ESKOM REPORTS A SOUND FINANCIAL PERFORMANCE FOR THE THIRD CONSECUTIVE YEAR

Thursday, 14 June 2012: Eskom today reported a sound financial performance for the third consecutive year, earning a surplus which will be reinvested in full in the company to support its expansion and service debt. This comes after two years in which Eskom has reshaped its business to position it for better performance and future growth, so that it can fulfil its purpose of growing the economy and improving the quality of life of the people of South Africa and the region.

Eskom showed net profit of R13.2-billion for the year to end-March 2012, up from R8.4 - billion for the previous year and only slightly above the R12.8-billion which the company reported for the first half of its financial year to end-September. Eskom's business tends to be seasonal, with most of its profit earned in the first half of the year, which covers the winter months when tariffs for large customers are higher and maintenance costs are lower.

The Minister of Public Enterprises, Malusi Gigaba, said: "These are pleasing results which come just as we have celebrated two milestone events in the life of Eskom. Last week, we had President Jacob Zuma visit Eskom's new Medupi power station to initiate the final phase of the boiler pressure test on the first unit of the power station, and we are now clearly on track for Medupi to deliver first power to the national grid before the end of 2013.

Earlier this week we were in the Eastern Cape to celebrate the four millionth household to be connected to electricity since the electrification programme started in 1991.These milestones highlight the importance of Eskom's role. Eskom must continue to improve its financial health so that it can invest to support economic growth and job creation and improve the quality of life."

The Chief Executive of Eskom, Brian Dames, said: "We are a different company to what we were two years ago. We have put a strategy in place to transform Eskom into a high performance utility and position it to grow. Although we are not there yet, we have now put the building blocks in place to take the company forward."

"Eskom's strong performance over the past two years, and the decision by our shareholder to sacrifice some of its return on equity, enabled us to apply successfully to the National Energy Regulator (Nersa) in March to reduce the average electricity tariff increase for the current year to 16%, from the 25.9% which Nersa originally granted us," Dames said.

The year to end-March 2012 saw significant progress on Eskom's capacity expansion programme. Two of its three return-to-service power stations, Camden and Grootvlei, have now been commissioned and the third of these stations, Komati, is two thirds complete.  Eskom has now installed a total of 5.8 GW of new generating capacity, 3899 Km of high voltage transmission lines and 20 195 MVA of new transformer capacity since the start of the capacity expansion programme in 2005. The programme, which also includes two large new coal-fired stations, Medupi and Kusile, a pump storage scheme, Ingula, and new transmission infrastructure, will ultimately add a total of 17.1 GW to the grid by the time it is completed in 2019.

It has also had significant spinoffs in terms of creating jobs and developing local skills and local supplier industries, as well as boosting the economies of the communities in which the projects are situated. "Our new build programme and the associated skills development programmes are a clear demonstration of how we can use infrastructure development to enable economic growth and job creation," said Dames.

Eskom reports annually on its triple bottom line, providing measures of its socio-economic impact and its environmental and safety record along with its financial performance.

Highlights of the financial year included the electrification of 155 213 households, the R72.1-billion of broad based black economic empowerment spending, and the almost 12 000 individuals who are now being trained at Eskom. This includes a learner pipeline of over 6 700 engineering, technical and artisan learners and a further 5 159 learners in the youth programme. Eskom spent R1.4-billion on training during the year, up from R1-billion in the previous year. The company now employs 43 473 people directly and a total of 130 000 within its full scope of activities.

The year to end-March 2012 saw only minimal growth in electricity sales, which increased by 0.2% to 224 785 GWh, falling short of the forecasted 1.2% increase. This reflected weaker than expected economic activity and industrial action in some sectors, as well as  lower winter demand from large power users. However, the lower demand also reflected success in Eskom's energy efficiency programmes, which have yielded accumulated verified demand savings of 3 GW since 2005, equivalent to five units' worth of the output of a typical six-pack power station.

Electricity revenues increased to R113 billion (2011: R90.4 bn), mainly as a result of the 25.8% tariff increase granted by the National Energy Regulator of SA. This translated into revenue per kilowatt hour of 50.3c (2011: 40.3c), while costs per kWh in Eskom's electricity business were 41.3c (2011: 32.8c).

Costs rose as Eskom put initiatives in place during the year to manage a tight power system. A 29% increase in the cost of primary energy per kWh was the main driver of higher costs for the year to end-March, with coal burn costs rising by 20.8% per ton and Eskom spending R3.3-billion to buy power from independent power producers (IPPs).  Eskom has contracted 1 008 MW of installed capacity from IPPs and municipal generators on a short or medium term basis, at an average price of 77c per kWh.

"We have kept the lights on since 2008 and we are resolved to continue to do so despite a power system which will be tight for at least the next two years," said Dames. "But we cannot keep the lights on alone, and it is costly: we urge all our customers to work with us and use energy as efficiently and sparingly as possible, especially during the evening peak this winter." Eskom has a R300-billion funding plan in place to finance its capacity expansion programme out to 2019, and 78% of this funding has now been secured. Eskom's total borrowings stood at R182.6-billion at end-March, up from R160.3-billion at the previous year-end. The total is expected to grow to over R300-billion over the next three years as Eskom draws down on the loan agreements it has in place to complete the capacity expansion programme.

"We have a healthy liquidity and funding position and we have managed to maintain our credit ratings, even though the outlook has been changed from stable to negative, in line with the sovereign rating," said Eskom's finance director Paul O'Flaherty.

No dividend was declared for the year. Eskom's shareholder, the Department of Public Enterprises, has waived its right to a dividend given the capacity expansion programme, enabling all surpluses to be retained for investment in future expansion.

Keeping the lights on for South Africa will continue to be a priority for the 2012/2013 financial year, as will improving safety in Eskom's operations. Eskom will also focus on delivering on the build programme, with a special focus on Medupi. It will also pursue programmes to enhance the efficiency of its operations and the reliability of its power stations, and continue to focus on transformation of the organisation to support South Africa's broader macro-economic objectives. Eskom will apply to Nersa later this year for a new multi-year price determination which will take effect from 1 April 2013.

Statement issued by Eskom, June 14 2012

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