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Business and sustainability performance review  
FINANCIAL REVIEW  
 
Financial performance overview | Achieving the requested price increases | Capital and funding strategies  
 
Procurement and supply chain | Information technology | Productivity performance  
   
 
Financial performance overview  
   
 
Performance of Eskom and its subsidiaries

The operating profit for the year for the Eskom group, before the impact of embedded derivatives
and net finance costs, was R3 215 million (2007: R6 452 million) and for the company R3 132 million
(2007: R5 815 million) after taking into account the following:

  • a dividend of R800 million (2007: R200 million) from a subsidiary is included in the net profit for
    Eskom (but eliminated for the group)
  • the change in the projected asset lives of coal-fired generation plant from 35 to 50 years impacted the profit by a favourable amount of R484 million
  • the increased amount spent on primary energy. The costs of coal and diesel increased from
    R13 040 million in 2007 to R18 314 million in 2008

The profit for the year for the Eskom group was R974 million (2007: profit of R6 476 million) after taking into account the fair value loss on embedded derivatives of R143 million (2007: fair value gain
of R4 305 million).

The profit for the year for the company was R1 333 million (2007: profit of R6 030 million) after taking into account the fair value loss on embedded derivatives of R149 million (2007: fair value gain
of R4 131 million).

The forward electricity price curve used to value the embedded derivatives was 27,5% for
the 2008/9 year, 25% for the next three years, 18% for the 2012/13 year and CPI plus 2% thereafter.
A sensitivity analysis for the embedded derivatives appears in note 3.

The debt:equity ratio including long-term provisions weakened from 0,14 to 0,30 at the end of the current year.

Highlights

  • the group capital expenditure (including interest capitalised) of R24 764 million for the year was significantly higher than the R17 707 million in the previous year and exceeded the target by
    R218 million, indicating that the capital expansion programme is on track
  • the BEE spend was R25 447 million compared with a target of R18 955 million
  • strategic sourcing savings of R3,1 billion against the target of R1,5 billion
Lowlights

  • the impairment provision for trade and other receivables increased from R1 533 million in 2007
    to R1 877 million
  • primary energy costs increased significantly during the year
  • a rating agency placed Eskom on credit watch during February 2008
  • the revised price increase of 14,2% for 2008/9, announced by Nersa in December 2007,
    was lower than the 18% requested by Eskom
  • the return on assets for the year was 3,3% compared to 7,8% last year

 

  Click here for more details on capital expenditure.


Income statement

Group business performance for the year ended 31 March 20081

 
  Eskom  
Holdings  
Eskom  
Enterprises  
Escape   Gallium   Inter-  
company  
eliminations  
Consoli-  
dated  
  Rm   Rm   Rm   Rm   Rm   Rm  
2008
Revenue
43 584   5 456   560   –   (5 152)  44 448  
Other income 1 744   254   23   –   (1 790)  231  
Net fair value (loss)/gain on financial instruments excluding embedded derivatives (729)  25   16   –   4   (684) 
Operating expenditure (41 467)  (5 357)  (622)  8   6 658   (40 780) 
Operating profit/(loss) before net fair value (loss)/gain on embedded derivatives 3 132   378   (23)  8   (280)  3 215  
Net fair value (loss)/gain on embedded derivatives (149)  10   –   –   (4)  (143) 
Operating profit/(loss) before net finance costs 2 983   388   (23)  8   (284)  3 072  
Finance income 2 811   201   140   55   (274)  2 933  
Finance expense (4 815)  (94)  –   –   188   (4 721) 
Share of profit of equity accounted investees –   20   –   –   10   30  
Profit before tax 979   515   117   63  (360)  1 314  
Income tax expense 354   (149)  (30)  –   30   205  
Profit for the year from continuing operations 1 333   366   87   63   (330)  1 519  
Discontinued operations –   (13)  –   –   (532)  (545) 
Profit for the year 1 333   353   87   63   (862)  974  
2007            
Operating profit before interest and finance charges 9 946   1 012   169   107   (477)  10 757  
Included in above is:            
Net fair value gain on embedded derivatives 4 131   174   –  –   –   4 305  
Profit for the year 6 030   840   186   199   (779)  6 476  
Other key information            
          Actual  
2008  
Actual  
2007  
Sales            
Eskom electricity sales (GWh)         224 366   218 120  
Eskom electricity sales growth (GWh %)         2,86   4,90  
Eskom electricity sales growth (Rm %)         10,61   11,30  
  1 Due to the insignificant amounts involved, the figures for PN Energy, a wholly owned subsidiary of Eskom Holdings, have not been included in the above table.
   
 
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