CONFIDENTIAL Slido
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Test question – Go to the POLLS section and rate the question: How energized are you feeling this afternoon? 2
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CONFIDENTIAL Engagement on Eskom’s Strategy Executive Forum August 2019
Eskom in its current form is unsustainable Outdated Debt Revenue Costs Operations Business Model Utility death spiral EAF below 70% Debt approaching Volume declining Opex increased during FY19 R450B 1% per year, not 30% in 5 years, Operational and coming back reaching R151B in structural Unable to service FY19 Load shedding, inefficiencies from own EBITDA Tariffs not cost increased costs, lost revenue, lost efficient Large increases in Lack of credibility Must borrow to employee, coal transparency service debt Collection rate at costs 80%, R38B in Change in energy receivables landscape outstanding 5
Eskom ran out of cash and came close to complete collapse on multiple occasions in 2019 Company debt represents ~17% of total If we do nothing, sovereign debt Eskom will An Eskom collapse would have devastating collapse and consequences for South Africa • Sharp depreciation of Rand bring down • Downgrade of credit rating to junk status South Africa • Sell-off of South African bonds • International bailout Eskom's importance to South Africa is the only reason why company still exists 6
We have developed a turnaround plan centered on 5 focus areas RESPONSIBILITY ESKOM GOVERNMENT ESKOM AND GOVERNMENT Debt Revenue Business Cost Operational Relief Management Separation Initiatives Stability R130B debt Above-inflation Separation into Cost reduction Recovered relief from tariff increase 3 businesses of R33B/year EAF to 78% government across entire over 3 years Improved Gx, Dx value chain Improved collection subsidiaries security of Long term debt supply restructuring Tx under DPE Legal Separation 7
Eskom Strategy in a nutshell… STABILISE • Improved governance • Improved profitability - R79.3bn EBITDA • Improve electricity reliability- STRATEGY TO A NEW ESKOM EAF 78% • Cost reflective tariff path Vision: Drive economic growth by being a financially • Retain existing customers • Cumulative savings R77bn stable provider of energy solutions across Africa • Debt Relief • Improved receivables Stabilise Separate Grow SEPARATE • Decentralised service 1 2 3 functions • Separate Tx company • Ring-fenced Dx and Gx TURNAROUND PLAN under Eskom Holdings • Lean and efficient Eskom Revenue Cost Business Operational Debt relief Management initiatives separation stability GROW • Lower carbon energy mix HIGH PERFORMANCE CULTURE ADVANCED ADVOCACY AND STAKEHOLDER ENGAGEMENT • Renewables player • E-mobility ADVOCACY AND STAKEHOLDER ENGAGEMENT • Storage • Micro and mini-grids • New electricity customers CO-CREATING AN INDUSTRY AND MARKET STRUCTURE * Footnote • Smart grids expansion 8 Source: Source
Path to Strategy Implementation FY19 FY20 FY21 FY22 FY23 Initial debt relief to boost liquidity CRO to restructure remaining debt Debt 1. STABILISE Tariff increase Work with government on debt collection Revenue Savings target definition (R33B) Savings execution (annual run rate) R5B R11B R14B R24B R33B Cost Recovery plan definition (9 Point Plan) 9 point plan execution Operations 2. SEPARATE Overall concept and end state Relinking Tx legal separation Separation Gx, Dx legal separation Shrink to grow 3.GROW No regret options Existing markets Revenue New markets and new products 9
What does success look like? What do we ultimately want to achieve? Improved governance, transparency & accountability Economic growth and Improved Increased investment profitability investor confidence Increased efficiencies and productivity through competition SUSTAINABLE ESKOM SUSTAINABLE ENERGY SUPPLY CHAIN 10
Costs and Revenue initiatives… COST MANAGEMENT REVENUE MANAGEMENT Cost reflective tarrifs Increase in sales volumes Revenue collection Setup for growth Develop pipeline for new products and access to new markets (storage, e-mobility, mini grids etc) Africa Strategy, Renewables Energy Strategy and SMART strategy have been developed Use RT&D for new product development Eskom’s ability to implement its growth strategy is dependent on a change in market structure and policy. Strong advocacy will be required to influence this. 11
Overview of Business Separation Phase 0: Phase 1: Phase 2: Phase 3: Eskom Today Functional Legal Transmission as a separation separation separate SOC Lean Eskom Holdings Centre DPE SOC LTD DPE DPE DPE Eskom Eskom Holding Holding Tx Eskom Generation Distribution Enterprises Gx Tx Dx Gx Tx Dx SOC Ltd SOC Ltd Gx Dx Tx Gx Dx SOC Ltd + Holding, Gx,Dx, What is the Eskom Eskom Holding, Gx, Tx, Dx legal entity? Transmission Company Where does Holding, Gx,Dx, Eskom Eskom, Gx, Tx, Dx Holding, Gx, Tx, Dx the P&L Transmission Company reside? Who Holding, Gx,Dx, Eskom Eskom Holding, Gx, Tx, Dx employs the Transmission Company FTEs? Where does Holding, Gx,Dx, Eskom Eskom Holding, Gx, Tx, Dx the debt Transmission Company reside? How long to N/A 12-18 months 36 - 60 months Tx co 24 months implement Legal separation in from today? total 48 months Phase 3 may be required to be executed in parallel with Phase 2 12
Expectations We are committed to the following What we expect from you Your buy-in Clear strategic direction Your input Willingness to listen to your ideas Full commitment and alignment Demonstrate commitment and of the Exco to the strategy leadership daily Clear definition of roles, Rigorous, disciplined execution responsibilities and lines of of what is within your control accountability Management and alignment of Tangible results to gain credibility external stakeholders Clear and consistent messaging Regular, open and consistent throughout the organisation communication REQUIRES URGENCY REQUIRES TOUGH DECISION-MAKING WILL BE PAINFUL TRADE-OFFS NEEDED 13
What do we do differently from today… ? 14
Go to POLLS and insert answer to: What are the three things I can do differently to implement the strategy? Use one word answers where possible 15
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