RAND WATER

INTEGRATED RESULTS

For The

FINANCIAL YEAR ENDED 30TH

JUNE 2017

1 RegulatoryAgenda Framework

Welcome Strategic Financial Looking Vote of Update Performance forward Thanks

2 Strategic Update

Chief Executive:

Percy Sechemane

3 About Rand Water Nature of business Vision Rand Water is the largest bulk water utility in and is one of the largest in the world, providing bulk potable water to more than 12 million people in To be a provider of sustainable, universally competitive water and sanitation , parts of , the Free State and North West – an area that solutions for Africa. stretches over 18 000 km2. Additional 13 000 km2 in the Western On 15th April 2013, the Institutional Reform and Realignment process was Mission approved and announced . The important conclusions were To deliver and supply world class affordable, reliable, and good quality water • The number of water boards were reduced from twelve to nine and related services to all stakeholders through:

• Rand Water took over the BBR area of service • Safe, efficient transport, sustainable and innovative business practices; Rand Water draws water from its catchments and purifies it for human • Empowered employees; consumption. The water is then supplied / sold to Municipalities, mines and industries. • Mutually beneficial strategic relationships; and

Water sources • Legislative compliance and best practice. Since 1974, the Tugela-Vaal scheme has fed water into the to Key statistics supplement its supply. This is done by inter-basin transfer of water from the Tugela River in KwaZulu-Natal. . Rand Water is a public utility wholly owned by government (DWS) . Rand Water has been in existence for 114 yrs The Highlands Water Project (LHWP) also transfers water to the Vaal . Bulk Water supplier - 4414 Mℓ/d Dam. This entire project comprises six dams and three pumping stations. The first phase of the LHWP was completed in 1998 and is designed to meet the . Total Pipeline Length - 3 500 km demand for water in Gauteng up to the year 2020. . Total Number of Reservoirs - 58

1903: 1913 – 1998: The Rand Water Board 1886: was officially Major development schemes Scarcity of water established after the are undertaken to respond to during the peace agreement demand. Developments such as discovery of gold in between the British the Vaal River Scheme, the Vaal the government and the Dam, Zwartkopjes pumping posed a problem. Boer Republics. station and the Lesotho Highlands Project

1905: 2014: 1893: Rand Water - Take over of the operations of Small private commences with full the former BBR operations, providing companies began - Takeover of regional bulk bulk water to the supplying water. infrastructure in Mpumalanga Witwatersrand area. 4 Strategic and Operational Overview

Alignment To National Government Objectives

PRESIDENCY Achieve operational integrity and use best Honourable Minister fit technology National Treasury National Department Auditor General National Parliament

Shareholder Compact

Corporate Business Plan Maintain financial Achieve a high health and Rand Water Strategy Reporting Formats sustainability performance culture Vision Annual Report

Mission Annual Assessment of Water Boards Strategic Objectives KPAs Quarterly Reports

KPIs

Positively engage Achieve growth Rand Water’s operating model re-evaluated to :incorporate: stakeholder base • Alignment to Innovation hub • The Innovation policy was approved by Board in February 2016 • Innovation programs will be assisted by newly approved piloting policy • Partnership with the Dept. of Science & Technology to be at the cutting edge of technological innovation • The Innovation Hub remains critical in the search for new ideas

5 Strategic Themes

• Improved operational reliability and performance

continues

• Operating model provides solid foundation

• Balance sheet has sufficient flexibility to fund

growth plans

• Capital projects development and execution critical

focus area

• Capital expenditure projected to increase over the next 5 years

• Ministerial Directives – Rand Water is actively • Delivering continued & sustained involved in undertaking a number of Directives, shareholder value working closely with the Honourable Minister • New auditors of the organization since

October 2016 - Auditor General of South

Africa 6 Added Value

QUALITY MANAGEMENT SYSTEMS MAINTAINED CERTIFICATION Corporate ISO 9001:2000 - OHSAS 18001:2007 - Laboratories ISO 17025 - Corporate ISO 14001:2004

ACHIEVED DIFR OF 0.29 AGAINST A TARGET OF 0.34

RELIABILITY OF SUPPLY Met peak daily demands and abided to Bulk Water Supply Contracts

OCCUPATIONAL, SAFETY, HEALTH & ENVIRONMENT Embedded in our project management processes

BLUE DROP CERTIFICATION Increased awards during the year & special recognition for helping Municipalities achieve their Blue Drop Status

PRODUCT QUALITY Product Quality - Consistently maintained the national drinking water standard and delivery to customers on the SANS 241 Class 1 and 2 specification. 7 Added Value

ATTAINED AN UNQUALIFIED AUDIT OPINION

FINANCIAL CAPITAL Strong improvement in operating margins and returns in excess of the weighted cost of capital

ATTAINED BBBEE of 95% AGAINST TARGET OF 85%

CUSTOMER CENTRIC APPROACH SATISFACTION RATE OF 85%

ACHIEVED 84.4 % OF PERFORMANCE TARGETS AS SET OUT IN THE SHAREHOLDERS COMPACT

JOB CREATION 238 permanent & contract & 6 021 direct/Indirect temporary jobs created 8 Rand Water Academy Presidential Outcome 5: SKILLS - A skilled and capable workforce to support an inclusive growth path Rand Water Academy Pillars: Research Platforms | Centre of Excellence | Centre of Competence | International Water Professionals Exchange Hub | WAT/SAN Solutions

NATIONAL TREASURY GRADUATE INTERNSHIP PROGRAMME WAR ON LEAKS PROGRAMME MPUMALANGA SKILLS AUDIT

Graduate Intake A skills audit has been completed in the Mpumalanga (NT 2, NT 3 & NT 80) province as part of the Rand Water’s Master Plan in the 90 Extended Area of Operations. 80 70 80 60 ACADEMY INTERNATIONAL FOOTPRINT 50 40 28 30 20 17 10 9 11 7 8 0

Total INTERNATIONAL NETHERLANDS

UNESCO IHE OFFICE FOR WATER Engineers

WATER PARTNERSHIP

Town PlanningTown

Quantity Survey Quantity

Systems

Natural Sciences Natural

Management

Construction Construction Project Geographic Information Geographic RURAL DEVELOPMENT GRADUATE INTERNSHIP PROGRAMME Current Trainee Headcount Initiated a project with UNESCO – IHE to implement a Graduate Intake 5000 4294 FIPAG Academy for Professional Development in Water (RD 1, RD 2 & RD 3) 4000 and Sanitation in Mozambique ( Maputo). 3000 2313 Total 28 2000 1477 ACADEMY LOCAL FOOTPRINT 997 Legal 3 675 1000 225 Engineering 3 0 Information… 4 Phase 1 Phase 2

Process Controller 10 Artisans Water Agents Plumbers Government Statutory Municipalities Mines Human Resources 5 Departments Bodies Finance 3 Current Headcount: 9 981 Trainees 0 10 20 30 Phase 1 = 2699 Graduate Intake Phase 2 = 7282 9 RandRedemptionWater FoundationReserve Policy and Requirements Water and Sanitation Projects Environment Conservation Projects • Schools Sanitation and Water Supply • Rehabilitation of Wetlands • Schools Rainwater Harvesting • Clearing of Alien Vegetation • Rural and Urban Landscaping and Greening • Water Demand Management & Initiatives Conservation • Expanded Public Works Programme Land Care • Household Sanitation - Bucket Eradication Education and Training Programme • Rural Communities Water Supply • Back to School Education Support Project • Municipal Capacity Building • Early Childhood Development Support • Training on : Operations and Maintenance of • Adopt-a-Learner Study Support Grant • The National Curriculum Support and Waste Water Treatment Plants Schools Mobile Libraries Enterprise Development Projects • High School Career Guidance Health, including HIV, and AIDS projects • Business Start –Up Project • Business Incubation Project • Community Home Based Care • The Business Information and • Community Based Health Awareness Raising Project • Infrastructure Development Support • Business Partnerships Development • School Based Health Education and Awareness Raising on HIV and AIDS 10 RegulatoryPerformance Framework Snapshot

• Social: Continuous Water supply, Sanitation solutions, RWA, RWF & CSR initiatives as well as job creation and capacity building. Triple • Environmental: Blue & Green drop standards achieved, Environmental conservation Bottom line programs; Water Catchments, Wetland rehabilitation • Economic: YOY increases; Revenue 8%, Gross income 12%, Net income 11%, Cash Reserves of R805m and Capital spent R2.5bn

• A long and healthy life for all South Africans - Uninterrupted supply of quality water for over 24 hours. System stabilised and energy management initiatives enhanced Presidential after the interruptions experienced in September 2014. Outcomes • Skilled and capable workforce: Rand Water Academy, Capacity building and Job creation • Efficient local government system: Rand Water Mpumalanga • Implementing Agent on behalf of Municipalities or Government Departments

• Institutional Realignment Shareholder • Enhanced quality and quantity of water resources; Water demand management and Acid mine drainage Compact • R2.5 bn spent on ensuring the maintenance and supply availability of our bulk water infrastructure • Implemented projects amounting to R124m on behalf of National Departments & Local Authorities

11 Financial Performance

Chief Financial Officer :

Matshidiso Nyembe

12 Salient Features - Highlights

• Change in accounting framework – transition to IFRS from SA GAAP

• Low volume growth resulting from water restrictions implemented during the

period

• Income margins and returns maintained and/or improved

• Capital budget flexed to accommodate the reducing volumes

• Stringent capital discipline allowed us to optimise our overall capital

expenditure

• Increasing debt defaults by municipalities

• Reduction in implementing agency arrangements in Mpumalanga region

• No external borrowing raised for the period 13 Financial Performance Overview 2016

8% 12% 11% 15% 23% 9% 18%

Revenue Gross Income Net Income EBITDA Capital Total assets Equity and R12 bn R4 bn R2.4 bn R2.8 bn expenditure R24bn reserves R2.5 bn R16 bn

Return on Capital Employed 14.0% Gearing 12.0% 40% 10.0% 30% 8.0% 6.0% 20% 36% 29% 34% 28% 4.0% 10% 22% 2.0% 9.5% 9.1% 9.2% 11.8% 11.8% 0% 0.0% 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 Returns on average assets Return on equity 20.0% 12.0%

16.0% 8.0% 12.0%

8.0% 4.0% 4.0% 8.1% 8.0% 8.0% 10.2% 10.3% 11.2% 11.4% 12.2% 15.7% 15.1% 0.0% 0.0% 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 14 RevenueRevenue Analysis

R”m Revenue analysis • Supplied an average of 4414 Ml/d 13 000 +1 546 • Extended area (BBR) supplied 134 Ml/d 11 981 12 000 • The highest recorded peak daily demand -637 11 072 increased to 4728 Ml/d 11 000 • Revenue growth driven by tariff increases 10 000 of 11.9% and volume decrease of 6%

9 000 • Non revenue water as a percentage of actual sales 4.8% 8 000 2016 Price Volume 2017 Revenue Revenue Volume sold Industries 4800 6% Mines 5% 5% 2% 4700 4% 2% Other 4600 2% 137 Municipalities 121 2% 12% 4500 1% 4400 0% 134 Emfuleni LM 4300 -2% Metro 6% 36% 4200 4,498 4,547 4,413 -4% Tshwane Metro 4100 4,309 17% 4,280 -6% -6% 4000

Ekurhuleni Metro 3900 -8% 22% 2013 2014 2015 2016 2017

Total volumes per day BBR Incr in volume sold %

15 Statement of Financial Performance

for the year ended Restated Total Operating Costs 2017 30 June 2016 R’m %∆ 5% R’m

19% Revenue 11 981 11 072 8% 45% Net operating expenses 9 181 8 633 6% 8% EBITDA 2 800 2 439 15% Depreciation and amortisation 438 360 22% 3% 20% Income from operations before net 2 362 2 079 14% finance costs Cost of raw water Energy Chemicals Other operating expenses Net investment income 13 52 -75% Labour Depreciation Net income 2 375 2 131 11% TOTAL OPERATING EXPENSES

12 000 Total Operating Costs 2017 2016 (R’m) (R’m) %∆ 10 000 438 360 6% Primary Activities - Gauteng 54 - 100% 1 837 8 000 1 724 817 Mpumalanga 93 (39) -338% 675 289

6 000 248 R'm 1 864 1 931 Secondary Activities - 26 -100% 4 000

2 000 4 121 4 306 Total Provision for 147 (13) -1231% doubtful debts - 2016 2017 16 Strong Operational Performance

2017 (R’m) 2016 %∆ Rm Gross Income (R’m) 4500 3,982 34.0% 2 404 2 028 +18.5% Primary Activities - Gauteng 4000 3,561 32.0% 3500 Mpumalanga (54) 73 -174% 30.0% 3000 2,073 2,392 2,806 Secondary Activities 25 34 -26% 2500 28.0% 2000 26.0% 1500 24.0% Total net income 2 375 2 134 +11% 1000 22.0% 500 19.8% 19.3% +0.5%

Net income margin (%) 0 20.0%

2014 2015 2016 2017 EBITDA (R’m) 2 800 2 439 +15% 2013 EBITDA margin (%) 23.4% 22% +1.4% Gross Income GP margin

14

R'bn 12.0 12 11.1 9.8 10 8.7 7.8 8 6.8 5.9 6 4.6 5.0 4 2.8 2.1 2.4 2.4 1.7 2 1.2 1.2 1.4 1.4 0.7 0.8 0.8 0.9 1.0 0.6 0.3 0.5 0.5 0 2009 2010 2011 2012 2013 2014 2015 2016 172017 Revenue Net income EBITDA Capital Expenditure

Capital expenditure performance (including BBR, excluding moveable assets)

4%

24% Pipeline Resevoir Pumping 52% R2.2 billion *Excluding borrowing Purification costs other 19% 1%

R’m 3500 98% 2991 2,807.00 96% 3000 2685 2525 2,580.00 2583 94% 94% 2500 2,205.00 96% 2,220 92% 2000 1700 90% 1,548.00 16381,551.00 1500 87% 88% 1074 95% 86% 970.00 91% 86% 1000 84% 90% 500 82% 0 80% 2011 2012 2013 2014 2015 2016 2017

Budget Capex % Achievement

18 CashCash FlowsFlows

Net debt and cash flow 0 -500 • Net debt position increased by R0.665 -1000 -1500 billion for the period -2000

R’m -2500 • Increase in finance costs by 3.5% to -2486 -1814 178 -1.7 -3000 -2220 -3151 R438m -3500 -438 Net debt Cash from Capex Finance Finance Other Net debt 2016 operations cost Income 2017 • Cash interest cover of 5.4 times

• Net cash generated from operations of Cash generation and utilisation 4,000 R1.6 billion a decrease of 37% 3,118 2807 3,000 2580 • The amount of net cash utilised in 2205 2220 R’m 1,855 1,814 2,000 1548 1551 1,560 investing activities decreased by 24% 1,196 1,230 1,000 • Capex for the current year fully funded 0 by cash generated for the year and cash 2012 2013 2014 2015 2016 2017

Cash Capex reserves from previous year which

Long term debt resulted in a decrease to R805 million (2016: R1.47 billion).

• Gearing down to 28% (2016: 34%) 4.4 4.4

3.7 R’m 2.5 1.2 1.5 0.6

2011 2012 2013 2014 2015 2016 2017 19 DebtDebt ProfileProfile

Debt maturity R’m Total Bond Issuances Per Year 1,200

1,000 559 33% 800 39% 3 - 5 years 665 215 600 5 - 8 years 10 - 13 years 400 315 581 468 506 500 200 335 28% 250 - 2011 2012 2013 2014 2015 2016 RW21 RW23 RW28

Credit Ratings Nominal R' Rating Standard & Fitch Bond million Coupon % Maturity Yrs Poor’s

Stand Alone bbb- AA(zaf) RW21 1,724 9.97 2021 Credit Profile

Foreign Short Term Currency F1+ (zaf) RW23 1,231 9.51 2023 BB+ National Scale Issuer Ratings Long Term Local Currency RW28 1,439 10.245 2028 AA+ (zaf) / BBB- Stable R 4,394 20 CashBalance Flows Sheet Flexibility

Net Debt to Ebitda Undrawn Facilities

4 1.40 3 1.20 1,000 3 1.00 0.80 1,100 2 0.60 R’bn 2 0.40 5,606 1 0.20 1 - - (0.20) ( 1) 2012 2013 2014 2015 2016 2017 (0.40) DMTN Bank - committed DFI - uncommitted Net debt Net debt to Ebitda

Liquidity Headroom

Total Liquidity 8,970 • Net debt position increased by R0.665

Undrawn Facilities 7,706 billion for the period • Net debt to EBITDA of 1.1 times, well Investments 459 within the 2x levels. Cash 2017 805 • Sufficient liquidity headroom to cater - 2,000 4,000 6,000 8,000 10,000 for future capital requirements

R’m 21 CashInfrastructure Flows - Projected Peak Day Demands To 2025 Infrastructure - An efficient, competitive and responsive economic infrastructure network

22 Infrastructure Plan (2018-2022) Revised Infrastructure Plan (2018-2022) - R22.8bn Revised Infrastructure Plan (2018-2022) - R22.8bn 25,000

20,000 Other Reservoir 9% 15,000 6% Purification R/m 10,000 18% Pipelines 5,000 58% - 2018 2019 2020 2021 2022 Total Renewal 2,062 2,653 2,614 2,609 2,347 12,285 Augmentation 930 1,736 2,302 2,809 2,753 10,530 pumping 9% MAJOR PROJECTS WITHIN THE 5-YEAR PERIOD Est Authorised % Completion Vote Completion date Primary Supply System Station 5 at Zuikerbosch pumping station (Phase 1-600Ml/d) 3,792,153,949 35% 2018 B19 Lethabo to raw water pipeline 679,373,223 95% 2018 The average ratio of Augmentation and Palmiet Supply System B17 Zuikerbosch to Palmiet Pipeline 1,623,060,281 95% 2018 Renewal to the total Engine Room 3b at Palmiet pumping stattion 388,933,551 90% 2018 program is 58/42 O6 Palmiet to Klipfontein pipeline 1,377,479,847 76% 2018 respectively over the H39 Klipfintein to Brakfontein pipeline 516,688,260 56% 2019 total 5 year planning Mapleton Supply System horizon B16 Zuikerbosch to Slangafontein pipeline 16,700,000 2% 2021 Mapleton pumping station upgrade 788,304,263 5% 2020 S4 van Dyk's Park to Rynfield pipeline 580,770,400 36% 2020 23 Funding Requirements

Funding requirement

(1,437) (2,471)

(2,990) R,m 2018 2019 2020 2021 2022

Existing Debt Profile & Propsed Debt (2018 - 2022) 2017 2018 2019 2020 2021 2022 Source of Debt R'000 R'000 R'000 R'000 R'000 R'000 Total Existing Debt Portfolio 4,394 4,394 4,394 4,394 4,394 2,670 Proposed Funding - Debt Capital Market & Loan Financing - - 1,437 3,908 6,898 6,898 Project Financing, Development Institution Funding & Other Off Balance Sheet Funding - 430 1,120 1,887 1,887 1,887 Total New Debt Portfolio 4,394 4,824 6,951 10,189 13,179 11,455

FIVE YEAR INTERNAL AND EXTERNAL FUNDING PROJECTIONS FOR AUGMENTATION ONLY Funding Mix 100% 0% 80% 29% 60% 100% 100% 100% 100% 100% 40% 71% 20% 0% 2017 2018 2019 2020 2021 2022

EXTERNAL FUNDING INTERNAL FUNDING

24 Redemption Reserve Policy and Requirements

4 Years 3 Years 2 Years Total Redemption Requirements to to to Year of 2990 Maturity Maturity Maturity Maturity 2471

1,724 1,439 1437 Percentage 1,231 Per Annum 10% 20% 30% 20%

Cummulative 2021 2023 2028 2033 2034 2035 Percentage 10% 30% 60% 10% Existing Debt Planned

R176 million Currently Ring Fenced

25 Outlook

• Continue to deliver on stakeholder commitments

• Deliver on major augmentation and renewal projects

• Drive continued operational and capital discipline

• Balance sheet resilience through:

– Credit metrics and debt ratios maintained within conservative levels

– Improved working capital generation

• Maintain margins and returns

26 LOOKING FORWARD

Chief Executive:

DKP Sechemane

27 Looking Forward

Rand Water is committed to: • Rolling out the capital expenditure programme, which remains critical to Rand Water’s success;

• Prudent application of the credit management policy to maintain financial health and sustainability;

• Asset transfer and ownership of regional bulk infrastructure in new areas of service remains a critical goal;

• Continue to deliver on stakeholder commitments including Ministerial Directives, such as War on Leaks programme;

• Continuous engagement with stakeholders in alleviating the impact of climate change and erratic rainfall patterns;

• Building a resilient organisation for the future;

• Promote a strong culture of leadership continuity and sustainability within the organisation and the water sector

Rand Water remains committed to maintaining a strong link with the Shareholder. 28 Innovation and Technology

In line with international examples, Rand Water aims to open an Innovation Hub.

The importance of international collaborations • Rand Water will remain ahead of the curve and relevant to the water sector through continuous engagements with international partners • Collaborate with PUB (Singapore), Anglian Water (UK) and Thames Water (UK) on the development of a testing facility for Rand Water:

• Structured visits with allocated teams to visit international utilities Innovation and Technology Ranking

Cost efficiency

Ranking Growth in turnover

Preparedness for disruptive technology 29

Contact details

Ms Matshidiso Nyembe Chief Financial Officer [email protected] +27 11 682 0452

Mr Lucky Ncobela Funding Manager [email protected] +27 11 682 0318

32 Disclaimer

This presentation is confidential and is being supplied to you solely for your information and may not be reproduced, redistributed or passed on to any other person or published in whole or in part for any other purpose. This presentation does not constitute an offer or invitation to subscribe for or purchase any securities and nothing contained herein shall form the basis of any contract or commitment whatsoever. Any decision to purchase securities in the context of a proposed offering of securities, if any, should be made solely on the basis of information contained within an offering circular, programme memorandum or prospectus published in relation to such an offering. This presentation is being communicated only to persons who have professional experience in matters relating to investments and to persons to whom it may be lawful to communicate it to (all such persons being referred to as relevant persons). This presentation is only directed at relevant persons and any investment or investment activity to which this presentation relates is only available to relevant persons or will be engaged in only with relevant persons. Solicitations resulting from this presentation will only be responded to if the person concerned is a relevant person. Other persons should not rely or act upon this presentation or any of its contents.

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