Eskom’s Profits Tumble 64%, Predicts Huge Loss in 2023

1. Eskom’s interim financial results reveal a 64% drop in profits for the six months ending 30 September 2023, with revenue increasing but EBITDA declining.
2. The company’s generation business struggles, extending losses to R5.2 billion, while transmission and distribution segments perform well.
3. Eskom anticipates a massive net loss before tax of R32.4 billion for 2023, but has secured government equity support and debt relief measures to help alleviate financial pressures.

South Africa’s embattled power utility company, Eskom, has released its interim financial results for the six months ending 30 September 2023, revealing a significant decline in profits, with a massive loss predicted for 2023.

Eskom’s revenue experienced an increase, reaching R144.84 billion during this period, up from R135.4 billion the previous year. However, the company’s earnings before interest, taxation, depreciation, and amortisation (EBITDA) dropped to R37.96 billion, down from R44.56 billion the previous year.

The group’s profits saw a sharp decline due to increased depreciation and amortisation expenses, as well as higher finance costs. Profits for the period stood at R3.84 billion, a significant decrease from the previous year’s R10.6 billion, marking a 64% reduction.

Eskom’s generation segment has been the primary source of the company’s financial struggles, with losses extending from R2.2 billion in 2021 to a massive R5.2 billion in 2023. In contrast, the transmission and distribution businesses continue to perform well, with profits of R7 billion each.

Eskom’s debt liabilities currently stand at R423.64 billion. The board has assessed various pressures on the company and its ability to continue operating in the foreseeable future. Among these concerns is the projected net loss before tax for 2023, estimated to be R32.4 billion.

In evaluating Eskom’s viability, the board reviewed the group’s performance for the period ended 30 September 2022, including the net profit after tax of R3.84 billion and the net current liabilities of R30.13 billion. The board also noted the deterioration in some financial indicators and the improvement in cash and cash equivalents.

Eskom’s debt-reliant liquidity situation stems from low tariffs, stagnant and contracting sales volumes, above-inflation cost increases, constrained generating plant performance, and its capital program to increase and replace generating and transmitting capacity.

Despite these challenges, the national government has provided continued equity support, with R21.9 billion committed and received in January 2023. This support has helped Eskom maintain a positive liquidity position during this period.

Additionally, the company is receiving assistance through a debt-takeover from the National Treasury, which is currently undergoing the legislative process. This support will provide R78 billion in 2024, R66 billion in 2025, and R40 billion in 2026.

Eskom requires R60 billion in funding for 2023, with 77% already secured by the end of February. The remaining balance will be raised through private placement. The National Energy Regulator of South Africa (Nersa) revenue determination decision on 12 January 2023 and the debt relief measures announced in February 2023 will help alleviate pressure on Eskom’s operating cash flow. This will enable the company to invest in capital expenditures to restore energy availability and strengthen and expand transmission and distribution networks.

Eskom faces numerous challenges resulting from mismanagement and corruption, which could impact stakeholder sentiment. The company has made progress in addressing these issues, improving processes, and strengthening controls, but it will take time to identify all problems, implement corrective actions, and enforce consequence management.

Table 1: Eskom Financial Performance Comparison

Table 2: Government Support for Eskom