Eskom's net profit growth crippled by R454bn debt

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Eskom has achieved an Ebitda of R30.6bn compared to R28.3bn over the same period last year and a net profit of R1.3bn compared to R0.6bn in the same period last year, but debt has increased to R454bn.

A total of 61% of funding for the 2020 financial year has been secured by September 2019. However, the savings of R5.6bn achieved could be negatively impacted to year end by spend on diesel to stabilise the grid.

The group’s total revenue has increased by 10%, primarily as a result of National Energy Regulator of South Africa's (Nersa's) overall tariff determination of 13.87% for the year. Local sales volumes declined by 1.29% compared to September 2018, mainly in industrial and distributor categories. International sales have shown an increase in the past six months.

The municipal arrear debt continued to increase to R25.1bn, an average growth of over R850m per month.

“Eskom’s turnaround journey that seeks to stabilise, separate and grow the company in order to achieve long-term sustainability will take some time to achieve its objectives,” said Eskom’s Interim Executive Chairman and Acting Group Chief Executive, Jabu Mabuza.

“We are encouraged by positive steps taken in stabilising governance and rooting out financial mismanagement, malfeasance and maladministration. This includes recovery of monies lost during the period of state capture. Lifestyle audits of executive senior managers have been completed.

“Eskom is working with all law enforcement agencies conducting major investigations into matters of fraud and corruption that affect the organisation."

Full report

Group Chief Financial Officer, Calib Cassim, gave a full report on the entity’s financials highlighting that Eskom’s financial performance remains under pressure.

He indicated that cost savings alone cannot resolve the current financial challenges and a migration towards a cost-reflective tariff remains imperative.

“We have lodged applications with the High Court to review NERSA’s recent revenue determinations.”

He said in terms of municipal debt, arrear balances including interest have increased by R5.2bn since March 2019 to a total of R25.1bn with a payment level of 44% for the top 20 defaulting municipalities.

Payment levels in Soweto, Johannesburg, remain low at 16%.

Recovery programme

Cassim indicated that although positive progress has been made with the implementation of the generation nine-point recovery programme, plant availability together with environmental performance remain key challenges.

“The recovery programme helped us to improve operational performance and ensured no loadshedding during winter. Unfortunately, we had to implement loadshedding for five days in October and November to stabilise the system.”

Regarding the projections for the year, Mabuza said projections are that Eskom will declare a loss for the full year’s results, similar to that of last year.

Contributing factors include revenue variance between the winter and summer periods with higher demand in the winter and higher winter prices, higher primary energy costs in summer due to higher production from renewable IPPs in summer, and increased price of coal, employee benefits from salary settlements and escalating municipal arrear debt.

“Our debt servicing obligations largely fall within the second half of the year thus putting more pressure on liquidity. We continue to work with our shareholder to stabilise Eskom’s finances,” said Mabuza.

He said the projections indicate that Eskom is unable to service debt and fund a portion of capex through cash from operations.

“We remain reliant on government support of R49bn for the 2020 financial year and R56bn for 2021 to ensure Eskom’s status as a going concern.”

Mabuza welcomed the appointment of André de Ruyter as the group chief executive of Eskom. “We are fortunate to have the expertise of an experienced leader such as André to steer Eskom towards achieving our vision for the future. Leadership stability remains a critical factor in Eskom’s turnaround.”