Group Interim results for the six months ended 30 September 2015 Cover slide (same as IR cover) 24 November 2015 Contents Overview of Financial Operating Conclusion the period review performance 1 Sustainable power for a better future • Net profit for the period increased by 22% to R11.3 billion • Achieved 9% increase in EBITDA to R24.9 billion • Cash flow from operations of R23 billion, a 13% year-on- year increase • R46 billion of the R55 billion funding for the year secured which improved the liquidity position • Received first tranche of R10 billion of government equity injection, R13 billion expected by March 2016 • R60 billion Government loan converted to equity • External auditors did not raise going concern issues • Only 2 hours and 20 minutes of load shedding over the last 107 days, since 8 August 2015 2 Financial review Financial recovery continues, on the path to financial sustainability Financial performance Key financial ratios Interest cover Net profit up 22% EBITDA up 9% to EBITDA margin declined to 1.31 to R11.3bn R24.9bn sustained at 28% from 1.40 Debt/equity Primary energy Gearing improved Revenue up 8% improved to 1.50 cost up 7.7% to 60% from 66% from 1.90 Cash from BPP savings operations up 13% R8.9bn to R23bn 4 Financial sustainability Electricity volumes and revenue Operating performance R million GWh R million % 32 28 28 36 110 766 110 659 109 168 107 307 26 158 24 834 24 927 22 784 87 876 81 318 76 924 71 878 Sep-12 Sep-13 Sep-14 Sep-15 Sep-12 Sep-13 Sep-14 Sep-15 Revenue Sales volumes EBITDA EBITDA margin Funding our capital expenditure Solvency R million Ratio % 66% 64% 63% 29 475 60% 27 452 1.90 26 020 25 382 23 440 1.74 1.72 17 804 16 519 1.50 13 369 Sep-12 Sep-13 Sep-14 Sep-15 Sep-12 Sep-13 Sep-14 Sep-15 Capital outflows (excl capitalised borrowing costs) Debt raised to fund capital Debt/equity Gearing 5 Income statement for period ended 30 September 2015 Reviewed Reviewed period to period to 30 Sept 30 Sept YoY R million 2015 2014 % change Revenue 87 876 81 318 8% Other income 1 369 642 113% Primary energy (40 999) (38 065) (8%) Employee benefit expense (13 806) (13 176) (5%) Depreciation and amortisation (7 609) (6 672) (14%) Other operating expenses (8 845) (8 696) (2%) Profit before net fair value gain and net finance cost 17 986 15 351 17% Net fair value (loss)/gain on financial instruments (668) 761 Profit before net finance cost * 17 318 16 112 8% Net finance cost (3 498) (3 149) (11%) Share of profit of equity-accounted investees, net of tax 28 33 (15%) Profit before tax 13 848 12 996 7% Income tax (2 539) (3 675) 31% Net profit for the period 11 309 9 321 21% Loss for the period from discontinued operations – (34) Profit for the period 11 309 9 287 22% * EBITDA 24 927 22 784 9% 6 Sales and revenue • Electricity volumes continue to decline Electricity volumes by customer type1 (1.7% below prior year), largely caused by: Commercial and agricultural Mining 7.0%, [–] 14.4%, [+0.5%] o Sluggish economic growth Rail Residential o Warmer winter 1.4%, [–] 5.6%, [+0.2%] International o Depressed commodity prices 5.6%, [+0.1%] o Load shedding led to sales of 1 108GWh being foregone Municipalities Industrial 42.7%, [+0.6%] 23.3%, [-1.4%] Electricity revenue Cents/kWh 82.68 74.00 68.97 64.89 Sep-12 Sep-13 Sep-14 Sep-15 1. Percentages reflect the sales proportions for the current period. Percentages in brackets are for the change from the period to 30 September 2014. 7 Operating expenses under control • Overall increase of 7% in operating expenses Operating expenses compared to the previous period R million • Primary energy expenses increased by 7.7% year-on-year 5 130 5 356 3 715 3 340 • Employee benefit expenses increased by only 3 293 6 672 7 609 6 500 4.8% for the period 6 031 13 806 5 920 4 500 13 176 • Maintenance cost increased by 11.2% due to our 4 722 12 989 strategy to perform more planned 11 628 maintenance 38 065 40 999 31 266 • Other operating expenses showed a 4.2% 24 973 decline, due to cost-savings and efficiency initiatives under the BPP programme Sep-12 Sep-13 Sep-14 Sep-15 • Impairment on arrear debt normalised to Other operating expenses, including impairments (down 4.2%) 1.15% of revenue (September 2014: 0.92%) Repairs and maintenance (up 11.2%) Depreciation and amortisation expense (up 14%) Employee benefit expense (up 4.8%) Primary energy (up 7.7%) 8 Primary energy costs Primary energy cost increased by only 7.7% year-on-year Production source Primary energy cost breakdown R million IPPs Other Imports 3% 2% Environmental Other, 0% OCGT fuel 4% levy, 10% 3% Nuclear fuel 5% IPPs, 16% Coal, 52% Imports, 5% Coal OCGT fuel, 16% 83% Nuclear fuel, 1% 9 Financial position Growth in property, plant and equipment (PPE) funded by debt raised Reviewed Reviewed 30 Sept 30 Sept YoY % R million 2015 2014 change PPE and intangible assets 486 730 432 375 13% Liquid assets (including cash and cash equivalents) 24 104 22 609 7% Working capital 43 753 36 986 18% Other assets 63 534 42 364 50% Total assets 618 121 534 334 16% Equity 1 175 717 128 412 37% Debt securities and borrowings 297 449 264 915 12% Working capital 49 330 44 539 11% Other liabilities 95 625 96 468 (1%) Total liabilities 442 404 405 922 9% Total equity and liabilities 618 121 534 334 16% 1. Balance includes the R10 billion equity injection and conversion of the R60 billion shareholder loan to equity. 10 Arrear debt and debtors ageing Arrear municipal debt (excluding interest) R billion • Payment agreements signed with 12 000 50 defaulting municipalities, including 15 of the top 20 10 000 8 000 • Approximately 52% of the amount 6 000 outstanding from municipalities is within the due date 4 000 2 000 - Mar-14 Sep-14 Mar-15 Sep-15 Total municipal debt Total arrear debt Electricity debtors age analysis, R million Total 0-30 days 31-60 days > 60 days Large power users, excluding municipalities 8 164 7 795 96 273 Large power users, municipalities 11 660 6 759 2 677 2 224 Small power users 1 669 608 165 896 Soweto 9 761 294 269 9 198 Other customers 1 005 1 002 3 1 Total at 30 September 2015, gross amount 32 260 16 458 3 210 12 592 % of gross amount 100% 58% 4% 38% 11 Abridged cash flow statement Restated Reviewed Reviewed 30 Sept 30 Sept YoY % R million 2015 2014 change Net cash from operating activities 23 040 20 368 13% Net cash used in investing activities (26 518) (26 498) – Net cash from/(used in) financing activities 7 430 (625) 1 189% Movement for the period 3 952 (6 755) Cash and cash equivalents at beginning of the period 8 863* 19 676** (55%) Foreign currency translation (5) 17 (129%) Effect of movements in exchange rates on cash held 36 15 140% Cash and cash equivalents at the end of the period 12 846 12 953 (1%) Total liquid assets (including cash and cash equivalents) 24 104 22 609 7% * As at 31 March 2015 ** As at 31 March 2014 12 Through adequate funding, we maintained operations and capital commitments R million 23 040 (5 594) (10 503) 10 000 (2 298) 24 302 (24 419) 24 104 17 359 24 104 16 519 8 863 (117) Mar-15 Cash Debt repaid Interest paid Balance before Capital Balance before Funding Share capital Other Sep-15 Liquid assets generated investing expenditure funding raised issued Liquid assets from (incl future operating fuel) activities 13 Operating performance Generation fleet performance starting to stabilise Planned maintenance (PCLF) • There has been an increase in planned maintenance % 13.33 and Generation implemented the Tetris maintenance planning tool supporting the 8.96 execution of more planned maintenance without 7.86 8.73 load shedding • Plant availability (EAF) has improved to 74.4% as on 16 November 2015 due to the positive impact of planned maintenance Sep-12 Sep-13 Sep-14 Sep-15 • Balancing supply and demand remained a challenge for the first quarter of the financial Plant availability (EAF) period. The second quarter showed significant % 81.18 improvement with only 2 hours and 20 minutes of 78.42 76.77 74.40 70.39 load shedding from 8 August until 30 September 2015 • System stability has improved since August 2015 • Partial load losses have reduced easing pressure on the constrained power system Sep-12* Sep-13* Sep-14* Sep-15* on 16-Nov • Plant utilisation remains high at 84.77% * = average for the period 15 Securing Eskom’s resource requirements Coal stock days • A total of 57.27Mt of coal burnt during the period 57 53 44 46 • The interim solution after the collapse of the main coal silo at Majuba Power Station has been completed; work has commenced on a permanent solution • Migration of coal deliveries from road to rail Sep-12 Sep-13 Sep-14 Sep-15 slightly below prior year due to tippler problems at Majuba Road-to-rail migration Mt 6.57 6.21 5.40 5.00 Sep-12 Sep-13 Sep-14 Sep-15 16 Network technical performance improves further • Excellent Transmission performance with System minutes lost < 1 minute system minutes lost at 1.00 1.53 1.57 • Energy losses shows improvement to 8.63% 1.00 • System interruption duration (SAIDI) continues to improve from 37.7 to 35.6 hours 0.62 per annum • System interruption frequency (SAIFI) Sep-12 Sep-13 Sep-14 Sep-15 continues to improve from 20.5 interruptions to 19.6 Interruption duration (SAIDI) • More planned maintenance undertaken, which 43.9 improves network reliability 37.3 37.7 35.6 • Network risks remain, with ageing assets and vulnerabilities due to network unfirmness Sep-12 Sep-13 Sep-14 Sep-15 17 Supplementary supply adds to generation capacity Energy purchases from IPPs • 3 267MW of independent power producers (IPPs) GWh (2 021MW RE-IPPs and 1 246MW other) connected 3 998 to the grid at an average load factor of 28.5% 2 665 • A total of 5 817MW contracted with IPPs, of which 1 685 1 866 3 900MW under DoE’s RE-IPP programme • Bid quotes for window 3.5 and 4.1 bid issued to IPPs Sep-12 Sep-13 Sep-14 Sep-15 • Dispatchable load of 1 463MW is available under the demand response programme, assisting in balancing supply and demand OCGT production GWh • Open-cycle gas turbine (OCGT - diesel) is still being 2 961 used to supplement generation capacity • Balancing supply and demand remained a 1 206 challenge for the first quarter of the financial period. 1 164 The second quarter showed significant improvement 417 with only 2 hours and 20 minutes of load shedding from 8 August until 30 September 2015 Sep-12 Sep-13 Sep-14 Sep-15 18 Progress on the new build programme Megawatts MW of capacity 794 261 120 100 7 031 5 756 Transmission km lines 318.6 102.2 810.9 787.1 3 899 5 918 Substations MVAs 2 090 1 120 3 790 3 580 20 195 30 775 Inception to Mar-13 Mar-14 Mar-15 Sep-15 Total to date Mar-12 19 We remain focused on bringing new capacity online P80 dates CO = commercial operation CO in Mar 2015 CO in Aug 2015 CO by Mar 2017 CO by Jul 2017 CO by Jul 2018 100 794 333 333 800 Mar 2015 Aug 2015 Mar 2017 Jul 2017 Jul 2018 5 620MW Sere Wind Farm Medupi Unit 6 Ingula Unit 4 Ingula Unit 1 Kusile Unit 1 Post MYPD 3 Mar 2015 Jan 2017 May 2017 Mar 2018 2019/20 Majuba recovery Ingula Unit 3 Ingula Unit 2 Medupi Unit 5 Duvha Unit 3 1200 333 333 794 600 600MW from Unit 3 gap CO by Jan 2017 CO by May 2017 CO by Mar 2018 Fully recovered solution in Feb 2015 Project falls outside 600MW from Unit 4 in MYPD3 window Mar 2015 20 Environmental compliance is critical to our sustainability • Relative particulate emissions performance has Relative particulate emissions kg/MWhSO remained stable over the last 4 years 0.33 0.33 0.34 0.31 • Specific water consumption improved slightly since prior period and year end • Stations have reported 12 incidents under NEMA Section 30, and operated under the exemption for 5% of the time, highlighting the challenge posed by Sep-12 Sep-13 Sep-14 Sep-15 Atmospheric Emission Licences • Limits on ashing storage space may impact Specific water consumption security of supply in future; being addressed in l/kWhSO technical plans 1.35 1.40 1.37 1.33 Sep-12 Sep-13 Sep-14 Sep-15 21 Safety and security are central to our overall performance LTIR performance • Lost-time injury rate (LTIR) performance 0.40 worsened slightly compared to the prior period 0.35 0.36 0.32 • The number of fatalities – employee, contractor and public – have increased against the prior period, and remain unacceptably high • Public fatalities, mainly from electrical contact and motor vehicle accidents, remain a key focus area Sep-12 Sep-13 Sep-14 Sep-15 • Implementation of a strategic response to the 2014 Construction Regulations, which imposed Fatalities additional safety compliance responsibilities, is in 2 progress 8 1 2 1 6 9 10 23 7 10 10 Sep-12 Sep-13 Sep-14 Sep-15 Public Contractors Employees 22 Internal transformation and skills development • 783 temporary employees were permanently Headcount (including FTCs) appointed in line with the requirements of the Number Labour Relations Act amendments 46 624 46 370 46 687 44 913 • Racial and gender equity at senior, middle management and professional levels show significant progress over the past five years • We continue to contribute to building skills in South Africa, through our learner pipeline, job Sep-12 Sep-13 Sep-14 Sep-15 creation under the new build programme and other skills development initiatives Number of learners 2 518 2 040 2 000 2 042 822 733 808 908 2 052 2 269 1 817 1 268 Sep-12 Sep-13 Sep-14 Sep-15 Engineering learners Technician learners Artisan learners 23 Eskom’s socio-economic contribution B-BBEE compliant spend % • Good performance against overall B-BBEE 90.50 87.80 87.59 compliant spend, and maintained solid 72.50 performance spend on certain categories of suppliers (black-owned and black youth-owned suppliers) • Eskom Development Foundation committed R63.1 million which benefited 49 867 Sep-12 Sep-13 Sep-14 Sep-15 beneficiaries Number of electrification connections • We electrified a total of 41 778 households Number during the period 57 534 53 135 41 778 32 216 Sep-12 Sep-13 Sep-14 Sep-15 24 Conclusion The way forward… • Eskom is driving several initiatives to ensure its turnaround • Cost efficiencies are targeted, particularly through lower coal cost escalation • Our liquidity position improved, through funding raised and the equity injection by the shareholder • We remain focused on delivering on our capital expansion programme • We will continue to supply the country’s electricity and maintain our plant – no load shedding is anticipated 26 Insert image here Insert image here Thank you 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. 28