Eskom’s profit plummets
South African power utility Eskom has reported a group profit of R888 million for the 2016/17 financial year, down from a R5.1 billion profit in the previous year.
However, the power utility’s generational unit (known as the Eskom Company) made a loss of R870 million.
Group revenue increased by 7.9% to R177 billion, while group ebitda increased 14.4% to R37.5 billion.
Also positive however, was generation costs decreasing by 8.5% to R60 billion, while cash generated from operations increased by 23.1% to R46 billion, the group reported.
The group’s results were dragged into the black primarily through its subsidiaries – specifically, a R2.14 billion profit posted by the group’s short-term insurer, Escap.
Escap is a captive short-term insurance company – meaning it can only insure risks of its parent company Eskom and its subsidiaries.
Escap provides cost-effective, customised short-term insurance products to the Eskom group (other than nuclear and aviation liabilities) through a combination of self-insurance and reinsurance with external insurance markets.
This is revealing, as it points to Eskom’s generating operations running at a loss. Another key figure to be tracked, is Eskom’s rising debt.
Every year Eskom reports its current (short term) and non-current (long term) debt liabilities, including debt securities and borrowings. This represents various debt instruments the group has taken on, which may mature in any given year.
Since 2006 – when this figure started appearing with prominence in Eskom’s reports – Eskom’s debt has rocketed from around R30.2 billion, to R320 billion in 2016.
In its latest report, this figure has jumped again, climbing to R355.3 billion – R18.5 billion of which was covered as a current liability paid in the past financial year.
Eskom’s rising debt has been the key concern among stakeholders, with government guarantees extending to ‘only’ R350 billion.
As with our previous coverage, the graph below (updated with 2017 data) highlights the growing concern with Eskom’s financial state. It shows growing revenue, declining profits, and mounting debt – while other liabilities like municipal arrears also getting higher each year.
To combat these concerns, Eskom said it will focus on five key areas going forward:
- Sales growth, with the aim to increase local sales by 2.1% per annum, and an 8% increase in exports.
- Reducing primary energy costs, with the current target a R43 billion reduction.
- Optimising capex of around R25 billion.
- Improving ebitda by R6 billion and
- Reducing dependence on government, by releasing R105 billion in government guarantees.
National Treasury, meanwhile, has laid out its plan to offer ‘soft support‘ to Eskom, while the group works at improving its operation and debt costs.
Interim group chief executive Johnny Dladla said that the power utility is not in financial distress, following reports that the company was broke.
Read: The one graph that shows how big Eskom’s financial problems are
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