Group annual results for the year ended 31 March 2023 Group annual results for the year ended 31 March 2023 31 October 2023 The results presentation is available at www.eskom.co.za/investors/integrated-results/ Disclaimer This presentation does not constitute or form part of and should not be construed as, an offer to sell, or the solicitation or invitation of any offer to buy or subscribe for or underwrite or otherwise acquire, securities of Eskom Holdings SOC Ltd (Eskom), any holding company or any of its subsidiaries in any jurisdiction or any other person, nor an inducement to enter into any investment activity. No part of this presentation, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever. This presentation does not constitute a recommendation regarding any securities of Eskom or any other person. Certain statements in this presentation regarding Eskom’s business operations may constitute “forward looking statements”. All statements other than statements of historical fact included in this presentation, including, without limitation, those regarding the financial position, business strategy, management plans and objectives for future operations of Eskom are forward looking statements. Forward-looking statements are not intended to be a guarantee of future results, but instead constitute Eskom’s current expectations based on reasonable assumptions. Forecasted financial information is based on certain material assumptions. These assumptions include, but are not limited to continued normal levels of operating performance and electricity demand in the Distribution and Transmission Divisions and operational performance in the Generation Division consistent with historical levels, and incremental capacity additions through Group Capital at investment levels and rates of return consistent with prior experience, as well as achievements of planned productivity improvements throughout the business activities. Actual results could differ materially from those projected in any forward-looking statements due to risks, uncertainties and other factors. Eskom neither intends to nor assumes any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In preparation of this document certain publicly available data is used. While the sources used are generally regarded as reliable the content has not been verified. Eskom does not accept any responsibility for using any such information. 1 The year in review EAF worsened Loadshedding Significant Poor Transmission further to deterioration in network reliability New build 280 days emissions Kusile Unit 4 56.03% (2022: 65 days), despite performance commissioned (2022: 62.02%) extensive OCGT usage performance Lost-time injury rate Headcount reduced by Net loss after tax 4 employee and declined to 523 worsened to contractor fatalities 820 youth employment (2022: 6) 0.26 (2022: 2 328) services learners R23.9 billion (2022: 0.24) appointed (2022: R11.9 billion) Tariff increase of Committed funding Arrear municipal Significant leadership secured debt escalated to R254 billion changes, including 9.61% Government debt (2022: 15.06%) R59.9 billion R58.5 billion relief announced a new Board (2022: R35.8 billion) (2022: R44.8 billion) OVERVIEW 2 Generation performance continued to deteriorate, while networks and new build delivered variable performance Generation performance GENERATION PERFORMANCE Generation performance % NETWORK AND NEW BUILD 35 % • Plant availability deteriorated to 56.03% 80 % 35 • Transmission system minutes performance 30 (2022: 62.02%), with unplanned load losses 75 25 30 deteriorated to 4.71 minutes (2022: 2.88 rising to 31.92% (2022: 25.35%) and planned 70 20 25 minutes), with one major incident (2022: two) 65 20 maintenance at 10.39% (2022: 10.23%) 15 60 15 • Distribution network performance remained 10 • Load had to be curtailed by an estimated 55 5 10 resilient, with frequency and duration of supply 13 476GWh (2022: 1 605GWh), with 0 5 interruptions well within target, although 0Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar 0 loadshedding on 280 days (2022: 65 days) 2018 2019 2020 2021 2022 2023 energy losses remain too high Planned losses FY2021 Unplanned losses FY2021 • Gas turbines produced 4 116GWh (2022: EAFFY2022 PCLF Planned losses UCLF Unplanned losses FY2022 • Renewable IPPs produced 16 859GWh (2022: 2 725GWh) at a cost of R29.7 billion (2022: 15 073GWh). Overall, IPP programmes Network Networkperformance performance R14.7 billion) for Eskom and IPP OCGTs Minutes Events/hours delivered about 5 100GWh less than target, Minutes 5.0 Events/hours 40 contributing to the generation capacity shortfall • Generation recovery plan focusing on six 5.0 40 4.0 30 • Kusile Unit 4 achieved commercial operation priority stations to improve performance 4.0 30 3.0 on 31 May 2022 • Flue stack collapse at Kusile took three 3.0 20 2.0 20 • Kusile Unit 5 progress delayed by a year due to units out of service for almost a year, 2.0 10 1.0 10 a gas air heater fire in September 2022; making around 2 400MW unavailable; two 1.0 0.0 Sep 2017 Sep 2018 Sep 2019 Sep 2020 Mar 2021 Sep 2021 0 synchronisation expected by November 2023 units back in service by October 2023 0.0 2018 2019 2020 2021 2022 2023 0 System minutes lost for events <1 minute SAIFI SAIDI • Installation of 326.1km transmission lines to • Koeberg Unit 1 long-term outage nearing System SAIFI = minutes lost for interruption System average events <1 minute SAIFI frequency index SAIDI strengthen the grid far exceeded target (2022: completion, to be followed by Unit 2 outage SAIDI==System SAIFI Systemaverage averageinterruption interruptionfrequency duration index index 180.5km) SAIDI = System average interruption duration index OPERATING PERFORMANCE 3 Loadshedding had to be implemented on 280 days during the past year due to generation supply constraints and shortfall from IPP programmes • Eskom’s generating plant availability reached the lowest levels ever, due to unprecedented levels of unplanned unavailability • A factor that contributed to the supply constraints is the fact that IPP capacity – both renewable and other programmes, such as DMRE’s Risk Mitigation IPP Procurement Programme – has not come online as expected under the IRP 2019, with an energy shortfall of more than 5 100GWh for the year, requiring increased levels of loadshedding and “overproduction” by Eskom and IPP-owned OCGTs of around 2 000GWh for the year • Loadshedding is implemented to maintain the supply/demand balance, and to ensure sufficient reserve capacity to respond to significant unplanned breakdowns or disruptions to supply, in order to protect the power system • Additional dispatchable capacity of 4 000MW–6 000MW is required immediately, to support the stability of the power system, create space for maintenance and reduce the need for loadshedding Days loadshedding per stage Loadshedding per year, showing total days and hours 300 5 557 6 000 250 5 000 200 4 000 150 280 3 000 100 1011 2 000 50 1 000 30 46 47 65 0 0 2019 2020 2021 2022 2023 Days Hours OPERATING PERFORMANCE 4 Ongoing challenges at Kendal negatively affected emissions performance, although water performance showed improvement ENVIRONMENTAL PERFORMANCE PEOPLE AND SOCIETY Environmental performance • Relative particulate emissions performance • Tragically, one employee and three contractor kg/MWh l/kWh deteriorated significantly to 0.70kg/MWh sent out sent out fatalities were recorded (2022: four employees 0.70 1.50 sent out (2022: 0.34kg/MWhSO). Kendal and two contractors) 0.60 1.45 accounted for 40% of emissions, due to 1.40 0.50 • Group lost-time injury rate worsened slightly challenges with dust handling and SO3 plant 0.40 1.35 to 0.26 (2022: 0.24) • CO2 emissions declined by 9.5% YOY due 0.30 1.30 to EAF decline, below 200Mt for the first 1.25 • Headcount continued to decline to 39 601 1.20 time since 2004, peaking at ~233Mt in 2014 0.00 2018 2019 2020 2021 2022 2023 (2022: 40 421), due to natural attrition • The work of the National Environmental Relative particulate emissions Water consumption • Recruited 1 885 external employees, Consultative and Advisory Forum to review particularly core and critical skills in Safety performance MES decisions and make recommendations Number Index Generation, and appointed 523 YES learners 14 0.40 continues, with extension to August 2024 • Racial and gender equity improved, with racial 12 • Water consumption at power stations 10 0.30 equity at professional/middle management level 8 improved to 1.39l/kWhSO 0.20 at 83.59% (2022: 81.68%) 6 (2022: 1.45l/kWhSO) 4 0.10 • Completed 102 590 electrification connections 2 • With 105 incidents, environmental legal 0 0.00 (2022: 97 947) contraventions far exceeded internal 2018 2019 2020 2021 2022 2023 • CSI spend of R63 million benefitted 438 094 tolerance levels (2022: 65), with 58 related Fatalities (employees & contractors) LTIR beneficiaries (2022: R75.1 million) to water and 44 to air quality regulations OPERATING PERFORMANCE 5 Eskom has once again received a qualified opinion relating to disclosure of PFMA information, due to completeness and accuracy of records CHANGES TO PFMA DISCLOSURE REQUIREMENTS Irregular expenditure, Fruitless and wasteful National Treasury issued Instruction Note 4 of 2022/23 in R million FY2022 expenditure, R million FY2022 January 2023, requiring certain PFMA information Opening balance 59 177 Opening balance 4 968 previously disclosed in the annual financial statements to Prior period restatements 17 321 Prior period restatement 1 691 be disclosed in the integrated report instead Incurred 10 402 Incurred 3 Condoned (527) Closing balance 6 662 Annual financial statements (note 51) Only discloses amounts incurred in the Closing balance 86 373 current and comparative years FY2023 Opening balance 6 662 FY2023 Integrated report Opening balance Incurred 105 Discloses detailed information and notes for 86 373 the current and comparative years Incurred Recovered (2) 5 030 New incidents 1 Closing balance 6 765 2 565 AUDIT OPINION Historic incidents 2 2 465 Material losses through criminal • Qualified audit opinion received, based on completeness and Condoned, removed or conduct, R million FY2023 accuracy of PFMA information disclosed – similar to prior (252) recovered Theft of conductors, cabling and year qualification as issues not adequately addressed network-related equipment, malicious 344 Closing balance 91 151 • Working to enhance systems, controls, resources, policies damage to property and attempted theft and procedures as well as reporting structures to address 1. 80% is comprised of an isolated incident relating to the non- Estimated non-technical losses 5 607 application of the requirements of the National Industrial this significant focus area. Enhancements are not yet effective Participation Programme (NIPP) Fraud and corruption 81 2. Relates to existing multi-year contracts that will continue to as there are still areas that require significant improvement attract irregular expenditure until condoned or expired Total 6 032 FINANCIAL PERFORMANCE 6 Financial indicators declined due to a challenging operating environment, plagued by generation capacity shortages KEY FINANCIAL INDICATORS 2023 2022 Profitability Gearing R billion % Debt/equity Gross debt/EBITDA Revenue, R million 259 543 ▲ 247 594 60 30 4.0 20 25 EBITDA, R million 38 045 ▼ 52 954 40 20 3.0 15 20 15 2.0 10 EBITDA margin, % 14.66 ▼ 21.39 0 10 1.0 5 -20 5 Operating profit (EBIT), R million 5 560 ▼ 20 888 -40 0 0.0 0 2018 2019 2020 2021 2022 2023 2018 2019 2020 2021 2022 2023 Net loss after tax, R million (23 939) ▼ (11 930) EBITDA, R billion EBITDA margin, % Gross debt/EBITDA ratio Debt/equity ratio Pre-tax nominal return on assets, % 0.83 ▼ 3.12 Net loss before tax, R billion • EBITDA and operating cash flows negatively Cash interest cover, ratio 1.29 ▼ 1.69 Solvency affected by primary energy cost pressures Debt service cover, ratio 0.58 ▼ 0.76 R billion Ratio due to poor plant performance 60 2.0 Gross debt/EBITDA, ratio 12.64 ▼ 8.54 50 1.5 • Favourable revenue growth due to higher 40 tariffs, offset by a decline in sales volumes Debt/equity (including long-term 30 1.0 provisions), ratio 1.87 ▼ 1.81 20 • Cash flows remain inadequate to meet debt 0.5 10 servicing requirements Gearing, % 65 ▼ 64 0 0.0 2018 2019 2020 2021 2022 2023 Free funds from operations (FFO) • Gross debt/EBITDA worsened due to the as % of gross debt 9.12 ▼ 14.11 overall decline in profitability, despite Cash from operations, R billion Debt service cover ratio Legend: ▲ Performance improved ▼ Performance declined Cash interest cover ratio Government support received FINANCIAL PERFORMANCE 7 The net loss position has worsened, despite growth in revenue – profitability continues to be negatively affected by escalating primary energy and finance costs GROUP INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH 2023 R million 2023 2022 % Revenue 259 543 247 594 5▲ • Revenue: 9.61% tariff increase, offset by 5% decline in sales Other income 2 742 1 494 • Primary energy: higher OCGT spend to alleviate Eskom and Primary energy (154 942) (132 933) 17▲ IPP supply constraints, and higher fuel oil use due to more Net employee benefit expenses (32 321) (32 985) 2▲ frequent plant breakdowns; exacerbated by fuel price Net impairment loss and write-downs (2 182) (1 436) pressures and combustion support at coal-fired stations Other expenses (34 795) (28 780) 21▲ • Employee benefit cost: costs controlled through headcount EBITDA (before net fair value loss) 38 045 52 954 28▼ reduction; 7% cost-of-living adjustment for all employees, Depreciation and amortisation expenses (32 485) (32 066) 1▲ except top management, to support operational stability Operating profit (EBIT) 5 560 20 888 73▼ • Other expenses: R3 billion increase in repairs and maintenance, as well as higher plant operating costs due to Net fair value and foreign exchange loss (285) (3 126) 91▼ poor plant performance Net finance cost (37 015) (33 063) 12▲ • Net finance cost: exchange rate and interest rate pressures Share of profit of equity-accounted investees 93 52 due to global macro-economic factors, coupled with lower Loss before tax (31 647) (15 249) 108▲ finance costs capitalised to projects due to commissioning of Income tax credit 7 708 3 319 new build units Net loss for the year (23 939) (11 930) 101▲ Legend: ▲ Income/gain increased ▼ Income/gain declined ▼ Expense/loss declined ▲ Expense/loss increased FINANCIAL PERFORMANCE 8 A few key items were responsible for the worsening loss position MOVEMENT IN NET LOSS FOR THE YEAR ENDED 31 MARCH 2023 R billion Generation supply constraints, arising from both poor Eskom plant performance and delays in commissioning new IPP capacity, had the most 12 significant impact on financial performance (15) This impact was twofold: 1 Increasing reliance on expensive OCGTs (12) to supplement supply 2 Negatively affecting sales volumes through (3) loadshedding and load curtailment (3) (4) 1 (24) Net loss after Revenue Primary energy Primary energy Repairs and Net finance cost Other Net loss after tax (2022) - OCGTs - fuel oil maintenance tax (2023) Improvement Worsening Total FINANCIAL PERFORMANCE 9 Sales volumes declined by an annual average of 2.5% over the last five years REVENUE Revenue and sales trend R million 2023 2022 % R billion TWh 300 215 Local 255 349 240 683 6▲ 280 210 International 10 699 11 450 7▼ 260 205 Gross electricity 266 048 252 133 6▲ 240 200 revenue 220 Net revenue not 195 (8 211) (7 672) 7▲ recognised (IFRS 15) 200 190 Net electricity 180 257 837 244 461 5▲ 185 revenue 0 180 Other revenue 1 706 3 133 46▼ 2018 2019 2020 2021 2022 2023 2024 Projection Total revenue 259 543 247 594 5▲ Sales, TWh Electricity revenue, R billion SALES VOLUMES • Average selling price increased (11%▲) to 141.38c/kWh (2022: 127.32c/kWh) GWh 2023 2022 % • 9.9TWh (5%▼) decline in sales volumes due to Eskom and IPP generation supply Local 176 964 184 983 4▼ constraints, leading to loadshedding and load curtailment International 11 437 13 298 14▼ • Decline in sales seen across every sector, with the rail (22%▼), international (14%▼), Total sales 188 401 198 281 5▼ residential (13%▼) and agricultural (11%▼) customers most affected • Industrial (1%▼) and mining (1%▼) sectors not as badly affected due to favourable Legend: ▲ Revenue/sales increased ▲ Non-recognition/capitalisation increased ▼ Revenue/sales declined ▼ Non-recognition/capitalisation declined commodity prices, leading to improved profit margins and higher production FINANCIAL PERFORMANCE 10 Primary energy costs increased by 17% due to reliance on more expensive Eskom and IPP OCGTs to alleviate supply constraints COST PRODUCTION UNIT COST • Total energy produced decreased by 12.2TWh BASE-LOAD COAL AND R84 212 million 178 486GWh R472/MWh 11%▲ (2022: R81 089 million) (2022: 191 507GWh) (2022: R423/MWh) (5%▼) due to supply constraints OTHER 1 • Coal plant impacted by frequent breakdowns, R1 034 million 9 803GWh R106/MWh NUCLEAR (2022: R1 228 million) (2022: 12 355GWh) (2022: R99/MWh ) 6%▲ requiring higher use of diesel and fuel oil for unit start-up procedures and combustion support R21 460 million 3 018GWh R7 077/MWh • Average coal purchase price increased by 9.2%, ESKOM OCGTs 2 49%▲ DIESEL (2022: R10 097 million) (2022: 1 826GWh) (2022: R4 743/MWh ) linked to mine input costs, which were affected R8 287 million 1 098GWh R7 278/MWh by higher fuel costs and weakening of the Rand IPP OCGTs 3 (2022: R4 649 million) (2022: 899GWh) (2022: R4 574/MWh ) 59%▲ • Nuclear output affected by long-term outages and overall production cost increased due to nuclear R33 479 million 16 859GWh R1 986/MWh RENEWABLE IPPs (2022: R30 554 million) (2022: 15 073GWh) (2022: R2 027/MWh) 2%▼ fuel cost escalations and other inflationary pressures R6 471 million 8 654GWh R748/MWh • Diesel production sources account for 19% of IMPORTS (2022: R5 316 million) (2022: 8 500GWh) (2022: R625/MWh) 20%▲ total cost but only 2% of total production; use of diesel is necessary but unsustainable TOTAL R154 942 million 217 918GWh R711/MWh 23%▲ • Average diesel price increased from around R18/l (2022: R132 933 million) (2022: 230 161GWh) (2022: R578/MWh) in April 2022 to R23/l by March 2023 Legend: ▼ Unit cost declined ▲ Unit cost increased 1. Includes Eskom coal-fired, pumped storage, hydro and wind production. From 1 April 2022, pre-commissioning costs are no longer capitalised and instead recognised in primary energy cost. The unit cost includes pre-commissioning production of 813GWh (2022: 1 369GWh). 2. OCGT unit cost is calculated on fuel and start-up cost, and excludes storage and demurrage charges. Storage and demurrage of R104 million (2022: R108 million) is included in the total cost shown. Diesel costs are disclosed as gross of diesel levy refunds as a result of the inability to recover these amounts from SARS. 3. The IPP OCGT unit cost is calculated on fuel cost (variable cost) only, and excludes maintenance and capacity charges. Maintenance and capacity charges of R294 million (2022: R535 million) are included in the total cost shown FINANCIAL PERFORMANCE 11 Cash and cash equivalents declined by R8.4 billion – cash from operations remains insufficient to meet debt servicing and some capital investment requirements CASH FLOWS FOR THE YEAR ENDED 31 MARCH 2023 R billion 260 (106) Primary energy, controllable (49) Primary energy, non-controllable1 Debt servicing of R72 billion comprising: (32) Employee benefits Capital repayments of R39 billion Debt service gap of (2) Working capital Interest payments of R33 billion ±R30 billion (28) Repairs, maintenance without support and other (218) 42 (33) 8 (29) (21) 30 (39) (30) 22 Government Revenue Operating Operating Interest repaid Balance before Capital Balance Debt raised Debt repaid Debt service gap Government support of cashflows surplus investing expenditure before funding support R22 billion required and other to alleviate cash flow 1. Non-controllable primary energy includes renewable IPP costs and environmental levies pressure 2. Debt raised for the year is reported net of commercial paper in the statement of cash flows FINANCIAL PERFORMANCE 12 Debt securities and derivatives were affected by the weakening of the Rand – gearing ratios have declined due to higher loss GROUP STATEMENT OF FINANCIAL POSITION AT 31 MARCH 2023 R million 2023 2022 % • Liquidity: cash remains constrained due to debt Property, plant and equipment and intangible assets 672 768 671 082 <1▲ servicing and working capital requirements; Working capital – current inventory and receivables 51 819 49 036 6▲ Government support assisted with managing liquidity Liquid assets – cash and cash equivalents and • Derivatives: derivatives used in hedging activities investments 23 145 33 203 30▼ favourably impacted by fair value movements, linked to Derivatives held for risk management 26 992 8 509 217▲ the weakening Rand Other assets 1 53 163 41 498 28▲ • Equity: share capital of R21.9 billion issued relating to Total assets 827 887 803 328 3▲ Government support, reduced by the loss • Debt: foreign-denominated borrowings grew due to Equity 2 236 087 237 057 <1▼ the weakening the Rand; repayments exceeded debt Debt securities and borrowings 423 929 396 294 7▲ raised for the year Working capital – current payables 58 064 54 534 6▲ Current ratio Debt/equity ratio Derivatives held for risk management 2 029 9 978 80▼ 0.89 ▼ (2022: 0.90) 1.87 ▲ (2022: 1.81) Other liabilities 3 107 778 105 465 2▲ Total equity and liabilities 827 887 803 328 USD/ZAR exchange rate EUR/ZAR exchange rate 3▲ R17.72 ▲(2022: R14.59) R19.30 ▲(2022: R16.19) Legend: ▲ Asset increased ▼ Asset declined ▼ Liability declined ▲ Liability increased 1. Mainly comprises future fuel supplies, deferred tax and non-current inventory and receivables 2. Includes Government support of R21.9 billion received for the year (2022: R31.7 billion) 3. Mainly comprises non-current decommissioning provisions, employee benefit obligations, contract liabilities and lease liabilities FINANCIAL PERFORMANCE 13 Net finance costs increased by 12% due to higher average cost of borrowing and growth in the debt balance, as well as lower capitalisation of interest NET FINANCE COST FOR THE YEAR ENDED 31 MARCH 2023 R million 2023 2022 % Average cost of debt Average investment return 10.48% ▲ (2022: 10.28%) 6.08% ▲ (2022: 4.45%) Gross finance cost 47 839 43 611 10▲ Finance income (3 365) (2 364) 42▲ • Net finance costs remain the second largest cost after Borrowing costs capitalised to assets (7 459) (8 184) 9▼ primary energy. A higher average cost of borrowings was Total 37 015 33 063 12▲ recorded due to global inflation and interest rate pressures Legend: ▲ Income/capitalisation increased ▼ Income/capitalisation declined • Foreign-denominated borrowings were negatively impacted ▼ Expense declined ▲ Expense increased by weakening of the Rand; derivatives used to hedge exchange NET DEBT AT 31 MARCH 2023 rate volatility impacted favourably R million 2023 2022 % Debt securities and borrowings 423 929 396 294 7▲ Debt securities and borrowings, R billion 2023 Lease liabilities 8 126 8 603 6▼ Opening balance 396 Net market making liabilities – 2 Debt raised (net of commercial paper) 30 Cash and cash equivalents 1 (7 516) (15 885) 53▼ Debt repaid (39) Payments made in advance 1 (692) (778) 11▼ Other movements 2 37 Net derivatives held for risk management 1 (25 014) 903 2 870▲ Closing balance 424 Total 398 833 389 139 2▲ Legend: ▲ Asset increased ▼ Asset declined ▼ Liability declined ▲ Liability increased 1. In this table, assets are reflected as negative amounts 2. Mainly fair value movements due to exchange rate volatility as well as accruals, interest and discounting FINANCIAL PERFORMANCE 14 Government’s debt relief solution will significantly aid in addressing Eskom’s debt and interest payments • The Eskom Debt Relief Act, 2023 was promulgated in July 2023 to provide relief of R254 billion towards Eskom's debt servicing costs GOVERNMENT SUPPORT Eskom Debt Relief Act, 2023 • The conditions attached to the Act provide strict restrictions: R billion Cumulative R184 billion support to be received 150 Takeover of R70 billion in debt commitments in 2026 ➢ Capital expenditure limited to transmission and distribution. Generation only allowed to address MES, FGD, maintenance Special Appropriation Act, 2019 and completion of existing projects. Greenfield generation 100 Cumulative R158.6 billion equity support received projects only allowed with approval of the Minister of Finance 70.0 ➢ New borrowings prohibited during the debt relief period, only existing drawdowns, unless approved by the Minister of Finance 50 78.0 66.0 • Our gross debt securities and borrowings balance is expected to 49.0 56.0 40.0 31.7 reduce by around 40% over the next five years, to