Click to edit Master subtitle style Briefing by Rand Water: Analysis of Annual Report ~ Presentation to Portfolio Committee ~ 5th May 2010

Click to edit Master subtitle style Rand Water’s Strategy

Overview of Rand Water – Areas and municipalities served

The following installed capacities are: WTW treatment capacity – 5300 Ml/d Primary pumping capacity – 7500 Ml/d Booster pumping capacity – 8300 Ml/d Municipal customers are approached every 2 years to provide demand forecasts at each supply point The municipal forecasts allow for new developments, upgrading service levels, etc. Approved forecasts of demand are added to hydraulic models to determine need for additional infrastructure over 15 years Infrastructure projects commence Result Rand Water met daily demands during the year, Rand Water met maximum daily demand Thus, Rand Water complied with the contracts signed with all customers Relationship with municipalities

Rand Water is actively searching for new markets Areas of focus are in sanitation, water demand management, acid mine water purification This requires a working relationship with municipalities Relationship with municipalities Water Services Act mandates Rand Water to services potable and bulk sanitation Greater demands on State Owned Enterprises (SOEs) to contribute to national socio-economic development goals Substantial deficit in basic service delivery at both bulk and municipal water service levels (R23billion shortfall in bulk sanitation requirements in Gauteng alone) Requirement to create water services capacity in areas where it is lacking (smaller water boards, municipalities, etc)

Click to edit Master subtitle style Analysis of financial and non-financial performance for the current year  Revenue - R4.677 billion (R4.274 billion~2008)  Total Assets – R7.9 billion (R7 billion~2008)  Gross margin decreased from 54% to 51% driven by higher than expected raw water costs from April 2009  Variable costs increasing by over 38% yoy with energy costs increasing by 40%  Decrease in EBITDA by 28% to R706m  Fixed costs increased by 16%  Significant increase in net finance income R75m compared to the previous year of R38m  Cash generated from operating activities R971m with overall cash reserves of R1.35 bn  Capital expenditure investment amounting to R981m

Click to edit Master subtitle style Standard and Poor’s credit rating maintained Unqualified audit report Corporate ISO 9001:2000 accredited All plants ISO accredited Laboratory ISO accredited Analysis of financial and non-financial performance for the current year

Click to edit Master subtitle style for the year ended 30 June 2009 R million 2008 Restated R million Revenue Financial results 2009

Click to edit the outline text format Second Outline Level  Third Outline Level Fourth Outline Level  Fifth Outline Level  Sixth Outline Level  Seventh Outline Level  Eighth Outline Level  Ninth Outline LevelClick to edit Master text styles  Second level  Third level  Fourth level » Fifth level Click to edit the outline text format Second Outline Level  Third Outline Level Fourth Outline Level  Fifth Outline Level  Sixth Outline Level  Seventh Outline Level  Eighth Outline Level Ninth Outline LevelClick to edit Master text styles Click to edit the outline text format Second Outline Level  Third Outline Level Fourth Outline Level  Fifth Outline Level  Sixth Outline Level  Seventh Outline Level  Eighth Outline Level  Ninth Outline LevelClick to edit Master text styles  Second level  Third level  Fourth level » Fifth level Financial results 2009  2008  2009 for the year ended 30 June 2009 R million 2008 Restated R million Revenue Net operating expenses

Click to edit Master subtitle style for the year ended 30 June 2009 R million 2008 Restated R million Revenue Net operating expenses EBITDA Depreciation and amortisation Profit from operations before net finance costs Net investment income7539 Taxation(5)2 Net Profit for the year Consolidated income statement

Profitability

Click to edit Master subtitle style Capital Expenditure

Click to edit Master subtitle style Capital Expenditure 5-year Capex Plan (R8.6bn)  Focus mainly on capacity creation  Most of the projects already in progress/ committed  Capex approval based on strategic fit, viability and affordability

Click to edit the outline text format Second Outline Level  Third Outline Level Fourth Outline Level  Fifth Outline Level  Sixth Outline Level  Seventh Outline Level  Eighth Outline Level  Ninth Outline LevelClick to edit Master text styles  Second level  Third level  Fourth level » Fifth level Click to edit the outline text format Second Outline Level  Third Outline Level Fourth Outline Level  Fifth Outline Level  Sixth Outline Level  Seventh Outline Level  Eighth Outline Level Ninth Outline LevelClick to edit Master text styles Click to edit the outline text format Second Outline Level  Third Outline Level Fourth Outline Level  Fifth Outline Level  Sixth Outline Level  Seventh Outline Level  Eighth Outline Level  Ninth Outline LevelClick to edit Master text styles  Second level  Third level  Fourth level » Fifth level 5-year capital expenditure  Total capex plan – R8.6bn  Major capital projects Projects Estimated Total Cost (R'm) Brakfontein - Madibeng system 400 Palmiet - Klipfontein augmentation 490 Vlakfontein - Mamelodi pipeline 720 BG3 pipeline 600 Zuikerbosch to Palmiet pipeline 900 Zuikerbosch scheme 2,000 Sedimentation tanks at Zuikerbosch 320 Palmiet Engine Room 3b 300

Click to edit Master subtitle style for the year ended 30 June 2009 R million 2008 Restated R million EQUITY AND LIABILITIES Capital and Reserves Non-current liabilities Current liabilities Total Equity and Liabilities Consolidated balance sheet Financial Results 2009 Debt Equity (%)Capital and Reserves (R billion)

Click to edit Master subtitle style for the year ended 30 June 2009 R million 2008 Restated R million ASSETS Non-current assets Current assets TOTAL ASSETS Consolidated balance sheet Return on average total assets (%) Return on equity (%) Financial Results 2009

Click to edit Master subtitle style for the year ended 30 June 2009 R million 2008 Restated R million Cash flow from operating activities Cash generated from operations Other7642 Abridged consolidated cash flow statement Cash generated from operations (R million)  Cash generated from operations before working capital changes decreased by 6.7% to R895m  Net cash generated from operating activities decreased by 3.0% to R971m Financial Results 2009

Click to edit Master subtitle style Corporate Social Responsibility  Rand Water ploughed back a considerable amount into communities within our service area through our Corporate Social Investment (CSI) programme, which is managed through the Rand Water Foundation and its Corporate Social Responsibility Division  Rand Water has invested in the following flagship projects:  The Race for Victory, an initiative of the Frances Volweg School in Johannesburg for learners with physical and learning disabilities.  The Vaal Echoes of Love Care Centre in Sharpeville, Vereeniging.  The Thembisile Hani Local Municipality’s Siyathejana Project.  Rand Water has spent R2.6 million on donations to various non- profit organisations as part of its social responsibility initiatives this financial year.  Rand Water Foundation has supported nineteen Small, Medium and Micro Enterprises (SMMEs) to a combined value of R2,9 million.

Key Challenges  Sustainable tariff structure - the new tariff structure/methodology  Ageing infrastructure -rollout of Capex program within resource constraints  Experiencing steep increases in input costs specifically steel and energy  Raising funds effectively in financial markets that are in turmoil  Maintain and improve Rand Water’s credit profile  Default risk by major municipalities  Deteriorating Raw water quality as a result of poor catchment management

Industrial/other consumers The future remains bright… Mining consumers Municipal consumers Mining consumers Municipal consumers Industrial/other consumers Expansion into Africa Sanitation We plan to grow market share in Sanitation Services, expansion into Africa and Retail Water distribution

Click to edit Master subtitle style Looking forward Key mandates of sustainable provision of water services Profitability will be under pressure the high energy prices, high cost of raw water, lower tariff Net income is expected to continue falling in the current financial year. Continued trajectory of capital expenditure investments in order to meet future demands Access debt capital markets to raise funding required for capex Co-generation of energy in the medium term Regional bulk sanitation scheme Water Demand Management – If done appropriately, this will delay the 2nd Phase of the LHWP

Tariffs and Negotiation With Customers DWA / TCTA Raw Water Tariff ~ 2010 / 11 Old Tariff % Increm ent New Tariff DWA %44.05 TCTA % Total % Cost of raw water is determined by DWA and TCTA The 2nd phase of the LHWP has been approved and will carry additional cost on raw water as shown in the diagram

Tariffs and Negotiation With Customers Rand Water‘s tariff increment of 14.1 per cent is based on the following cost structure

Rand Water’s tariffs are expected to remain under pressure Energy prices will continue to be above the CPI target range over the next 3 years Municipalities are allowed to charge an additional 15 per cent on energy. Rand Water sources approximately 40 per cent of its energy from municipalities DWA is working on a new pricing strategy for raw water and the whole water supply chain. Rand Water’s tariff of 14.1 per cent was approved by National Treasury and DWA. Forecast Rand Water expects tariff increments above the CPI inflation range of 3 per cent – 6 per cent across the water supply chain Tough negotiations with customers are expected Situation may be alleviated by an independent regulator Tariffs and Negotiation With Customers

Thank You