Integrated Results Presentation for the six months ended 30 September 2013 5 December 2013 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 Limited (“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 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 Executive summary Brian Dames Performance on strategic objectives Brian Dames and Caroline Henry Concluding remarks Brian Dames 3 Executive summary and performance on strategic objectives Brian Dames Chief executive 4 Eskom’s strategy Our purpose: Accomplish To provide sustainable electricity Eskom’s solutions to grow the economy and purpose improve the quality of life of people in South Africa and the region Execute Leading and Reducing Securing Implementing Pursuing strategic partnering to Eskom’s future coal haulage private sector pillars keep the environmental resource and the participation lights on footprint and requirements road-to-rail pursuing low- migration plan carbon growth opportunities Build Ensuring Becoming a high- foundation Transformation Eskom’s financial performance right, build sustainability organisation capacity ZIISCE: Zero harm, Integrity, Innovation, Sinobuntu, Customer satisfaction, Excellence Foundation: Long-term nation building • Electricity for all • Triple bottom-line 5 Executive summary • Safety – Sadly, a tragic accident at Ingula caused six fatalities – Employee lost time incident rate improved, but safety continues to be a primary focus • Power system – The power system remains constrained and the lights were kept on – On 19 November 2013, Eskom declared an emergency in terms of the approved regulatory protocols in order to secure the power system. Eskom lifted the emergency declaration at 22:00 on 21 November 2013 – The Generation performance is a focus area in line with the 80:10:10 sustainability strategy – More maintenance undertaken in winter and summer months • MYPD 3 determination – Eskom’s response strategy aims to close the revenue gap with a view to increase productivity and sustainability in the long run – Certain strategic trade-offs and initiatives will require a change in the approach to the operating and business model of Eskom • Capital expansion programme – The return to service power station projects have been concluded with the successful commissioning of the final unit at Komati power station – Delivery of Medupi Unit 6 remains a key focal point – first synchronisation date is scheduled for the second half of 2014 6 Eskom has the advantages and challenges of all large-scale enterprises • Strategic 100% state-owned electricity Number of electrification connections utility, strongly supported by the Number government 53 600 • Top 15 global electricity utility 41 059 • Africa’s largest electricity utility 32 216 • Supplies approximately 95% of South Africa’s electricity • As at 30 September 2013: – 46 624 group employees (2012: 44 913) Sep-11 Sep-12 Sep-13 – 5.1 million customers (2012: 4.9 million) Generation capacity – 30 September 2013 – Net maximum generating capacity of 42.0GW (2012: 41.7GW) Hydro – Approximately 354 000km of cables and power lines Pumped Storage Coal – Moody’s and S&P stand-alone credit 1.4% 3.4% ratings: b1 and b- respectively with a 4.4% 42.0GW negative outlook 85.1% of nominal 5.7% capacity – 17.1GW of new generation capacity being built, of which 6.1GW already Nuclear commissioned Gas 7 Financial summary Ensuring Eskom’s financial sustainability • Financial highlights1 – Results reflect the impact of the 8% tariff increase and the declining demand for electricity – Seasonality of Eskom’s business has a significant impact on the half-year results – Eskom successfully raised $1 billion through an international bond issuance – Progressing with MYPD3 business productivity response Reviewed Reviewed Reviewed Income statement for the period half year to half year to half year to 30 Sep 2013 30 Sep 2012 30 Sep 2011 Revenue (Rm) 77 815 73 368 63 993 (Contraction)/growth in GWh sales (%)2 (0.1) (2.9) 0.9 Profit for the period after tax (Rm) 12 241 12 629 12 793 Revenue per kWh (cents per kWh)3 69.0 64.9 55.3 Operating costs per kWh (cents per kWh)4 55.3 47.0 38.2 Capital expenditure (Rm)5 23 440 26 020 26 053 As at end of the period: Average days coal stock (days) 53 44 41 Gross debt securities issued/borrowings (Rm) 236 780 213 360 178 487 Debt: equity (ratio) 1.7 1.6 1.4 1. Group numbers unless otherwise specified 4. Company numbers and includes depreciation and amortisation costs 2. Compared to the same period last year 5. Excluding interest capitalised 8 3. Company numbers and includes environmental levy Performance against shareholder compact Target Actual Actual Actual Key performance Key performance indicator Unit * March Sept Sept March areas 2014 2013 2012 2013 Safety Employee LTIR Index 0.36 0.34 0.401 0.401 Being customer Customer service index Index 88.7 86.9 86.6 86.8 centric Normal UCLF % 10.00 11.53 9.98 12.12 Constrained UCLF2 % 0.00 3.45 2.49 3.41 Improving Underlying UCLF3 % 10.00 8.08 7.49 8.71 operations EAF % 80.00 78.42 81.18 77.65 SAIDI Hours 45.0 37.3 43.9 41.9 Total system minutes <1 Minutes 3.40 1.58 1.53 3.52 Training spend as % of gross % 5.00 7.48 — — employee benefit costs4 Building strong Engineers Number 2 007 2 269 2 052 2 144 skills Technicians Number 780 822 733 835 Artisans Number 2 619 2 518 2 040 2 847 Youth programme Number 5 000 5 100 5 029 5 701 * Forecasted performance to target at 31 March 2014. Green indicates target will be achieved and red indicates that the target is at risk and will be aggressively managed to year-end 1. Number revised from 0.39 to 0.40 due to the late reporting of incidents 2. Constrained UCLF – this results from emissions and short term related UCLF. This is apportioned between the planned capability loss factor (PCLF) and the other capability loss factor (OCLF), which is the energy lost because of unplanned shutdowns 3. Underlying UCLF – the difference between normal and constrained UCLF and which is still within Eskom’s control 4. Training spend as % of gross employee benefit costs is a new measure, hence no comparative information is currently available 9 Performance against shareholder compact (continued) Target Actual Actual Actual Key performance Key performance indicator Unit * March Sept Sept March areas 2014 2013 2012 2013 Maintenance backlog reduction based on Eskom Technical Number 0 1 n/a n/a Governance Committee Keeping the approval lights on IDM demand savings MW 379 117 220 595 Internal energy efficiency GWh 15 0 1 28.9 Generation capacity installed and MW 100 120 20 261 commissioned Transmission lines installed Km 770 511 428 787 Delivering capital Transmission capacity installed MVA 3 790 290 2 250 3 580 expansion and commissioned Generation new build capacity Days milestones (Medupi, Kusile and 30.00 5.75 (2.32) 43.48 deviation Ingula) * Forecasted performance to target at 31 March 2014. Green indicates target will be achieved and red indicates that the target is at risk and will be aggressively managed to year-end 10 Performance against shareholder compact (continued) Target Actual Actual Actual Key performance Key performance indicator Unit * March Sept Sept March areas 2014 2013 2012 2013 Reducing Relative particulate emissions kg/MWh 0.36 0.31 0.33 0.35 environmental footprint and pursuing low- Specific water consumption per L/kWh 1.39 1.33 1.35 1.42 carbon growth kWh sent out Implementing coal haulage and Coal road-to-rail migration Mt 11.5 5.4 5.0 10.1 the road-to-rail migration plan Cost of electricity excluding R/MWh 453.40 500.27 428.41 496.35 depreciation Ensuring Interest cover Ratio 1.18 2.27 1.27 0.27 financial sustainability Debt /equity including provisions Ratio 2.17 1.84 1.74 1.96 Free funds from operations as % % 9.11 8.68 9.15 8.55 of total debt * Forecasted performance to target at 31 March 2014. Green indicates target will be achieved and red indicates that the target is at risk and will be aggressively managed to year-end 11 Performance against shareholder compact (continued) Target Actual Actual Actual Key performance Key performance indicator Unit * March Sept Sept March areas 2014 2013 2012 2013 Local sourcing in procurement in % 52.0 62.4 88.6 80.2 the new build contracts Procurement from B-BBEE % 75.0 87.6 72.5 86.3 compliant Procurement from black youth % 1.0 1.0 0.9 1.0 owned Employment equity – disability % 3.0 2.6 2.4 2.6 Racial equity in senior Maximising management, % of black % 61.0 59.5 57.9 58.3 socio-economic contribution employees Gender equity in senior % 30.0 28.6 26.2 28.2 management, % of female Racial equity in professionals and middle management, % of black % 71.0 70.5 68.7 69.6 employees Gender equity in professionals and middle management, % of % 36.0 35.5 33.9 34.6 female employees * Forecasted performance to target at 31 March 2014. Green indicates target will be achieved and red indicates that the target is at risk and will be aggressively managed to year-end 12 Safety Becoming a high-performance organisation Half year Half year Year to Employee Fatalities: to 30 Sep to 30 Sep 31 Mar and 2013 2012 2013 contractor Employees 2 1 3 fatalities Contractors 8 10 16 Employee lost-time incident rate: Employee LTIR Index (target: 0.36) 0.34 0.401 0.401 Electrical Causes of Causes of fatalities: Vehicle Assault Other Contact fatalities Employees and contractors 2 5 1 2 On 31 October 2013, a gantry (platform) unexpectedly detached in the Incline High Pressure Shaft 3-4. There were six fatalities and seven Ingula sustained injuries. Internal statutory investigations have been conducted incident with information available at this stage and the Mine Health and Safety Inspectorate is shortly to commence its investigation in terms of section 60 of the Mine Health and Safety Act 1. Number revised from 0.39 to 0.40 due to the late reporting of incidents 13 Improving operations – Generation Becoming a high-performance organisation Highlights Unplanned capability loss factor (UCLF1) % • At the end of September 2013 both 13 12.1 11.52 12 Koeberg units were online for 160 days 11 10 10.0 Constrained simultaneously, surpassing the previous 9 UCLF 8 record which was set in 2004 7 8.0 8.7 8.1 6 • The Generation Sustainability Strategy and 5 6.1 the associated increased opportunity for 4 5.1 3 maintenance has enabled several stations 2 1 to significantly improve their emissions 0 Year to Year to Year to Year to Half year to performance 31 Mar 2010 31 Mar 2011 31 Mar 2012 31 Mar 2013 30 Sep 2013 Challenges Energy availability factor (EAF3) % • The higher UCLF percentage is an 95 indication of the deteriorating plant health 85 of an ageing power station fleet 85.2 84.6 82.0 80.0 75 78.4 • Executing the generation sustainability 77.7 65 strategy while keeping the lights on 55 1. UCLF measures the lost energy due to unplanned production interruptions resulting from equipment failures and other plant conditions 45 2. The 11.53% normal UCLF consists of constrained UCLF of 3.45% and underlying UCLF OF 8.08% (UCLF under Eskom’s control). Constrained UCLF refers to 35 emissions and short-term related UCLF due to system constraints to meet the Year to Year to Year to Year to Half year to 31 Mar 31 Mar 31 Mar 31 Mar 30 Sep “Keep the lights on” objective 2010 2011 2012 2013 2013 3. EAF measures plant availability, plus energy losses not under the control of plant management Actual Annual year-end target 14 Improving operations – Transmission Becoming a high-performance organisation Highlights System minutes1 lost < 1 system minute • The excellent line fault performance 5 attained during the 2012/13 year has 4 4.7 been sustained during the current 4.1 3.4 3 3.5 period 2.6 2 Challenges 1 1.6 • Total number of system minutes lost 0 performance was impacted by a Year to Year to Year to Year to Half year to 31 Mar 31 Mar 31 Mar 31 Mar 30 Sep combination of human errors, ageing 2010 2011 2012 2013 2013 assets, as well as incidents triggered Number of major incidents by customer network faults which 4 exposed transmission system vulnerabilities 3 • Although no significant criminal 3 incidents have occurred during the 2 2 period, it remains a risk 1 1 1 0 0 0 Year to Year to Year to Year to Half year to 31 Mar 31 Mar 31 Mar 31 Mar 30 Sep 2010 2011 2012 2013 2013 1. System minutes is a measure of the extent of interruptions to customers. One system minute is equivalent to the loss of the entire system for one Actual Annual year-end target 15 minute at annual peak Improving operations – Distribution Becoming a high-performance organisation Highlights SAIDI (hours/annum)1 • Several safety initiatives have been 60 54.4 52.6 implemented 50 45.8 41.9 • The positive network performance 45.0 40 37.3 trend is driven by the overall planning, 30 coordination and disciplined execution of Eskom’s network reliability 20 improvement plans and other 10 operational excellence initiatives 0 Year to Year to Year to Year to Half year to 31 Mar 31 Mar 31 Mar 31 Mar 30 Sep 2010 2011 2012 2013 2013 Challenges • Employee and contractor safety SAIFI (number/annum)2 performance and lost-time injuries 30 25.3 • Employee security remains a concern 25 24.7 23.7 22.2 in certain areas 20 20.1 20.0 15 10 5 0 Year to Year to Year to Year to Half year to 31 Mar 31 Mar 31 Mar 31 Mar 30 Sep 2010 2011 2012 2013 2013 1. SAIDI: System average interruption duration index 2. SAIFI: System average interruption frequency index Actual Annual year-end target 16 Being customer centric Becoming a high-performance organisation Highlights Weighted customer service index1 • Partnering with large industrial customers 90 through demand-response programmes 89 88.7 88 to help manage the power system 87 • The online vending system was 86 86.8 86.9 successfully enhanced and went live on 85 85.6 84 85.1 22 July 2013 84.4 83 82 Challenges 81 Year to Year to Year to Year to Half year to • Despite various interventions with 31 Mar 2010 31 Mar 2011 31 Mar 2012 31 Mar 2013 30 Sep 2013 municipalities, municipal debt continues Actual Annual year-end target to rise with R2.4 billion of municipality debt in arrears at 30 September 2013 Energy Half year Half year Year to • The Soweto arrear debt remains a major losses2 to 30 Sep to 30 Sep 31 Mar concern and the total Soweto debt as at 2013 2012 2013 30 September 2013 was R3.5 billion Distribution 7.2 6.6 7.1 • Energy losses performance continues to deteriorate – non-technical losses, Transmission3 2.7 3.0 2.8 particularly theft, has been growing Total Eskom 9.2 9.0 9.1 across all sectors in Eskom's customer 2. Non technical losses are estimated to be between 1.6% and base 3. 2.6% for the half year to 30 September 2013 Transmission losses are all technical losses 1. Eskom uses a composite index to measure the service delivered to its 17 residential, small and medium customers Building strong skills Becoming a high-performance organisation Eskom aims to grow human capital by retaining Skills core, critical and scarce resources, and by effectively developing skills and talent 2 598 2 847 Eskom’s 2 518 engineering, 2 213 2 144 844 822 technician 835 and artisan 692 681 2 273 2 144 2 269 learners for 955 1 335 the country Year to Year to Year to Year to Half year to 31 Mar 31 Mar 31 Mar 31 Mar 30 Sep 2010 2011 2012 2013 2013 Engineering learners Technician learners Artisan learners There are a 5 100 learners in the youth Youth programme, 2 510 of which are trained by the programme suppliers to the capital expansion programme R1.0 billion spent on training in the half year to Training 30 September 2013 18 Keeping the lights on Leading and partnering to keep the lights on Highlights Average monthly % operating reserves • Avoided rotational load-shedding during Monthly Avg at 06:00 Monthly Avg at 15:00 the six months 60% Monthly Avg at Peak Monthly Avg at 22:00 • More maintenance was done during this 50% winter than in the three preceding years 40% for the same period in line with the 30% 80:10:10 sustainability strategy 20% • The energy imports from the Hydro 10% Cahora Bassa scheme have been 0% substantially normalised following the Apr 2009 Oct 2009 Apr 2010 Oct 2010 Apr 2011 Oct 2011 Apr 2012 Oct 2012 Apr 2013 Jul 2009 Jul 2010 Jul 2011 Jul 2012 Jul 2013 Jan 2009 Jan 2010 Jan 2011 Jan 2012 Jan 2013 repair of damaged towers caused by the floods in Mozambique in 2012 Open cycle gas turbine (OCGT) load factor % Challenges 30 Acacia Ankerlig Gourikwa Port Rex • Adequate reserves available throughout the day to meet demand, but minimal 20 reserves available at peak periods • Increased costs due to the significant 10 reliance placed on the open cycle gas turbine fleet in the current year 0 • Events within the national diesel fuel Year to Year to Apr May Jun Jul Aug Sep Half year 31 Mar 31 Mar 2013 2013 2013 2013 2013 2013 to 30 Sep industry resulted in a temporary reduction 2011 2012 Monthly data 2013 in diesel availability putting pressure on 19 reserves Integrated Demand Management Leading and partnering to keep the lights on • Achieved total evening peak demand Cumulative verified demand savings (MW) savings of 117MW (2012: 220MW) and 4 000 annualised energy savings of 306GWh 3 500 Demand savings (MW) (2012: 813GWh) 3 000 2 500 • Continued the rollout of the demand 2 000 1 500 response rewards – currently Eskom has 1 000 the following available to the system 500 operator for its control and evening peak 0 reduction requirements Year to Year to Year to Year to Year to Year to Year to Year to Year to Half 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar year to • 579MW of supplemental load 2005 2006 2007 2008 2009 2010 2011 2012 2013 30 Sep 2013 Verified MW Eskom Target • 394MW of instantaneous load • 8MW of standby generation • The average weekday evening peak impact of the power alert and power bulletin for all colours (green, orange and red) is 238MW, while the average impact for the red flightings in the evening peak on the worst constrained day is 324MW 20 Delivering capacity expansion Leading and partnering to keep the lights on To date, a large amount of construction work has been completed, adding ~ 6 137MW of capacity, ~ 5 198km of transmission network and ~ 24 065 of MVAs Megawatts MW of capacity 261.0 120.0 535.0 315.0 1 769.9 452.5 1 043.0 6 137 1 351.0 290.0 0.0 Transmission Km line 511.1 787.1 631.3 443.4 600.3 418.3 5 198 480.0 430.0 659.0 237.0 Substations MVAs 3 580 290 2 525 5 940 1 630 1 355 1 375 24 065 1 090 1 000 5 280 2004/5 2005/6 2006/7 2007/8 2008/9 2009/10 2010/11 2011/12 2012/13 2013/14 Total 21 Significant progress in build programme – began in 2005 with completion in 2020 Leading and partnering to keep the lights on % of estimated total cost spent as at 30 September 2013 50.7% R billion spent and to be spent on the capital expansion 67.9% R118.5bn programme (excluding borrowing costs capitalised) R105.0bn In addition, Eskom incurs capital expenditure on R33.7bn R58.4bn strengthening, refurbishing and expanding its Distribution network 61.5% 65.9% 94.8% R34.5bn2 R71.3bn R25.9bn R25.7bn1 R60.1bn R1.3bn R13.3bn R8.8bn R24.4bn R21.2bn R17.1bn Medupi Kusile Ingula Return to service Transmission Completed Remaining 1. Includes R0.6 billion for the Camden burner project, which was initiated after 31 March 2013 2. Includes transmission costs for Ingula, Kusile and Medupi 22 New generation capacity and transmission lines Leading and partnering to keep the lights on Return-to-service Peaking and Mpumalanga Base load Transmission (RTS) renewable refurbishment • None • Nuclear New Build • Pilot Concentrated • Refurbishment and • >60 Grid strengthening Programme Solar Power (100 MW) air quality projects projects development • Next Coal (Coal 3) • Open Cycle Gas Turbine • Biomass Conversion Project – • Majuba Underground Coal conversion of Ankerlig and In Gasification Demo Plant Gourikwa OCGT power plants (UCG) to a Combined Cycle Gas • Primary Energy projects Turbine (CCGT) (Road and Rail) • Photovoltaic (own use) • Komati (1 000 MW) • Medupi (4 764 MW) • Ankerlig (1 338.3MW) • Arnot capacity increase • 765kV projects construction • Camden (1 520 MW) • Kusile (4 800 MW) • Gourikwa (746 MW) (300 MW) • Central projects • Grootvlei (1 180 MW) • Ingula (1 332 MW) • Matla refurbishment • Northern projects Under • Sere (100 MW) • Kriel refurbishment • Cape projects • Acacia relocation • Duvha refurbishment • Solar PV installations: • Grootvlei Fabric Filter MWP, Lethabo, Kendal Plant (FFP) (1.62 MW) • Kriel Retrofit 3 700 MW 9 564 MW 3 517.92 MW 300 MW 9 756 km Commissioning of new power stations1 First unit Last unit Medupi 2014 2017 • ~ 17.1GW of new capacity (6 137MW installed and commissioned) • ~ 9 756 km of new transmission network (5 198km installed) Kusile 2015 2019 • ~ 42 470 MVA of new transmission strengthening (24 065MVA installed) Ingula 2014 2015 Medupi is the first coal-generating plant in Africa to use supercritical power generation technology 23 1. Refers to the first synchronisation date Environmental performance Reducing Eskom’s environmental footprint and pursuing low carbon growth opportunities Half year Half year Year to Atmospheric emissions: to 30 Sep to 30 Sep 31 Mar 2013 2012 2013 Relative particulate emissions, 0.31 0.33 0.35 Environmental kg/MWh performance Specific water consumption, L/kWh 1.33 1.35 1.42 sent out Environmental legal contraventions per the operational health 0 1 1 dashboard, number The Sere wind farm construction has gained momentum. The first foundations for the Sere wind wind turbine generators have been poured and farm the first consignment of equipment has arrived at the Saldanha Port 24 Coal and water resources Securing future resource requirements Highlights • Coal stock days increased to 53 days at the Coal stock days end of September 2013 (September 2012: 60 2007/8 53 2012/13 44 days) 2013/14 50 46 • Four medium-term contracts were signed for 44 coal supply to the Kusile power station during 40 the commissioning phase 30 • The Komati Water Scheme Augmentation 18 20 Project was commissioned and declared 13 operational on 5 June 2013 10 Challenges 0 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar • Despite the overall coal quality being on target, coal-related losses were experienced at Arnot and Tutuka power stations due to inconsistent coal quality and supply • Production performance of cost-plus mines continue to be a challenge leading to volumes being augmented through more expensive short to medium term coal supply agreements • Nooitgedacht Dam and the Usutu system are at their lowest water levels in the past three years 25 Coal road to rail migration Implementing coal haulage and the road-to-rail migration plan Highlights Coal road to rail migration (Mt) • At 30 September 2013, Free Carrier 13 Arrangement coal transporters had achieved 12 11 64 days without a fatality, while the delivered 10 9 10.1 coal transporters were at 78 days without a 8 8.5 fatality 7 6 7.1 • A road transportation safety response plan 5 5.1 5.4 4 has been developed and Eskom is 3 2 implementing a safety drive to curb coal road 1 0 transportation over weekends Year to Year to Year to Year to Half year to 31 Mar 31 Mar 31 Mar 31 Mar 30 Sep 2010 2011 2012 2013 2013 Challenges • Both Eskom and Transnet experienced operational challenges regarding the rail transport of coal • In June 2013, the rail deliveries were affected by a series of derailments on the Transnet Freight Rail Natcor rail line 26 Independent power producers (IPPs) Pursuing private-sector participation Highlights IPP capacity installed1,2 • Signed power purchase agreements for MW 1 150 1 041MW capacity with IPPs as part of 1 083 the second bid submission under the 888 Department of Energy's (DoE) renewable energy IPP procurement programme • In June 2013, contracts for 1 005MW of the DoE open-cycle gas turbine ("Peakers") programme were signed • The first project under the renewable Sep-11 Sep-12 Sep-13 energy IPP procurement programme was connected to the grid on 27 September Energy purchased from IPPs 2013 and commissioning is in progress GWh 2 133 Challenges 1 685 1 866 • Funding approval has not been obtained to extend existing municipal base load and Short Term Power Purchases (STPPP) IPP contracts which are expiring in December 2013 Sep-11 Sep-12 Sep-13 1. Short- to medium-term contracts, municipal generation and wholesale electricity pricing system only 2. Excludes 85MW of contracted capacity not in operation as at 30 September 2013 27 Maximise socio-economic contribution Transformation A total of 53 600 homes were electrified during the period to September 2013 (September 2012: 32 216) Electrification Since inception of the electrification programme in 1991, a total of approximately 4.4 million homes have been electrified Committed R81.6 million to corporate social initiatives during the period to September 2013 (September 2012: R69.9 million) Number of project beneficiaries1 Corporate Number 352 289 social 308 615 investment 276 843 Sep-11 Sep-12 Sep-13 1. Number of project beneficiaries impacted by Eskom’s corporate social initiatives per half year 28 Procurement equity and localisation Transformation 100 86.3 87.6 Total measured 90 80 73.2 Target: procurement spend for % of B-BBEE spend 70 75 Procurement the half year was 60 52.3 from B-BBEE1 R65.9 billion of which 50 40 compliant R57.7 billion or 30 28.6 entities 87.6% was attributable 20 to B-BBEE, exceeding 10 Year to Year to Year to Year to Half year to the target of 75% 31 Mar 2010 31 Mar 2011 31 Mar 2012 31 Mar 2013 30 Sep 2013 % Procurement from BO entities % Procurement 25.5 Procurement from BWO entities % from black Procurement from BYO entities % owned (BO), 16.1 black woman 14.8 owned (BWO) and black 6.2 youth owned 3.6 4.0 (BYO) entities n/a2 0.9 1.0 Sep-11 Sep-12 Sep-13 1. Reflects the Eskom company’s Broad-Based Black Economic Empowerment (B-BBEE) expenditure 2. Measurement of the procurement from BYO entities only started in 2012 29 Procurement equity and localisation (continued) Transformation Local 62.4% local content in the new build contracts placed for the financial sourcing year (September 2012: 88.6%) Since 2005, 38 423 Job creation individuals (September Number 38 423 2012: 32 478) working on 32 478 new build project sites, of 25 437 Job creation which 18 939 (September 2012: 15 749) are employed from the local districts Sep-11 Sep-12 Sep-13 Since capital expansion contracts started being awarded, a total of 8 009 Local skills (September 2012: 6 397) contractor employees have been trained in development various trades 30 Employment equity Transformation The Eskom company currently has 1 107 (September 2012: 1 022) Disability employees with recognised disabilities. Although the disability percentage of 2.6% is below the 3% target, it’s well above the national norm of 0.7% 80 69.6 70.5 65.7 % of black employees 70 62.9 64.1 58.3 59.5 60 52.5 53.9 47.3 50 40 30 Racial equity 20 10 0 Year to Year to Year to Year to Half year to 31 Mar 31 Mar 31 Mar 31 Mar 30 Sep 2010 2011 2012 2013 2013 Racial equity in senior management (% of black employees) Racial equity in professionals and middle management (% of black employees) % of female employees 40 34.6 35.5 30.3 31.6 32.4 28.2 28.6 30 24.3 21.6 23.5 20 Gender 10 equity 0 Year to Year to Year to Year to Half year to 31 Mar 31 Mar 31 Mar 31 Mar 30 Sep 2010 2011 2012 2013 2013 Gender equity in senior management (% of female employees) Gender equity in professionals and middle management (% of female employees) 31 Ensuring Eskom’s financial sustainability Caroline Henry Acting chief financial officer 32 Income statement for the six months ended 30 September 2013 Ensuring Eskom’s financial sustainability • Group revenue of R77.8 billion Reviewed Reviewed Audited half-year to half-year to year to (September 2012: R73.4 billion), 30 Sep 30 Sep 31 March an increase of 6.1% Rm 2013 2012 2013 • Revenue growth has been offset Revenue 77 815 73 368 128 869 by escalating operating Other income 197 516 1 155 expenditures mainly due to an Primary energy (31 266) (24 973) (60 748) increase in primary energy costs Opex (including depreciation (28 702) (26 881) (57 701) and amortisation) • Effective tax rate of 28.4% Net fair value loss on financial (September 2012: 28.5%) instruments (998) (1 292) (1 655) • Embedded derivative gain is mainly Operating profit before 17 046 20 738 9 920 embedded derivatives due to changes in the USD:ZAR Embedded derivative gain / exchange rate and changes in (loss) 1 868 698 (5 942) interest rates Operating profit 18 914 21 436 3 978 • Finance costs of R6.1 billion were Net finance (cost) / income1 (1 853) (3 785) 3 027 capitalised during the six months to Share of profit of equity - 26 22 35 30 September 2013 (September accounted investees 2012: R13.9 billion) Profit before tax 17 087 17 673 7 040 Income tax (4 846) (5 044) (1 857) Net profit for the period 12 241 12 629 5 183 1. There was no remeasurement of the government loan during the six months to 30 September 2013, as there was no change in the electricity tariff price path. In 2012/13 the effect of the re-measurement of the government loan was a R17.3 billion income and R9.6 billion cost for the half-year to 30 September 2012 33 Sales and revenue Ensuring Eskom’s financial sustainability • Eskom achieves higher profits in the first Electricity sales (GWh) six months of the financial year due to GWh (2.9)% (0.1)% 114 043 110 766 110 659 higher tariffs and energy demand in winter • Sales (in GWh) contracted by 0.1% when compared to the same period last year, mainly due to a warmer winter • A small year-on-year sales growth of 0.6% is expected for the year ending Sep-11 Sep-12 Sep-13 31 March 2014 Electricity sales by customer type1 Electricity revenue (c/kWh) Commercial and agricultural Mining 14.5%, Cents/ kWh 6.3% 69.0 [14.7%] 17.3% 64.9 6.5%, [6.5%] Rail 1.4%,[1.4%] Residential 55.3 5.1%, [4.9%] Foreign 5.7%, [6.5%] Municipalities Industry 23.9%, 42.8%, [23.0%] [43.0%] Sep-11 Sep-12 Sep-13 1. Percentages reflected for the sales achieved in the six months to 30 September 2013. 34 Numbers in brackets are those for the six months to 30 September 2012 Operating expenses1 Ensuring Eskom’s financial sustainability Operating costs Primary energy costs Cents/ kWh Rm Cents/ kWh 28.3 ( 19.2) ( 22.5) 25% ( 28.3) 18% 22.5 19.2 ( 8.2) 31 266 ( 4.1) ( 10.5) ( 6.7) ( 4.7) ( 11.7) 24 973 ( 9.1) ( 6.0) 21 858 ( 8.2) Sep-11 Sep-12 Sep-13 Sep-11 Sep-12 Sep-13 Other operating expenses Depreciation and amortisation expense Employee benefit expense Primary energy costs Net employee benefit cost2 Other operating expenses3 Rm Cents/ kWh Rm Cents/ kWh 11.7 9.1 (9)% 10.5 12% 36% 8.2 27% 8.2 6.7 12 989 11 628 10 045 9 408 9 111 7 597 Sep-11 Sep-12 Sep-13 Sep-11 Sep-12 Sep-13 Headcount: 41 756 44 913 46 624 1. Cents/kWh figures are calculated based on total electricity sales numbers and group financials 2. Includes salaries, staff costs, post-retirement medical aid, pension benefits, relocation, training , temporary and contract employee costs etc. 3. Including managerial, technical and other fees, research and development, auditor’s remuneration, integrated demand management, and repairs 35 and maintenance costs Analysis of primary energy costs Ensuring Eskom’s financial sustainability • Primary energy costs increased by 25.3% from 22.5c/kWh (September 2012) to 28.3c/kWh for the half year to 30 September 2013 mainly due to the following: Primary energy costs1 in c/kWh as at 30 September 2012: 22.5 OCGT2 costs increased by 2.1 R2.3 billion (231%) Coal usage costs 1.9 increased by 13.3% International purchase 0.5 costs increased by 53% Environmental levy 0.5 Gas fuel start-up costs increased by 76% 0.5 Other items in aggregate 0.3 Primary energy costs1 in c/kWh as at 30 September 2013: 28.3 0 5 10 15 20 25 30 cents / kWh 1. Primary energy costs in c/kWh based on electricity sales. Costs Coal usage OCGTs on this slide are for the six months to 30 September 2013 and Environmental levy Gas fuel start-up costs the comparatives are for the six months to 30 September 2012 International purchases Other 2. Open cycle gas turbine (OCGT) 36 Hedging policy Ensuring Eskom’s financial sustainability • Commodity derivatives hedging: Gain on embedded derivatives – Hedging in place to mitigate potential Rm 1 868 losses on embedded derivatives – Eskom submitted an application to 698 NERSA to review the last remaining 263 special pricing agreement Sep-11 Sep-12 Sep-13 • Foreign currency hedging: Net fair value loss on financial instruments – All foreign currency exposure over Rm R150 000 is hedged – Uses inter alia forward exchange ( 998) contracts with short maturities and (1 126) (1 292) roll-over at maturity as well as cross- Sep-11 Sep-12 Sep-13 currency swaps – 78% of total debt at 30 September 2013 Rand versus Euro and USD exchange rates has a fixed interest rate component Exchange rates 13.60 – R101.5 billion exposure to foreign 10.88 10.68 10.05 currency 8.10 8.28 Sep-11 Sep-12 Sep-13 Rand:Euro Rand:USD 37 Group reviewed financial position – property, plant and equipment growth through debt raised Ensuring Eskom’s financial sustainability Rm Assets 600 000 500 000 Other assets, R37 131m Other assets, R26 213m Working capital, R34 977m 400 000 Working capital, R32 150m Liquid assets, R43 191m Other assets, R26 979m Liquid assets, R46 325m Working capital, R26 070m 300 000 Liquid assets, R54 334m Property, plant and Property, plant and 200 000 Property, plant and equipment, and equipment, and equipment, and intangible assets, intangible assets, intangible assets, R366 366m 100 000 R327 400m R264 511m 0 Sep-11 Sep-12 Sep-13 Rm Equity and liabilities 600 000 Net debt to equity ratio: Net debt to equity ratio: 1.7 500 000 1.6 Net debt to equity ratio: 1.4 Equity, R123 446m 400 000 Equity, R115 666m Equity, R104 209m Other liabilities, R82 351m 300 000 Other liabilities, R70 826m Working Capital, R39 088m Other liabilities, R61 763m Working Capital, R32 236m 200 000 Working Capital, R27 435m Debt securities Debt securities Debt securities and borrowings, 100 000 and borrowings, and borrowings, R236 780m R213 360m R178 487m 0 Sep-11 Sep-12 Sep-13 38 Balance sheet Ensuring Eskom’s financial sustainability Capital expenditure Debt securities and borrowings Rm 236 780 26 053 26 020 23 440 213 360 178 487 Sep-11 Sep-12 Sep-13 Sep-11 Sep-12 Sep-13 Liquid assets at period end Debt and borrowings maturity profile1 Rm 54 334 Six months 46 325 43 191 to 10 years 2 44.5% 39 724 18 925 12 998 More than 10 years 52.3% 27 400 30 193 14 610 Within six Sep-11 Sep-12 Sep-13 months 3.1% Cash and cash equivalents Investment in securities 1. Represents the repayment of nominal capital and interest in the strategic and trading portfolio. Data as at 30 September 2013 2. Reflects the 10 financial years starting 1 April 2014 and ending on 31 March 2024 39 Debt maturity profile Ensuring Eskom’s financial sustainability Strategic and trading portfolio nominal and interest cashflows as at 30 September 2013 Rbn Rbn 40 350 35 300 30 250 25 200 20 150 15 100 10 5 50 0 0 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 Total capital Total interest Cumulative nominal capital total 40 Debt maturity and leverage Ensuring Eskom’s financial sustainability Gross debt / EBITDA ratio Funds from operations (FFO) 10.6 22 755 23 323 22 257 9.1 8.3 3.0 Sep-11 Sep-12 Sep-13 Investment grade Sep-11 Sep-12 Sep-13 target FFO as a % of gross debt Interest cover ratio 20.0 11.4 3.5 9.4 8.9 2.6 1.3 Sep-11 Sep-12 Sep-13 Investment Sep-11 Sep-12 Sep-13 grade target 41 Summary of reviewed cash flows Ensuring Eskom’s financial sustainability Rm Operations Investing Financing 29 475 (4 819) 19 625 (23 083) (4 224) 4 050 (14) 30 193 10 620 (1 437) 31 Mar 2013 Cash generated Capex Other investing Debt raised Debt repaid Net interest Investment in Other 30 Sep 2013 cash and cash by operations expenditure repayments securities financing cash and cash equivalents activities equivalents 42 Funding plan – R300 billion from 1 April 2010 to 31 March 2017 Ensuring Eskom’s financial sustainability This plan was based on the assumption of a 16% MYPD 3 increase and will need to be extended Amount Funding Currently Draw-downs supported by Source of funds sourced secured to date government R billion R billion R billion R billion Bonds 90.0 60.9 60.9 38.2 Commercial paper1 70.0 70.0 35.0 0.0 Export Credit Agencies 32.9 32.9 20.5 0.0 World Bank 27.8 27.8 10.3 27.8 AfDB 20.9 20.9 14.2 20.9 Development Bank of 15.0 15.0 8.0 0.0 Southern Africa Shareholder Loan 20.0 20.0 20.0 20.0 Other / new sources 23.4 18.4 4.3 4.9 Totals 300.0 265.9 173.2 105.9 Percentages 88.6%2 65.1%3 42.1%3 1. Commercial paper is issued for up to one year and then redeemed and re-issued 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 is shown under the “secured” column in the borrowing programme table above 2. As a percentage of the R300 billion funding sourced 43 3. As a percentage of the currently secured total Credit ratings Ensuring Eskom’s financial sustainability Fitch Standard & Rating Moody’s Poor’s Local Currency National Scale Foreign currency BBB Baa3 - AA+ Local currency BBB Baa3 BBB+ F1+ Stand-alone b- b1 B None Outlook Negative Negative Stable Stable Action Date 14 Oct 2013 19 Jul 2013 11 Jan 2013 16 Jan 2013 Affirmation Date 14 Oct 2013 19 Jul 2013 2 Aug 2013 2 Aug 2013 44 Concluding remarks Brian Dames Chief executive 45 Eskom has defined three strategic agendas Eskom sustainability framework Eskom’s Integrated Delivery Plan (IDP) I “New Build Programme” • Eskom will ensure renewed focus on Eskom reputation delivering on capacity expansion Transformation and projects – on time, within budget, and social sustainability to the right quality Asset II “Sustainable Asset Base and Meeting creation Demand” Text Opera- Environ- Text tional • Security of supply remains a key Eskom sus- mental mandate tain- concern calling for an integrated sustain- ability ability perspective on energy conservation, Financial demand management, and use of Text sustainability OCGTs Building a • Maintenance regime and refurbishment sustainable of network critical skills base III “Business Productivity Programme” • The tightened financial environment can only be dealt with through a sustained productivity improvement in all parts of the business – BPP delivers this 46 Conclusion • Power system – Eskom has kept the lights on through a challenging year – The power system will remain tight in summer. Summer is typically maintenance season, but this summer maintenance will increase based on the generation sustainability strategy as most of the maintenance is fixed and cannot be deferred – We can all help to keep the lights on by “Living Lightly” • MYPD 3 determination and the way forward – The reduced capital allocation will still deliver the existing capital expansion programme and the revised budget after reductions still aims to deliver on the eight strategic imperatives and Eskom‘s mandate – However, within the revised budget, there are certain strategic trade-offs and initiatives that Eskom will have to consider. The trade-offs will require a change in the approach to the operating and business model of Eskom • Capacity expansion programme – Special focus on bringing the first unit of Medupi online • Transformation – Initiatives have been implemented to transform Eskom and improve its operations 47 Awards and recognition Most Desired Company to Work For Sunday Times Second in Community Upliftment Sunday Times Second top company that does the most to look after the environment Sunday Times and natural resources Star Award for Operation Khanyisa Star Awards Voted Top Engineering Company by engineering students; second best Mail & Guardian by MBA and Professionals Winner of the Human Resources team of the year category Institute of Personnel Management Best presentation in market cap above R30 billion category Investment Analysts Society Nkonki SOC integrated reporting awards winner and ranked “excellent” Nkonki SOC awards & E&Y integrated by Ernst & Young reporting award Fourth most popular brand in South Africa Finweek Golden Key Award for best practice by a public institution SA Human Rights Commission Stars of Africa 2013 Gold Award for Eskom Contractor Academy: Stars of Africa 2013 incubation category Runner-up in 2013 Water Conservation and Water Demand Management Department of Water Affairs Sector awards (mining/industry/power) 2013 Boss of the Year - Ayanda Nakedi, Senior General Manager of the Boss of the Year award Renewables Business Unit Visionary CIO award - Sal Laher, CIO and Divisional Executive for Group IT Professionals South Africa IT division General Counsel of the Year - Willie du Plessis, General Manager (Legal African Legal awards Specialist) 48 Insert image here Thank you Insert image here