click to edit master subtitle style briefing by rand water: analysis of annual report ~ presentation...

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Briefing by Rand Water:

Analysis of Annual Report~

Presentation to Portfolio Committee~

5th May 2010


Rand Water’s Strategy

Overview of Rand Water – Areas and municipalities served

Tshwane Metro15%

Mines6%

Industries1%

Ekurhuleni Metro24%

Emfuleni Metro6%

Other Municipalities12%

Greater Johannesburg Metro36%



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Year Ending 30 June

The following installed capacities are:

• WTW treatment capacity – 5300 Ml/d

• Primary pumping capacity – 7500 Ml/d

• Booster pumping capacity – 8300 Ml/d

• Municipal customers are approached every 2 years to provide demand forecasts at each supply point

• The municipal forecasts allow for new developments, upgrading service levels, etc.

• Approved forecasts of demand are added to hydraulic models to determine need for additional infrastructure over 15 years

• Infrastructure projects commence

Result

• Rand Water met daily demands during the year,

• Rand Water met maximum daily demand

• Thus, Rand Water complied with the contracts signed with all customers

Relationship with municipalities

• Rand Water is actively searching for new markets

• Areas of focus are in sanitation, water demand management, acid mine water purification

• This requires a working relationship with municipalities

Relationship with municipalities

• Water Services Act mandates Rand Water to services potable and bulk sanitation

• Greater demands on State Owned Enterprises (SOEs) to contribute to national socio-economic development goals

• Substantial deficit in basic service delivery at both bulk and municipal water service levels (R23billion shortfall in bulk sanitation requirements in Gauteng alone)

• Requirement to create water services capacity in areas where it is lacking (smaller water boards, municipalities, etc)


Analysis of financial and non-financial performance for the current year

Revenue - R4.677 billion (R4.274 billion~2008) Total Assets – R7.9 billion (R7 billion~2008) Gross margin decreased from 54% to 51% driven by

higher than expected raw water costs from April 2009 Variable costs increasing by over 38% yoy with energy

costs increasing by 40% Decrease in EBITDA by 28% to R706m Fixed costs increased by 16% Significant increase in net finance income R75m

compared to the previous year of R38m Cash generated from operating activities R971m with

overall cash reserves of R1.35 bn Capital expenditure investment amounting to R981m


Standard and Poor’s credit rating maintained

Unqualified audit report

Corporate ISO 9001:2000 accredited

All plants ISO 14001 accredited

Laboratory ISO 17025 accredited

Analysis of financial and non-financial performance for the current year


for the year ended 30 June

2009R

million

2008RestatedR million

Revenue 4 677 4 274

Total sales by major customer group - 2008 Total sales by major customer group - 2009

Financial results 2009

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Financial results 2009

2008 2009


2009R

million


Revenue 4 677 4 274

Net operating expenses 1 697 1 346



2009R million

2008Restate

dR

million

Revenue 4 677 4 274

Net operating expenses

1 697 1 346

EBITDA 706 975

Depreciation and amortisation

180 176

Profit from operations before net finance costs

526 799

Net investment income

75 39

Taxation (5) 2

Net Profit for the year

596 840

Consolidated income statement

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Profitability


Capital Expenditure

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Capital Expenditure

5-year Capex Plan (R8.6bn)

Focus mainly on capacity creation

Most of the projects already

in progress/ committed

Capex approval based on

strategic fit, viability and

affordability




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5-year capital expenditure Total capex plan – R8.6bn Major capital projects

Projects

Estimated Total Cost (R'm)

Brakfontein - Madibeng system

400

Palmiet - Klipfontein augmentation

490

Vlakfontein - Mamelodi pipeline

720

BG3 pipeline

600

Zuikerbosch to Palmiet pipeline

900

Zuikerbosch scheme

2,000

Sedimentation tanks at Zuikerbosch

320

Palmiet Engine Room 3b

300


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for the year ended 30 June2009

R million

2008Restate

dR million

EQUITY AND LIABILITIES

Capital and Reserves 5 938 5 339

Non-current liabilities 860 946

Current liabilities 1 136 734

Total Equity and Liabilities 7 934 7 019

Consolidated balance sheetFinancial Results 2009

Debt Equity (%)Capital and Reserves (R billion)



R million


ASSETS

Non-current assets 5 906 5 155

Current assets 2 028 1 864

TOTAL ASSETS 7 934 7 019

Consolidated balance sheet

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Financial Results 2009



R million


Cash flow from operating activities 971 1 001

Cash generated from operations 895 959

Other 76 42

Abridged consolidated cash flow statement

Cash generated from operations (R million)

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Cash generated from operations before working capital changes decreased by 6.7% to R895m

Net cash generated from operating activities decreased by 3.0% to R971m

Financial Results 2009


Corporate Social Responsibility Rand Water ploughed back a considerable amount into

communities within our service area through our Corporate Social Investment (CSI) programme, which is managed through the Rand Water Foundation and its Corporate Social Responsibility Division

Rand Water has invested in the following flagship projects: The Race for Victory, an initiative of the Frances Volweg

School in Johannesburg for learners with physical and learning disabilities.

The Vaal Echoes of Love Care Centre in Sharpeville, Vereeniging.

The Thembisile Hani Local Municipality’s Siyathejana Project.

Rand Water has spent R2.6 million on donations to various non-profit organisations as part of its social responsibility initiatives this financial year.

Rand Water Foundation has supported nineteen Small, Medium and Micro Enterprises (SMMEs) to a combined value of R2,9 million.

Key Challenges

Sustainable tariff structure - the new tariff structure/methodology

Ageing infrastructure -rollout of Capex program within resource constraints

Experiencing steep increases in input costs specifically steel and energy

Raising funds effectively in financial markets that are in turmoil

Maintain and improve Rand Water’s credit profile

Default risk by major municipalities

Deteriorating Raw water quality as a result of poor catchment management

Industrial/other consumers

The future remains bright…

Mining consumers

Municipal consumers

Mining consumers

Municipal consumers

Industrial/other consumers

Expansion into Africa

SanitationWe plan to grow market

share in Sanitation Services, expansion into Africa and Retail Water

distribution


Looking forward• Key mandates of sustainable provision of water services• Profitability will be under pressure

the high energy prices, high cost of raw water, lower tariff Net income is expected to continue falling in the current

financial year.• Continued trajectory of capital expenditure investments in order

to meet future demands• Access debt capital markets to raise funding required for capex• Co-generation of energy in the medium term• Regional bulk sanitation scheme• Water Demand Management – If done appropriately, this will

delay the 2nd Phase of the LHWP

Tariffs and Negotiation With Customers

Debt Curve Comparisons - LHWP and Future Scheme

-

5,000

10,000

15,000

20,000

25,000

30,000

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24 '25 '26 '27 '28 '29 '30 '31 '32 '33 '34 '35 '36

Years

Cost

in R

Mill

ion

Funding Curve LHWP

Funding Curve Next Scheme

Funding Curve LHWP and NextScheme

Project Debt

Overlap

DWA / TCTA Raw Water Tariff ~ 2010 / 11

Old

Tariff

% Increm

entNew Tariff

DWA 41.36 6.50% 44.05

TCTA 166.46 7.65% 179.19

Total 207.82 7.42% 223.24

Cost of raw water is determined by DWA and TCTA

The 2nd phase of the LHWP has been approved and will carry additional cost on raw water as shown in the diagram

Tariffs and Negotiation With CustomersRand Water‘s tariff increment of 14.1 per cent is based on the following cost structure

2010 / 11Pri

ceForecast

Percent

WeightedYear-End ~ 30

Juneincrease

-

of total% R

m% %

TCTA

9.3%

2160

40.1%

3.7%D

WA

8.9%

544

10.1%

0.9%Raw

water9.2%

2704

50.2%

4.6%Ener

gy35.0%

962

17.8%

6.8%Chemica

ls11.6%

221

4.1%

0.5%Multi-Partnered Uncontrollable

Costs3888

72.1%

11.9%Labo

ur8.1%

932

17.3%

1.4%Oth

er8.0%

571

10.6%

0.8%Tot

al5391

100.0%

14.1%

Target bulk tariff increase

14.1%

Bond Raised (R m)

700

Rand Water Tariff = Rand Water Internal Inflation

Rand Water’s tariffs are expected to remain under pressure

• Energy prices will continue to be above the CPI target range over the next 3 years

• Municipalities are allowed to charge an additional 15 per cent on energy. Rand Water sources approximately 40 per cent of its energy from municipalities

• DWA is working on a new pricing strategy for raw water and the whole water supply chain.

• Rand Water’s tariff of 14.1 per cent was approved by National Treasury and DWA .

Forecast

• Rand Water expects tariff increments above the CPI inflation range of 3 per cent – 6 per cent across the water supply chain

• Tough negotiations with customers are expected

• Situation may be alleviated by an independent regulator

Tariffs and Negotiation With Customers

Thank You

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