April 2018

Investor Presentation

Contents

2017 Financial year

Financial performance

1

Leadership and governance

Operational performance

Conclusion

Debt management

2017 Financial year in

perspective

• The March 2017 results show good overall

performance

• Eskom has since released the Sept 2017

results, with the Full Year 2018 results

scheduled for release in July 2018

• The environment in which Eskom operated in

during the period March to December 2017

was significantly impacted by:

2016/17 audit qualification on irregular

expenditure

Restricted access to funding which

impacted on liquidity

Deteriorating governance conditions

2017 financial year in perspective

4

• Post December 2017 Eskom made a concerted

effort to address governance concerns

• The appointment of the new Board in January

2018 and their decisiveness was well received

by the financial markets

• To ensure Eskom’s future sustainability the

Board has embarked on a turnaround business

strategy with a core focus on

financial viability

continued strong operational performance

governance

2017 financial year in perspective

5

Leadership and governance

• New Board appointed by Government on 20

January 2018, with Mr Jabu Mabuza as Chairman

• Mr Phakamani Hadebe appointed as Interim Group

Chief Executive

• Board is in the process of appointing key executive

management:

Appointment of permanent Group Chief

Executive by end April 2018

Following which a permanent Chief Financial

Officer will be appointed by mid-May 2018

Progress on leadership and governance concerns

7

Financial performance

Overview of financial performance (as at 30 Sept 2017)

• External auditors have issued an unqualified review

conclusion, with an emphasis of matter regarding

Eskom’s going concern position

• EBITDA of R30 billion (Sept 2016: R32 billion), due to

2.2% tariff increase and declining sales, offset by cost

containment measures

• Net profit after tax of R6 billion (Sept 2016:

R10 billion), with higher depreciation and net finance

cost due to new build units coming online

• Net cash from operations of R22 billion (Sept 2016:

R32 billion), due to lower profit and increase in

municipal arrear debt

• Liquid assets of R9 billion (Sept 2016: R30 billion) 9

Year-on-year financial performance

Gross debt/EBITDA ratio 14.1

(Sept 2016: 12)

Cash interest cover ratio 1.5

(Sept 2016: 2.7)

FFO as % of gross debt 3.4%

(Sept 2016: 5%)

Revenue R96bn

2%

EBITDA R30bn

6.8%

Primary energy cost

2%

Debt service cover ratio 1.0

(Sept 2016: 1.9)

Profitability Solvency

Key financial ratios Financial performance

Cash from operating activities R22bn

30%

25

20

15

10

5

0

R billion

35

30

Sep-12 Sep-13

EBITDA

Sep-14 Sep-15

Net profit after tax

Sep-16 Sep-17

EBITDA margin %

%

40%

35%

30%

25%

20%

15%

10%

5%

0%

70%

68%

66%

64%

62%

60%

58%

56%

54% 0.0

0.5

1.0

1.5

2.0

2.5

Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17

Debt/ Equity Gearing (%)*

10

R billion %

*Debt as % of assets

Income statement for six months ended 30 September 2017

11

R billion

Sept

2017

Sept

2016

YoY %

change

Revenue 96 97 (2)

Other income – 1 (3)

Primary energy (41) (40) (2)

Net employee benefit expense (15) (16) 4

Net impairment loss (1) (1) (10)

Other expenses (9) (9) 2

Profit before depreciation and amortisation and net

fair value loss (EBITDA) 30 32 (7)

Depreciation and amortisation expense (11) (10) (8)

Net fair value loss on financial instruments and embedded

derivatives – (2) 106

Net finance cost (10) (7) (53)

Profit before tax 9 13 (34)

Income tax (3) (4) 33

Net profit for the period 6 10 (34)

1. Figures for 2016 were restated due to the impact of accounting for self-built assets.

R billion Sept 2017

Sept 2016

YoY % change

Property, plant and equipment and intangible assets 614 555 11

Working capital 50 44 14

Liquid assets 16 44 (64)

Other assets 43 47 (7)

Total assets 723 690 5

Equity 183 187 (2)

Debt securities and borrowings 367 333 10

Working capital 49 50 (1)

Other liabilities 124 120 4

Total equity and liabilities 723 690 5

12

Financial position

1. Figures for 2016 were restated.

Cash flow statement for six months ended 30 September 2017

13

R billion

Sept

2017

Sept

2016

YoY %

change

Net cash from operating activities 22 32 (30)

Cash required for debt servicing (23) (18) (26)

Cash flows used in investment activities (29) (29) (1)

Cash flow from financing activities 18 17 6

Net (decrease)/increase in cash and cash equivalents (12) 2

Electricity sales volumes decreased 1.9% year-on-year

• Overall electricity sales

volumes reduced by 1.9%

(2 038GWh) compared to

comparative period

• Redistributors declined due to

warmer winter conditions and

end-users switching to more

efficient use of electricity

• International sales declined

due to increased hydro use by

neighbouring countries after

good rainfall in the region

Electricity volumes % growth/(decline) & contribution

3.5%

14

0.5%

1.4%

0.8%

0.6%

4.6%

0.9%

1.9%

-8% -6% -4% -2% 0% 2% 4% 6%

Redistributors

Residential

Commercial

Industrial

Mining

Agriculture

Rail

International 6.8%

Total

42%

6%

5%

22%

15%

2%

1%

7%

Contribution

Primary energy cost increase contained

2016 vs 2017

R40.0

R1.4

(R0)

(R0)

R41.0

R0

(R0.2)

R billion

Sep-17

15

Other

Imports

IPPs

OCGT

Nuclear

Coal

Sep-16

(R0.3)

• Historic coal cost increases have

been in excess of 15% per year

• 2017/18 increase in purchase coal

cost per ton limited to inflation

• IPP expenditure declined by 3.5%,

although volumes supplied by IPPs

declined by 17.8%

Average renewable IPP

purchase cost of 205c/kWh

(Sept 2016: 218)

Progress addressing audit qualification

16

• 2016/17 financial statements were qualified based on completeness of

irregular expenditure reported in terms of the PFMA

• A recovery plan is in place, monitored by Board Audit and Risk Committee

160 contracts over R1 billion (80%) and 5 110 contracts under

R1 billion (80%) reviewed

Emergency procurement over past two years being reviewed

• Plan is on track to address the completeness weakness

• Irregular expenditure can be expected at year end, but should not result in

an audit qualification

• Irregular expenses do not imply fruitless and wasteful, examples include:

Tender processes not adhered to

Quality management

Use of labour broker – internal processes not followed

Arrear debt and debtors ageing

17

Electricity debtors age analysis, R million

Sept 2017 Sept 2016

overdue Total overdue

Large power users, municipalities (including interest) 22 717 12 168 9 181

Large power users, excluding municipalities (including interest) 7 449 258 680

Small power users (SPU) (including interest) 2 568 902 1 205

Soweto SPU (excluding interest) 5 668 5 425 4 997

Other customers (including interest) 1 908 657 –

Total at 30 September 2017 40 310 19 410 16 063

• Arrear debt due by municipalities, including interest, increased from R9.2 billion to R12.4 billion

• There has however been a significant (62%) reduction in outstanding debt from other large power

users

Sept

2017

Sept

2016

Average debtors days (all categories) 63 51

% increase 24%

Municipal debt strategy

18

• Eskom is actively working to mitigate the increase in municipal debt and recover

overdue debts

Recent actions Ongoing/ future efforts

• During the period, 6 481 split meters were

installed in Soweto, and 4 199 meters

converted to prepaid meters

• A total of 10 014 smart meters were

installed in Midrand and Sandton; 2 986

meters have been converted to prepaid

meters during the period

• Eskom has engaged with relevant parties

to have appropriate policies and

legislations revised to recover revenue

due

• Provincial and national government to

implement corrective action in terms of

the Constitution and put the

municipalities under administration

• Eskom will continue intensifying its

efforts to arrest municipal debt, which

has significantly increased, impacting

the utilities financial sustainability.

• Scheduled power cuts to defaulting

municipalities

• Debt restructuring and concessions

• Continued support and co-operation

from government and other

stakeholders to manage the

municipality debt issues

Status of Independent Power Producers (IPP)

program

• Power Purchase Agreements were signed with 20

IPPs on 4 April 2018 and 5 IPPs on 19 April 2018

The IPPs generate wind, biomass, and solar

energy

Eskom together with IPPs will negotiate

pricing

• Eskom continues to review both the balance sheet

and income statement impact of increased IPP

purchasing to mitigate potential negative effects

• Expected renewable IPP electricity purchase cost

of 203c/kWh compared to 56c/kWh for current

Eskom electricity production (a saving of 2c/kWh)

19

IPP history

20

9.4

0.1

11.5

4.2

7.2

0.1 9.0

4.0

5.0

0.1 6.0

3.0

3.0

3.7

3.4 0.3

3.5

Volu

mes

- G

Wh

+22.0%

9.5 0.0

Co

st – R

’bn

+45.9% 19.5

19.0

0.4

19.8

4.4

15.1

0.2 15.1

3.7

11.2

0.2 9.5

2.9

6.6 3.3

2.9 0.4

2.9

Unit

Cost

–

R/M

Wh

+19.6%

**2018

2 0

43

2 0

24

3 3

29

2017 1

71

4

1 0

46

2 0

90

3 3

28

2016

1 6

72

93

2

2 2

30

4 1

50

2015

1 5

70

96

5

2 1

72

2014

89

0

85

2

1 4

04

2013

83

6

83

6

Other

RE-IPP

DOE Peaker

Other

RE-IPP

DOE Peaker

Total IPP’s

Other

RE-IPP

DOE Peaker

* Other relates to MTPPP, STPPP, WEPS and Municipal programmes

** Forecasts

Operational performance

Operational performance shows positive trend

(at 30 Sept 2017)

• Generation plant performance improved, with plant

availability at 83.2% (Sept 2016: 78.4%)

• Transmission system minutes lost at 1.04

(Sept 2016: 2.74), with no major incidents

• Distribution network interruption frequency

improved, although interruption duration declined

slightly

• At end Sept 2018, 100 380 households electrified,

Kusile Unit 1 and Medupi Unit 5 achieved

commercial operation, adding combined installed

capacity of 1 594MW

• 350km transmission lines constructed and

1 000MVA transformer capacity commissioned 22

Overview of operational performance (continued)

• Significant improvement in environmental

performance, with particulate emissions of

0.25kg/MWhSO (Sept 2016: 0.29), and water usage

of 1.29l/kWhSO (Sept 2016: 1.43)

• Lost-time injury rate improved to 0.23 (Sept 2016:

0.28)

• Regrettably, Eskom suffered two employee fatalities

(Sept 2016: one) and five contractor fatalities (Sept

2016: three)

• B-BBEE attributable spend of 71.2% (Sept 2016:

65.4%), and spend with black-owned suppliers of

38.9% (Sept 2016: 30.2%)

• Employment of female employees in senior

management positions 36.9% (Sept 2016: 28.5%) 23

Capital expenditure

We remain focused on bringing new capacity online, delivering earlier than P80 on average

P80 dates

CO = Commercial Operation

FY 2015 – FY 2017

Ingula

Unit 4

Mar-17

Jun-16

333

Ingula

Unit 1

Jul-17

Aug-16

333

Ingula

Unit 2

May-17

Aug-16

333

Ingula

Unit 3

Jan-17

Jan-17

333

Medupi

Unit 5

Mar-18

Apr-17

794

Kusile

Unit 1

Jul-18

Aug 17

799

Kusile

Unit 2

Jul-19

800

Medupi

Unit 4

Jul-18

Nov-17

794

Medupi

Unit 3

Jun-19

794

Medupi

Unit 2

Dec-19

794

Medupi

Unit 1

May-20

794

Sere Wind

Farm

Mar-15

100

Medupi

Unit 6

Aug -15

Aug-15

794

Kusile

Unit 4

Mar-21

800

Kusile

Unit 3

Aug-20

800

Kusile

Unit 5

Nov-21

800

…6 382 MW to be commissioned over the next 5

years

Kusile unit 6 (800MW) is scheduled for 2022

4 613 MW commissioned since 2015 &

10 750 MW commissioned since 2005 ….

FY 2018 – FY 2022

Medupi, Kusile - Coal fired

Ingula – Pumped storage scheme

P80 schedule

Achieved

commercial

operation on or

earlier than P 80

25

Overview of capital expenditure

25 237 26 311 23 837

10 000

5 000

0

20 000

15 000

30 000

25 000

Sep-15 Sep-16 Sep-17

Estimated cost to completion

Total Eskom funded capital expenditure

53 942

135 075

33 870

104 354

156 064

119 741

Inception-to-date

Kusile Medupi

Cost to completion

Transmission

26

R million

R million

• Stopping or slowing down the new build

programme has several negative impacts

Penalties to contractors

Capital expenditure required on

existing plant

Thermal efficiency of new stations is

significantly better, thus less coal

burnt

New plant has lower environmental

impact through lower emissions and

water usage

• All projects inside approval limits

Debt Management

Funding for 2017/18

R billion

Original

funding plan

Revised

funding plan

Committed

Signed DFIs 27.4 19.6 18.6

Signed ECAs 2.2 3.6 3.8

Swap restructuring 2.5 2.5 2.5

New DFIs 12.1 – –

Domestic bonds/notes 8.0 7.3 8.4

Commercial paper 7.5 4.4 4.2

Bank funding - 20.0 20.0

New ECAs 5.0 – –

International bonds 7.0 – –

71.7 57.4 57.5

% secured 100%

28

• Successfully raised R57 billion from the financial market for the year ending 31

March 2018

Borrowing programme – FY2018/19

29

R billion

Funding plan

Committed

DFIs 15.3 8.8

ECAs 5.8 1.0

Bonds – International 20.0 0

Bonds/Notes – Domestic > 1yr 13.0 1.5

Notes – Domestic <= 1yr 10.0 0

Structured products 8.0 0

72.1 11.3

% secured 16%

(As at Mar’18)

• Funding raised will meet the business requirements and ensure appropriate

liquidity levels

Guarantee utilisation

30

75

Portion

Allocated

Under

Negotiation

Remaining

58

17

Unallocated

Portion

350

275

Total

Government

Guarantee

Guarantee utilisation allocation R’bn

2019 2018

5

2022 2020 2021

27

12

6

20

Nominal maturities of guaranteed debt R’bn

8

20

12 9

13

21

12

9

22

0

22

28

8 6

2022 2021

8

2018 2019 2020

Incremental Envisaged

Guarantee Projected Utilisation R’bn

• Incremental funding represent drawdowns of existing

facilities

• Envisaged funding includes debt under negotiation

Projected guarantee utilisation R’bn

31

267

2037

2036

2038

2041

2040

2042

2039

2019

2023

2021

2020

2018

Feb-1

8

2022

250

246

290

286

252

2030

2029

2025

2031

2026

2034

2027

2035

2024

2028

2032

2033

287

298

291

285

252

242

210

184

159

136

119

69

61

43

27

20

15

15

15

15

DTMN Under Negotiation Interest Payable Loans

Total government

guarantee

R350bn R350bn

Debt Maturity

32

Debt Maturity Profile R’bn

2031

63

2030

81

2029

94

2028

70

2027

83

2026

67

2025

90

2024

91

2023

80 2022

81

2021

77

2020

66

2019

70

2018

9

2043

15

2042

1

2041

1

2040

24

2035

13

2034

71

2033

59

2032

77

1

2039

7

2038

10

2037

24

2036

Incremental Interest Incremental Capital Total Interest Total Capital

Rating agency views on Eskom

33

Standard & Poor’s

Strengths

Sustained government support both in finance and

governance

Weaknesses

High cost of debt servicing

Negative cash flow generation and low (sub-inflation)

tariff increase environment

Low investor sentiment

Rating CCC+/Negative

Commented February 27, 2018

Moody’s

Rating B2/Negative

Commented March 28, 2018

Fitch

Rating BB-/Negative

Commented January 31, 2018

Strengths

Critical importance to South Africa’s economy, evidenced

by government support

Weaknesses

Weak liquidity and financial profile

Large capex program resulting in rising debt levels

Challenging regulatory environment against backdrop of

rising costs

Strengths

Strong position in the domestic electricity market

New Board taking active steps to improve liquidity

Weaknesses

Liquidity challenges

Uncertainty over ability to meet financial obligations

CCC

Sustained improvement in

liquidity position

Additional government support

Improved local and domestic

investor sentiment

B-/

Stab

Rati

ng

tri

gg

ers

Distressed exchange or default

Likelihood of extraordinary

government support weakens

further

Sovereign downgrade B3

Demonstrated ability to meet funding

needs

Progress towards a more stable

business and financial conditions

established

B1

Rati

ng

tri

gg

ers

Continued instability in near term

liquidity

Lack of sustainable long term

business, financial, and funding plan

Diminished view of strong government

support

Sovereign rating downgrade B+

Improvement in corporate

governance, liquidity, and funding

position

Further tangible government

support

Higher tariff increases

BB

Ra

tin

g t

rig

ge

rs

Weakening links with government

evidenced by a lack of tangible

support

Negative sovereign rating action

Conclusion

• The appointment of the new Eskom Board has resulted in increased

investor confidence with Eskom securing a bridging loan of R20bn

• The governance, ethic and accountability concerns are being

addressed

• The investors in the domestic market have shown supportive

sentiment

• Eskom is continuously seeking efficiencies and will continue to do so

• Improving liquidity and ensuring financial sustainability of Eskom

including ensuring the funding plan is realised

• Eskom’s cost structure is a key focus area, but financial

sustainability cannot be achieved through cost savings alone, the

price of electricity must migrate to a more appropriate level

35

Conclusion and way forward

23

End

Thank you.