Integrated results for the year ended 31 March 2015 Cover slide (same as IR cover) 11 August 2015 This presentation is available at www.eskom.co.za/IR2015 Contents Overview of Financial Operating Conclusion the year review performance Throughout this presentation, year end refers to 31 March 2015, while period or year refers to the year ended 31 March 2015 and comparative period or prior year to the year ended 31 March 2014 A list of abbreviations and glossary of terms are available on pages 116-118 of the integrated report 1 Sustainability dimensions supporting our strategy Our rapidly changing environment requires a response that will stabilise the business and ensure sustainability To execute our strategy and deliver on our mandate, we focus on eight sustainability dimensions: • Core areas revolve around the tension between financial sustainability, operational sustainability, revenue and customer sustainability and sustainable asset creation • Beyond that, we also need to ensure a positive wider impact on the environment, the contribution to a sustainable skills base, as well as to strategic transformation and social sustainability objectives Safety and security are the foundation for all our operations and are key to our performance and sustainability Refer to pages 5-6 in the IR for more information 2 Overview of the year Sustainable power for a better future • Achieved EBITDA of R25.2 billion (EBITDA margin: 17%), despite a 19% increase in primary energy costs • Internal cost savings of R9 billion achieved • Supplied 96% on average of the country’s electricity needs • External funding of R49.5 billion raised, together with R23 billion allocated by shareholder subsequent to year end, will assist in closing the funding gap and easing liquidity pressures • Capital expenditure of R53 billion during 2014/15 • New build programme added 6 237MW generation capacity, 5 816km transmission lines and 29 655MVA substation capacity since 2005 • IPP capacity of 1.8GW is connected and providing power to the grid 4 Financial review Financial recovery on the path to financial sustainability Financial performance Key financial ratios EBITDA of EBITDA margin Interest cover Revenue 6.9% R25.2bn 17% to 0.47 BPP savings Debt/equity Gearing Other opex 2% R9bn to 2.37 to 70% The financial health is under strain, driven by a number of key factors: • Inappropriate return on assets over a sustained period due to above-inflation cost increases, declining sales volumes and lack of cost-reflective electricity price • Escalating municipal and Soweto arrear debt • Deteriorating balance sheet in this investment phase, funded through borrowings Refer to pages 84-85 in the IR for more information 6 Financial sustainability means securing sufficient returns to replace existing capacity and fund future growth Electricity volumes and revenue Operating performance R million GWh R million % 216 561 217 903 216 274 30 358 224 785 27 25 115 25 201 136 869 146 268 126 663 112 999 14 539 17 17 11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-12 Mar-13 Mar-14 Mar-15 Revenue Sales volumes EBITDA EBITDA margin Funding our capital expenditure Solvency R million Ratio % 70% 58 820 60 133 59 803 53 077 67% 49 500 66% 2.37 44 142 65% 31 072 2.03 1.94 61% 1.84 22 342 1.57 Mar-12 Mar-13 Mar-14 Mar-15 Mar-12 Mar-13 Mar-14 Mar-15 After equity injection Capital outflows Debt raised Debt/equity Gearing 7 Income statement for year ended 31 March 2015 Audited Audited year to year to 31 March 31 March % R million 2015 2014 change Revenue 147 691 138 313 7 Other income 4 444 1 441 208 Primary energy (83 425) (69 812) (19) Other operating expenses (including depreciation and (59 564) (58 293) (2) amortisation) Profit before net fair value gain/(loss) and net finance 9 146 11 649 (21) cost * Net fair value gain/(loss) on financial instruments 630 (620) 101 Net fair value gain on embedded derivatives 1 310 2 149 (39) Profit before net finance cost 11 086 13 178 (16) Net finance cost (6 109) (4 058) (51) Share of profit of equity-accounted investees, net of tax 49 43 14 Profit before tax 5 026 9 163 (55) Income tax (1 366) (2 137) 36 Net profit for the year 3 660 7 026 (48) (Loss)/profit for the period from discontinued operations (42) 63 (167) Profit for the year 3 618 7 089 (49) * EBITDA 25 201 25 115 — 1. Figures refer to the group’s results, which have been audited by the independent auditors, SizweNtsalubaGobodo Inc. Refer to page 88 in the IR for more information 8 We need to protect our revenue stream and achieve growth to ensure that we earn an appropriate return • Declining electricity volumes (0.7% below prior Electricity volumes by customer type1 year) were largely caused by: Mining Commercial and agricultural 13.8%, [14.1%] 7.0%, [6.8%] o Impact of industrial action in platinum sector Residential Rail 1.4%, [1.4%] 5.4%, [5.1%] o Contraction in the gold mining sector International 5.5%, [5.7%] o Closure of the Bayside aluminium smelter o Depressed commodity prices Municipalities Industrial 42.1%, [41.9%] 24.7%, [25.1%] • Load shedding led to sales of 548GWh being foregone 1. Percentages reflect the sales proportions for the current period. Percentages in brackets are those for the year to 31 March 2014. Refer to page 96 in the IR for more information 9 Electricity operating expenses analysed • The electricity operating cost per kWh sold is Electricity operating expenses 67.52c/kWh1 compared to the 2013/14 actual of R million Cents/kWh 59.67c/kWh  13% 67.52  10% 59.67  31% 54.15 • Primary energy cost has increased by 19% year- 13 398 on-year, significantly above both inflation and the 41.28 12 972 12 440 8% tariff increase 15 341 12 917 14 001 10 602 11 934 22 187 • Other operating expenses within our control 10 979 9 787 22 384 have remained fairly flat due to cost-savings and 9 098 20 776 8 681 efficiency initiatives under the BPP programme, 17 722 reflecting only a 2% increase year-on-year 83 425 69 812 60 748 • Headcount reduced by 1% to 46 490 group 46 314 employees (2013/14: 46 919) Mar-12 Mar-13 Mar-14 Mar-15 • Impairment on arrear debt amounted to 2.17% of revenue (2013/14: 1.10%) Other operating expenses, including impairments Repairs and maintenance Depreciation and amortisation expense (historic) Employee benefit expense Primary energy 1. Cents/kWh figures are calculated based on total electricity sales Refer to pages 96-99 in the IR for more information numbers for the period. 10 Primary energy costs analysed Primary energy cost increased by 19% year-on-year, significantly above inflation and the 8% tariff increase Primary energy cost breakdown Year-on-year analysis R million Other, 0% Environmental levy 69 812 10% IPPs, 11% 2 421 6 779 Imports, 4% Coal, 53% (1 015) OCGT fuel, 12% 6 187 Nuclear fuel, 1% Medupi coal supply agreement, 9% (759) 83 425 Refer to page 97 in the IR for more information 11 Financial position Growth in property, plant and equipment (PPE) funded by debt raised Audited Audited year to year to 31 March % of 31 March % of % R million 2015 total 2014 total change PPE and intangible assets 458 881 82 404 389 80 13 Working capital 35 488 6 31 811 6 12 Liquid assets 17 359 3 30 583 6 (43) Other assets 51 156 9 38 210 8 34 Total assets 562 884 100 504 993 100 11 Equity 122 247 22 119 784 24 2 Debt securities and borrowings 297 434 53 254 820 50 17 Working capital 44 063 8 44 821 9 (2) Other liabilities 99 140 17 85 568 17 16 Total equity and liabilities 562 884 100 504 993 100 11 Refer to page 87 in the IR for more information 12 Arrear debt and debtors ageing Arrear municipal debt (excluding interest) • The increase in arrear municipal debt R billion 4.95 5.0 to R5 billion and arrear Soweto debt to 4.00 R4 billion is of serious concern 4.0 3.0 2.59 • Approximately 55% of the amount 2.40 outstanding is within the due date 2.0 1.20 1.0 - Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Total arrear debt Outstanding > 90 days Impairment provision Within < 60 days > 60 days Electricity debtors age analysis, R million Total due date overdue overdue Large power users, excluding municipalities 6 146 5 859 226 61 Large power users, municipalities 9 848 4 896 854 4 098 Small power users 2 228 1 324 163 741 Soweto 4 182 160 174 3 848 Other customers 848 596 230 22 Total at 31 March 2015, gross amount 23 252 12 835 1 647 8 770 Total at 31 March 2015, net after IAS 18 adjustment 22 657 12 719 1 349 8 589 % of gross amount 100% 55% 7% 38% Refer to pages 60-62 in the IR for more information 13 Despite liquidity constraints, we maintained operations and capital commitments Cash flow allocation R million 27 311 (14 429) (17 064) 19 676 15 494 (54 423) 49 500 (1 708) 8 863 (38 929) Mar-14 Cash generated Debt repaid Net interest Balance before Capital Balance before Funding raised Other funding Mar-15 cash and cash from operating payments investing expenditure funding activities cash and cash equivalents activities (incl future fuel) equivalents Refer to pages 90 & 99 in the IR for more information 14 Funding through borrowing programme used to fund investment phase Actual Target Borrowing programme year to year to 31 March 31 March R billion 2015 2016 Domestic bonds 12.4 8.0 International bonds & loans 21.7 16.5 Commercial paper 0.2 10.0 DFI financing 10.5 7.2 ECA financing 1.7 10.6 DBSA 3.0 3.0 Total funding 49.5 55.3 Credit ratings at 31 March 2015 b- to ccc+ b3 B Sub-investment grade Refer to page 100 in the IR for more information 15 Cost-reflectivity and normalised rate of return • Electricity Pricing Policy requires a cost-reflective price of electricity to ensure the recovery of efficient costs, thereby providing a fair return and supporting financial sustainability • NERSA calculates rate of return on assets based on the depreciated replacement cost, not the historical cost • Pre-tax real rate of return for the year is 0.57% against a pre-tax real WACC of 7.65% Return on assets Cost-reflective prices % Cents/kWh 16 120 14 12 100 10 8 80 6 4 60 2 0 40 -2 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 -4 20 Normalised ROA - historic valuation method 0 Normalised ROA - replacement valuation method Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Nominal WACC (pre-tax) Historic valuation method Replacement valuation method Real WACC (pre-tax) Actual average annual price Refer to pages 94-95 in the IR for more information 16 Operating performance Generation fleet performance volatile over the period • The average age of the base load fleet is 34 years Unplanned maintenance (UCLF) % 15.2 • Increased unplanned maintenance, from breakdowns of ageing plant, limiting the opportunity 12.1 12.6 for planned maintenance and impacting plant availability 8.0 • Plant availability (EAF) remains stable at around 73%, requiring gradual improvement • Partial load losses reduced, easing pressure on Mar-12 Mar-13 Mar-14 Mar-15 the constrained power system • Plant operated at high levels, utilisation of 83.4% Plant availability (EAF) is approximately 20% above the international norm % 81.99 77.65 75.13 73.73 • Improved plant performance in the last quarter, with reduction in unplanned automatic grid separations (UAGS trips) and boiler tube failures • More maintenance of plant during previous winter, with minimal load shedding in line with Generation Sustainability Strategy Mar-12 Mar-13 Mar-14 Mar-15 Refer to pages 49-52 in the IR for more information 18 Securing Eskom’s resource requirements Coal stock days • A total of 119.2Mt of coal burnt during the year 51 • A short-term solution is in place after the collapse 46 39 44 of the main coal silo at Majuba Power Station; an interim solution is due soon • Migration of coal deliveries from road to rail continues to increase • 313 078Mℓ net raw water consumed Mar-12 Mar-13 Mar-14 Mar-15 • Mokolo Crocodile Water Augmentation Project Phase 1 is delivering water to Medupi Road-to-rail migration Mt 12.59 11.60 10.10 8.50 Mar-12 Mar-13 Mar-14 Mar-15 Refer to pages 46-49 in the IR for more information 19 Network technical performance improves • Excellent Transmission performance with System System minutes lost < 1 minute minutes lost at 2.85 4.73 • Energy losses show small improvement from 3.52 3.05 8.9% to 8.8% 2.85 • System interruption duration (SAIDI) improves from 37.0 to 36.2 hours per annum • System interruption frequency (SAIFI) Mar-12 Mar-13 Mar-14 Mar-15 improves from 20.2 interruption to 19.7 • More planned maintenance undertaken, which Interruption duration (SAIDI) improves network reliability 45.8 41.9 • Network risks remain, with ageing assets and 37.0 36.2 vulnerabilities due to network unfirmness Mar-12 Mar-13 Mar-14 Mar-15 Refer to pages 53-54 in the IR for more information 20 Supplementary supply helps balance generation volatility Energy purchases from IPPs • 1 795MW of renewable energy independent power GWh 6 022 producers (IPPs) (1 185MW solar and 600MW wind) connected to the grid at an average load factor of 4 107 ±31% 3 516 3 671 • A total of 5 701MW contracted with IPPs, of which 3 887MW under DoE’s RE-IPP programme • Dispatchable load of 1 356MW is available under the Mar-12 Mar-13 Mar-14 Mar-15 demand response programme, assisting in balancing supply and demand Summer and winter load profiles • Balancing supply and demand remained a MW Typical Summer Day Typical Winter Day challenge − load shedding necessitated during 36 000 June 2014, and more frequently from 34 000 November 2014 onwards 32 000 30 000 28 000 26 000 24 000 22 000 20 000 00:00 03:00 06:00 09:00 12:00 15:00 18:00 21:00 Refer to pages 54-57 in the IR for more information 21 We remain focused on bringing new capacity online Megawatts MW of capacity 120 100 535 261 6 237 5 221 Transmission km lines 319 811 787 631 5 816 3 268 Substations MVAs 2 090 3 790 3 580 29 655 2 525 17 670 Inception to Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Total to date Refer to page 64 in the IR for more information 22 Progress on the new build programme • 100MW Sere Wind Farm was put into commercial operation on 31 March 2015, feeding power into the grid since October 2014 • Medupi Unit 6 synchronised to the grid on 2 March 2015, with commercial operation expected during the third quarter of 2015 • Construction activities on the remainder of units at Medupi are progressing well • Synchronisation of Medupi Unit 5 is expected during the first half of 2017 • Kusile successfully replaced the C&I contractor, mitigating one of the major project risks • Good progress on Kusile Unit 1, due for first synchronisation in the first half of 2017, and construction on the remainder of units • Progress at Ingula was limited by the Section 54 work stoppage; work has resumed and is progressing satisfactorily • First synchronisation of Ingula Unit 3 is targeted for the second half of 2016 • Transmission network and substation capacity strengthened to support IPPs and new generation capacity Refer to pages 64-69 in the IR for more information 23 Environmental compliance is critical to our sustainability • Relative particulate emissions performance Relative particulate emissions kg/MWhSO worsened due to higher plant utilisation to 0.35 0.35 0.37 support security of supply 0.31 • Specific water consumption deteriorated slightly since prior year • Decrease in number of environmental legal contraventions Mar-12 Mar-13 Mar-14 Mar-15 • Minimum Emission Standards decision calls for substantial investment in emissions retrofit Specific water consumption programme by 2025, which is dependent on l/kWhSO 1.42 funding and water availability 1.34 1.35 1.38 • Limits on ashing storage space may impact security of supply in future; being addressed in technical plans • System capacity constraints impacting implementation of initiatives to improve environmental performance Mar-12 Mar-13 Mar-14 Mar-15 Refer to pages 70-74 in the IR for more information 24 Safety and security are central to our overall performance LTIR performance • Lost-time injury rate (LTIR) performance 0.41 0.40 worsened slightly but remained better than target 0.33 0.31 • The number of fatalities – employee, contractor and public – have reduced against the prior year, but remain much too high • Public fatalities, mainly from electrical contact and motor vehicle accidents, remain a focus area Mar-12 Mar-13 Mar-14 Mar-15 • Implementation of strategy in response to the 2014 Construction Regulations, which imposed Fatalities additional safety compliance responsibilities, is in 13 progress 5 3 3 • ISO 9001:2008 certification maintained and 18 11 16 7 OHSAS 18001:2007 achieved at all Group Capital and majority of Generation power stations 34 29 33 28 Mar-12 Mar-13 Mar-14 Mar-15 Public Contractors Employees Refer to pages 42-44 in the IR for more information 25 Internal transformation and skills development • Employee numbers reduced through limited Headcount (including FTCs) replacement of attrition Number 47 295 46 919 46 490 46 266 • Conclusion of a two-year wage agreement with organised labour provides stability in the bargaining unit • Solid performance on disability equity and racial equity • Gender equity at senior, middle management and Mar-12 Mar-13 Mar-14 Mar-15 professional levels has made notable progress over Number of learners the past five years • Our learner pipeline has been reviewed and numbers reduced to a sustainable level 2 598 2 847 2 383 1 752 • Through the new build programme and skills 844 835 815 development initiatives, we are contributing to 826 building skills in South Africa 2 273 2 144 1 962 1 315 Mar-12 Mar-13 Mar-14 Mar-15 Engineering learners Technician learners Artisan learners Refer to pages 75-76 & 80 in the IR for more information 26 Eskom’s socio-economic contribution B-BBEE compliant spend R billion 93.9 • Good performance against overall B-BBEE 86.3 88.9 compliant spend, as well as spend on certain 73.2 categories of suppliers (black-owned and black women-owned suppliers) • Eskom Development Foundation initiatives this year benefited 323 882 beneficiaries, and include completion of five FET colleges and seven rural Mar-12 Mar-13 Mar-14 Mar-15 development projects Number of electrification connections • We electrified a total of 159 853 households Number during the year, and approximately 4.7 million 201 788 since inception in 1991 154 250 159 853 139 881 Mar-12 Mar-13 Mar-14 Mar-15 Refer to pages 77-79 in the IR for more information 27 Conclusion Conclusion • Creating stability is critical to re-energise and grow the company • We will continue to supply the country’s electricity and maintain our plant with minimal or no load shedding • Our medium- to long-term focus involves improving the performance of our plant: o Increasing efficiencies from coal-fired plant o Bringing online units from Medupi, Kusile and Ingula from 2016/17 to alleviate the constrained system and accommodate demand growth • Financial recovery on the path to financial sustainability through: o Driving internal efficiency and cost saving through BPP o Migrating to a cost-reflective electricity price o Successful execution of the R237 billion borrowing plan 29 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 Group Customer Services, Distribution and Transmission divisions and operational performance in the Generation and Primary Energy divisions consistent with historical levels, and incremental capacity additions through the Group Capital division at investment levels and rates of return consistent with prior experience, as well as achievements of planned productivity improvements throughout the business activities. Actual results could differ materially from those projected in any forward-looking statements due to risks, uncertainties and other factors. Eskom neither intends to nor assumes any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In preparation of this document certain publicly available data was 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. 30 Insert image here Insert image here Thank you This presentation is available at www.eskom.co.za/IR2015