RAND WATER

INTEGRATED RESULTS

For The

FINANCIAL YEAR ENDED 30TH

JUNE 2017

1

Regulatory FrameworkAgenda

Welcome Strategic

UpdateFinancial

PerformanceLooking

forwardVote of

Thanks

2

Strategic Update

Chief Executive:

Percy Sechemane

3

4

Nature of business

Rand Water is the largest bulk water utility in Africa and is one of the largest inthe world, providing bulk potable water to more than 12 million people inGauteng, parts of Mpumalanga, the Free State and North West – an area thatstretches over 18 000 km2. Additional 13 000 km2 in the Western Highveld

On 15th April 2013, the Institutional Reform and Realignment process wasapproved and announced . The important conclusions were

• The number of water boards were reduced from twelve to nine

• Rand Water took over the BBR area of service

Rand Water draws water from its catchments and purifies it for humanconsumption. The water is then supplied / sold to Municipalities, mines andindustries.

Water sources

Since 1974, the Tugela-Vaal scheme has fed water into the Vaal River tosupplement its supply. This is done by inter-basin transfer of water from theTugela River in KwaZulu-Natal.

The Lesotho Highlands Water Project (LHWP) also transfers water to the VaalDam. This entire project comprises six dams and three pumping stations. Thefirst phase of the LHWP was completed in 1998 and is designed to meet thedemand for water in Gauteng up to the year 2020.

About Rand WaterVision

To be a provider of sustainable, universally competitive water and sanitation

solutions for Africa.

Mission

To deliver and supply world class affordable, reliable, and good quality water

and related services to all stakeholders through:

• Safe, efficient transport, sustainable and innovative business practices;

• Empowered employees;

• Mutually beneficial strategic relationships; and

• Legislative compliance and best practice.

Key statistics

Rand Water is a public utility wholly owned by government (DWS)

Rand Water has been in existence for 114 yrs

Bulk Water supplier - 4414 Mℓ/d

Total Pipeline Length - 3 500 km

Total Number of Reservoirs - 58

1886:

Scarcity of water during the

discovery of gold in the Witwatersrand posed a problem.

1893:

Small private companies began supplying water.

1903:

The Rand Water Board was officially

established after the peace agreement

between the British government and the

Boer Republics.

1905:

Rand Water commences with full operations, providing

bulk water to the Witwatersrand area.

1913 – 1998:

Major development schemes are undertaken to respond to

demand. Developments such as the Vaal River Scheme, the Vaal

Dam, Zwartkopjes pumping station and the Lesotho

Highlands Project

2014:

- Take over of the operations of the former BBR

- Takeover of regional bulk infrastructure in Mpumalanga

National ParliamentNational DepartmentNational Treasury Auditor General

Shareholder Compact

Honourable Minister

Corporate Business Plan

Rand Water Strategy

Vision

Mission

Strategic ObjectivesKPAs

KPIs

Annual Report

Quarterly Reports

Annual Assessment of WaterBoards

Reporting Formats

Strategic and Operational Overview

5

Achieve operational integrity and use best

fit technology

Achieve a high performance culture

Positively engage stakeholder base

Achieve growth

Maintain financial health and

sustainability

Rand Water’s operating model re-evaluated to :incorporate:

• 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

Alignment To National Government Objectives

Strategic Themes

6

• 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

involved in undertaking a number of Directives,

working closely with the Honourable Minister

• Delivering continued & sustained

shareholder value

• New auditors of the organization since

October 2016 - Auditor General of South

Africa

QUALITY MANAGEMENT SYSTEMS

MAINTAINED CERTIFICATION

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

PRODUCT QUALITY

Product Quality - Consistently maintained the national drinking water standard and

delivery to customers on the SANS 241 Composite Indicator.

Added Value

7

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 91.67 % OF PERFORMANCE TARGETS AS SET

OUT IN THE SHAREHOLDERS COMPACT

JOB CREATION

238 permanent & contract (direct) & 6 068 temporary (indirect) jobs created

Added Value

8

Presidential Outcome 5: SKILLS - A skilled and capable workforce to support an inclusive growth

path

Rand Water Academy

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

28

9 11 7 817

80

0102030405060708090

Engi

nee

rs

Co

nst

ruct

ion

Pro

ject

Man

agem

en

t

Geo

grap

hic

Info

rmat

ion

Syst

ems

Nat

ura

l Sci

ence

s

Qu

anti

ty S

urv

ey

Tow

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lan

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g

Tota

l

Graduate Intake(NT 2, NT 3 & NT 80)

3

5

10

4

3

3

28

0 10 20 30

Finance

Human Resources

Process Controller

Information…

Engineering

Legal

Total

Graduate Intake (RD 1, RD 2 & RD 3)

Graduate Intake

RURAL DEVELOPMENT GRADUATE INTERNSHIP PROGRAMME

1477

2313

997

4294

225675

0

1000

2000

3000

4000

5000

Phase 1 Phase 2

Current Trainee Headcount

Artisans Water Agents Plumbers

WAR ON LEAKS PROGRAMME

Current Headcount: 9 981 TraineesPhase 1 = 2699Phase 2 = 7282

MPUMALANGA SKILLS AUDIT

ACADEMY INTERNATIONAL FOOTPRINT

ACADEMY LOCAL FOOTPRINT

A skills audit has been completed in the Mpumalanga

province as part of the Rand Water’s Master Plan in the

Extended Area of Operations.

UNESCO IHEINTERNATIONAL

OFFICE FOR WATER

NETHERLANDS WATER

PARTNERSHIP

Government Departments

Municipalities MinesStatutory

Bodies

Initiated a project with UNESCO – IHE to implement a

FIPAG Academy for Professional Development in Water

and Sanitation in Mozambique ( Maputo).

9

Redemption Reserve Policy and Requirements

10

Water and Sanitation Projects

• Schools Sanitation and Water Supply

• Schools Rainwater Harvesting

• Water Demand Management &

Conservation

• Household Sanitation - Bucket Eradication

• Rural Communities Water Supply

• Municipal Capacity Building

• Training on : Operations and Maintenance of

Waste Water Treatment Plants

Environment Conservation Projects

• Rehabilitation of Wetlands

• Clearing of Alien Vegetation

• Rural and Urban Landscaping and Greening

Initiatives

• Expanded Public Works Programme Land

Care

Rand Water Foundation

Enterprise Development Projects

• Business Start –Up Project

• Business Incubation Project

• The Business Information and

Awareness Raising Project

• Business Partnerships Development

Education and Training Programme

• Back to School Education Support Project

• Early Childhood Development Support

• Adopt-a-Learner Study Support Grant

• The National Curriculum Support and Schools Mobile Libraries

• High School Career Guidance

Health, including HIV, and AIDS projects

• Community Home Based Care

• Community Based Health

• Infrastructure Development Support

• School Based Health Education and

Awareness Raising on HIV and AIDS10

Regulatory Framework

Performance Snapshot

• Social: Continuous Water supply, Sanitation solutions, RWA, RWF & CSR initiatives aswell as job creation and capacity building.

• Environmental: Blue & Green drop standards achieved, Environmental conservationprograms; Water Catchments, Wetland rehabilitation

• Economic: YOY increases; Revenue 8%, Gross income 12%, Net income 11%, CashReserves of R805m and Capital spent R2.5bn

• A long and healthy life for all South Africans - Uninterrupted supply of quality waterfor over 24 hours. System stabilised and energy management initiatives enhancedafter the interruptions experienced in September 2014.

• Skilled and capable workforce: Rand Water Academy, Capacity building and Jobcreation

• Efficient local government system: Rand Water Mpumalanga

• Implementing Agent on behalf of Municipalities or Government Departments

• Institutional Realignment

• Enhanced quality and quantity of water resources; Water demand management and Acidmine drainage

• R2.4 bn spent on ensuring the maintenance and supply availability of our bulk waterinfrastructure

• Implemented projects amounting to R124m on behalf of National Departments & LocalAuthorities

Presidential

Outcomes

Shareholder

Compact

Triple

Bottom line

11

Financial Performance

Chief Financial Officer :

Matshidiso Nyembe

12

Salient Features - Highlights

13

• 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

Financial Performance Overview 2016

14

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

RevenueR12 bn

Gross IncomeR4 bn

Net IncomeR2.4 bn

EBITDAR2.8 bn

Capital expenditure

R2.5 bn

Total assetsR24bn

Equity and reservesR16 bn

9,5% 9,1% 9,2% 11,8% 11,8%0,0%

2,0%

4,0%

6,0%

8,0%

10,0%

12,0%

14,0%

2013 2014 2015 2016 2017

Return on Capital Employed

11,2% 11,4% 12,2% 15,7% 15,1%0,0%

4,0%

8,0%

12,0%

16,0%

20,0%

2013 2014 2015 2016 2017

Return on equity

8,1% 8,0% 8,0% 10,2% 10,3%0,0%

4,0%

8,0%

12,0%

2013 2014 2015 2016 2017

Returns on average assets

22%29%

36% 34% 28%

0%

10%

20%

30%

40%

2013 2014 2015 2016 2017

Gearing

Revenue Analysis

15

• Supplied an average of 4414 Ml/d

• Extended area (BBR) supplied 134 Ml/d

• The highest recorded peak daily demand

increased to 4728 Ml/d

• Revenue growth driven by tariff increases

of 11.9% and volume decrease of 6%

• Non revenue water as a percentage of

actual sales 4.8%

Johannesburg Metro36%

Ekurhuleni Metro22%

Tshwane Metro17%

Emfuleni LM6%

Other Municipalities

12%

Mines5%

Industries2%

4 3094 413

4 498 4 547

4 280

121137

134

2%2%

5%

1%

-6%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

3900

4000

4100

4200

4300

4400

4500

4600

4700

4800

2013 2014 2015 2016 2017

Volume sold

Total volumes per day BBR Incr in volume sold %

11 072

11 981

+1 546

-637

8 000

9 000

10 000

11 000

12 000

13 000

2016Revenue

Price Volume 2017Revenue

Revenue analysisR”m

Revenue Analysis

Statement of Financial Performance

16

for the year ended30 June 2017

R’m

Restated2016R’m

%∆

Revenue 11 981 11 072 8%

Net operating expenses 9 181 8 633 6%

EBITDA 2 800 2 439 15%

Depreciation and amortisation 438 360 22%

Income from operations before net finance costs

2 362 2 079 14%

Net investment income 13 52 -75%

Net income 2 375 2 131 11%

45%

20%

3%

8%

19%

5%

Total Operating Costs

2017

(R’m)

2016

(R’m) %∆

Primary Activities - Gauteng 54 - 100%

Mpumalanga 93 (39) -338%

Secondary Activities - 26 -100%

Total Provision for

doubtful debts

147 (13) -1231%4 121 4 306

1 864 1 931

248 289 675 817

1 724 1 837

360438

-

2 000

4 000

6 000

8 000

10 000

12 000

2016 2017

R'm

Total Operating Costs

Cost of raw water Energy

Chemicals Other operating expenses

Labour Depreciation

TOTAL OPERATING EXPENSES

6%

Strong Operational Performance

17

2017 (R’m) 2016(R’m)

%∆

Primary Activities - Gauteng 2 404 2 028 +18.5%

Mpumalanga (54) 73 -174%

Secondary Activities 25 34 -26%

Total net income 2 375 2 134 +11%

Net income margin (%) 19.8% 19.3% +0.5%

EBITDA (R’m) 2 800 2 439 +15%

EBITDA margin (%) 23.4% 22% +1.4%

4,6 5,05,9

6,87,8

8,7

9,8

11,112,0

0,6 0,3 0,5 0,8 1,0 1,2 1,42,1 2,4

0,7 0,5 0,8 0,9 1,2 1,4 1,72,4 2,8

0

2

4

6

8

10

12

14

2009 2010 2011 2012 2013 2014 2015 2016 2017

R'b

n

Revenue Net income EBITDA

2 073 2 3922 806

3 561

3 982

20,0%

22,0%

24,0%

26,0%

28,0%

30,0%

32,0%

34,0%

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2013

2014

2015

2016

2017

Gross Income

Gross Income GP margin

Rm

17

Capital Expenditure

18

Capital expenditure performance (including BBR, excluding moveable assets)

52%

1%

19%

24%

4%

Pipeline

Resevoir

Pumping

Purification

other

R2.2 billion*Excluding borrowing

costs

1074

17001638

25252685

2991

2583

970

1548 1551

2205

25802807

2200

90%

91%95%

87%

96%94%

85%

78%

80%

82%

84%

86%

88%

90%

92%

94%

96%

98%

0

500

1000

1500

2000

2500

3000

3500

2011 2012 2013 2014 2015 2016 2017

Budget Capex % Achievement

R’m

• Net debt position increased by R0.665

billion for the period

• Increase in finance costs by 3.5% to

R438m

• Cash interest cover of 5.4 times

• Net cash generated from operations of

R1.6 billion a decrease of 37%

• The amount of net cash utilised in

investing activities decreased by 24%

• Capex for the current year fully funded

by cash generated for the year and cash

reserves from previous year which

resulted in a decrease to R805 million

(2016: R1.47 billion).

• Gearing down to 28% (2016: 34%)

Cash Flows

1 196 1 2301 560

1 855

3 118

1 8141548 1551

22052580

2807

2200

0

1 000

2 000

3 000

4 000

2012 2013 2014 2015 2016 2017

Cash generation and utilisation

Cash Capex

R’m

R’m

19

-2486

-3151

-1814

-2220

-438

178 -1,7

-3500

-3000

-2500

-2000

-1500

-1000

-500

0

Net debt2016

Cash fromoperations

Capex Financecost

FinanceIncome

Other Net debt2017

Net debt and cash flow

Cash Flows

0,6 1,2 1,5

2,5

3,7 4,4 4,4

2011 2012 2013 2014 2015 2016 2017

Long term debt

R’m

Debt Profile

39%

28%

33%

Debt maturity

3 - 5 years

5 - 8 years

10 - 13 years

Bond

Nominal R'

million Coupon % Maturity Yrs

RW21 1,724 9.97 2021

RW23 1,231 9.51 2023

RW28 1,439 10.245 2028

R 4,394

468 506 500

250 335

581

315

665

559

215

-

200

400

600

800

1 000

1 200

2011 2012 2013 2014 2015 2016

Total Bond Issuances Per Year

RW21 RW23 RW28

R’m

Debt Profile

20

Rating Standard &

Poor’s

Fitch

Stand Alone Credit Profile

bbb- AA(zaf)

National Scale Issuer Ratings

Foreign Currency

BB

Short Term F1+ (zaf)

Local Currency BBB-

Long Term AA+ (zaf) /

Stable

Credit Ratings

Cash Flows

21

Balance Sheet Flexibility

5 606

1,100

1 000

Undrawn Facilities

DMTN Bank - committed DFI - uncommitted (0,40)

(0,20)

-

0,20

0,40

0,60

0,80

1,00

1,20

1,40

( 1)

-

1

1

2

2

3

3

4

2012 2013 2014 2015 2016 2017

R’bn

Net Debt to Ebitda

Net debt Net debt to Ebitda

459

7 706

8 970

- 2 000 4 000 6 000 8 000 10 000

Cash 2017

Investments

Undrawn Facilities

Total Liquidity

Liquidity Headroom

R’m

805

• Net debt position increased by R0.665

billion for the period

• Net debt to EBITDA of 1.1 times, well

within the 2x levels.

• Sufficient liquidity headroom to cater

for future capital requirements

Cash Flows

22

Infrastructure - Projected Peak Day Demands To

2025Infrastructure - An efficient, competitive and responsive economic infrastructure network

Infrastructure Plan (2018-2022)

The average ratio ofAugmentation andRenewal to the totalprogram is 58/42respectively over thetotal 5 year planninghorizon

MAJOR PROJECTS WITHIN THE 5-YEAR PERIOD

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

-

5 000

10 000

15 000

20 000

25 000

R/m

Revised Infrastructure Plan (2018-2022) - R22.8bn

Pipelines58%

pumping9%

Purification18%

Reservoir6%

Other9%

Revised Infrastructure Plan (2018-2022) - R22.8bn

Authorised

Vote

%

Completion

Est

Completion

date

Primary Supply System

Station 5 at Zuikerbosch pumping station (Phase 1-600Ml/d) 3,792,153,949 35% 2018

B19 Lethabo to Vereeniging raw water pipeline 679,373,223 95% 2018

Palmiet Supply System

B17 Zuikerbosch to Palmiet Pipeline 1,623,060,281 95% 2018

Engine Room 3b at Palmiet pumping stattion 388,933,551 90% 2018

O6 Palmiet to Klipfontein pipeline 1,377,479,847 76% 2018

H39 Klipfintein to Brakfontein pipeline 516,688,260 56% 2019

Mapleton Supply System

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

24

FIVE YEAR INTERNAL AND EXTERNAL FUNDING PROJECTIONS FOR AUGMENTATION ONLY

(1 437)

(2 471)(2 990)

2018 2019 2020 2021 2022

Funding requirement

R,m

Existing Debt Profile & Propsed Debt (2018 - 2022)

Source of Debt2017 2018 2019 2020 2021 2022

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

71%100% 100%100% 100%

29%0%

100%

0%20%40%60%80%

100%

2017 2018 2019 2020 2021 2022

Funding Mix

EXTERNAL FUNDING INTERNAL FUNDING

Redemption Reserve Policy and Requirements

25

4 Years

to

Maturity

3 Years

to

Maturity

2 Years

to

Maturity

Year of

Maturity

Percentage

Per Annum 10% 20% 30% 20%

Cummulative

Percentage 10% 30% 60% 10%

R176 million

Currently Ring

Fenced

1 724 1 231

1 439 1437

2471

2990

2021 2023 2028 2033 2034 2035

Total Redemption Requirements

Existing Debt Planned

Outlook

26

• 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

LOOKING FORWARD

Chief Executive:

DKP Sechemane

27

Looking Forward

28

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

29

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

Innovation and Technology Ranking

Ranking

Cost efficiency

Growth in turnover

Preparedness for disruptive technology

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 to international utilities

30

Contact details

Ms Matshidiso NyembeChief Financial Officermnyembe@randwater.co.za+27 11 682 0452

Mr Lucky NcobelaFunding ManagerLncobela@randwater.co.za+27 11 682 0318

32

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33