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RAND WATER BOARD - Financial Results - RW21

Release Date: 18/04/2013 15:45
Code(s): RW21     PDF:  
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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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