Integrated results for the year ended 31 March 2017 19 July 2017 This presentation is available at www.eskom.co.za/IR2017 Contents Overview of the year Financial performance Operating performance Conclusion 1 Overview of the year Progress on turnaround plan • Eskom’s turnaround plan continues to yield positive results: • Continued improvement in Generation performance • New build programme is delivering to plan • Financial profitability and liquidity has been restored • Surplus capacity currently exists and is projected to grow steadily over the next three years 3 Key highlights for the year Financial performance • EBITDA of R38 billion, representing an increase of 14.4% • Revenue increased by 7.9% to R177 billion • Own generation cost decreased by 8.5% to R60 billion, with total primary energy costs down by 2.3% • Cash generated from operating activities increased by 23.1% to R46 billion • Cost savings of R20 billion achieved against a target of R17 billion • 53% of funding for 2018 financial year has been secured 4 Key highlights for the year (continued) Operational performance • Generation plant performance improved significantly from 71.1% to 77.3% • Medupi Unit 5 synchronised, achieving commercial operation on 3 April 2017 (794MW installed capacity) • Medupi Unit 4 synchronised on 31 May 2017 • Kusile Unit 1 synchronised to the grid on 26 December 2016; achieved full load (800 MW) during March 2017 • All Ingula Units in commercial operation, adding 1 332MW installed capacity • 585.4km (2016: 345.8km) lines constructed and 2 300MVA (2016: 2 435MVA) transformers commissioned • 765kV network to Western Cape completed 5 Key highlights for the year (continued) Socio-economic performance • 207 189 (2016: 158 016) households were electrified • Procurement from B-BBEE compliant suppliers was 98% (2016: 82%) • Spend with black owned suppliers increased from 34% to 41% • Local content contracted from the new build programme was 86% • Procurement from black women-owned suppliers was 15%, exceeding the target of 12% • Employment of female employees in senior management positions increased from 28% to 37% 6 Financial performance Improved financial performance Financial performance Key financial ratios Cash interest cover Debt service cover Revenue R177bn EBITDA R38bn ratio 1.82 ratio 1.37 7.9% 14.4% (2016: 1.83) (2016: 1.14) Cash from Own primary FFO as % of gross Gross debt/EBITDA operations R46bn energy cost reduced debt* 5.2% ratio 10.8 23% by R5.6bn (2016: 5%) (2016: 11) Profitability Solvency R billion 3.0 73% 40 22% 71% 2.5 35 20% 69% 2.0 67% 30 18% 65% 25 16% 1.5 63% 20 14% 1.0 61% 59% 15 12% 0.5 57% 10 10% 0.0 55% 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 EBITDA EBITDA margin, % Debt Equity Gearing * After interest paid 8 Income statement for year ended 31 March 2017 YoY % R billion 2017 2016 change Revenue 177 164 8 Other income 2 2 (32) Primary energy (83) (85) 2 Net employee benefit expense (33) (29) (13) Net impairment loss (2) (1) (43) Other expenses (24) (19) (26) Profit before depreciation and amortisation and net fair value loss (EBITDA) 38 33 14 Depreciation and amortisation expense (20) (17) (22) Net fair value loss on financial instruments and embedded (2) (1) (280) derivatives Net finance cost (14) (8) (82) Profit before tax 1 8 (85) Income tax – (3) 90 Net profit for the year 1 5 (83) 1. Figures refer to the group’s results, which have been audited by the independent auditors, SizweNtsalubaGobodo Inc. 2. Figures for 2016 were restated. 9 Overall electricity sales volumes Electricity volumes % growth/(decline) & contribution: 2017 • International sales volume -10% -5% 0% 5% 10% 15% Contribution Redistributors 0.1% 42% growth of 12.1% due Eskom Residential (0.5%) 6% having surplus capacity Commercial 1.9% 5% Industrial (3.7%) 23% • Increase in commercial 1.9% Mining (0.2%) 14% Agriculture (5.7%) 3% • Decline in industrial 3.7%, Rail (0.1%) 1% International 12.1% and agriculture 5.7% Total (0.2%) 7% • Overall electricity sales Electricity volumes % growth/(decline) & contribution: 2016 volumes declined by 0.2%, -10% -5% 0% 5% 10% 15% Contribution Redistributors with local sales declining by 1% Residential (1.6%) 2.9% 42% 6% Commercial 5.2% 5% Industrial (6.2%) 24% Mining 2.1% 14% Agriculture 6.1% 3% Rail (7.9%) 1% International 12.2% 6% Total (0.8%) 10 Primary energy costs analysed: 2.3% decrease from 2016 2017 Primary energy cost analysis Year-on-year analysis % of cost R billion % of production 24% 3% R84.7 5% 4% 3% 4% (R2.4) 4% R8.4 73% 92% 92% 78% R1.0 2016 Primary energy cost analysis % of cost % of production (R4.7) 18% 4% 4% 4% 4% 4% (R0.3) 4% R82.8 78% 92% 92% 78% Eskom generation Own generation costs decreased by International purchases Independent power producers 8.5% from R66 billion to R60 billion 11 Increase of 35% in renewable IPP cost, at an average cost of R2 090/MWh Electricity cost, R/MWh Production volumes, GWh 4 000 8 000 44% 3 500 7 000 3 000 6 000 2 500 5 000 % increase 44% 2 000 4% 4 000 4% 50% 1 500 3 000 1 000 2 000 500 4% 1 000 35% 75% - - CSP Hydro Solar PV Wind Total Re- CSP Hydro Solar PV Wind Total Re- IPP IPP Actual March 2016 92% Actual March 2017 78% Actual March 2016 Actual March 2017 Production mix 7% 1% • Average year-on-year decrease in unit cost of 6%, from R2 230/MWh 52% in 2016 to R2 090/MWh 40% • IPP production volumes increased by 44% • Total increase in cost of 37% CSP Hydro Solar PV Wind 12 Financial position strengthened 31 March 31 March YoY % R million 2017 2016 1 change PPE and intangible assets 592 848 523 659 13 Working capital 43 954 43 615 1 Liquid assets 32 503 38 680 (16) Other assets 40 704 57 216 (29) Total assets 710 009 663 170 7 Equity 175 942 182 352 (4) Debt securities and borrowings 355 300 322 658 10 Working capital 51 860 52 360 1 Other liabilities 126 907 105 800 20 Total equity and liabilities 710 009 663 170 7 1. Figures for 2016 were restated. 13 Arrear debt and debtors ageing • Arrear debt by municipalities, including interest, increased from R6 billion to R9.4 billion • Payment arrangements (PA) were signed with 60 municipalities, with 20 fully honouring the PA and 11 partially • During the year 15 494 split meters were installed in Soweto and Kagiso with 13 255 converted to prepaid • 14 105 smart meters were installed in Midrand and Sandton; will be converted to prepaid meters Within % Electricity debtors age analysis, R million Total due date Overdue Overdue Large power users, excluding municipalities (including interest) 7 616 7 001 614 8 Large power users, municipalities (including interest) 15 258 5 852 9 406 62 Small power users (including interest) 2 481 1 521 960 39 Soweto (excluding interest) 5 314 55 5 259 99 Other customers (including interest) 1 704 994 710 42 Total at 31 March 2017 32 374 15 424 16 950 2017 2016 Average debtors days (all categories) 57.31 50.05 % increase 14.5% 14 53% of funding for 2018 financial year secured 2017 2018 R billion Committed Target Committed Domestic bond private placement 10.2 – – Signed DFIs 30.0 27.4 27.4 Signed ECAs 5.2 2.2 2.2 Swap restructuring 3.3 2.5 2.5 Subtotal funding secured 48.7 32.1 32.1 New DFIs – 12.1 – Domestic bonds 1.7 8.0 – Commercial paper 7.0 7.5 – New ECAs – 5.0 – International bonds – 7.0 – Funding secured 57.4 71.7 32.1 % secured 45% Available facilities 6.3 6.3 6.3 Total available funding 63.7 78.0 38.4 % available 53% ccc+ b3 B- 15 Operating performance Improved Generation operating performance Annual plant availability (EAF) • EAF improved to 77.3% from 71.1% the 90% previous year, exceeding target of 72% 85% • Unplanned breakdowns reduced from 80% 14.9% in 2016 to 9.9% in 2017 75% 70% • Both Koeberg units set performance 65% records 60% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 • Reduced reliance on OCGTs, with total of R340 million spent on OCGTs Annual PCLF and UCLF, % compared to R8.7 billion in 2016 30% • A total of 13.2Mt coal transported by 25% 20% rail, in line with previous year 15% • Since inception, a total of 5 027MW of 10% 5% IPPs connected to the grid, with 0% 3 110MW of renewables 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 PCLF UCLF 17 Continued improvement in network performance System minutes lost for events < 1 minute • Transmission performance for Minutes 5 system minutes lost <1 of 3.8 (2016: 4 2.41), against target of 3.8 3 • No major incidents occurred during 2 the year 1 0 • Distribution network performance 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 (SAIFI and SAIDI) remain within SAIFI / SAIDI performance acceptable limits Hours Events 80 • SAIFI achieved 18.9 events per year 70 60 (2016: 20.5) against a target of 20 50 40 • SAIDI achieved 38.9 hours (2016: 38.6) 30 20 against a target of 39 10 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 SAIFI SAIDI 18 Overview of new capacity being brought online FY 2015 – FY 2017 FY 2018 – FY 2022 Sere Wind Ingula Ingula Medupi Kusile Kusile Medupi Kusile Farm Unit 4 Unit 2 Unit 5 Unit 1 Unit 2 Unit 1 Unit 4 Mar-15  Jun-16  Aug-16  Apr-17  Jul-18 Jul-19 May-20 Mar-21 100 333 333 794 800 800 794 800 794 333 333 794 794 794 800 800 Medupi Ingula Ingula Medupi Medupi Medupi Kusile Kusile Unit 6 Unit 1 Unit 3 Unit 4 Unit 3 Unit 2 Unit 3 Unit 5 Aug-15  Aug-16  Jan-17  Jul-18 Jun-19 Dec-19 Aug-20 Nov-21 3 020 MW commissioned since 2015 & …7 970 MW to be commissioned over the next 5 9 157 MW commissioned since 2005 …. years 10 990 MW Future dates referred to the planned date for commercial operation 19 Other key operational performance Environment and safety • LTIR excluding occupational diseases worsened marginally from 0.27 in 2016 to 0.28 in 2017, but was within target of 0.30 • Employee and contractor fatalities reduced: 4 employees (2016: 4) and 6 contractors (2016: 13) • Relative particulate emissions improved to 0.30kg/MWh sent out (2016: 0.36) • Specific water consumption reduced to 1.42l/kWh (2016: 1.44) Equipment theft • High-value crime was targeted; success was achieved with 235 arrests • Progress was made in the arrest of syndicates targeting network infrastructure 20 Other key operational performance (continued) Socio-economic • Committed corporate social investment (CSI) spend up by 117% to R225 million (2016: R104 million) for the year • In total, 841 845 beneficiaries (2016: 302 736) benefited from the CSI programme, up by 178% • Procurement from B-BBEE compliant suppliers as a percentage of procurement was 98.3% (2016: 81.7%) • Achieved local content contracted of 73.4% compared to 75.2% the previous year • Total of 207 189 households (2016: 158 016) were electrified during the year, an increase of 31% compared to 2016 21 Other key operational performance (continued) Human resources performance • 2.9% of employees are people with disabilities • Racial equity in senior management of 65.8% and in professional and middle management of 73.5% • Good progress made with gender equity in senior management of 36.6% (2016: 28.1%) and in professional and middle management of 36% (2016: 35.1%) 22 Conclusion Our key focus areas for the 2018 financial year • Cohesion of the Exco team • Implementation of the Design-to-Cost strategy (DTC) • Governance, ethics and accountability • Stakeholder engagement • Communication 24 End This presentation is available at www.eskom.co.za/IR2017 25