Integrated Results Presentation for the year ended 31 March 2013 10 July 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 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 Audited financial results Paul O’Flaherty Construction Paul O’Flaherty Operations Brian Dames Concluding remarks Brian Dames 3 Executive summary Brian Dames Chief Executive Executive summary • Safety – Safety improved, but continues to be of primary focus • Power system – No load shedding since April 2008, despite an extremely tightly balanced power system – Severe winter weather impacted the supply to customers in some provinces, but Eskom‟s preparedness helped to mitigate the risk – Tight power system meant we did not do as much maintenance as required, although more was done than in the previous year • MYPD 3 determination – Need to re-engineer the business to work within the revenue allowed by NERSA • Capacity expansion programme – Installed 261MW of additional generation capacity, 787km of high-voltage transmission lines and 3 580MVA of new transformer capacity during the year to March 2013 – Significant challenges remain with Medupi • Business results – Results reflect the impact of the 16% tariff increase granted by NERSA for 2012/13 (originally 25.9%) and the declining demand for electricity, due to lower economic growth and industrial unrest – Profits are reinvested in full in Eskom‟s business, helping to fund the capacity expansion programme and to service debt • Funding – Secured 82.9% of the funding required for the capacity expansion programme – Credit rating downgrades highlight the need for Eskom to be financially sustainable 5 Eskom has the advantages and challenges of all large-scale enterprises Eskom electricity sales by customer for the • Strategic 100% state-owned electricity utility, year ended 31 March 2013 (2012) Commercial and 6.8%, Mining 14.6%, strongly supported by the government agricultural (6.4%) (14.5%) • Top 15 global electricity utility Rail 1.4%, Residential 4.8%, (1.4%) (4.7%) • Africa‟s largest electricity utility Foreign • Supplies approximately 95% of South Africa‟s 6.4%, (5.9%) electricity • For the year ended 31 March 2013: – Electricity sales of 216 561GWh (2012: Industry 224 785GWh) and electricity revenues of 23.8%, (26.1%) R126.7 billion (2012: R113.0 billion) 42.2%, (41.0%) • As at 31 March 2013 : Municipalities – 46 266 group employees (2012: 43 473) – 5.0 million customers (2012: 4.9 million) Generation capacity– 31 March 2013 – Net maximum generating capacity of Hydro 41.9GW (2012: 41.6GW) – 373 280km of cables and power lines Pumped Storage Coal – Moody‟s and S&P ratings: Baa3 and BBB 1.4% 3.4% respectively with a negative outlook 4.4% 41.9GW of nominal 85.0% – 17.1GW of new generation capacity by 5.8% capacity 30 September 2018, of which 6.0GW Nuclear already commissioned 6 Gas Eskom‟s strategic pillars support our purpose 7 Performance against shareholder compact Target Target Actual Actual Actual Key performance Key performance indicator Unit March achieved March March March areas * 2013 2013 2012 2011 Load Management of national shedding No n No No No Keeping the supply / demand constraint (Yes/No) lights on DSM energy efficiency GWh 1 827 n 2 244 1 422 1 339 Internal energy efficiency GWh 20.0 n 28.9 45.0 26.2 UCLF % 6.00 n 12.121 7.97 6.14 Improving SAIDI Hours 47.00 n 41.89 45.75 52.61 operations System Minutes <1 Minutes 3.40 n 3.52 4.73 2.63 Generation capacity installed MW 260 n 261 535 315 and commissioned Delivering capital Transmission lines installed Km 900 n 787 631 443 expansion Transmission capacity MVA 3 545 n 3 580 2 525 5 940 installed and commissioned Reducing Relative particulate emissions kg/MWh 0.30 n 0.35 0.31 0.33 Eskom‟s environmental footprint Water usage per kWh sent out L/kWh 1.32 n 1.42 1.34 1.35 1. The 12.12% cumulative UCLF consists of energy losses of 7.54% (excluding losses due to the Duvha Unit 4 outage, emission control and short-term outages) plus energy losses of 1.17% for the Duvha Unit 4 outage and energy losses of 3.41% due to decisions by management for emission control and short-term outages * Key: n 2012/13 performance exceeded the target for the year 8 n 2012/13 performance did not meet the target for the year Performance against shareholder compact – (continued) Target Target Actual Actual Actual Key performance Key performance indicator Unit March achieved March March March areas * 2013 2013 2012 2011 Maximising Local content in new build % 52.0 n 80.2 77.2 79.7 socio-economic contracts contribution % of B-BBEE spend % 70.0 n 86.3 73.2 52.3 Implementing coal haulage and Coal road-to-rail migration Mt 12.2 n 10.1 8.5 7.1 the road-to-rail migration plan Pursuing private ISMO ring-fenced and set-up sector Yes/No Yes - - - - subsidiary participation Cost of electricity1 R/MWh 481.6 n 496.3 374.2 296.4 Ensuring Interest cover Ratio 0.72 n 0.272 3.27 1.40 financial Debt /equity Ratio 2.10 n 1.96 1.69 1.66 sustainability Free funds from operations % 8.00 n 8.04 15.15 9.51 as % of total debt - group Engineers Number 1 949 n 2 144 2 273 1 335 Building strong Technicians Number 757 n 835 844 692 skills Artisans Number 2 543 n 2 847 2 598 2 213 Youth programme Number 5 000 n 5 701 5 159 n/a * Key: n 2012/13 performance exceeded the target for the year n 2012/13 performance did not meet the target for the year n The original budget was revised to include the front-end loading of the integrated demand management (IDM) expenditure. The final budget numbers for the cost of electricity (excluding depreciation) was 508.9 R/MWh and for interest cover 0.34 1. Cost of electricity (excluding depreciation, but including immediate priorities) 2. The interest cover ratio includes the unwinding of interest, but excludes the impact 9 of the remeasurement of the government loan of R17.3 billion income Triple bottom line: socio-economic • Eskom‟s direct impact on South Africa‟s GDP as a result of its operational and capital expenditure is approximately 3% • B-BBEE1 attributable spend amounted to R103.4 billion or 86.3% of total measurable spend for the year (2012: R72.1 billion or 73.2%) – BO2 attributable spend amounted to R26.5 billion or 22.1% of total measurable spend for the year (2012: R14.4 billion or 14.8%) – BWO3 attributable spend amounted to R5.7 billion or 4.7% of total measurable spend for the year (2012: R3.3 billion or 3.6%) – BYO4 attributable spend amounted to R1.2 billion or 1.0% of total Supplier measurable spend for the year development • Job creation – 35 759 (2012: 28 616) individuals working on new build and project sites, since 2005 of which 16 100 (2012: 13 954) are employed localisation from the local districts • Since the inception of the build programme, 6 851 (2012: 5 915) individuals have completed their skills development training and 2 763 (2012: 2 342) are currently in training • 80.2% local content in the new build contracts placed for the financial year (2012: 77.2%) • Since the inception of the respective new build projects, the total local content committed by the Eskom supplier network amounted to R85.9 billion or 62.8% of the total contract values awarded in the build projects 1. B-BBEE - Broad-Based Black Economic Empowerment 2. BO – Black Owned 10 3. BWO – Black Women Owned 4. BYO – Black Youth Owned Triple bottom line: socio-economic (continued) • A total of 144 558 (2012:155 213) homes were electrified during the year to 31 March 2013 Electrification • Since inception of the electrification programme in 1991, a total of more than 4.3 million (2012: 4.2 million) homes have been electrified • The Eskom company disability percentage is 2.59% (2012: 2.49%) of the total workforce Employment • Racial equity1 in senior management is 58.3% (2012: 53.9%) and in equity professionals and middle management 69.6% (2012: 65.7%) • Gender equity2 in senior management is 28.2% (2012: 24.3%) and in professionals and middle management 34.6% (2012: 32.4%) • Over 130 000 people employed in the Eskom cloud and over 500 000 people supported by Eskom Training and • Over 60 000 jobs in non-mining related industries suppliers development • Eskom‟s learner pipeline includes 2 144 engineering, 835 technical, 2 847 artisan and 1 071 other learners • A further 5 701 learners in the youth programme • Eskom was adjudged an “excellent integrated reporter” at the Ernst and Corporate Young inaugural Excellence in Integrated Reporting awards and was the governance overall winner of the Nkonki SOC Integrated Report Awards 2012 Eskom • Invested R194.3 million (2012: R87.9 million) in corporate social initiatives Development during the year which impacted 343 (2012: 264) organisations with some Foundation 652 347 (2012: 531 762) project beneficiaries during the period 11 1. Percentage of black employees 2 . Percentage of female employees Triple bottom line: safety Year to Year to Year to Employee 31 March 31 March 31 March and Fatalities: 2013 2012 2011 contractor Employees 3 13 7 fatalities Contractors 16 112 18 Employee lost-time incident rate: Employee LTIR Index (target: 0.20) 0.39 0.41 0.47 Electrical Violent Causes of fatalities(1): Vehicle Falls Other Contact assault Causes of fatalities Employees and 2 contractors 5 4 4 2 4 1. Covers the period 1 Apr 2012 – 31 March 2013 2. A fatality recorded in 2011/12 has been re-classified as non-work related 3. Included in the four fatalities are two security guards who died from asphyxiation from a heating fire 12 Triple bottom line: environmental Year to Year to Year to 31 March 31 March 31 March Atmospheric emissions: 2013 2012 2011 Relative particulate emissions, 0.35 0.31 0.33 kg/MWh Specific water consumption, L/kWh 1.42 1.34 1.35 sent out Environmental CO2 emissions (relative), tons/MWh 0.98 0.99 0.99 performance CO2 emissions, Mt 227.9 231.9 230.3 Nitrogen oxide emissions, kt 964.8 977 977 Sulphur dioxide emissions, kt 1 843 1 849 1 810 Nitrous oxide emissions, t 2 980 2 967 2 906 Environmental legal contraventions, 47 50 63 number The Generation division, Group Capital construction management, the Management telecommunications department, Rotek SOC Ltd, Roshcon SOC Ltd, systems Eskom Aviation and the Sustainability Systems departments obtained ISO 14001 certification during the year 13 Triple bottom line: financial highlights1 Audited Audited Audited year to year to year to 31 March 31 March 31 March Income statement for the period 2013 2012 2011 Revenue (Rm) 128 869 114 847 91 447 (Contraction)/growth in GWh sales (%)2 (3.7) 0.2 2.7 Profit for the period after tax (Rm) 5 183 13 248 8 356 Return on average total assets (%) 1.3 3.7 2.9 Revenue per kWh (cents per kWh)3 58.5 50.3 40.3 Operating costs per kWh (cents per kWh)4 54.2 41.3 32.8 Capital expenditure (Rbn)5 60.1 58.8 47.9 As at end of the period: Average days coal stock (days) 46 39 41 Gross debt securities issued/borrowings (Rm) 202 956 182 567 160 310 Debt: equity (ratio) 1.8 1.6 1.6 • MYPD 3 determination of an 8% annual average tariff increase • Funding plan well advanced and more than 82.9% of sources of funds secured • Credit ratings: Moody‟s and S&P downgraded ratings to Baa3 and BBB respectively 1. Group numbers unless otherwise specified 4. Company numbers and includes 2. Compared to the same period last year depreciation and amortisation costs 3. Company numbers and includes 5. Excluding interest capitalised 14 environmental levy during construction Sound performance in a tough year • Kept the lights on amid increasingly difficult circumstances • Operational progress made • Generation, transmission capacity added • Tariff decision has required a new approach to business • Response plan initiated: re-engineering everything we do • Maintenance catch-up plan implemented • Fourth year of profit against budget • 82.9% of R300 billion funding plan secured • Coal stock days increased • Safety improved 15 Audited financial results Paul O‟Flaherty Finance Director Income statement for the year ended 31 March 2013 Audited Reviewed Audited Audited • Group revenue of R128.9 billion year to half-year year to year to (31 March 2012: R114.8 billion), 31 March to 30 Sept 31 March 31 March an increase of 12.2% Rm 2013 2012 2012 2011 Revenue 128 869 73 368 114 847 91 447 • Revenue growth has been offset Other income 1 155 516 712 587 by escalating operating expenditures mainly due to an Primary energy (60 748) (24 973) (46 314) (35 795) increase in primary energy costs Opex (incl. depreciation (57 701) (26 881) (44 872) (36 772) and amortisation) • Effective tax rate of 26.4% Net fair value loss on (1 655) (1 292) (2 388) (1 816) (31 March 2012: 28.0%) financial instruments Operating profit before • Finance costs impacted by the embedded derivatives 9 920 20 738 21 985 17 651 R17.3 billion gain resulting from Embedded derivative (5 942) 698 334 (1 261) the re-measurement of the gain / (loss) government loan Operating profit 3 978 21 436 22 319 16 390 Net finance income (cost) 3 0271 (3 785)1 (3 956)1 (4 741) • Net profit decreased from Share of profit of equity - R13.2 billion as at 31 March 2012 35 22 41 24 accounted investees to R5.2 billion as at 31 March 2013 Profit before tax 7 040 17 673 18 404 11 673 Income tax (1 857) (5 044) (5 156) (3 261) Loss from discontinued - - - (56) 1. Includes the effect of the re-measurement of the government loan: operations R17.3 billion income in 2012/13 (R9.6 billion cost for the half-year to Net profit for the year 30 September 2012 and R5.5 billion income in 2011/12) 5 183 12 629 13 248 8 356 /period 17 Key performance ratios Audited Audited Audited year to year to year to Unit 31 March 31 March 31 March 2013 2012 2011 Revenue per kWh (electricity sales) cents per kWh 58.5 50.3 40.3 Costs per kWh (electricity business) cents per kWh 54.2 41.3 32.8 EBITDA Rm 13 945 31 130 23 609 Free funds from operations (FFO) Rm 18 110 30 483 16 953 Gross debt/ EBITDA ratio 16.2 6.5 7.5 FFO/ gross debt % 8.0 15.2 9.5 Return on average total assets1 % 1.3 3.7 2.9 Return on average equity1 % 4.9 13.9 10.7 Working capital ratio ratio 0.7 0.8 0.9 Bad debt as percentage of revenue % 0.8 0.5 0.8 1. Based on historical costs 3. Excluding Soweto debt 2. Includes municipalities 4. Excluding disputes 18 Company EBIT before embedded derivatives Total Revenue1 Operating costs Cents/ kWh Cents/ kWh 58.8 50.5 ( 16.0) ( 20.6) 40.5 ( 28.1) ( 6.8) ( 3.5) ( 7.9) ( 6.5) ( 4.1) ( 9.6) (32.8) ( 8.7) ( 5.0) (41.3) ( 11.5) Mar-11 Mar-12 Mar-13 (54.2) Mar-11 Mar-12 Mar-13 3 Other operating expenses EBIT before embedded derivatives2 Depreciation and amortisation expense 4 Cents/ kWh Employee benefit expense Primary energy costs 9.5 7.6 4.9 Mar-11 Mar-12 Mar-13 1. Includes non-electricity revenues 2. Includes other income and net fair value gains/losses on financial instruments 3. This mainly consists of repairs and maintenance and IDM costs 19 4. Includes net impairment losses Sales and revenue • 216 561GWh sales for the year to Electricity sales (GWh) 31 March 2013 represents: GWh 224 446 224 785 216 561 – a 3.7% decrease compared to last year; – below the budgeted sales of 222 083GWh (budgeted contraction of 1.2%) • Sales contracted (in GWh) due to: – Lower demand for electricity due to the weaker than expected economic Mar-11 Mar-12 Mar-13 conditions Electricity revenue (c/kWh) – Demand-response initiatives Cents/ kWh including power buybacks 58.5 – Industrial action in the mining sector 50.3 – Major customer breakdowns 40.3 • Revenue per kWh increased by 16.4% compared to the same period last year primarily as a result of the 16.0% tariff increase granted by NERSA Mar-11 Mar-12 Mar-13 20 Operating expenses1 Primary energy costs Direct costs of employment Rm Cents/ kWh Rm Cents// kWh 28.1 36% 10.5 20.6 21% 29% 60 748 8.7 15.9 7.9 10% 22 830 46 314 19 554 35 795 17 786 Mar-11 Mar-12 Mar-13 Mar-11 Mar-12 Mar-13 Headcount: 41 788 43 473 46 266 Depreciation & amortisation expenses2 Other operating expenses3 Rm Cents/ kWh Rm 10.7 Cents/ kWh 5.0 57% 19% 4.2 3.6 18% 6.8 26% 5.4 23 123 15 253 9 450 10 979 12 070 8 007 Mar-11 Mar-12 Mar-13 Mar-11 Mar-12 Mar-13 1. Cents/kWh figures are calculated based on total electricity sales numbers and group financials 2. Including net impairment loss 3. Including managerial, technical and other fees, research and development, operating lease expenses, auditor‟s remuneration, repairs and maintenance 21 Analysis of primary energy costs • Primary energy costs increased by 36.1% Primary energy costs (c/kWh)1 from 20.6 c/kWh as at 31 March 2012 to 28.1 c/kWh for the year to 31 March 2013 Primary energy costs 20.60 20.60 as at 31 March 2012: Cost of coal burnt 53% of the 19.0% 3.92 increased by 24.2% increase OCGT2 costs increased by 22% of the 8.0% 1.64 R3.5bn (235%) increase Environmental levy 12% of the 4.5% 0.92 increase of 1.0c/kWh increase 13% of the Other items in aggregate 4.7% 0.97 increase 36.1% Primary energy costs as at 28.05 1. Primary energy costs in c/kWh based on electricity sales 31 March 2013: 2. Open cycle gas turbine (OCGT) 10 12 14 16 18 20 22 24 26 28 22 cents / kWh Hedging policy • Primary energy hedging: Embedded derivatives gain / (loss) – No formal hedging against increases in coal prices Rm 334 – Limited correlation with international coal prices (1 261) • Commodity derivatives hedging: – Hedging in place to mitigate potential (5 942) losses on embedded derivatives Mar-11 Mar-12 Mar-13 – Eskom submitted an application to Net fair value loss on financial instruments NERSA to look into the last remaining Rm special pricing agreement • Foreign currency hedging: – All foreign currency exposure over (1 655) (1 816) R150 000 is hedged (2 388) – Uses inter-alia forward exchange Mar-11 Mar-12 Mar-13 contracts with short maturities and Rand versus Euro and USD exchange rates roll-over at maturity as well as cross- Exchange rates currency swaps 10.25 11.82 9.61 – 86% of total debt as at 31 March 2013 7.68 9.21 6.78 has a fixed interest rate component – R80.1 billion of derivatives held for risk management as at 31 March 2013 (2012: R69.6 billion) Mar-11 Mar-12 Mar-13 23 Rand:Euro Rand:USD Group audited financial position – growth in property, plant and equipment through debt raised Rm Assets 500 000 450 000 Other assets, R33 421 400 000 Working capital, R29 204 Other assets, R25 313 350 000 Working capital, R25 911 Liquid assets, R27 970 Other assets, R19 847 Liquid assets, R40 480 300 000 Working capital, R21 682 250 000 Liquid assets, R49 892 200 000 Property, plant and Property, plant and equipment, 150 000 Property, plant and equipment, R341 429 equipment, R290 661 100 000 R236 724 50 000 0 March 2011 March 2012 March 2013 Rm Equity and liabilities 500 000 Net debt to equity ratio: 450 000 Net debt to equity ratio: 1.8 400 000 1.6 Net debt to equity ratio: Equity, R109 139 350 000 1.6 Equity, R103 103 300 000 Equity, R87 259 Other liabilities, R76 983 250 000 Other liabilities, R62 753 Other liabilities, R55 149 Working Capital, R42 946 200 000 Working Capital, R33 942 Working Capital, R25 427 150 000 Debt securities & Debt securities & 100 000 Debt securities & borrowings, borrowings, borrowings, R182 567 R202 956 50 000 R160 310 0 March 2011 March 2012 March 2013 24 Revaluation of assets – proforma if aligned to regulatory asset base After After Historical cost: revaluation: Historical cost: revaluation: For the year to For the year to For the year to For the year to Rm 31 March 2013 31 March 2013 31 March 2012 31 March 2012 Total profit/ (loss) for the year Historical profit/ (loss) for the year 5 183 5 183 13 248 13 248 Adjustments: Depreciation and amortisation expense - (15 534) - (14 368) Net impairment loss and other operating expenses - (105) - (250) Net finance cost - (3 678) - (4 999) Income tax - 5 409 - 5 493 Profit/(loss) for the year 5 183 (8 725) 13 248 (876) Equity (cumulative impact) Historical closing equity balance - 109 139 - 103 103 Adjustments: Additional cumulative comprehensive loss - (63 150) - (49 241) Revaluation of property, plant and equipment - 252,781 - 277 703 Deferred tax on equity adjustments - (70 779) - (77 757) Adjusted closing Equity balance 227 991 253 808 Statement of financial position Property, plant and equipment 341 429 506 502 290 661 499 974 Ratios Electricity operating costs - cents per kWh (Company) 54.2 61.4 41.3 47.8 Interest cover ratio (Group) (1.4) 4.1 3.3 0.7 Return on assets % (Group) 1.3 (1.4) 3.7% (0.1)% Debt: equity ratio (Group) 1.8 0.9 1.6 0.7 25 Debt maturity and leverage Gross debt / EBITDA ratio Debt & borrowings maturity profile1 16.2 1 year to 10 years 39.1% 7.5 More than 6.5 10 years 3.0 56.4% Mar-11 Mar-12 Mar-13 Mar-18 Within 1 Investment year grade 4.5% target Interest cover ratio2 FFO as a % of gross debt 3.3 20.0 15.2 1.5 9.5 8.0 Mar-11 Mar-12 Mar-13 Mar-18 ( 1.40) Investment Mar-11 Mar-12 Mar-13 grade target 1. Represents the repayment of nominal capital in the strategic and trading portfolio. Data as at 31 March 2013 2. The March 2013 interest cover ratio includes the impact of remeasuring the government loan of R17.3 billion 26 Debt maturity profile Strategic & trading portfolio nominal and interest cashflows as at 31 March 2013 Rbn Rbn 40 300 35 250 30 200 25 20 150 15 100 10 50 5 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 Total capital Total interest Cumulative nominal capital total 27 Group audited cash flows1 Cash flows from operating activities Cash flows utilised in investing activities Rm Rm 38 522 27 669 22 747 (46 458) (60 013) (58 408) Mar-11 Mar-12 Mar-13 Mar-11 Mar-12 Mar-13 Cash flows from financing activities Liquid assets at period end Rm Rm 49 892 40 480 60 002 16 539 37 805 27 970 23 971 21 030 12 188 (2 187) 17 350 (4 256) 19 450 12 087 10 620 Mar-11 Mar-12 Mar-13 Mar-11 Mar-12 Mar-13 Other financing Net debt issued Cash and cash equivalents Investment in securities 1. R127m cash and cash equivalents resulting from common control transaction 28 adjusted in the 2011/12 cash flow statement Summary of audited cash flows Rm Operations Financing Investing 5 047 (31) (57 914) 31 120 27 669 (7 149) (7 203) 19 450 (494) 125 10 620 31 Mar 2012 Cash Net repayment Net interest Debt Raised Investment in Other Capex Other Cash & cash 31 Mar 2013 cash & cash generated by of borrowings repayments securities financing expenditure investing equivalents at cash & cash equivalents operations the beginning equivalents of the year attributable to non-current assets held for resale 29 Funding plan – R300 billion from 1 April 2010 to 2017 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 Rbn Rbn Rbn Rbn Bonds 90.0 44.8 44.8 32.3 Commercial paper 70.0 70.0 30.0 - Export Credit Agency backed 32.9 32.9 19.5 - World Bank loan 27.8 27.8 8.6 27.8 AFDB loan 20.9 20.9 13.3 20.9 DBSA loan 15.0 15.0 7.0 - Shareholder loan 20.0 20.0 20.0 20.0 Other sources 23.4 17.4 0.9 4.9 Totals 300.0 248.8 144.1 105.9 Percentages 82.9%(1) 57.9%(2) 42.6%(2) 1. As a percentage of the R300bn funding sourced 30 2. As a percentage of the currently secured total Credit ratings Entity Rating Status Moody’s S&P Fitch Foreign Currency Baa3 BBB - Eskom Local Currency Baa3 BBB BBB+ Holdings ZAR Long-term - AA AA+ SOC Ltd ZAR Short-term - A-1 F1+ Outlook Negative (1) Negative (3) Stable(4) Stand-Alone Ratings Ba3 B None Foreign Currency Baa1 BBB BBB Local Currency Baa1 A- BBB+ RSA Govt. ZAR Long-term - AAA AA+ ZAR Short-term - A-1 F1+ Outlook Negative (2) Negative (3) Stable(4) 1. Moody‟s downgraded Eskom‟s credit rating from Baa2 to Baa3 (negative outlook) on 1 October 2012 2. Moody‟s downgraded South Africa‟s sovereign credit rating from A3 to Baa1 (negative outlook) on 27 September 2012 3. On 12 October 2012 Standard & Poor‟s lowered the long term foreign and local currency ratings on the Republic of South Africa to BBB (from BBB+) and A- (from A+) respectively. In accordance with its criteria for government-related entities, Standard & Poor‟s lowered Eskom‟s long-term foreign and local currency credit ratings from BBB+ to BBB on 17 October 2012. It has also retained its negative outlook on Eskom as with the sovereign 4. On 10 January 2013, Fitch announced the following rating actions on the Sovereign; downgrade of the long-term foreign currency Issuer Default Rating (“IDR”) to 'BBB' from 'BBB+';downgrade of the long-term local currency IDR to 'BBB+' from „A'; downgrade of the Short-term IDR to 'F3' from 'F2'; downgrade of the Country Ceiling to „A-' from 'A'; and outlook review from „Negative „to „Stable. On 11 January 2013, Fitch downgraded Eskom‟s local currency rating by one notch to BBB+, following the downgrade by Fitch of South Africa‟s sovereign rating on 10 January 2013. Fitch has, however, revised its outlook on Eskom from negative to „stable‟. The sovereign downgrade also prompted a recalibration of the South African National Scale which resulted in the downgrade of Eskom‟s Long-term National Scale Rating to „AA+/Stable‟ from „AAA/Stable‟ on 16 January 2013. The Short-term „F1+/Stable‟ has been affirmed 31 Construction Paul O‟Flaherty Finance Director Build progress to date To date, a large amount of construction work has been completed, adding ~ 6 017MW of capacity, ~ 4 686km of transmission network and ~ 23 775 of MVAs Megawatts MW of capacity 535 261 452.5 315 1 769.9 1 043 6 017 1 351 0 290 Transmission Km line 787.1 631.3 443.4 600.3 418.3 480.0 4 686 430.0 659.0 237.0 3 580 Substations MVAs 2 525 5 940 1 375 1 630 1 355(1) 23 775 5 280 1 090 1 000 FY FY FY FY FY FY FY FY FY Total 2004/5 2005/6 2006/7 2007/8 2008/9 2009/10 2010/11 2011/12 2012/13 1) MVA – 2007/08 (1 355 MVA) includes Transmission contribution as well as Group 33 Capital (1 295 MVA) Significant progress in build programme – began in 2005 with completion in 2018 % of estimated total cost spent as at 31 March 2013 45.8% R billion spent and to be spent on the capital expansion 63.7% R118.5bn programme (excluding borrowing costs capitalised) R105.0bn In addition, we plan to spend more than R55 billion over the next 5 years to strengthen, refurbish and expand R38.1 R64.2 our Distribution network 63.2% 58.2% 96.1% R32.3bn2 R66.9 R25.9bn1 R54.3 R25.1bn R11.9 R10.8 R1.0 R24.1 R20.4 R15.1 Medupi Kusile Ingula Return to service Transmission Completed Remaining 1. The business case for Ingula increased to R25.9 billion from R23.8 billion as at 31 March 2012 34 2. Includes transmission costs for Ingula, Kusile and Medupi Current planned installed capacity expansion plan Planned Year to Year to Year to Year to Year to Year to Project Total 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 2014 2015 2016 2017 2018 2019 Grootvlei (return to service) 30 30 Komati (return to service) 100 100 Medupi (coal fired) 1 588 1 588 1 588 4 764 Kusile (coal fired) 800 800 800 1 600 800 4 800 Ingula (pumped storage) 1 332 1 332 Sere wind farm (renewable) 100 100 Total (MW) 130 3 820 2 388 2 388 1 600 800 11 126 In addition, Eskom has commenced the development of a 100MW CSP plant 35 Operations Brian Dames Chief Executive Primary Energy Highlights 60 Actual Stock days 2007/8 • 31% decrease in year-on-year public fatalities 50 2011/12 46 on the coal heavy-haulage road network 39 • Average coal stock levels improved to 46 40 days as at 31 March 2013 (2012: 39 days) 30 • Construction of Komati water scheme 20 augmentation project on track for water 13 delivery by the end of May 2013 10 • Tutuka coal rail terminal is fully operational 0 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Challenges • Achieving contractual performance on coal 13 Coal road to rail migration (Mt) supply agreements 12 • Purchasing more expensive coal from the 11 10 10.1 short-/medium-term market due to the poor 9 8 8.5 volume performance of some contracted 7 7.1 6 mines 5 • Extended strikes in the transport and mining 4 4.3 5.1 3 industry affected the coal-supply value chain 2 • Both Eskom and Transnet experienced 1 0 operational challenges regarding the rail Year to 31 Mar Year to 31 Mar Year to 31 Mar Year to 31 Mar Year to 31 Mar transport of coal 2009 2010 2011 2012 2013 37 Generation Highlights Unplanned capability loss factor (UCLF1) % • There was no rotational load shedding 13 12.1 3 12 • 30MW of additional output capacity 11 3.4 Emission control and 10 achieved on Koeberg Unit 2 9 short term 8 8.7 outages • Effective on-going roll-out of the power 7 8.0 6.0 6 station enhancement and the energy 5 6.1 4 efficiency programmes 3 4.4 5.1 2 Challenges 1 0 • Lack of adequate space to do planned Year to 31 Mar Year to 31 Mar Year to 31 Mar Year to 31 Mar Year to 31 Mar 2009 2010 2011 2012 2013 maintenance, coupled with the demand to keep the lights on, negatively affected Energy availability factor (EAF2) % 95 plant performance • Coal-related energy losses mainly at 85 85.3 85.2 84.6 83.0 82.0 Tutuka and Arnot 75 77.7 • Availability of strategic spares due to 65 long lead times 55 1. EAF measures plant availability, plus energy losses not under the control of plant management 45 2. UCLF measures the lost energy due to unplanned production interruptions resulting from equipment failures and other plant conditions 35 3. The 12.12% cumulative UCLF consists of energy losses of 7.54% plus energy Year to Year to Year to Year to Year to 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar losses of 1.17% for the Duvha Unit 4 outage and energy losses of 3.41% due to 2009 2010 2011 2012 2013 decisions by management for emission control and short-term outages (figures are only available from April 2012) Actual Annual year end target 38 Strategy to ensure a sustainable generation fleet • Eskom‟s power stations are ageing and needs focus to maintain and improve performance • Planned maintenance has often had to be shifted or deferred to ensure we have the capacity available to meet demand and keep the lights on • This approach is not sustainable – it is essential that planned maintenance be done to enable predictable and sustainable performance from Eskom‟s power stations • Eskom has put in place a five year strategy for generation sustainability which includes a firm commitment not to postpone critical maintenance. This is based on an 80:10:10 principle – that is, on average, an Energy Availability Factor of 80%, planned maintenance of 10% and a projected unplanned outage ratio of 10% Age of Eskom’s generation Fleet 50 45 40 35 30 Years Average age 25 20 15 10 Fleet average 5 0 39 Transmission Highlights Severity of interruptions (System minutes lost ≤ 1) 5 • The number of transmission line faults 4.7 per 100km has been significantly 4 4.2 4.1 3.4 reduced 3 3.5 • The 2012-2021 Transmission 2.6 2 Development Plan was published and includes details of a network 1 strengthening plan to achieve Grid 0 Year to Year to Year to Year to Year to Code N-1 compliance 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar • Future trading opportunities in the 2009 2010 2011 2012 2013 Southern African region have been Number of major incidents 4 identified 3 Challenges 3 3 • Three major incidents occurred during 2 2 2012/13 • Increased theft of transmission-tower 1 1 1 steel members remains a serious risk 0 • Purchases from Hydro Cahora Bassa 0 Year to Year to Year to Year to Year to were lower than anticipated due to 31 Mar 2009 31 Mar 2010 31 Mar 2011 31 Mar 2012 31 Mar 2013 equipment failure in Mozambique Actual Annual year end target 1. System minutes: Is a measure of the severity of interruptions to customers. One 40 system minute is equivalent to the loss of the entire system for one minute at annual peak Independent Power Producers (IPPs) • Eskom remains committed to facilitating the entry of IPPs into the South African electricity market • Renewable Energy Independent Power Producer Procurement (REIPP) Programme: – Eskom supports Government's renewable energy programme, which aims to bring 3 725MW onto the national grid – On 5 November 2012, Eskom signed 28 power purchase agreements for the first bid totalling 1 441.7MW – The procurement process for the second round of submissions has been concluded and Eskom‟s board approved the purchase of 1 043.8MW of renewable energy capacity • Department of Energy’s (DoE) open-cycle gas turbine (“Peakers”) programme – Eskom is awaiting NERSA and PFMA approval to be the buyer of the 1 005MW of capacity for this programme • At 31 March 2013 Eskom contracted a total capacity of 1 135MW from IPPs (2012: 1 008MW) on short and medium term programmes. Actual energy purchases amounted to 3 516GWh (2012: 4 107GWh) and the amount paid to IPPs and municipal purchases in the year to 31 March 2013 was R2.9 billion or 83.6 c/kWh (2012: R3.3 billion or 77 c/kWh) 41 Distribution Highlights SAIDI (hours/annum)1 60 • Several safety initiatives have been 54.4 implemented 55 51.5 52.6 • Sustained improvement in the SAIDI 50 and SAIFI performances during the 45.8 47.0 45 year to 31 March 2013 41.9 • Electrification connections exceeded 40 the target and created 4 320 job 35 opportunities Year to Year to Year to Year to Year to 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 2009 2010 2011 2012 2013 Challenges SAIFI (number/annum)2 • Employee and contractor safety 30 25.3 24.2 24.7 23.7 performance and lost-time injuries 25 22.2 Employee security remains a concern 20 21.0 in certain areas 15 • Ageing networks makes maintenance 10 a challenge 5 • Acquisition of land and servitudes for 0 electricity infrastructure Year to Year to Year to Year to Year to 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 2009 2010 2011 2012 2013 Actual Annual year end target 1. SAIDI: System average interruption duration index 42 2. SAIFI: System average interruption frequency index Customer services Highlights Weighted customer service index1 • Partnering with large industrial customers 88 87 87.3 through demand-response programmes 86 86.6 to help manage the power system during 85 85.6 85.1 peak periods 84 84.7 84.4 • KeyCare customer satisfaction results for 83 82 large industrial customers were above 81 target 80 79 • The Grid Access Unit for IPPs and Year to Year to Year to Year to Year to 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar generators processed more than 700 2009 2010 2011 2012 2013 applications for connection to the grid Actual Annual year end target Challenges Average debtors’ days • Municipal debt remains high despite 50 48.2 40 various interventions with municipalities 30 • Residential Gauteng and Soweto debt 25.2 20 remains high. Customer debt levels are 12.3 10 increasing and there is a negative trend in 0 debtors‟ days of both large and small Year to Year to Year to Year to Year to 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar power users 2009 2010 2011 2012 2013 Customer service (large power users, municipalities and other), average debtor 1. Eskom uses a composite index to measure the service delivered to its days residential, small and medium customers. Customer service (small power users excluding Soweto debt), average debtor days Customer service large power top customers excluding disputes, average 43 debtor days Integrated Demand Management • Successfully implemented and Cumulative verified demand savings (MW) executed the comprehensive suite of 4 000 Demand savings (MW) 3 500 IDM solutions to exceed NERSA and 3 000 shareholder targets 2 500 • The total evening peak demand savings 2 000 achieved of 595MW (2012: 365MW) 1 500 against a target of 459MW as at 1 000 31 March 2013 500 • The accumulated verified demand 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 savings for the combined financial Verified MW Eskom Target years 2005 to 2013, is 3 587MW. This Energy Savings (GWh) is almost equivalent to the output of a Annualised energy savings (GWh) typical power station 2 500 2 244 • The current verified internal energy 2 000 1 827 efficiency savings for the year to 1 500 1 339 1 422 31 March 2013 is 28.9GWh 1 000 (2012: 45.0GWh) against a target of 20.0GWh as at 31 March 2013 500 0 Year to Year to Year to Budget 31 Mar 31 Mar 31 Mar 31 Mar 2011 2012 2013 2013 44 Energy losses and theft • Energy losses reflect the difference between the quantity of energy sent out from the power stations and the quantity sold to the various customers at the end of the value chain Budget Actual Actual Energy losses 31 Mar 2013 31 Mar 2013 31 Mar 2012 Distribution loss ≤6.1 7.1 6.3 Technical losses - 4.3 3.8 Non-technical losses - 2.8 2.5 Transmission loss 1 ≤3.4 2.8 3.1 Total Eskom loss ≤8.9 9.1 8.7 • High levels of theft of copper and pylons persist, which are affecting plant performance and increasing costs • Implementation of the new Second Hand Goods Act on 30 April 2012, followed by aggressive policing of the scrap industry by law enforcement agencies contributed to a decrease in incidents and losses • The joint industry working group formed by Eskom, Transnet, Telkom, SAPS, NPA, BAC and SACCI continues to contribute positively in the fight against this crime • The Operation Khanyisa strategy and initiatives have assisted to arrest and contain energy losses within acceptable parameters despite the negative pressures of the general economic climate and tariff increases 1. Transmission losses are 45 all technical losses Concluding remarks Brian Dames Chief Executive Three big agendas Continuing to keep the lights on while the gap between supply and demand is extremely narrow, and Sustainable high levels of planned business maintenance are needed to ensure the sustainability of ageing power stations, distribution and transmission networks Ensuring that the Medupi project delivers its first power to the national grid, and that significant Deliver progress is made towards the new build delivery of first power from Kusile and Ingula within the next two years Re-engineering our business to adapt to the limits imposed by the 8% annual average tariff increase Business that the National Electricity productivity Regulator of South Africa (NERSA) granted us for the next five years 47 Systematic approach to closing the R225 billion gap • Reprioritisation, efficiency drive to identify cash reduction opportunities • Regulatory Clearing Account mechanism to claw back • Address mandate with key stakeholders to reduce mandatory spend • Re-engineer the business to realise long- term efficiency gains • Explore funding alternatives • Align capex programme in line with available funding options • Confirm additional shareholder support • Roll-out of Business Productivity Programme (BPP) • Re-open the tariff discussion with NERSA 48 Conclusion • Power system – Eskom has kept the lights on through a challenging year – Eskom will for the first time plan to do extensive maintenance work, even during the coldest winter months, to improve reliability • MYPD 3 determination and the way forward – Re-engineer the business to work within the revenue allowed by NERSA • Financial sustainability – Four years of sound financial results show stability, predictability and progress • 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 • Eskom is 90 years old this year and it is investing in the future – we are looking ahead to provide the electricity South Africa needs to power growth and development 49 In transition • Eskom is in the midst of a far-reaching and complex transition. When this process is complete, we will be a very different company. • There will be lasting benefits for our customers and communities 50