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Annual Financial Statements - RW21
RAND WATER BOARD
INSTRUMENT CODE: BIRW
SHORT NAME: RW21, RW23, RW28
DATED: 9 DECEMBER 2013
ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2013
Rand Water produced robust financial results for the year to 30 June 2013, helping to build the solid
foundation required for the group to deliver on its development mandate. The stronger performance
will enable us to achieve our goal of securing water supply to large swathes of South Africans, as well
as grow our bulk sanitation services, well into the future.
Determined to play an increasingly national role, we are ploughing back our net income generated
into upgrading and expanding infrastructure to meet growing demand for this scarce and valuable
resource.
The group increased the net income for the year by 28.2% to R997 million on higher sales volumes,
greater operational cost efficiencies and as our pursuit of new revenue streams in bulk sanitation and
water demand management gained traction. Revenue increased by 13.4% to R7.75 billion, on an
increase of approximately 3% in the volume of water sold, as well as an 11.3% rise in the bulk tariff
for potable water charged to our customers (largely local municipalities and, to a much lesser extent,
mines and industries). We continued to benefit from our work to further develop new revenue
streams, with the revenue contribution from providing these services – mainly wastewater treatment –
rising by more than 74% to R435 million in the year.
Net interest income remained steady at 2013’s R43 million. Capitalised borrowing amounted to R98
million (2012: R73 million) and is expected to increase in line with the group’s capital investment
programme.
Depreciation and amortisation for the year was R66 million, up from R44 million in 2012. The trend
of increasing depreciation charges is expected to continue as we keep investing in new infrastructure
over the next five year.
Containing Costs
Rand Water did well to contain costs in the year, limiting the increase in input costs to 8% after an
increase of more than 24% in 2012. Our single largest input cost that of raw water is determined by a
government pricing strategy linked to producer price inflation. In 2013, Rand Water spent more than
10% more on raw water than in 2012. Of this, 3% can be attributed to volume growth and 7% to the
average price increase.
The cost of energy – primarily required to pump water – rose more than 16% to R1.33 billion in 2013.
Total staff costs (which include directors’ fees and salaries and contributions to a defined contribution
plan, as well as other staff costs) rose some 15% to R1.46 billion. Employee numbers increased by
2% to 3214. In a year marked by widespread labour unrest across South Africa, we awarded a general
salary increase of 7.5%.
Chemical costs declined by 30%, an anomaly resulting from the fact that some of our lime plants were
out of commission for scheduled maintenance in the year. In the new financial year, chemical costs
are expected to increase, likely stabilising at previous levels as these lime plants come back on stream.
Maintaining Stable Cash Generation from Operations
Net cash from operating activities was little changed at R1.18 billion. At year-end, Rand Water had
cash reserves of R863.9 million, down from nearly R1.33 billion in 2012, as we used more cash to
fund investing activities.
Advancing Our Capital Expenditure (“CAPEX”) Programme
We made good progress with our capital investment programme which is designed to meet demand
projections for water within Rand Water’s area of supply and to replace ageing infrastructure. In the
year, we increased capital expenditure by more than 18% to almost R1.75 billion, including
borrowing costs of R98 million. This was directed to the augmentation and rehabilitation of
infrastructure, and led to an increase in the value of the group’s property, plant and equipment to R9.9
billion from R8.4 billion.
It is Rand Water’s policy to fund its Capex programme through internal resources, i.e. accumulated
profits and cash reserves, after providing for the group’s liquidity requirements. Additional funding
requirements are met through the raising of funds in the debt capital market and other external
sources. In the year, R1.2 billion of the Capex funding was sourced internally, with the rest provided
from the debt capital market. Specifically, in June 2012, we raised R506 million in a tap issue of our
RW21 bond and another tap issuance of R500 million in June 2013 due 2021, bringing the nominal
value of that bond to R1.48 billion.
At year-end, Rand Water’s debt-to-equity level was 22% (2012: 20%), which is below our target of
50%, reflecting the significant capacity still available to fund future spending. After the expiry in the
year of the group’s R3.9 billion approved borrowing limit, we recently received approval from our
shareholder and the National Treasury of our new funding plan as well as the required borrowing limit
of R6.3 billion for core business requirements for the five years to 2018.
The Rand Water Provident Fund
The Rand Water Provident Fund is administered in terms of S13B of the Pension Funds Act of South
Africa by Rand Water providing benefit administration, and AcSis Limited Strategic Investment
provides investment administration services. Membership to the Fund 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 3 meetings. In addition, 2 (two) audit committee and 2 (two) investment
committee meetings were held.
Assets under management by the Fund increased to more than R1.6 billion in the year from R1 billion
a year earlier. The Fund’s primary investment strategy is inflation plus 3-5% over the recommended
minimum investment period of five years. This strategy has returned 12.4% per annum over the last 5
years, outperforming its target of 9.9%. In the 2012-13financial year, this strategy returned 25.5%.
The Rand Water Medical Scheme (“The 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. To maintain its independence, the
Scheme is governed by a Board of Trustees, comprising of 5 (five) member elected Trustees and 5
(five) Trustees elected by the Employer. The Scheme takes cognisance of the Code of Corporate
Governance standards as are applicable to medical schemes and Trustees. In the year under review,
the Board of Trustees held 3 meetings, to address a range of key issues and ensure that discussions of
items of policy, strategy and performance are critical, informed and constructive. The Board of
Trustees (BOT) has established two sub-committees to assist the BOT to discharge of its
responsibilities, being the Audit and Risk Committee and Pricing and Investment Committees, both
of which have clearly defined Terms of Reference. The Audit and Risk Committee, as a legislated
committee, is led by an Independent Chairperson.
Looking Forward
In the year ahead we expect to continue to benefit from the implementation of our growth strategy,
which includes the provision of more bulk sanitation services and water services provided beyond our
traditional area of supply, in line with the directive issued by the Minister of Water and
Environmental Affairs on Institutional Realignment and Reform.
By implementing the ministerial directives received in the year under review, we expect revenue
streams from these new services to grow strongly. These new projects are expected to support our
bottom line, but will also require additional capital investments the scope of which we will investigate
thoroughly before investing. As required by the Water Services Act, these activities as well as the
funding thereof will be ring fenced, and
appropriate project and structured finance solutions will be employed. The borrowing limit for these
activities will have to be submitted to the Shareholder and Minister of Finance on a case by case basis
for approval.
We will continue to roll out our core capital expenditure programme, and will again approach the debt
capital market, for funding, as required. Encouraged by the cost efficiencies obtained in the 2012-13
financial year, we will remain focused on improving our processes and limiting expenses, ultimately
keeping consumer costs in check.
We will also continue to work closely with our Shareholder on the development of the new national
water pricing strategy and funding model for the water sector to ensure predictable and stable charges
for our key resource. It is hoped that the new raw water pricing strategy as well as the establishment
of an economic regulator in the water sector will be finalised for implementation in the 2015-16
financial year.
Rand Water
Consolidated Annual Financial Statements for the year ended 30 June 2013
Statement of Comprehensive Income
Group Rand Water
In thousands of Rands Note(s) 2013 2012 2013 2012
Continuing operations
Revenue 35 7,751,214 6,838,493 7,751,214 6,838,493
Cost of Sales 36 (5,678’186) (5,249,657) (5,678,186) (5,249,657)
Other cost of sales 36 - (675) - -
Gross income 20,730,28 1,588,161 2,073,028 1,588,836
Other operating income 2 434,991 250,135 405,965 229,706
Staff costs 3 (937,227) (748,595) (929,479) (741,986)
Depreciation (57,172) (30,686) (57,154) (30,655)
Amortization (8,918) (13,477) (8,918) (13,477)
Operating expenses 4&5 (550,696) (309,384) (531,951) (302,864)
Operating income 5 954,006 736,154 951,491 729,560
Finance income 6 46,087 46,971 45,814 46,709
Finance expense 7 (3,244) (4,338) (3,237) (4,338)
Incomebefore taxation 996,849 778,787 994,068 771,931
Taxation 8 - - -
Net income from continuing
996,849 778,787 994,068 771,931
operations
Discontinued operations
Lossfor the year from (50) (302) - -
18
discontinuing operations
Net income for the year 996,799 778,485 994,068 771,931
Net profit attributable to:
Net income for the year from
continuing 996,849 778,787 994,068 771,931
operations
Loss for the year from
(50) (302) - -
discontinuing operations
Net income for the year 996,799 778,485 994,068 771,931
Group Rand Water
In thousands of Rands Note(s) 2013 2012 2013 2012
Net income for the year
996,799 778,485 994,068 771,931
Other comprehensive loss:
Exchange differences on translating
(285) (6) - -
foreign operations
Available-for-sale financial
12 (19,223) (425) (19,223) (425)
assets adjustments
Other comprehensive loss for the year (19,508) (431) (19,223) (425)
Total comprehensive income
977,291 778,054 974,845 771,506
Rand Water
Consolidated Annual Financial Statements for the year ended 30 June 2013
Statement of Financial Position
Group Rand Water
In thousands of Rands Note(s) 2013 2012 2013 2012
Assets
Non-Current Assets
Property, plant and equipment 10 9,906,880 8,416,988 9,947,476 8,457,586
Intangible assets 11 187,307 180,765 180,307 180,765
Investments in subsidiary 13 - - 4,474 4,474
Investments 12 300,878 - 300,878 -
Loans receivable 14 2,100 2,318 2,100 2,318
10,397,165 8,600,071 10,442,235 8,645,143
Current Assets
Inventories 15 239,445 176,360 239,445 176,360
Current tax receivable - 3,107 - -
Trade and other receivables 16 1,104,857 853,661 1,093,722 850,926
Loans receivable 14 3,253 3,570 3,253 3,570
Cash and cash equivalents 17 863,910 1,327,472 851,933 1,316,798
2,211,465 2,364,170 2,188,353 2,347,654
Assets of disposal groups held for sale 18 1,802 1,335 303 -
Total Assets 102,610,432 10,965,576 12,630,891 10,992,797
Equity and Liabilities
Equity
Accumulated reserves 8,511,656 7,534,365 8,544,342 7,569,497
8,511,656 7,534,365 8,544,342 7,569,497
Liabilities
Non-Current Liabilities
Interest-bearing borrowings 19 1,514,586 984,639 1,514,586 984,639
Retirement benefit obligation 22 325,420 293,800 325,420 293,800
Income received in advance 21 182,182 102,365 173,974 97,605
Provision for rehabilitation costs 34 50,423 47,080 50,423 47,080
2,072,611 1,427,884 2,064,403 1,423,124
Current Liabilities
Interest-bearing borrowings 21 1,818 208,228 1,818 208,228
Trade and other payables 24 2,022,299 1,793,367 2,020,328 1,791,948
2,024,117 2,001,595 2,022,146 2,000,176
Liabilities of disposal groups held for
20 2,048 1,732 - -
sale
Total Liabilities 4,098,776 3,431,211 4,086,549 3,423,300
Total Equity and Liabilities 12,610,432 10,965,576 12,630,891 10,992,797
Rand Water
Consolidated Annual Financial Statements for the year ended 30 June 2013
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 2011 (209) 425 216 6,756,095 6,756,311
Changes in equity
Total comprehensive income for (6) (425) (431) 778,485 778,054
the year
Total changes (6) (425) (431) 778,485 778,054
Balance at 01 July 2012 (215) - (215) 7,534,580 7,534,365
Changes in equity
Total comprehensive income
(285) (19,223) (19,508) 996,799 977,291
for the year
Total changes
(285) (19,223) (19,508) 996,799 977,291
Balance at 30 June 2013 (500) (19,223) (19,723) 8,531,379 8,511,656
Rand Water
Balance at 01 July 2011 - 425 425 6,797,566 6,797,991
Changes in equity
Total comprehensive income
- (425) (425) 771,931 771,506
for the year
Total changes - (425) (425) 771,931 771,506
Balance at 01 July 2012 - 7,569,497 7,569,497
Changes in equity
Total comprehensive income - (19,223) (19,223) 994,068 974,845
for the year
Total changes - (19,223) (19,223) 994,068 974,845
Balance at 30 June 2013 - (19,223) (19,223) 8,563,565 8,544,342
Rand Water
Consolidated Annual Financial Statements for the year ended 30 June 2013
Statement of Cash Flows
Group Rand Water
In thousands of Rands Note(s) 2013 2012 2013 2012
Cash flows from operating activities
Cash receipts from customers 7,500,584 6,693,045 7,508,418 6,702, 133
Cash paid to suppliers and
(6,271,094) (5,496,789) (6,276,726) (5,504,701)
employees
Cash generated from operations 24 1,229,490 1,196,256 1,231,692 1,197,432
Finance income 46,087 46,971 45, 814 46,709
Finance expense (98,629) (74,154) (98,622) (74,154)
Tax paid 37 3107 - - -
Cash flows of discontinued
38 151 349 - -
operations
Net cash from operating activities 1,180,206 1,169,422 1,178,884 1,169,987
Acquisition of property, plant
(1,624,683) (1,351,820) (1,624,664) (1,351,817)
and equipment
Proceeds from disposal of
1,227 3,191 1,227 3,191
property, plant and equipment
Acquisition of intangible assets 11 (18,641) (8,675) (18,641) (8,675)
Purchase of financial assets (302,101) (320,101)
Proceeds from disposal of
40,000 40,000
financial assets
Loans receivable repaid 535 1,034 535 1,034
Net cash utilized in investing activities (1,961,663) (1,316,270) (1,961,644) (1,316,267)
Cash flows from financing activities
Interest-bearing borrowings
(208,469) (208,469)
repaid
Increase in interest-bearing
526,364 543,716 526,364 543,716
borrowings
Net cash from financing activities 317,895 543,716 317,895 543,716
Net increase in cash and cash equivalents (463,562) 396,868 (464,865) 397,436
Cash and cash equivalents at
1,327,472 930,604 1,316,798 919,362
the beginning of the year
Total cash and cash
17 863,910 1,327,472 851,933 1,316,798
equivalents at end of the year
Debt Sponsor – The Standard Bank of South Africa Limited, acting through its Corporate and
Investment Banking division
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