Key Features of the Results for Financial Year ended March 2021
• Gross outstanding debt reduced by R81.9 billion, with government support of R56 billion contributing towards debt servicing
• Gearing improved to 67%, from 71% a year earlier
• Cost savings of R14.4 billion achieved against the target of R14.1 billion
• Revenue growth improved to R204.3 billion due to a 8.76% tariff increase
• COVID-19 pandemic negatively impacted performance, sales volumes down 6.7%
• Decline in EBITDA to R32.8 billion due to lower sales volumes and increased costs
• Operating profit (EBIT) of R5.8 billion realised despite challenging environment
• Net debt service cost of R31.5 billion, results in a net loss after tax of R18.9 billion
• Headcount reduced by 4.5%, without forced retrenchments; no annual increases or bonuses for management
• Favourable court judgments received on a number of Nersa revenue review applications
• Growth in primary energy costs contained to 3.4%, influenced by lower production levels, increased production by Renewable IPPs
• Generating plant performance reduced to 64.19% EAF, increased planned maintenance a short-term trade-off for longer term sustainability
• A total of 47 days of loadshedding, versus 46 days in FY2019/20
• Kusile Units 2 and 3 achieved commercial operation, adding installed capacity of 1 598MW to the national grid
• Significant progress made in correcting major design plant defects at Medupi, with improved performance from corrected units
• Improved network performance for the Transmission and Distribution divisions
• Arrear municipal debt increased 26% to R35.3 billion
• Environmental performance remains disappointing, particularly at Kendal Power Station
• Business separation gaining momentum, with functional separation completed in June 2021
Tuesday, 31 August 2021: Eskom’s performance during the financial year ended 31 March 2021 was challenging under difficult circumstances. Eskom reduced its gross debt by R81.9 billion, a 20.4% reduction, to an outstanding debt of R401.8 billion. The organisation’s debt remained unsustainable, attracting a net finance cost of R31.5 billion, turning an operating profit of R5.8 billion into a loss of R18.9 billion after tax.
Eskom achieved operational cost savings of R14.4 billion during the year under review, against a target of R14.1 billion. Although sales volumes were down, primary energy costs increased 3.4% to R115.9 billion. Normalised operating costs increased 1.6%.
Just like the overwhelming majority of South African businesses, Eskom was not spared the worst effects of the COVID-19 pandemic, said André de Ruyter, Eskom Group Chief Executive. “The slowdown of economic activity due to the pandemic led to an unprecedented decline in sales, which fell 6.7% from the previous year. Sadly, the losses Eskom suffered as a result of the COVID-19 pandemic were not limited to our finances. We also lost 153 of our colleagues to the pandemic, including 17 contractors as at Friday 26 August 2021. Our sincere condolences go to the affected families,” said De Ruyter. “Operationally, however, every crisis does bring with it an opportunity. In this case Eskom used unfortunate lower demand presented by the lockdown to conduct much-needed maintenance at some of our power stations.”
Revenue increased to R204.3 billion during the year, from R199.5 billion the previous year. This is mainly attributed to an 8.76% annual increase in the electricity tariff during the period, offset by a reduction of 6.7% in sales volume.
Primary energy costs increased with R3.8 billion mainly as a result of an increase of R3.1 billion in Renewable IPPs due to an increased production from these IPPs. The energy availability factor (EAF) deteriorated to 64.19% from 66.64% the previous year. This is a direct consequence of the implementation of the reliability maintenance programme, necessitating more planned maintenance.
There has been a notable improvement in transmission and distribution network performance. High levels of asset vandalism, equipment theft and overloaded networks continued to increase breakdowns and maintenance costs, limiting return on investment and posing a safety risk. Of concern is the increase in electricity theft and illegal connections, which has necessitated load reduction in areas with a high incidence of illegal connections.
Giving an overview of the organisation’s performance, De Ruyter explained that Eskom’s long-term objectives of achieving operational and financial substantiality are dependent on the successful implementation of the turnaround plan currently under way. “The turnaround plan, which is overseen by a diverse executive committee (Exco), comprising of 56% Black female representation, focuses on operations recovery, improving the income statement, strengthening the balance sheet, driving business separation and bringing about a winning, can-do culture,” said De Ruyter.
Executive and senior managerial appointments during the year helped improve racial equity substantially at senior and middle management levels. Black representation rose to 73.72% and 80.10%, respectively (improving from 71% and 78.04% in the comparable year), while gender equity at both levels also improved to 42% and 39%, respectively (up from 41.73% and 38.24% the previous year). Disability equity is still a concern with a decline in the number of employees living with disabilities.
Even though it has recently suffered a serious setback with the explosion at Unit 4 of Medupi Power Station, the build programme is progressing well. During the year under review two units at the Kusile Power Station achieved commercial operation, adding installed capacity of 1 598MW to the national grid. This brings the completion of the build programme closer, with half this power station now completed. Significant progress has also been made in correcting the major plant design defects at Medupi, with Unit 3 reaching full generation capacity in April 2020.
While there has been encouraging improvement in particulate emissions performance in Eskom generation fleet, the challenges at Kendal Power Station are being addressed.
Business separation is on track. All the necessary documentation was completed and signed by 7 June 2021, thereby completing functional separation of the three line divisions.
Eskom is working towards achieving legal separation of the Transmission entity by December 2021, subject to critical external and regulatory decisions and dependencies. Amongst the largest external issues to be addressed is the legal and regulatory process to enable the legal separation. The legal separation of the Generation and Distribution entities will be finalised within the 2022/2023 financial year.
Consistent with Eskom’s endeavour to contain costs, there was 4.5% reduction in the employee numbers, with a total of 2 023 employees leaving the service of Eskom through natural attrition and voluntary separation. This had the effect of reducing the headcount to 42 749 during the year, from 44 772.
“This means that over the past two years Eskom has reduced its workforce by just under 4 000 employees,” said De Ruyter. “It must again be stated that not a single one of these was a forced retrenchment.” Amongst these were 74 voluntary separation packages granted to managerial level employees in financial year 2021, further reducing employee benefit costs and reducing the manager: employee ratio. “This further helps improve Eskom’s operational efficiency,” said De Ruyter.
Despite the COVID-19 lockdown, 106 669 new customers were connected to the grid under the Department of Mineral Resources and Energy’s (DMRE) electrification programme.
An equally positive development is that Eskom spent R67.4 million on corporate social investment (CSI) initiatives, positively impacting the lives of 802 635 South Africans.
Unpacking the financial results, Eskom Chief Financial Officer, Calib Cassim, said the strengthening of the Rand had a significant positive impact on results for the year.
Cassim stated that Eskom’s liquidity remained a concern due to the high cost of servicing the outstanding debt, working capital requirements, escalating municipal arrear debt, and sub-investment grade level credit ratings, among other factors. “This picture is likely to remain unchanged in the short- to medium-term, however, reliance on government support mitigates the material uncertainty regarding Eskom’s status as a going concern,” said Cassim.
Outstanding municipal debt rose 26% to R35.3 billion in the period. To address this, among other challenges, Eskom is working closely with the Political Task Team led by the Deputy President. Eskom is also pursuing active partnership agreements with some of the municipalities, in which it hopes to arrest the spiral in outstanding debt.
“Cost savings alone is not a solution. Eskom’s capital position must be resolved. Cost-reflective tariffs and resolving the municipal arrear debt are required to achieve the successful implementation of Eskom’s turnaround and to ensure long-term financial sustainability. For its part, Eskom continues its concerted effort to reduce the debt and to improve gearing,” said Cassim.
Eskom has so far secured R16.2 billion of its R41.6 billion funding requirement for the 2022 financial year.