MAC 3702 ASSIGNMENT 2 - SEMESTER 2 OF 2022
QUESTION 1
1. REPORT
To: Portfolio Committee on Energy in the National Assembly
From: ….
Date: ……
Subject: Risk assessment and an analysis of financial and non - financial information of Eish-com
A risk assessment of Eish-com and an anlysis of its financial and non - financial information was carried out and the results are included
below
(a) Risk Assessment
(i) Identification of business risk involved (ii) The consequences / impact on the business (iii) The mitigation of the identified business risk
Metros, municipalities and government departments The company will not have the cash flow to sustain Strengthen debt collecttion
sometimes fail to pay or delay payment operations Charge interest on overdue accounts
Offer discounts for early payment
Defaulting entities may be forced to use prepaid
electricity
There high carbon emissions due to the coal powered Environmental damage and health risks to employees Turn to alternative sources of power such as nuclear
stations and the public which can lead to litigations Ensuring all safety precautions are undertaken
involving huge sums Buying machinery that limit the carbon emissions
NERSA might not approve the required increases This will affect profitability and cash flows of the Lobby politicians to put pressure on NERSA to approve
entity sustainable increases
Negotiating with NERSA on time and having long term
agreements which enhance planning
Currency risk if the rand deteriorates against foreign currencies The capital repayments and interest obligations Hedging
on foreign denominated debt will increase in Rand Reducing foreign debt
terms Including clauses in agreements that limit the damage, for
example agreeing with the loan provider on a maximum
rate in case of rate fluctuations
Ageing infrastructure may fail to work as expected Reduced electricity generation resulting in Replacing aged infrastructure
increased loadshedding Maintenance of infrastructure
Strategy risk as implemented strategies may fail due to New leadership may not be having the capabilities Constitution that limits interference in the appointment
the ever changing leadership to execute the strategies implemented by previous and firing of top management
management. Continuous changes may lead to lack Appointing capable management with required
of continuity qualifications, experience and integrity from the
beginning
Increased financial risk due to high gearing The entity might fail to pay debts and interest Reducing the gearing by seeking equity from government
(b) Analysis of Financial Information
Ratio 2022 2021 Possible reasons for movement
Cash interest cover There was a decrease
This might be due additional loans taken during the
Cash & Cash Equivalents + Marketeable Securities 6 839 + 15 823 10 541 + 20 425 year or increases in interest on existing loans
Finance Cost 25 961 19 589 due to the unfavourable foreign exchange rates
0.87 times 1.58 times Decrease in cash reserves
Cash Ratio
The ratio deteriorated
Cash & Cash Equivalents + Marketeable Securities 6 839 + 15 823 10 541 + 20 425 Liquidation of marketable securities or decrease
Current Liabilities 94 427 80 290 in their market value
Change in the working capital management policy
0.24:1 0.39:1 Financial difficulties resulting in increased short
term debt
Gearing Ratio The gearing went up
Total Interest Bearing Debt * 100 (351 546 + 34 179) * 100 (340 802 + 19 912) * 100 Additional loans acquired to fund new projects
Total Interest Bearing Debt + Total Equity 351 546 + 34 179 + 170 336 340 802 + 19 912 + 175 942 Financial problems which were alleviated through
acquisition of loans
69,38% 67,22%
Debtors Collection Period The debtors collection period increased
Debtors * 365 23 468 * 365 17 269 * 365 Poor debt collection policy
Credit Sales (175 041 * 70%) (175 094 * 70%) Granting debt uncreditworthy customers
Deteriorating economic conditions resulting in
69.91 days 51.43 days decreased disposable incomes
Political interference resulting in uncollectability
of debts
Return on Assets There was an improvement
Reduction of non core assets
EBIT* 100 20 452 * 100 15 501 * 100
Total Assets 739 116 710 009 Newer assets with improved efficiency
Better control and supervision on the utilisation
2,77% 2,18% of assets
© Analysis of non - financial and other salient information
Area 2022 2021 Reasons for movement
(i) Safety of the employees and general public The injuries increased
Change in injuries This can be caused by the ageing infrastructure
Increased illegal connections
(This Year - Last Year) * 100 (410 - 302) * 100
Last Year 302
35,76%
% accidents to employees and public
Number of injuries * 100 410 * 100 302 * 100
Total number of employees and customers (48 628 + 6 258 000) (47 958 + 5 977 000)
0,00650% 0,00501%
Productivity of employees The revenue generated and GWHs generated per
employee reduced. This is due to ageing
GWH per employee infrastructure or strikes by employees, use of
unqualified and inexperienced staff
Total GWHs produced by Eiishcom 221 936 221 166 Breakdowns at stations
Average number of employees 48 628 47 958
4.56 GHHs per employee 4.61 GWHs per employee
Revenue generated per employee
Total Revenue 175 041 m 175 094 m
Average number of employees 48 628 47 958
R3.60m per employee R3.65m per employee
Efficiences in carbon emissions Increased measures implemented to curb pollution
Increased use of other sources other than coal
Carbon emissions as a percentage of coal burnt
Carbon emissions 205,5 211,1
Coal Burnt 115,5 113,7
1.78 Mt / million tonne of coal burnt 1.86 Mt / million tonne of coal burnt
Corporate social investment The amount spent per benefiary reduced which
might be due to the need to cover more
Corporate Social Spend per beneficiary beneficiaries
Corporate Social Spend 192 000 000 225 300 000 The reduction in the CSI spending due to
Number of beneficiaries 1 106 000 841 800 depressed economic conditions or reduction in
government funding
R173.60 per beneficiary R267.64
Electricity customer Sales The consumption per customer slightly increased
Due to increased industrialisation and urban
QUESTION 1
1. REPORT
To: Portfolio Committee on Energy in the National Assembly
From: ….
Date: ……
Subject: Risk assessment and an analysis of financial and non - financial information of Eish-com
A risk assessment of Eish-com and an anlysis of its financial and non - financial information was carried out and the results are included
below
(a) Risk Assessment
(i) Identification of business risk involved (ii) The consequences / impact on the business (iii) The mitigation of the identified business risk
Metros, municipalities and government departments The company will not have the cash flow to sustain Strengthen debt collecttion
sometimes fail to pay or delay payment operations Charge interest on overdue accounts
Offer discounts for early payment
Defaulting entities may be forced to use prepaid
electricity
There high carbon emissions due to the coal powered Environmental damage and health risks to employees Turn to alternative sources of power such as nuclear
stations and the public which can lead to litigations Ensuring all safety precautions are undertaken
involving huge sums Buying machinery that limit the carbon emissions
NERSA might not approve the required increases This will affect profitability and cash flows of the Lobby politicians to put pressure on NERSA to approve
entity sustainable increases
Negotiating with NERSA on time and having long term
agreements which enhance planning
Currency risk if the rand deteriorates against foreign currencies The capital repayments and interest obligations Hedging
on foreign denominated debt will increase in Rand Reducing foreign debt
terms Including clauses in agreements that limit the damage, for
example agreeing with the loan provider on a maximum
rate in case of rate fluctuations
Ageing infrastructure may fail to work as expected Reduced electricity generation resulting in Replacing aged infrastructure
increased loadshedding Maintenance of infrastructure
Strategy risk as implemented strategies may fail due to New leadership may not be having the capabilities Constitution that limits interference in the appointment
the ever changing leadership to execute the strategies implemented by previous and firing of top management
management. Continuous changes may lead to lack Appointing capable management with required
of continuity qualifications, experience and integrity from the
beginning
Increased financial risk due to high gearing The entity might fail to pay debts and interest Reducing the gearing by seeking equity from government
(b) Analysis of Financial Information
Ratio 2022 2021 Possible reasons for movement
Cash interest cover There was a decrease
This might be due additional loans taken during the
Cash & Cash Equivalents + Marketeable Securities 6 839 + 15 823 10 541 + 20 425 year or increases in interest on existing loans
Finance Cost 25 961 19 589 due to the unfavourable foreign exchange rates
0.87 times 1.58 times Decrease in cash reserves
Cash Ratio
The ratio deteriorated
Cash & Cash Equivalents + Marketeable Securities 6 839 + 15 823 10 541 + 20 425 Liquidation of marketable securities or decrease
Current Liabilities 94 427 80 290 in their market value
Change in the working capital management policy
0.24:1 0.39:1 Financial difficulties resulting in increased short
term debt
Gearing Ratio The gearing went up
Total Interest Bearing Debt * 100 (351 546 + 34 179) * 100 (340 802 + 19 912) * 100 Additional loans acquired to fund new projects
Total Interest Bearing Debt + Total Equity 351 546 + 34 179 + 170 336 340 802 + 19 912 + 175 942 Financial problems which were alleviated through
acquisition of loans
69,38% 67,22%
Debtors Collection Period The debtors collection period increased
Debtors * 365 23 468 * 365 17 269 * 365 Poor debt collection policy
Credit Sales (175 041 * 70%) (175 094 * 70%) Granting debt uncreditworthy customers
Deteriorating economic conditions resulting in
69.91 days 51.43 days decreased disposable incomes
Political interference resulting in uncollectability
of debts
Return on Assets There was an improvement
Reduction of non core assets
EBIT* 100 20 452 * 100 15 501 * 100
Total Assets 739 116 710 009 Newer assets with improved efficiency
Better control and supervision on the utilisation
2,77% 2,18% of assets
© Analysis of non - financial and other salient information
Area 2022 2021 Reasons for movement
(i) Safety of the employees and general public The injuries increased
Change in injuries This can be caused by the ageing infrastructure
Increased illegal connections
(This Year - Last Year) * 100 (410 - 302) * 100
Last Year 302
35,76%
% accidents to employees and public
Number of injuries * 100 410 * 100 302 * 100
Total number of employees and customers (48 628 + 6 258 000) (47 958 + 5 977 000)
0,00650% 0,00501%
Productivity of employees The revenue generated and GWHs generated per
employee reduced. This is due to ageing
GWH per employee infrastructure or strikes by employees, use of
unqualified and inexperienced staff
Total GWHs produced by Eiishcom 221 936 221 166 Breakdowns at stations
Average number of employees 48 628 47 958
4.56 GHHs per employee 4.61 GWHs per employee
Revenue generated per employee
Total Revenue 175 041 m 175 094 m
Average number of employees 48 628 47 958
R3.60m per employee R3.65m per employee
Efficiences in carbon emissions Increased measures implemented to curb pollution
Increased use of other sources other than coal
Carbon emissions as a percentage of coal burnt
Carbon emissions 205,5 211,1
Coal Burnt 115,5 113,7
1.78 Mt / million tonne of coal burnt 1.86 Mt / million tonne of coal burnt
Corporate social investment The amount spent per benefiary reduced which
might be due to the need to cover more
Corporate Social Spend per beneficiary beneficiaries
Corporate Social Spend 192 000 000 225 300 000 The reduction in the CSI spending due to
Number of beneficiaries 1 106 000 841 800 depressed economic conditions or reduction in
government funding
R173.60 per beneficiary R267.64
Electricity customer Sales The consumption per customer slightly increased
Due to increased industrialisation and urban
