Interim integrated results for the six months ended 30 September 2014 This presentation is available at 25 November 2014 www.eskom.co.za/IR2014/interim 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. 2 Agenda and presenters Overview of the period Tshediso Matona Sustainable asset creation Tshediso Matona Operational sustainability Tshediso Matona Financial sustainability Tsholofelo Molefe Outlook and system update Tshediso Matona Throughout this presentation, comparative period refers to the six months ended 30 September 2013, while period refers to the six months ended 30 September 2014 and year end to 31 March 2014 3 Overview of the period Tshediso Matona Exco structure The following changes to the composition of Exco were announced, with effect from 1 November 2014, to bring stability to the organisation 5 Eskom’s seven sustainability dimensions The rapidly changing environment requires a response that will ensure sustainability Eskom’s mandate is comprehensive, focused on seven dimensions of sustainability • Core areas revolve around the tension of sustainable asset creation, financial sustainability and operational sustainability • Beyond that, Eskom also needs to ensure a positive wider impact on the environment, contribution to strategic transformation and social sustainability objectives as well as the contribution to a sustainable skills base Safety will continue to be the foundation for all our operations and is key to Eskom’s performance and sustainability Refer to page 9-10 in the interim IR for more information 6 Overview of the period Refer to page 17 to 19 in the interim IR for performance against key KPIs 7 Overview of the period Current status Future focus Highlights • Safety performance trended • Safety will remain a priority until • All 46 wind turbines at positively against the comparative zero harm is achieved Sere wind farm completed, Safety period, although contractor and • Significant efforts to manage with 20 transformers public fatalities remain a concern contractors more effectively and synchronised to the grid to Eskom educate public on electrical safety • Full commercial operation of Sere on track • Both Medupi and Kusile have • Recovery strategies and for March 2015 Sustainable achieved a number of significant productivity improvement plans put • Employee LTIR target milestones since March 2014 in place at Medupi and Kusile achieved asset creation • Work stoppage lifted at Ingula • Commercial strategy was defined to • On track for first • Sere on track for commercial increase contractors’ resources synchronisation of operation by March 2015 and improve performance Medupi Unit 6 • Cabinet approved financial • Financial health deteriorated due • Eskom continues to work closely support package, with at to inappropriate return on assets with Government least R20 billion of equity Financial owing to substantial cost increases • Focus remains on BPP savings sustainability • R7.8 billion additional (OCGTs, IPPS and maintenance • Eskom is preparing a revenue revenue approved by cost), lower sales volumes and lack review application for first year of NERSA (MYPD 2 RCA) of cost-reflective tariffs MYPD 3 • More than 1 000MW from • Eskom is managing the • Eskom strives to meet electricity RE-IPPs available to the grid constrained power system to demand, but has to do so within • Network performance Operational meet electricity demand while financial, operational and better than target sustainability protecting system integrity, environmental constraints • Winter maintenance especially after Majuba incident • Financial sustainability paramount plan successfully executed Refer to page 17 to 19 in the interim IR for performance against key KPIs 8 Sustainable asset creation Tshediso Matona Capacity expansion programme overview To date, the construction work that has been completed has added ~ 6 137MW of capacity, ~ 5 659km of transmission network and ~ 27 655 of MVAs Megawatts MW of capacity 1 770 535 261 120 17 384 453 315 0 1 351.0 1 043 290 6 137 0 Transmission Km lines 787 811 162 631.3 9 756 600 443 480 418 430 5 659 659 237 Substations MVAs 3 790 90 3 580 0 5 940 2 525 42 470 1 355 1 375 1 630 5 280 1 090 1 000 27 655 2004/5 2005/6 2006/7 2007/8 2008/9 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 Total Target 1 1. Refers to the target of the total capacity expansion programme Refer to page 31 in the interim IR for more information 10 Progress on Medupi Power Station • Processes aimed at schedule recovery in order to meet milestones are showing good results • Issues around welding on Unit 6 boiler resolved and post-weld heat treatment completed • Number of significant milestones achieved since 31 March 2014 o Boiler chemical clean, draught group test run and site integration tests o First coal delivered to the stockyard, commissioning of coal stacker and coal mills progressing well o First oil fire • On track for first synchronisation, although risks remain which may cause delays. Full commercial operation expected six months thereafter • Industrial action during July 2014 delayed progress • Additional shifts required to recover schedule Refer to page 32-33 in the interim IR for more information 11 Progress on Kusile Power Station • Good progress after resolving boiler quality issues and business rescue of FGD contractor • Number of significant milestones achieved since year end o HP rotor and generation step-up transformer were successfully set, and Unit 1 was put on electrical barring o Steam turbine lube oil system flush • On track for first synchronisation • Industrial action during July 2014 delayed progress • Productivity improvement plans implemented since to recover schedule after delays experienced after resources were redeployed to Medupi • Structural bolt failures and overstressed connections delayed air-cooled condensor work • Non-conformances discovered in Unit 1 spiral wall Refer to page 33-34 in the interim IR for more information 12 Progress on Ingula and Sere • Section 54 work stoppage at Ingula was completely lifted during September 2014, thereby resuming work in the inclined-high pressure shafts • Ingula’s two emergency diesel generators, to be used in the event of a black start, have been hot commissioned • All 46 wind turbines at Sere have been installed • Transformers of 20 wind turbine generators have been energised, providing 42MW to the grid • Sere remains on track to be in full commercial operation by March 2015 • Section 54 work stoppage significantly impacted progress at Ingula for almost 12 months • Forecast first synchronisation of Unit 3 has moved out to first half of 2016 Refer to page 34-35 in the interim IR for more information 13 Operational sustainability Tshediso Matona Safety Fatalities • LTIR performance was better than target 13 3 5 • Although still unacceptable high, the number of 11 18 fatalities – employee, contractor and public – 16 2 8 have reduced against the comparative period 1 34 29 33 23 6 • Two business units obtained Blue Flag status 11 Mar-12 Mar-13 Mar-14 Sep-13 Sep-14 for exceptional SHE performance Public Contractors Employees • Safety performance is not yet at the desired LTIR performance level • Number of public fatalities, mainly from 0.41 0.40 0.35 0.35 electrical contact and motor vehicle accidents, 0.31 0.32 remain a concern Mar-12 Mar-13 Mar-14 Sep-13 Sep-14 Actual Annual target Refer to page 29-30 in the interim IR for more information 15 Generation performance Unplanned capability loss factor (UCLF) % • Partial load losses reduced, easing 12.6 13.3 Constrained 12.1 1.0 pressure on the constrained power system UCLF 11.5 1.6 3.4 • Maintenance of generation plant performed 3.5 11.0 12.3 10 during winter in line with the Generation 8.0 8.7 8.1 sustainability strategy • Load shedding necessitated during June Mar-12 Mar-13 Sep-13 Mar-14 Sep-14 • Collapse of main coal silo at Majuba Power Actual Target Station on 1 November, requiring load EAF versus UCLF – outlook shedding to protect the power system 86 13.30 • Increase in outage slips and post-outage 84 14 Energy availability, % 12 UCLF (unplanned maintenance) 82 10.10 10 80 UCLF, % • Balancing trade-offs between performing 78 8 78.45 adequate maintenance while meeting 76 6 4 customer demand, within current 74 76.77 72 2 financial constraints which limit usage of 70 0 costly OCGT plant Mar- Mar- Mar- Mar- Mar- Mar- Sep- Mar- Mar- Mar- Mar- 09 10 11 12 13 14 14 15 16 17 18 Refer to page 48-51 in the interim IR for more information 16 Majuba recovery programme update • The programme is being managed with three distinct solutions, namely immediate, interim and permanent • The immediate solution deals with the short-term actions to be put in place to recover the capacity of the units and to conduct demolition activities while ensuring safety of personnel • Immediate solution will be in place until engineering investigations are concluded • Outcome of engineering investigations will identify the scope of work and subsequent schedule and cost impacts of the interim and permanent solutions • An interim solution will be required, before a long-term permanent solution can be implemented, to alleviate some of the very complex coal logistics currently in place • Recovery activities are progressing to plan with units operating at 70% of full capacity • Supporting activities (including stakeholder interactions, insurance considerations, environmental impacts and commercial activities) are progressing to plan Refer to page 50 in the interim IR for more information 17 Primary Energy OCGT costs1 • Coal stock days above target at 46 days R million 10 561 (target: 42 days), supporting security of supply • Coal delivered to Medupi from July 2014 4 995 • Mokolo Crocodile Water Augmentation 3 333 3 623 Project is delivering water to Medupi 2 004 Mar-08 Mar-13 Mar-14 Sep-13 Sep-14 • Primary energy cost increased due to high usage of OCGTs OCGT production1 • Load losses still being experienced at Arnot, GWh 3 621 Matla and Tutuka due to poor quality coal • Majuba rail operation was affected by 1 905 breakdowns of the tippler offloading system 1 151 1 206 1 164 Mar-08 Mar-13 Mar-14 Sep-13 Sep-14 1. The 2009, 2010, 2011 and 2012 financial years are not shown as OCGT usage during those years was minimal Refer to page 38, 52-53 in the interim IR for more information 18 Integrated Demand Management and IPPs Energy purchased from IPPs • More than 1 000MW renewable energy GWh connected and available to the grid 4 107 3 516 3 671 • 4 280MW contracted with IPPs 2 665 • 760 IDM projects installed: potential demand 1 866 savings of 81MW (energy savings 258GWh) • Dispatchable load of 1 417MW is available under the demand response programme Mar-12 Mar-13 Mar-14 Sep-13 Sep-14 Summer and winter load profiles • Funding constraints have impacted funding MW 36 000 Typical Summer Day Typical Winter Day for IDM projects, significantly affecting 34 000 performance on demand savings and internal 32 000 energy efficiency performance 30 000 28 000 • Challenges connecting future IPPs to the 26 000 grid, dependent on grid strengthening and 24 000 refurbishment 22 000 20 000 • System potentially constrained all day 00:00 03:00 06:00 09:00 12:00 15:00 18:00 21:00 during summer, but mainly over peak in winter Refer to page 54-57 in the interim IR for more information 19 Transmission and Distribution performance System minutes lost < 1 minute • System minutes lost for events < 1 minute performance better than target 4.7 3.8 • No major incidents occurred 3.5 • SAIDI and SAIFI performance was better than 3.1 target 1.6 • More planned maintenance, which improves 0.6 network reliability Mar-12 Mar-13 Mar-14 Sep-13 Sep-14 Actual • Energy losses have significantly improved, Annual target aided by prosecution of cases of electricity theft, SAIFI (number/annum) thus more energy available to the network 22 23.7 22.2 20.2 20.1 20.5 • Energy imports from Cahora Bassa were affected by availability issues on HVDC transmission lines Mar-12 Mar-13 Mar-14 Sep-13 Sep-14 Actual Annual target Refer to page 53-54 in the interim IR for more information 20 Group Customer Services performance Eskom KeyCare index • Numerous interactions with key industrial 107.3 108.7 109.6 customers on system status and progress on 105.9 105.8 102 capacity expansion programme • Good performance on KeyCare and Enhanced MaxiCare measures • Continuous engagement with customers to contract load reduction allowed for effective Mar-12 Mar-13 Sep-13 Mar-14 Sep-14 planning and prevention of load shedding Actual Annual target Enhanced MaxiCare index • Load shedding incidents negatively impacted 97.2 96 customer satisfaction 90.7 93.2 92.3 92.7 • Delay in recovery in demand from key industrial customers to pre-winter levels impacts revenue outlook Mar-12 Mar-13 Sep-13 Mar-14 Sep-14 Actual Annual target Refer to page 57 in the interim IR for more information 21 Environmental performance Relative particulate emissions • Relative particulate emissions has improved kg/MWhSO since year end and is better than target 0.35 0.35 0.35 • A number of delayed water use licences have 0.31 0.31 0.33 been issued, with six more expected soon • Significant decrease in number of environmental contraventions Mar-12 Mar-13 Mar-14 Sep-13 Sep-14 Actual Annual target • Financial and system constraints are impacting Specific water consumption the implementation of initiatives to improve l/kWhSO environmental performance 1.39 1.42 1.40 1.35 • Specific water consumption has 1.34 1.33 deteriorated since 31 March 2014 but current year end projections approximate target • Partial load losses were required in some instances, to comply with atmospheric Mar-12 Mar-13 Mar-14 Sep-13 Sep-14 emission licences Actual Annual target Refer to page 57-60 in the interim IR for more information 22 Financial sustainability Tsholofelo Molefe Financial overview • Eskom’s current financial health is under strain, driven by a number of key factors: o Inappropriate return on assets over a sustained period due to above-inflation cost increases, lower sales volumes and lack of cost-reflective tariffs o Escalating Municipal and Soweto arrear debt o Substantial cost increases largely due to the need to meet customer demand, while at the same time managing Generation’s sustainability o Deteriorating balance sheet due to an ambitious capital expansion programme to increase capacity and strengthen the network, funded through borrowings • In addition, new emissions requirements will also require increased funding • The recent downgrade by Moody’s to sub-investment grade may impact availability and affordability of funding, while any further downgrades may trigger loan covenants • Standard & Poor’s retained Eskom’s investment grade rating, but with Negative Outlook Refer to page 23-25 in the interim IR for more information 24 Financial results for the period to 30 September 2014 Reviewed1 Reviewed Audited Audited period to period to year to year to 30 Sept 30 Sept 31 March 31 March Measure and unit 2014 2013 2014 2013 Key financial statistics Revenue, R million 81 898 77 722 139 506 128 775 (Contraction)/growth in GWh sales volumes, % (1.4) (0.1) 0.6 (3.7) Profit for the period after tax, R million 9 287 12 241 7 089 5 183 Electricity revenue, c/kWh 74.00 68.97 62.82 58.49 Electricity operating costs, c/kWh 62.14 55.29 59.67 54.15 Capital expenditure, R million 27 452 23 440 59 803 60 133 Average days coal stock, days 46 53 44 46 Key financial ratios Gross debt securities issued/borrowings, R million 264 915 236 780 254 820 202 956 Debt/equity ratio 2.08 1.72 2.06 1.84 • Revenue reflects impact of 8% tariff increase, coupled with declining demand for electricity • Primary energy cost increased significantly, particularly due to use of OCGTs and IPP purchases • R200 billion funding plan for remainder of MYPD 3 (1 April 2014 to 31 March 2018) is progressing well, with 32.8% of funding secured • Municipal arrear debt has increased to R4 billion, negatively impacting liquidity 1. Figures have been reviewed, but not audited, by the independent auditors, SizeNtsalubaGobodo Inc. Refer to page 36-39 in the interim IR for more information 25 Income statement for period ended 30 September 2014 Restated1 • Group revenue of R81.9 billion Reviewed Reviewed Audited (2013: R77.7 billion), an increase period to period to year to of 5.4% against the comparative 30 Sep 30 Sep 31 March R million 2014 2013 2014 period, reflecting the contraction Revenue 81 898 77 722 139 506 1.35% in sales volumes Other income 452 183 962 • Revenue growth has been offset by Primary energy cost (38 065) (31 266) (69 812) Operating expenses (including escalating primary energy and (28 544) (28 622) (58 293) operating costs depreciation and amortisation) Operating profit before net fair value gain and net finance cost 15 741 18 017 12 363 • Embedded derivative gain is mainly Net fair value loss on financial due to the closure of the Bayside (860) (998) (620) instruments aluminium smelter Net fair value gain on embedded 1 621 1 868 2 149 • Finance costs of R8.3 billion were derivatives Operating profit 16 502 18 887 13 892 capitalised during the period to Net finance cost (3 539) (1 853) (4 772) 30 September 2014 (2013: Share of profit of equity-accounted 33 26 43 R6.1 billion) investees Profit before tax 12 996 17 060 9 163 • Effective tax rate of 28.3% Income tax (3 675) (4 846) (2 137) (2013: 28.4%) Discontinued operations (34) 27 63 • Forecast year end profit: R0.5 billion Net profit for the period 9 287 12 241 7 089 • No dividend was recommended 1. Comparatives have been restated due to the classification of Eskom Energie Manantali s.a as a discontinued operation 26 Sales and revenue • Declining sales volumes, 1.55% below the Electricity sales by customer type1 year-to-date plan and 1.35% lower than the same Commercial & agricultural Mining period in 2013, largely caused by: 6.8%, [6.8%] 14.1%, [14.6%] Rail Residential o Impact of industrial action in platinum sector 1.5%, [1.5%] 5.1%, [4.8%] International 5.7%, [6.4%] o Contraction in the gold mining sector o Closure of the Bayside aluminium smelter Redistributors • Local sales of 103 494GWh (September 2013: 41.9%, [42.2%] Industrial 25.0%, [23.8%] 104 397GWh), and international sales of 5 674GWh (September 2013: 6 262GWh) Electricity sales Electricity revenue GWh Cents/kWh 74.0 69.0 224 785 217 903 62.8 216 561 58.5 50.3 110 659 109 168 Mar-12 Mar-13 Mar-14 Sep-13 Sep-14 Mar-12 Mar-13 Mar-14 Sep-13 Sep-14 1. Percentages reflect the sales proportions for the current period. Percentages in brackets are those for the period to 30 September 2013 27 Electricity operating expenses • The electricity operating cost per Electricity operating expenses1 kWh sold is 62.14c/kWh2 compared to R million Cents/kWh the March 2014 actual of 59.67c/kWh 54.15 59.67 55.29 62.14 12 972 • Electricity operating cost is forecast to 41.28 12 917 15 341 be in the region of 67.14c/kWh for the 10 602 11 934 year to 31 March 2015, due to 10 979 9 787 22 384 9 098 anticipated increases in primary 8 681 20 776 2 378 6 318 energy cost 17 722 3 257 6 502 5 912 6 672 13 176 • The employee benefit expense 60 748 69 812 12 951 46 314 includes direct and indirect expenditure 31 266 38 065 for the 42 372 Eskom employees Mar-12 Mar-13 Mar-14 Sep-13 Sep-14 (group employees: 46 370) Other operating expenses, including impairments • Included in other operating expenses is Repairs and maintenance the impairment on arrear debt of Depreciation and amortisation expense 0.91% of revenue (September 2013: Employee benefit expense 0.90%) Primary energy cost 1. Reflects only company expenses 2. Cents/kWh figures are calculated based on total electricity sales numbers for the period 28 Financial position Growth in property, plant and equipment (PPE) funded by debt raised 550 000 R million Liquid assets, 22 609 Liquid assets, 30 583 Working capital, 37 306 450 000 Liquid assets, 43 191 Working capital, 32 158 Other assets, 42 044 Liquid assets, 27 970 Working capital, 34 977 Other assets, 37 863 Working capital, 29 204 Other assets, 37 131 350 000 Liquid assets, 40 480 Other assets, 30 579 Financial position Working capital, 25 911 Other assets, 23 765 250 000 Growth in property, plant and equipment (PPE) funded by debt raised 150 000 PPE and PPE and PPE and PPE and PPE and intangible intangible intangible intangible intangible assets, 292 209 assets, 344 271 assets, 366 366 assets, 404 389 assets, 432 375 50 000 (50 000) Equity, 103 103 Equity, 109 139 Equity, 123 446 Equity, 119 784 Equity, 128 412 (150 000) Debt securities Debt securities Debt securities Debt securities Debt securities and and and and and borrowings, 182 567 borrowings, 202 956 borrowings, 236 780 borrowings, 254 820 (250 000) borrowings, 264 915 Working capital, 33 942 Working capital, 42 946 (350 000) Other liabilities, 62 753 Working capital, 39 088 Other liabilities, 76 983 Working capital, 45 607 Working capital, 45 349 (450 000) Other liabilities, 82 351 Other liabilities, 84 782 Other liabilities, 95 658 (550 000) Mar-12 Mar-13 Sep-13 Mar-14 Sep-14 Debt/equity ratio Debt/equity ratio Debt/equity ratio Debt/equity ratio Debt/equity ratio 1.60 1.84 1.72 2.06 2.08 29 Investing and funding activities Capital expenditure1 Debt securities and borrowings R million R million 264 915 254 820 60 133 236 780 58 815 59 803 202 956 182 567 27 452 23 440 Mar-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-12 Mar-13 Sep-13 Mar-14 Sep-14 Liquid assets at period end Debt and borrowings maturity profile2 R million 43 191 More than 10 Within one 40 480 years year 12 998 51.6% 2.9% 30 583 21 030 27 970 10 907 22 609 17 350 9 656 30 193 19 450 19 676 12 953 10 620 One to 10 years Mar-12 Mar-13 Sep-13 Mar-14 Sep-14 45.4% Cash and cash equivalents Investment in securities 1. Excluding capitalised borrowing costs 2. Represents the repayment of nominal capital and interest in the strategic and trading portfolio 30 Arrear municipal debt and debtors ageing Arrear municipal debt • The increase in arrear R billion 4.5 municipal and Soweto debt 4.0 to R4 billion each since year 3.5 3.0 end is of serious concern 2.5 • As set out in the table below, 2.0 50% of amount outstanding is 1.5 1.0 within the due date 0.5 (0-15 days) - Mar-13 Sep-13 Mar-14 Sep-14 Total overdue debt Outstanding > 90 days Cumulative impairment provision 0-15 16-30 31-60 Electricity debtors age analysis Total days days days > 60 days Large power users, excluding municipalities 7 322 6 018 253 58 992 Large power users, municipalities 9 188 5 184 525 799 2 681 Small power users 2 370 0 1 513 200 657 Soweto 3 995 0 309 230 3 457 Other customers 746 560 137 21 29 Total at 30 September 2014 23 622 11 762 2 737 1 308 7 815 % of total 100% 50% 12% 5% 33% Refer to page 39-41 in the interim IR for more information 31 Revised funding plan: R200 billion from 1 April 2014 to 31 March 2018 Funding Currently Drawdowns sourced secured1 to date1 Source of funds R billion R billion R billion Domestic bonds 41.0 5.0 5.0 International bonds 42.0 3.3 3.3 Commercial paper2 60.0 2.4 2.4 Existing domestic DFIs 6.0 6.0 1.5 Existing international DFIs 32.3 32.3 2.2 Existing ECAs 15.4 15.4 0.9 Other and new sources 2.8 1.1 − Totals 199.5 65.5 15.3 Percentages 32.8%3 23.4%4 1. For the period from 1 April 2014 to date 2. Commercial paper is issued for up to one year and then redeemed and reissued for the same net amount. The commercial paper is thus by definition not fully secured for the full period, however, Eskom’s long term observations and past trends support a high level of confidence that Eskom will be able to roll over the redemptions each year. For this reason, the gross value of the commercial paper issued is shown as “secured” 3. As a percentage of the R199.5 billion funding sourced 4. As a percentage of the currently secured total Refer to page 43 in the interim IR for more information 32 Key financial ratios Gross debt/EBITDA ratio Free funds from operations (FFO) R million 27 542 16.20 23 312 12.86 18 108 16 899 17 893 10.62 10.96 3.00 Mar-13 Sep-13 Mar-14 Sep-14 Investment grade Mar-13 Sep-13 Mar-14 Sep-14 Target target FFO as a % of gross debt Interest cover ratio1 2.39 20.00 1.40 8.85 9.73 8.04 0.77 5.43 0.69 0.22 Mar-13 Sep-13 Mar-14 Sep-14 Investment Mar-13 Sep-13 Mar-14 Sep-14 Target grade target 1. In 2012/13 the effect of the remeasurement of the government loan Refer to page 37 in the interim IR for more information 33 (income of R17.3 billion income) impacted the interest cover ratio Current Sovereign and Eskom credit ratings As a significant portion of Eskom’s debt is guaranteed by Government, its headline credit rating has been uplifted, but remains closely linked to that of the Sovereign Rating Standard & Poor’s Moody’s Fitch RSA government Foreign currency BBB− Baa2 BBB Local currency BBB+ Baa2 BBB+ Outlook Stable Stable Negative Eskom Holdings SOC Ltd Foreign currency BBB− Ba1 ─ Local currency BBB− Ba1 BBB+ Standalone b− b3 B Outlook Negative Stable Negative Action date 11 Nov 2014 7 Nov 2014 18 Jun 2014 Affirmation date 11 Nov 2014 7 Nov 2014 28 Oct 2014 Refer to page 42 in the interim IR for more information 34 Summary of cash flows R million Operating Investing Financing 18 106 (25 449) 13 369 (8 445) 19 676 (5 591) 165 1 111 11 12 953 31 Mar 2014 Cash generated Capex Other Debt raised Debt repaid Net interest Investment in Other 30 Sept 2014 cash and cash by operations expenditure investing payments securities financing cash and cash equivalents (incl future fuel) activities activities equivalents Refer to page 41 in the interim IR for more information 35 Moving towards financial sustainability • Steps taken toward financial sustainability, some of which are addressed by the Government support package, include: o Business Productivity Programme, which targets savings in opex, capex and working capital, as well as cash unlocking initiatives o Restriction of the capacity expansion programme to R280 billion, revised upwards from R251 billion based on the additional Government support o An increase of R50 billion in the funding plan for the MYPD 3 period, which will be backed by Government guarantees o Maintaining an investment grade credit rating, with Government support o Equity funding of at least R20 billion to be provided Government, together with possible conversion of the existing shareholder loan to equity o Government will support Eskom’s application for a tariff increase above 8% for the remainder of MYPD 3, subject to regulatory mechanisms o National and Provincial Treasury, and Cooperative Governance and Traditional Affairs are working with Eskom to resolve arrear municipal debt • NERSA decision on revenue adjustment for MYPD 2 will add revenue of R7.8 billion, but only in the 2015/16 financial year Refer to page 23-25 in the interim IR for more information 36 Moving towards financial sustainability continued • Work of the Inter-Ministerial Committee, led by the Finance, Public Enterprises and Energy Ministries, continues to explore long-term solutions to Eskom’s financial challenges • In the short term, Eskom has to obtain adequate funding to ensure liquidity, thereby supporting its status as a going concern, and to avoid further ratings downgrades • Financial support package announced by Government will assist in easing liquidity pressures, but financial sustainability must still be addressed • Ratings agencies have indicated that the Government support package has had a stabilising impact and will support Eskom’s liquidity and credit metrics • Key to ensuring financial sustainability is to achieve an appropriate return on assets in the long term, and therefore, cost-reflective tariffs that allow for the recovery of efficient costs, which implies above-inflation tariff increases • Eskom’s Board has resolved that financial sustainability and status as a going concern cannot be compromised in support of operational sustainability or balancing supply and demand Refer to page 23-25 in the interim IR for more information 37 Other sustainability areas Tshediso Matona Eskom’s socio-economic contribution B-BBEE compliant spend • Good performance against overall B-BBEE 91.8 R billion 86.3 87.8 90.5 compliant spend, as well as spend on certain 73.2 75 categories of suppliers (black-owned and black women-owned suppliers) • Eskom Development Foundation initiatives have benefitted 101 836 beneficiaries year- to-date, and include completion of two Mar-12 Mar-13 Sep-13 Mar-14 Sep-14 schools Actual Annual target Number of electrification connections Number • Performance on certain categories of B-BBEE 201 788 spend below target (black youth-owned, 154 250 139 881 black people living with disabilities, qualifying small enterprises and exempted micro 53 135 57 534 enterprises suppliers) Mar-12 Mar-13 Mar-14 Sep-13 Sep-14 Actual Annual target Refer to page 61-63 in the interim IR for more information 39 Internal transformation and building strong skills Number of learners • Conclusion of a two-year wage agreement with organised labour provides stability 2 598 2 847 2 518 • Employee numbers kept in check through 2 383 2 000 limited replacement of attrition 844 835 822 815 808 • Solid performance on disability equity and 2 273 2 269 2 144 1 962 1 817 racial equity • Learner pipeline agreed with shareholder on Mar-12 Mar-13 Sep-13 Mar-14 Sep-14 Engineering learners Technician learners Artisan learners track Gender equity, middle management • Reduced external recruitment hampers % 37 gender equity at senior, middle management 34.0 34.7 34.9 35.1 and professional levels 32.4 Mar-12 Mar-13 Sep-13 Mar-14 Sep-14 Actual Annual target Refer to page 60-61, 63-64 in the interim IR for more information 40 Outlook and system update Tshediso Matona System performance over winter • Eskom has sustained the performance of its generation plant through winter, especially due to a strong focus on addressing partial load losses • In winter, the load increases by up to 4 000MW, particularly during the evening peak from 5 pm to 9 pm (in particular from 5:30pm to 6:30pm), predominantly due to the use of space heating, geysers and cooking that takes place during that time • Open-cycle gas turbines (OCGTs) and IPPs are often used to meet demand • Generation continued with much-needed maintenance of the generating plant • IPP and municipal generation was also used to offset over-reliance on key customers having to reduce load. Solar and wind assisted, but are highly variable • A total of 1 417MW is available through demand response by key industrial customers, with another 2 000MW in the form of interruptible supply from smelters • Eskom had to load shed in 2014 for the first time since 2008. Load shedding took place for short periods on 6 March; 11, 12 and 17 June 2014; and 2 November • The decision to implement load shedding isn’t taken lightly. It is a last resort, to prevent the power system from collapsing, which would lead to a country-wide blackout, which would negatively impact the economy. The steps prior to load shedding includes calling on major industrial customers to reduce load 42 System outlook during summer 2014/15 • The system remains tight all day during summer due to the flat load profile, due to almost constant industrial load and the impact of air conditioning during the day. The residential component over evening peak is not as evident in summer • Maintenance of power stations will not be compromised, as it ensures a reduction in unplanned outages, thereby ensuring security of supply in the long term. Due to the lower overall demand for electricity, more maintenance is undertaken during summer than in winter • Major summer risks include the reduced output from Majuba, extended periods of high rainfall impacting coal supply, outage slip and scope extensions, poor coal quality reducing output, diesel supply constraints and continued plant unreliability • These risks, when superimposed on an already tight system, can result in the need for demand reduction • Renewables, peaking at over 900MW, will potentially offset some of the OCGT usage, but IPPs are mostly unavailable during the evening peak when demand is high • Eskom will protect the integrity of the power system, and will implement load shedding if necessary to protect the system from a devastating country-wide blackout • We thank customers who rallied to the call to reduce energy consumption for beating the short, sharp evening peak in winter and call on customers to Live Lightly in the summer months by reducing demand from 06:00 to 22:00 43 Conclusion • The power system will remain constrained until a substantial number of units from the build programme comes online • Eskom is on track to achieve first synchronisation of Medupi Unit 6, with full commercial operation expected approximately six months thereafter • We call on customers in the summer months to Live Lightly by reducing demand from 06:00 to 22:00 to manage the all-day “Table Mountain profile” • Use of costly open-cycle gas turbines beyond budget is not sustainable given the financial constraints • Load shedding will be implemented to protect the power system from total collapse • Lower summer tariffs and higher maintenance will significantly reduce profit by year end • Eskom will focus on the following three priorities in the short to medium term, namely sustainable asset creation, financial sustainability and operational sustainability • Eskom has to balance meeting the short-term priority of meeting customer demand with long-term financial and operational sustainability, requiring difficult trade-offs • Board has resolved that financial sustainability and going concern will not be compromised in support of operational sustainability or balancing supply and demand 44 Less is more − Live Lightly! • Saving electricity reduces pressure on the grid, cuts your electricity bill and reduces South Africa’s carbon emissions • The power system remains vulnerable all day during summer 1. Use air conditioning efficiently “Know your o Set air conditioning to 23ºC number” o Close windows and doors to optimise air conditioning o Switch off 30 minutes before leaving the office 2. Switch off all geysers and pool pumps (all day until 9pm), and invest in a timer 3. If you use the pool frequently, limit pool filtering cycles to “Live two cycles daily, and not between 5pm & 9pm Lightly” 4. Switch off all non-essential lighting 5. Respond to Power Alert messages by switching off all appliances that are not being used 45 Insert image here Insert image here Thank you This presentation is available at www.eskom.co.za/IR2014/interim