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Financial Results - RW21
RAND WATER BOARD
INSTRUMENT CODE: BIRW
ISIN: ZAG4085523
SHORT NAME: RW21
ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012
DATED: 18 APRIL
Rand Water produced stronger financial results for the year to 30 June 2012, while fulfilling
its development mandate to supply high-quality potable water to areas centred around
Gauteng, the engine room of the continent’s economy.
The group lifted net profit for the year by over 45% to R778.5 million (2011: R536.5 million)
on higher sales volumes, a wider gross margin and as the pursuit of new revenue streams
bore fruit. This was despite continued increases in our main costs – raw water, salaries and
electricity.
Revenue increased by 16% to R6.8 billion, on a 3% increase in the volume of water sold
(2011: 4%), and a 12.9% rise in the government-determined water tariff (2011: 14.1%) that is
charged to our customers, who are mainly municipalities.
Work to develop new revenue streams paid off, with the revenue contribution from providing
these services – mainly wastewater treatment – accelerating 63% to R250 million in the
year.
Earnings before interest, taxation, depreciation and amortisation (EBITDA) improved by
more than 26% to R948 million (2011: R750 million), resulting in a widening of the EBITDA
margin to 13.9% (2011: 12.7%)..
Depreciation and amortisation of assets for the year increased by 5.5% to R212 million
(2011: R201 million), a result of the roll out of our capital expenditure programme. This trend
is expected to continue as we continue to invest in new infrastructure over the next five
years.
We earned R43 million in net interest income, after incurring net interest paid of R16 million
in 2011 mainly due to the increase in borrowing costs capitalised during the year. Capitalised
borrowing amounted to R73 million (2011: R5 million) and is expected to increase in line with
the capital investment over the next five years.
Keeping costs in check
Off 2011’s high base, input costs increased 24.3% in 2012, driven by a 31.4% rise in energy
costs. The cost of raw water is determined by a government pricing strategy which links this
to producer inflation. In 2012, the cost of raw water increased by 9.4% year on year, of which
3% was attributed to volume growth and 6.4% to the average price increase.
The increase in the cost of electricity, required to pump water, was 31.4% in 2012 (2011:
27%) on the back of higher electricity cost which have growned year on year by 28%
compared to 22% in the previous year prices from Eskom. To contain the cost of electricity,
Rand Water has embarked on various energy-efficiency initiatives and will continue to
engage with both the National Energy Regulator of South Africa (NERSA) and Eskom.
Among our energy-efficiency efforts are the use of variable-speed drivers on our pumps and
greater use of off-peak times for pumping water to customers. Furthermore, the group
continues to pursue opportunities to generate hydropower to meet some of its electricity
requirements, reducing its dependence on the national grid and its impact on the
environment, as well as partly mitigating the increases in Eskom’s electricity costs. The due
diligence of our first hydropower facility is progressing well. We expect this to result in cost
savings.
In 2012, our chemical costs remain broadly unchanged from those in the previous year,
when they had increased 49%. Although greater volumes of water were treated in the year,
we benefited from an improvement in water turbidity levels in the second half.
Staff costs rose by 20% to R1.28 billion as employee numbers increased 4% to 3 153. In the
year, we awarded a general salary increase of 7.5%. Although it was higher than inflation,
this was below the 8-12% awarded in previous years.
Increasing cash generated from operations
Net cash from operating activities rose 23% to R1.17 billion as a result of an increase in
revenue streams. At year-end, Rand Water had cash reserves of nearly R1.33 billion.
Pushing ahead with our capital expenditure programme
In the year, we advanced our extensive capital investment programme designed to meet
demand projections for water within Rand Water’s area of supply and replace ageing
infrastructure. We increased capital expenditure by more than 38% to R1.48 billion, which
relates to the augmentation and rehabilitation of infrastructure.
In June 2012, we raised R506 million in a tap issue of our RW21 bond, due 2021, to partly
fund the capital expenditure programme. The balance was financed from cash generated
from operations.
At year-end, the group’s debt-to-equity level was 20%, which is below the target of 50%,
reflecting the significant capacity still available to fund future spending. The group has an
approved borrowing limit of R3.9 billion, which expires in 2013. We will request our
shareholder to approve a new rolling borrowing limit of R6.3 billion for the next five years to
2018.
Among the key projects carried out in the year was the BG3 raw water pipeline
augmentation project to increase the capacity of the raw water supply system from the Vaal
Dam to the Zuikerbosch Purification and Pumping Station. This will supplement the BG1 and
BG2 pipelines from the Vaal. The project, which will be commissioned by early 2013, will
give us flexibility in the use of the three pipelines, and will also increase the capacity of water
flowing to Zuikerbosch by 1 200 megalitres per day.
The Rand Water Provident Fund
The Rand Water Provident Fund is self-administered and membership is restricted to
employees. The Fund is governed by a Board of Trustees to maintain its independence. In
the year under review, the Board of Trustees held six meetings. In addition, audit committee
as well as investment committee meetings were held.
Assets under management by the Rand Water Provident Fund reached the R1 billion mark.
The primary investment strategy of the Fund is inflation plus 3-5%. The Fund has returned
an average of 14.8% per annum over a rolling three years, outperforming its target of 9.1%
per annum. In the year, the Fund reviewed its direct property ownership strategy. This
resulted in the sale of two properties it owned.
In July 2009, the Rand Water Central Bargaining Forum agreed that members of the
SAMWU National Provident should join the Rand Water Provident Fund. This resulted in a
Section 14 transfer which was successfully concluded a few weeks into the new financial
year. As a result, the Fund grew by a further R100 million.
The Rand Water Medical Scheme
The Rand Water Medical Scheme is self-administered and membership is restricted to
employees and former retired employees of Rand Water and their dependents. The Scheme
is governed by a Board of Trustees to maintain its independence. In the year, the Board of
Trustees decided to restructure one of the benefit options (Option B) and replace it with
Option B Plus. This means that the Scheme now offers two attractive benefit options: namely
Option A and Option B Plus. The Scheme’s solvency ratio is 73%, far exceeding the
statutory minimum of 25%, and the total number of lives covered by the two benefit options
is just over 7 700.
Looking forward
The 2011-2012 financial year was the second since the launch of our organisational
redesign flowing from the adoption of our new growth strategy, which includes the provision
of more bulk sanitation solutions beyond our area of supply, and indeed beyond South
Africa’s borders. We made good progress in our capital programme and expect further
expansion in this regard in the year ahead.
In 2013, we expect to see the start to the commissioning of various capital projects to ensure
that we continue to meet demand projections. We will stay focused on reaping more
efficiencies in the way we do business, and containing costs so as to release the cost
burden to the end consumer.
The organisation will be accessing different financial markets, mainly the debt capital
markets, over the next five years. Our detailed funding strategy will enable the group to
successfully raise the required funds to continue with the execution of Rand Water’s capital
expenditure programme.
Rand Water
Consolidated Annual Financial Statements for the year ended 30 June 2012
Income Statement
Group Rand Water
In thousands of Rands Note(s) 2012 2011 2012 2011
Continuing operations
Revenue 3 6,838,493 5,891,148 6,838,493 5,887,992
Water purchased (2,991,700) (2,734,236) (2,991,700) (2,734,236)
Other cost of sales (675) (4,288) - -
Gross income 3,846,118 3,152,624 3,846,793 3,153,756
Other operating income 4 250,135 158,206 229,706 150,679
Staff costs 5 (1,276,498) (1,064,500) (1,269,889) (1,056,891)
Energy (1,147,571) (873,528) (1,147,571) (873,526)
Depreciation (198,433) (187,396) (198,402) (187,300)
Amortisation (13,477) (13,413) (13,477) (13,319)
Chemicals (254,343) (254,044) (254,343) (254,044)
Operating expenses 6&7 (469,778) (370,695) (463,258) (346,178)
Operating profit 7 736,153 547,254 729,559 573,177
Finance income 8 46,971 62,774 46,709 62,030
Finance expense 9 (4,338) (78,788) (4,338) (78,788)
Profit before taxation 778,786 531,240 771,930 556,419
Taxation 10 - 4,828 - -
Profit from continuing operations 778,786 536,068 771,930 556,419
Discontinued operations
(Loss)/profit for the year from (302) 405 - -
20
discontinuing operations
Profit for the year 778,484 536,473 771,930 556,419
Net profit attributable to:
Profit for the year from continuing
778,786 536,068 771,930 556,419
operations
(Loss)/profit for the year from
(302) 405 - -
discontinuing operations
Profit for the year 778,484 536,473 771,930 556,419
Rand Water
Consolidated Annual Financial Statements for the year ended 30 June 2012
Statement of Comprehensive Income
Group Rand Water
In thousands of Rands Note(s) 2012 2011 2012 2011
Profit for the year
778,484 536,473 771,930 556,419
Other comprehensive income:
Exchange differences on translating
(6) 183 - -
foreign operations
Available-for-sale financial
14 (425) (2,528) (425) (2,528)
assets adjustments
(431) (2,345) (425) (2,528)
778,053 534,128 771,505 553,891
Rand Water
Consolidated Annual Financial Statements for the year ended 30 June 2012
Statement of Financial Position
Group Rand Water
In thousands of Rands Note(s) 2012 2011 2012 2011
Assets
Non-Current Assets
Property, plant and equipment 12 8,416,988 7,154,727 8,457,586 7,195,297
Intangible assets 13 180,765 186,034 180,765 186,034
Investments in subsidiary 15 - - 4,474 6,250
Loans receivable 16 2,318 2,638 2,318 2,638
8,600,071 7,343,399 8,645,143 7,390,219
Current Assets
Inventories 17 176,360 51,282 176,360 51,282
Investments 14 - 40,425 - 40,425
Current tax receivable 3,107 3,107 - -
Trade and other receivables 18 853,661 708,213 850,926 714,566
Loans receivable 16 3,570 4,284 3,570 4,284
Cash and cash equivalents 19 1,327,472 930,604 1,316,798 919,362
2,364,170 1,737,915 2,347,654 1,729,919
Assets of disposal groups 20 1,335 1,970 - -
Total Assets 10,965,576 9,083,284 10,992,797 9,120,138
Equity and Liabilities
Equity
Accumulated reserves 7,534,364 6,756,311 7,569,496 6,797,991
7,534,364 6,756,311 7,569,496 6,797,991
Liabilities
Non-Current Liabilities
Interest-bearing borrowings 21 984,639 645,517 984,639 645,517
Retirement benefit obligation 23 293,800 273,767 293,800 273,767
Income received in advance 22 102,365 78,597 97,605 77,475
Provision for rehabilitation costs 35 47,080 - 47,080 -
1,427,884 997,881 1,423,124 996,759
Current Liabilities
Interest-bearing borrowings 21 208,228 - 208,228 -
Trade and other payables 24 1,793,368 1,327,376 1,791,949 1,325,388
2,001,596 1,327,376 2,000,177 1,325,388
Liabilities of disposal groups 20 1,732 1,716 - -
Total Liabilities 3,431,212 2,326,973 3,423,301 2,322,147
Total Equity and Liabilities 10,965,576 9,083,284 10,992,797 9,120,138
Rand Water
Consolidated Annual Financial Statements for the year ended 30 June 2012
Statement of Changes in Equity
Fair value
Foreign
adjustment
Currency Total Accumulated
In thousands of Rands assets Total Equity
translation reserves reserves
available for
reserve
sale reserve
Group
Balance at 01 July 2010 (392) 2,953 2,561 6,219,622 6,222,183
Changes in equity
Total comprehensive income for 183 (2,528) (2,345) 536,473 534,128
the year
Total changes 183 (2,528) (2,345) 536,473 534,128
Balance at 01 July 2011 (209) 425 216 6,756,095 6,756,311
Changes in equity
Total comprehensive income
(6) (425) (431) 778,484 778,053
for the year
Total changes
(6) (425) (431) 778,484 778,053
Balance at 30 June 2012 (215) - (215) 7,534,579 7,534,364
Rand Water
Balance at 01 July 2010 - 2,953 2,953 6,241,147 6,244,100
Changes in equity
Total comprehensive income
- (2,528) (2,528) 556,419 553,891
for the year
Total changes - (2,528) (2,528) 556,419 553,891
Balance at 01 July 2011 - 425 425 6,797,566 6,797,991
Changes in equity
Total comprehensive income - (425) (425) 771,930 771,505
for the year
Total changes - (425) (425) 771,930 771,505
Balance at 30 June 2012 - - - 7,569,496 7,569,496
Rand Water
Consolidated Annual Financial Statements for the year ended 30 June 2012
Statement of Cash Flows
Group Rand Water
In thousands of Rands Note(s) 2012 2011 2012 2011
Cash flows from operating activities
Cash receipts from customers 6,693,045 6,040,682 6,702,133 6,031, 511
Cash paid to suppliers and
(5,496,789) (5,070,517) (5,504,700) (5,045,063)
employees
Cash generated from operations 25 1,196,256 970,165 1,197,433 986,448
Finance income 46,971 62,774 46,709 62,030
Finance expense (74,154) (80,775) (74,154) (80,775)
Tax paid 36 - (3,777) - -
Cash flows of discontinued
37 349 1,723 - -
operations
Net cash from operating activities 1,169,422 950,110 1,169,988 967,703
Acquisition of property, plant
(1,351,820) (1,006,410) (1,351,817) (1,002,495)
and equipment
Proceeds from disposal of
13 3,191 13,969 3,190 13,969
property, plant and equipment
Acquisition of intangible assets (8,675) (5,023) (8,675) (5,496)
Proceeds from disposal of
40,000 40,000 40,000 40,000
financial assets
Decrease in loans to subsidiary - - - 13,988
Loans repaid
1,034 984 1,034 984
Net cash utilised in investing activities (1,316,270) (956,480) (1,316,268) (939,050)
Cash flows from financing activities
Increase in interest-bearing
543,716 12,116 543,716 12,116
borrowings
Net cash from financing activities 543,716 12,116 543,716 12,116
Net increase in cash and cash
396,868 5,746 397,436 40,769
equivalents
Cash and cash equivalents at
930,604 924,858 919,362 878,593
the beginning of the year
Total cash and cash
19 1,327,472 930,604 1,316,798 919,362
equivalents at end of the year
Debt Sponsor – The Standard Bank of South Africa Limited, acting through its Corporate and Investment Banking
division
Contact: Zoya Sisulu
Tel: +27 11 378 7032
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