The group’s condensed interim financial statemens are available on Eskom’s website at www.eskom.co.za/IR2016/interim Group reviewed interim results for the six months ended 30 September 2016 Surplus capacity available to support economic growth Revenue increased by 10.5% year-on-year to R97.1 billion Plant availability increased to 78.49% Almost 15 months of no load shedding to EBITDA increase of 23.1% to R31.5 billion Ingula Units 4, 2 and 1 in commercial operation, November 2016 Cash flow from operating activities increased by adding 999MW of peaking capacity Electrification connections increased by 139% 38.6% to R31.9 billion Medupi Unit 5 synchronised to the national grid on to 99 869 86% of funding for the year secured 8 September 2016 (794MW installed capacity) Business overview Operating performance Outlook During the six months ended 30 September 2016, Eskom continued to further stabilise the business There has been a significant improvement in plant availability compared to the previous period. Plant Eskom currently has excess capacity, which is projected to grow steadily over the next three years. with improved operational and financial performance, with almost 15 months of no load shedding. availability improved from 71.23% for the six months to September 2015, to 78.49% for the six months We call on customers to increase their consumption and engage Eskom proactively to take advantage Eskom is now delivering excess electricity capacity, so it will not be a constraint to South Africa’s future to September 2016, exceeding the year-end target of 72%. Unplanned breakdowns have improved from of the excess capacity situation. growth. Our five year plan to 2020/21 aims to re-establish Eskom as a catalyst for growth. 14.75% for the six months to September 2015 to 9.73% in the current period. Unplanned outages due to tube leaks have decreased by 32.8%. Partial load losses have improved and the energy lost due to Our five year plan is grounded on the “design-to-cost” paradigm, which is underpinned by two maxims, partial load losses has decreased by 37%. The higher level of planned maintenance in the previous year namely cost optimisation and moderate price increases. Achieving this paradigm shift will require us to: is starting to bear fruit. Condensed group interim financial information • Continue the turnaround in Generation performance by increasing plant availability (EAF) to 80% As a result of this increased availability and the additional generating capacity added, the reliance on Condensed income statement by 2020/21 open-cycle gas turbines (OCGTs) has reduced considerably. Diesel usage decreased from R6.7 billion in • Deliver the new build programme within the latest schedule, by completing Ingula by 2017, Medupi by for the six months ended 30 September 2016 the six months to September 2015 to R288 million in the current period. 2020 and Kusile by 2022; and optimise the capital portfolio through prioritisation based on our core Restated business Coal stock increased to 76 days at 30 September 2016 (September 2015: 57 days), as part of a risk Sept 2016 Sept 2015 Movement mitigation strategy. A total of 6.6Mt coal was transported by rail (September 2015: 6.2Mt). Rm Rm % • Increase electricity sales volumes • Ensure revenue certainty through the RCA regulatory mechanism and preparation for MYPD 4 Particulate emissions performance has improved compared to the previous period, to 0.29kg/MWh Continuing operations • Direct a cost containment effort focused on primary energy, manpower and other external spend to sent out (September 2015: 0.34kg/MWhSO). Water usage related to power station operations for the Revenue 97 131 87 876 11 ensure long-term sustainability of the business period was 1.45ℓ/kWhSO (September 2015: 1.37ℓ/kWhSO), worse than target and the prior period Other income 752 1 369 (45) performance. Water usage at coal-fired stations remains high, partially due to the dry hot weather Primary energy (40 380) (40 999) 2 • Strengthen and stretch the balance sheet in the short term, while establishing long-term stability resulting in higher evaporation, although certain operational issues also need attention. Net employee benefit expense (15 758) (13 806) (14) • Ensure regulatory and legal compliance in order to maintain our licence to operate and promote Net impairment loss (615) (122) (404) a sustainable business, including environmental and N–1 grid compliance At 30 September 2016, total IPP capacity of 4 793MW was available to the system (September 2015: 3 268MW). This included renewable IPPs of 2 879MW, IPP peakers of 1 005MW and short-term IPPs Other expenses (9 634) (8 723) (10) • Deliver on Government’s strategic objectives by meeting targets on transformation, facilitating the of 909MW. In total, we purchased 4 948GWh from IPPs (September 2015: 3 998GWh), at an average Profit before depreciation and entry of independent power producers (IPPs) and other key initiatives cost of 191c/kWh. Renewable IPPs delivered energy at an average load factor of 30.2% (September 2015: amortisation and net fair value loss 31 496 25 595 23 28.5%) over the six months, at an average cost of 218c/kWh. (EBITDA) Financial performance Transmission system minutes lost less than 1, of 2.74 system minutes lost, is below expectations for Depreciation and amortisation expense (9 998) (7 609) (31) Revenue amounted to R97.1 billion for the six months to September 2016 (September 2015: R87.9 billion), Net fair value loss on financial an increase of 10.5%, due to the NERSA-approved price increase in 2016, supported by a marginal the six months to September 2016 (September 2015: 1). Year-to-date performance has been impacted (1 875) 3 – by a few relatively large incidents involving plant failures. The Distribution system average interruption instruments increase in sales volumes. Net finance cost (6 535) (3 498) (87) frequency index of 19.8 events (September 2015: 19.6) and system average interruption duration index Electricity sales of 108 576GWh (September 2015: 107 307GWh) were 1.2% higher than the comparative of 38.3 hours (September 2015: 35.6) are better than target; an improvement in performance has been Share of profit of equity-accounted 18 28 (36) period. The net growth is made up of a decline in local sales volumes of 0.6%, coupled with an increase seen since March 2016. investees, net of tax in energy exports. A strategy to address the decline in local sales volumes has commenced, and will Operation Khanyisa, the Eskom-led anti-electricity theft campaign, is steadily making progress. Since Profit before tax 13 106 14 519 (10) address both the retention of sales to existing customers and the stimulation of sales growth. The 2013, the campaign has helped reduce Eskom’s distribution losses from 7.12% to 5.81%. This translates Income tax (3 750) (4 172) 9 strategy, still in its infancy, addresses cross-border sales, local demand stimulation, public-private to about R1.4 billion savings every year. The campaign has helped to recover R618 million in previously Profit for the period 9 356 10 347 (10) partnerships, corporate development and unregulated revenues. unbilled revenue over the same period, and resulted in the arrest of 50 electricity theft suspects and the opening of 26 cases on the court roll. International sales have increased by 31.6% to 7 841GWh. Non-firm sales are being made to Zambia and Zimbabwe. Eskom was also able to increase exports to Namibia, Botswana and Swaziland. These Despite our commitment to safety, we sadly experienced one employee and four contractor fatalities Condensed group statement of financial position sales are made mainly during off-peak hours, but with the increasing excess capacity, sales are also made during the period (September 2015: two employees and nine contractors). The Board of Directors and at 30 September 2016 during peak hours. Eskom has ensured that sales contracts with SAPP trading partners are sufficiently employees of Eskom convey their sincere condolences to the affected families. Restated flexible to allow supply to be restricted during emergency situations in South Africa, if required. Sept 2016 Sept 2015 Movement Capacity expansion programme Rm Rm % With the anticipation of additional surplus capacity in the coming months and years, Eskom is focusing Eskom is building new power stations and high-voltage power lines to meet South Africa’s growing Assets on signing long-term power supply agreements with regional partners. Engagements with utilities and energy demand. The capacity expansion programme will increase Eskom’s generating capacity by mining houses active in the region have commenced. Property, plant and equipment and 17 384MW by 2022, and includes one pumped storage and two coal-fired power stations. 554 555 486 730 14 intangibles Primary energy costs of R40.4 billion (September 2015: R41 billion) decreased by 1.5%, compared Units 4, 2 and 1 at Ingula Power Station have been in commercial operation since 10 June, 22 August and Liquid assets 43 766 24 104 82 to an average increase of 18.8% over the last five financial years, reversing a significantly negative 30 August 2016 respectively. The remaining unit at Ingula (Unit 3) has already been synchronised to the Working capital 44 119 43 753 1 trend. Own generation costs of R26 billion (September 2015: R28.2 billion) generated 110 170GWh grid, and is undergoing repairs after experiencing problems during the test phase. The unit is on track Other assets 46 640 57 145 (18) (September 2015: 109 245GWh). Independent power producers (IPPs) generated 4 948GWh for commercial operation by 2017. Total assets 689 080 611 732 13 (September 2015: 3 998GWh) at a cost of R8.7 billion (September 2015: R6.5 billion). Eskom spent The commercial operation of the three units at Ingula has added an extra 999MW of peaking capacity, Equity 186 581 171 117 9 R4.2 billion and R1.4 billion respectively on the environmental levy and international electricity contributing to ensuring security of power supply for South African homes and businesses. Besides Liabilities purchases (September 2015: R4.1 billion and R2.1 billion). being a catalyst for economic growth, a stable power supply will also enable Eskom, together with Debt securities and borrowings 332 920 297 449 (12) municipalities, to roll out electrification programmes to make life easier for millions of households who Business productivity cash savings of R8 billion (September 2015: R8.9 billion), against a year-end target Working capital 49 647 49 330 1 currently rely on other fuel sources for domestic cooking and heating. of R17 billion, have been achieved during the six months. Inception-to-date savings at 30 September 2016 Other liabilities 119 932 93 836 (28) amount to R36.4 billion against a target of R34.3 billion. Unit 6 of Medupi Power Station has been in commercial operation since August 2015. Unit 5 was Total liabilities 502 499 440 615 (14) synchronised to the national grid on 8 September 2016, at which time the Minister of Public Enterprises, The group EBITDA of R31.5 billion has increased significantly by 23.1% (September 2015: R25.6 billion). Ms Lynne Brown, congratulated Eskom’s inspirational leadership for getting the build programme back Total equity and liabilities 689 080 611 732 (13) The EBITDA margin improved to 32.7% (September 2015: 32.5%). on track. The synchronisation of Unit 5 marks a key milestone towards the full commercial operation of the unit ahead of its scheduled commercial operation in March 2018. Good progress is also being Depreciation increased by 31.4% to R10 billion (September 2015: R7.6 billion) due to the generation and made on Unit 4 of Medupi. Condensed group statement of cash flows transmission plant placed into commercial operation since August 2015. A net fair value loss on financial for the six months ended 30 September 2016 instruments of R1.9 billion was recorded for the period (September 2015: R3 million profit, restated), Eskom’s Group Chief Executive, Brian Molefe said: “The Medupi Unit 5 synchronisation is a clear indication that we are on track on delivering the entire new build programme to the country. This Restated impacted by exchange and interest rates. An increase in the gross interest expense and a reduction in Sept 2016 Sept 2015 Movement borrowing cost being capitalised, resulted in an increase in net finance cost of 86.8% to R6.5 billion milestone further strengthens our position that load shedding is becoming a thing of the past. I am thrilled by this achievement. Eskom has turned a corner.” Rm Rm % (September 2015: R3.5 billion). Net cash from operating activities 31 933 23 040 39 The Kusile Power Station project is making significant strides. Unit 1 continues to achieve set milestones, The group achieved a net profit after tax of R9.4 billion (September 2015: R10.3 billion, restated) for the Net cash used in investing activities (29 276) (26 518) (10) on the path to commercial operation by the second half of 2018. Key milestones achieved include the period ended 30 September 2016. completion of the chemical clean in August 2016 and first fire using oil in September 2016. The Kusile Net cash from financing activities (837) 7 430 (111) project has mechanically completed and commissioned the first wet flue gas desulphurisation, thereby Cash and cash equivalents at the Funding beginning of the period 28 454 8 863 221 being the first to install the technology, not only in South Africa, but the continent of Africa. Unit 2 is The group’s net cash inflow from operating activities was R31.9 billion for the period (September 2015: progressing well. The project completed hydro-testing of the Unit 2 boiler on 1 October 2016, which Foreign currency translation (10) (5) (100) R23 billion), representing an increase of 38.6%. Cash flows used in investing activities amounted to will positively influence the achievement of boiler registration. Effect of movements in exchange rates R29.3 billion (September 2015: R26.5 billion). Refer to the section on the capacity expansion programme 22 36 (39) on cash held for the progress on the build programme. While the construction of Transmission substations is on target, the construction of lines is behind Non-current assets held-for-sale (25) – – target, mainly due to delayed permits and licences, difficult construction terrain, adverse weather and The group’s liquidity position has improved significantly, with liquid assets increasing by 81.6% from contractor performance hampering progress. Eskom has revised the schedules of these lines in to Cash and cash equivalents at the end 30 311 12 846 136 R24.1 billion a year ago, to R43.8 billion at 30 September 2016. The group has access to adequate achieve the year-end target. of the period resources and facilities to continue as a going concern for the foreseeable future. Investment in securities 13 455 11 258 20 Empowerment and CSI Eskom has secured funding of R78 billion for financial years 2016/17 and 2017/2018. For the current Liquid assets at the end of the period 43 766 24 104 82 Procurement from B-BBEE compliant suppliers achieved 65.38% (September 2015: 87.59%) of financial year, 86% of the R69 billion funding requirement has been secured. This includes three loan total measured procurement spend, which included spend with black-owned suppliers of 30.18% facilities with the African Development Bank amounting to R20 billion, a R7 billion short-term credit (September 2015: 38.03%). The large reduction in the performance in the current year is due to the facility with the China Development Bank, as well as committed facilities of R7 billion. The remaining large number of suppliers being without a valid B-BBEE certificate, due to changes to the Codes during 14% required for the year, which constitutes R10 billion, will be raised through domestic medium-term the period. Mechanisms to collect valid certificates are in place, to ensure that year-end targets are notes, commercial paper, development financing and export credit agreements. achieved. A total of 80.4% of Eskom-wide procurement was committed to local content, against a Condensed group interim financial Disclaimer target of 70%. statements This announcement does not constitute an On 14 September 2016, Moody’s announced its decision to place Eskom on credit review. At 30 September 2016, 61.67% of senior management were black (September 2015: 61.32%), while The condensed group interim financial offer to sell or an invitation of any offer Debt management 28.5% of senior management were female (September 2015: 27.83%). Eskom has developed an ambitious statements have been prepared under the to buy securities of Eskom Holdings SOC and rigorous gender equalisation plan which strives to close the gender gap by 2020, through the supervision of the Chief Financial Officer, Mr Ltd (Eskom) or any of its subsidiaries in Municipal arrear debt increased from R5.6 billion at 30 September 2015 to R9.2 billion at Eskom Women Advancement Programme (EWAP). It is envisaged that opportunities which arise due Anoj Singh CA(SA), and reviewed by the group’s any jurisdiction. Certain statements in this 30 September 2016. Eskom is considering the prepaid billing as a way of dealing with the growth to attrition will be targeted and reserved for women. Employees with disabilities constitute 2.75% of independent auditors, SizweNtsalubaGobodo announcement regarding Eskom’s business in municipal electricity debt. The provision for arrear debt for municipalities has increased by the workforce, and there are 3 569 learners in the pipeline. Inc. The reviewed condensed interim financial operations and financial position may R2.5 billion since September 2015. statements of the group, together with the constitute forward-looking statements, Eskom committed R74.7 million to corporate social investment during the period (September 2015: Soweto outstanding debt (excluding interest) increased from R4.6 billion at 30 September 2015 to R63.1 million), impacting 120 246 beneficiaries (September 2015: 49 867), an increase of 143.3%. unmodified review opinion, are available for which are not intended to be a guarantee R5.2 billion at 30 September 2016. Eskom is currently installing prepaid meters in Sandton, Midrand, Two trusts funded by the Eskom Foundation in the current year contributed a significant number of inspection at Eskom’s registered office and on of future results but instead, constitute Soweto, Kagiso and other areas around Gauteng. This is in order to increase revenue collection and beneficiaries. www.eskom.co.za/IR2016/interim. Eskom’s current expectations based on address Eskom’s debt collection challenges. In Soweto, Sandton and Midrand, we installed 12 123 smart reasonable assumptions. Actual results could Eskom electrified 99 869 households during the six months (September 2015: 41 778), an increase of The condensed group interim financial meters from April 2016 to date. We aim to install 18 000 prepaid meters in Soweto, Sandton and differ materially from those projected in our 139%. The implementation of the new performance centre established at our head office in Megawatt statements were approved by the Board of Midrand for the year ending March 2017. forward-looking statements due to risks, Park, which focuses solely on the delivery of electrification, has enabled the significant increase in Directors on 27 October 2016. There were no uncertainties and other factors. connections. Eskom is gearing itself up for even better results over the rest of the year, during which significant events after the reporting date which Economic regulation impact these results. focus will be placed on building required infrastructure, while also continuing to electrify households NERSA allowed Eskom additional revenue of R11.2 billion for the 2016/17 financial year in respect of the across the country. Eskom is aiming to achieve 200 204 connections by year end, against the target of Regulatory Clearing Account (RCA) application for 2013/14. 169 722 set by the Department of Energy. The Port Elizabeth Chamber of Commerce appealed against the decision by NERSA, after which Governance Eskom Holdings SOC Ltd the North Gauteng High Court set aside NERSA’s decision and remitted it back to NERSA. NERSA Mr Romeo Kumalo and Ms Mariam Cassim resigned as directors, on 12 and 14 April 2016 respectively. Reg No 2002/015527/30 and Eskom announced that they will appeal the ruling. The 2016/17 tariff to direct customers and Ms Nazia Carrim and Ms Viroshini Naidoo did not make themselves available for reappointment as municipalities will remain in force. Head office directors at the annual general meeting on 1 July 2016. No new appointments were made to the Board Megawatt Park Maxwell Drive Sunninghill Sandton Eskom applied for further RCA adjustments for the 2014/15 and 2015/16 financial years, amounting to at the annual general meeting. PO Box 1091 Johannesburg 2000 R19.2 billion and R23.6 billion respectively, through the MYPD methodology. These have now been During May 2016, Ms Elsie Pule was appointed as Group Executive: Human Resources. Mr Sean Maritz Tel +27 11 800 2775 www.eskom.co.za placed on hold by NERSA due to the court case. Eskom will submit a revenue application in due course. was appointed as Group Executive: Information Technology with effect from 1 June 2016. . HKLM 1167