Financial performance overview

Key ratios for the group   Measure   2011   2010  
  Income statement        
  Earnings before interest and tax (before profit/(loss) on embedded derivatives)  R million   15 776   4 920  
  EBITDA   R million   21 734   12 920  
  EBITDA margin   %   23.26   17.30  
  Net profit   R million   8 356   3 620  
  Free funds from operations   R million   17 019   2 356  
  Electricity revenue per kWh   cents/kWh   40.27   31.95  
  Electricity operating costs per kWh (including depreciation and amortisation)  cents/kWh   32.78   28.23  
  Arrear debts as % of revenue   %   0.75   0.83  
  Interest cover   ratio   1.54   0.86  
  Electricity sales volumes   GWh   224 446   218 591  
  Balance sheet       
  Total assets   R million   328 145   246 135  
  Total equity   R million   87 259   70 222  
  Working capital ratio   ratio   0.87   0.91  
  Debt:equity including long-term provisions   ratio   1.62   1.62  
  Return on average total assets   %   2.91   1.63  
  Return on average equity   %   10.61   5.58  
  Average days coal stock   days   41RA 37RA
   Cash flow/funding      
  Debt service cover ratio   ratio   1.97   2.53  
  Free funds from operations as percentage of gross debt   %   9.56   1.92  
  Gross debt/earnings before interest, tax, depreciation and amortisation   %   8.19   9.50  
  Cash and cash equivalents and investments in securities   R million   49 892   19 612  

 
RA – Reasonable Assurance provided by the independent assurance provider (Refer here).

 

Results of operations

During the 2011 financial year Eskom’s aim was to create cost savings and efficiencies. Eskom is pleased to announce that it has achieved a group net profit for the year to 31 March 2011 of R8.4 billion (March 2010: R3.6 billion) and for the company a net profit of R8.0 billion (March 2010: R3.2 billion). The operating profit for the year, before fair value gains and losses on embedded derivatives and net finance costs was R15.8 billion (March 2010: R4.9 billion) for the group and R15.2 billion for the company (March 2010: R3.8 billion).

This strong financial performance resulted from the 24.8% tariff increase (including the environmental levy), granted by the National Energy Regulator of South Africa with effect from 1 April 2010, as well as cost savings and deferrals.

Overall, Eskom’s electricity revenue per kWh sold increased on average by 26.0% from March 2010 to March 2011
(31.9 c/kWh to 40.3 c/kWh). Electricity-related operational costs per kWh increased on average by 16.1% from March 2010 to
March 2011 (28.2 c/kWh to 32.8 c/kWh).

Revenue

Group revenue for the year to 31 March 2011 was R91.4 billion (31 March 2010: R71.1 billion), while company revenue was R90.9 billion (2010: R70.1 billion). Group revenue, which includes a small portion of non-electricity revenue, reflected an increase of 28.6% (2010: 31.3%). Included in electricity revenue is the environmental levy of R4.3 billion charged to customers (2010: R3.3 billion. The levy was only in effect for nine months in the 2010 financial year).

The sales of electricity for the year amounted to 224 446GWh, representing an increase of 2.7% (2010: 1.7%) compared to the previous year (218 591GWh). This is, however, below the budgeted sales of 227 727GWh (4.2% budgeted growth). The budget shortfall is mainly attributed to redistributors (municipalities) (1 161GWh), industrial customers, including smelters
(1 477GWh), mining customers (723GWh) and prepaid customers (312GWh), due to the slower than anticipated recovery of the economy, the downscaling of certain mines and lower demand from certain smelters.

NERSA initiated the introduction of an inclining block tariff for residential customers, thereby replacing Eskom’s existing residential tariff structures. The regulator’s decision, which also includes measures for the protection of the poor, resulted in different increases per tariff category. The inclining block tariff was implemented for metered residential customers, while implementation for prepaid residential customers was limited to reflecting the regulator’s inclining block tariff price levels within the existing structures, with full implementation on 1 April 2011.

The inclining block tariff structure gives significant relief to low consumption customers, who make up the majority of residential customers. These low consumption customers are seeing reductions in their monthly bill, while higher consumption customers, using more than 1 500kWh per month, have higher than the average increases.

Primary energy costs

The primary energy costs for the year (group and company) amounted to R35.8 billion (2010: R29.1 billion). The costs include the environmental levy of R5.0 billion (2010: R3.5 billion) paid to government. The cost of primary energy as a percentage of electricity revenue was 39.6% (2010: 41.7%).

Primary energy costs increased by 19.8% from 13.3c/kWh for the previous year, to 15.9c/kWh for the current year. The 12.8% per ton increase in the cost of the coal burnt contributed 8.2% of the 19.8% increase, the environmental levy increase contributed 4.7% (the levy was only in effect for nine months in the prior year) and the cost of using independent power producers (R1.3 billion) contributed 4.3%. The increases in the cost of coal handling, coal-fired start-ups, gas-fired start-ups and nuclear fuel costs made up the remainder of the increase.

The environmental levy is treated as an inherent variable cost to the production of electricity from non-renewable sources, similar to fuel costs. The levy, introduced as a separate charge for all tariffs from July 2009, will be increased from 2c/kWh to 2.5c/kWh from 1 April 2011, to generate revenue for road repairs. Refer to here for more details on the road repair programme.

The coal stock days at 31 March 2011 stood at 41RA days, up from 37RA days at 31 March 2010 and down from the 42 days at 31 December 2010.

Eskom is committed to facilitating the entry of independent power producers. Eskom has signed power purchase agreements for 373MW with five power producers and hopes to sign an additional 3MW soon. Short-term agreements were also signed with municipal generators, and the aim is to extend these agreements for a further three to five years.

 
RA – Reasonable Assurance provided by the independent assurance provider (Refer here).

 

Operating costs

Group and company operating costs consist of:

Employee benefits

Group employee numbers increased by a net number of 2 556 to 41 778, up from 39 222 in 2010. Company employee numbers increased by a net number of 2 487 to 39 034, up from 36 547 in 2010.

Group gross employee costs of R20.4 billion (2010: R17.9 billion) represent a 14.1% increase, while company gross employee costs of R19.0 billion (2010: R16.5 billion) represent a 15.4% increase. The group and company capitalised R3.7 billion (2010: R3.2 billion) of employee costs to capital projects during the year.

Group depreciation costs

Group depreciation costs increased to R7.2 billion (2010: R5.7 billion) due to an increase in additions to property, plant and equipment. Company depreciation costs increased to R7.1 billion from R6.0 billion accordingly.

Arrear debt

Group bad debt as a percentage of revenue was 0.75% (2010: 0.83%). This is an area that will receive continuous focus over the forthcoming years as the tariff increases.

Electricity debtors increased from R7.0 billion at 31 March 2010 to R8.7 billion at 31 March 2011. The allowance for the impairment for trade and other receivables increased from R2.4 billion to R2.9 billion over the same period.

Debtor days   Measure   2011   2010   2009  
  Average debtor days: Distribution   days   22.2   22.0   20.8  
  Average debtor days: Transmission   days   16.0   16.1   18.1