Key Features for
the Interim Results for the Six Months ended September 2020
Despite flat revenue, improved cost control resulted in an improvement in EBITDA to R28.1 billion
COVID-19 has had a substantial negative impact on performance, with sales volumes down 10.3% year-on-year, negating the positive impact of a tariff increase of 8.76%
Net profit after tax of R83 million was achieved while navigating a very challenging operating environment
Net finance cost of R15.3 billion due to the unsustainable debt burden of R463.7 billion eroded operating profit
Government support of R6 billion received in the period, with R56 billion committed for the 2021 financial year
Operational performance steadily improving, with plant availability, as well as levels of planned and unplanned maintenance showing progress due to the Generation recovery plan
Reliability maintenance programme in full swing – more than 15% of capacity under planned maintenance, equivalent to more than two large power stations
Primary energy costs increases contained to a 4.4% increase to R54.3 billion in the period; compared to 13% in September 2019
Eskom implemented loadshedding for 19 days during this period (from July to September 2020)
Transmission network performance at expected levels, with Distribution network performance remaining stable
Particulate emissions performance has improved significantly, with water usage levels remaining stable
More environmental interventions under way to ensure compliance while balancing capital expenditure and operational availability
Monday,
14 December 2020:
Eskom’s Interim Results for the six months period ended September 2020 show the
company has achieved progress in some key areas of the business, setting it on
a path to operational and financial stability.
Earnings
before interest, taxation, depreciation and amortisation (EBITDA) increased to
R28.1 billion (September 2019: R26.4 billion). Eskom recorded a
net profit, after tax, of R83 million while navigating a very challenging
operating environment. Revenue grew to R108.7 billion compared to R107.5 billion
in the same period last year, marking an increase of 1.1%. Sales volumes fell
10.3% in the period as a result of the COVID-19 national lockdown that took
effect in March 2020.
Employee
benefit costs and other operating expenses were well contained with employee
benefit costs marginally increasing to R16.7 billion, compared to
R16.4 billion in September 2019. In its attempts to rein in costs, Eskom
relied mainly on natural attrition and voluntary separation packages for
managerial staff to reduce headcount, and there were no salary increases or
incentive bonuses for managerial level staff.
Primary
energy costs rose to R54.3 billion in the period, versus R52 billion
in the same period last year, a 4.4% increase. Eskom has redoubled its efforts
to curb coal costs which remained relatively manageable, with an increase of
only 4.6% in the average purchase cost per ton of coal compared to 14.2% in
September 2019.
However,
Eskom and IPP open-cycle gas turbines (OCGTs) were utilised frequently to
support a strained power system. The Eskom OCGT’s generated 496GWh at a cost of
R1.4 billion in the period, an increase from the R1.1 billion spent
on 331GWh during the same period last year.
Group
Chief Executive, André de Ruyter reiterated that Eskom’s top priority remains
to address operational and financial challenges and return to financial
sustainability. “Given the challenging environment in which we operate, this
will require extraordinary efforts from every Eskom employee, and continued
support from government and all South Africans” concluded De Ruyter.
The
implementation of our reliability maintenance programme continues to bear
fruit, thereby positively impacting plant performance. De Ruyter explained that
the divisionalisation of Eskom has been finalised, with implementation of the
new operating models of the functionally separate entities progressing well for
completion in the first half of 2021.
Municipal
arrear debt remained an area of great concern, with R32.9 billion incurred
by 30 September 2020, from R25.1 billion in September 2019. The top 20
defaulting municipalities constitute 80% of the total invoiced municipal arrear
debt, with 48 municipalities carrying arrear debt of more than R100 million
each by 30 September this year.
Notably,
as at 30 September Eskom had secured funding of R19.6 billion, or 48% of the
funding requirements of R40.7 billion for the financial 2021. The shareholder
provided a further R6 billion in support, with the remainder from the R56
billion committed by government expected by year-end.
“Despite
having achieved 48% of our funding requirements during the period under review,
our access to funding in both domestic and foreign markets remains constrained
due owing to low investor confidence as a result of poor financial performance,
saturated borrowing capacity and the recent rating downgrades. These factors
have a direct effect on market appetite and Eskom’s future cost of borrowing
and may hinder execution of our borrowing programme. Eskom will however
continue to explore all avenues,” said Eskom Chief Financial Officer, Calib
Cassim.
Cassim
cautioned that Eskom’s financial performance is expected to deteriorate in the
second half of the financial year due to seasonality factors, with increased
summer maintenance and expenditure required to ensure security of supply,
coupled with reduced demand and lower summer tariffs.
“While
green shoots have begun to emerge in the economy with the phased easing of
lockdown restrictions, the recession and continued uncertainty around COVID-19
is still expected to threaten future sales volumes, the cost of production and
customers’ ability to pay. By the end of the 2021 financial year, we expect to
record an after-tax loss of approximately R22 billion, due to the
continued negative impact of the lower than adequate tariff increase, together
with the impact of lower sales volumes due to COVID-19,” added Cassim.
While
ensuring liquidity remains Eskom’s top priority, we continue to drive the
turnaround strategy which focuses on five key areas, two of which are
finance-related; improving our income statement, by achieving revenue
certainty, cost optimisation and efficiencies, reducing arrear debts as well as
optimising our balance sheet. Cassim concluded: “Cost savings alone will not
solve Eskom’s financial position, the price of electricity must migrate to
prudent and efficient cost reflectivity whilst embedding the user pay
principle”.
ENDS