation +27 11 800 8111 group recognises a deferred tax Foundation CSI@eskom.co.za The amendments narrow the scope of the initial asset and a deferred tax liability for recognition exemption so that it does not apply to 08600 ESKOM or Promotion of Access to temporary differences arising on National call centre PAIA@eskom.co.za transactions that give rise to equal and offsetting 08600 37566 Information Act requests initial recognition of leases and temporary differences. As a result, a deferred tax decommissioning provisions. Customer SMS line 35328 Customer Service CustomerServices@eskom.co.za asset and a deferred tax liability will have to be recognised for temporary differences arising on the Facebook EskomSouthAfrica YouTube EskomOfficialSite initial recognition of a lease and a decommissioning provision. Twitter Eskom_SA MyEskom Customer app The amendments apply retrospectively. Physical address Postal address Eskom Megawatt Park 2 Maxwell Drive PO Box 1091 Sunninghill Johannesburg Sandton 2000 2157 Group Company Secretary Company registration number Office of the Company Secretary PO Box 1091 Eskom Holdings SOC Ltd Johannesburg 2002/015527/30 2000 JOINT VENTURE [0007] 22 | CONDENSED GROUP INTERIM FINANCIAL STATEMENTS | 30 SEPTEMBER 2022