Sydney Water Annual Report 2009
Financials: Financial performance

In this section:



Penalty interest payments

Sydney Water did not make any penalty interest payments during 2008–09 for late payments to creditors.

Business and financial management

Sydney Water has to balance its responsibilities to protect public health and the environment while providing affordable services and a return to shareholders. The challenge is to do this while continuing to develop ongoing business efficiency.

As a state owned corporation, Sydney Water is required to operate at least as efficiently as any comparable businesses, and maximise the net worth of the State‘s investment.

Statement of Corporate Intent

A Statement of Corporate Intent (SCI) is agreed each year between the Board of Directors and shareholders, the NSW Treasurer and the Minister for Finance. It specifies key business directions and commercial performance targets and is based on the business‘s revenue, operating expenditure and capital budget.


Total revenue for 2008–09 was $1,958 million, $89 million (4.3%) below the SCI budget. A shortfall in water use revenue of $64 million was due to lower demand as a result of continuing restrictions and improved water efficiency.

Developer contributions (cash) were $54 million lower than the SCI budget because of the abolition during the year of regulated developer charges.

Capital contributions (assets free of charge) were $37 million higher than the SCI budget. This increase was largely due to an internal review of assets and the transfer of water and sewer assets associated with Lane Cove tunnel and other non-development land from the Roads and Traffic Authority.

Operating expenditure

Total operating expenses for the year were $1,027 million, $43 million lower than the SCI budget.

The surplus was largely due to labour savings from Sydney Water‘s continuing efficiency programs and productivity improvements. In addition, there was a lower than expected contribution to the Department of Environment, Climate Change and Water‘s Climate Change Fund and minor savings from other costs including transport, contractors, bulk water purchases and marketing.

Earnings before interest, tax, depreciation and amortisation (EBITDA) were $931 million compared to the SCI budget of $977 million.

Other expense variances included:

  • asset impairment and related charges which were $140 million higher than budgeted, due to a reduction in estimates of future cash flows used for the impairment test of property, plant and equipment and intangible assets
  • financing charges (after capitalisation) which were under budget by $6 million due to interest rate reductions and the timing of expenditure on property, plant and equipment
  • depreciation and amortisation charges which were under budget by $6 million due to lower asset values after impairments
  • losses on disposal of assets of $32 million were $5 million over budget.


Tax expense on profit from continuing operations was $176 million. This was boosted by the reversal of temporary differences, partly reflecting the increased amount of capitalised interest and labour.

Performance summary

Sydney Water‘s consolidated net profit after tax for 2008–09 was $178 million, which was $194 million below the SCI target. The shortfall was largely due to:

  • lower demand for water
  • the abolition of regulated developer charges
  • a large asset impairment charge.

The shortfall was offset by lower than budgeted operating costs, financing and depreciation charges.


A dividend of $205 million has been declared for 2008–09, as agreed with NSW Treasury. The dividend paid in 2008-09 was $190 million.

Performance against budget





Service and usage income




Capital contributions




Other income




Total income




Operating expenses




Earnings before interest, taxation, depreciation and amortisation




Depreciation, amortisation, impairments and sales losses




Borrowing cost




Total expense




Profit before tax




Income tax expense




Profit after tax




Capital expenditure




Funds flow from operations interest cover ratio (times)




*Including capitalised interest.

Budget 2009–10

Service and usage income is expected to increase during 2009–10, reflecting price rises, determined by the regulator, the Independent Pricing and Regulatory Tribunal (IPART). The water bill of a household in Sydney, the Illawarra and the Blue Mountains, using 200,000 litres of water a year, will increase by $99 a year or 11.2% a year from 1 July 2009.

Revenue from sales in 2009–10 is forecast to increase, due to higher prices set by IPART in the 2008 price determination, and higher water sales with the move to Water Wise Rules. Capital contributions income will decline in 2009–10 due to the removal of property developer revenues, introduced in December 2009.

Operating costs are expected to increase at a lower rate compared to income – reflecting a range of cost saving measures and operational efficiency improvements.

The 2009–10 budget includes increased borrowings to fund new capital investment. Financing costs are expected to increase as a result of expected interest rate rises and debt guarantee fees.


The Independent Pricing and Regulatory Tribunal (IPART) completed a review of prices for Sydney Water‘s services in June 2008, setting prices for the period from July 2008 to June 2012. As a government-owned monopoly service provider, Sydney Water‘s prices are regulated to cover the cost of conducting business while generating an adequate return on assets.

IPART‘s change to the structure of water prices takes effect in 2009–10. The two-tier pricing structure has been replaced with a single water usage charge. IPART stated that recent rain, desalination and increased recycling have eased concerns over water scarcity, reducing the need for the pricing signal provided by the two-tier system.

The price rises in 2009–10 will help pay for Sydney‘s desalination plant, two large recycling schemes at Rosehill/Camellia and St Marys in western Sydney as well as renewals and new infrastructure for growth.


As at 30 June 2009, Sydney Water did not have any financial investments.

To maximise investment returns while maintaining appropriate risk controls, the portfolio‘s investment performance is benchmarked against the NSW Treasury Corporation‘s hourglass cash facility. This is consistent with NSW Treasury guidelines.

In 2008–09, Sydney Water‘s investment performance of five per cent was in line with the benchmark.

Investment portfolio performance

Investment portfolio

Sydney Water


Market valuation 30 June 2009



Yearly return



Debt management

Sydney Water‘s total borrowings were $5.56 billion, at 30 June 2009. Borrowings increased by $1.33 billion during 2008–09 to fund new capital investment. The debt portfolio was sourced almost entirely through NSW Treasury Corporation and risk was actively managed, whilst limiting the cost of funds.

In 2008–09, the debt portfolio performance exceeded the benchmark of 12.03% by 0.44%.

Debt management performance

Debt portfolio

Sydney Water


Market valuation 30 June 2009



Generalised cost of funds



Continued use of Treasury Corporation‘s short-term ‘Come & Go‘ borrowing facility helped meet 2008–09 short-term cash requirements and reduce the amount of additional fixed borrowings.

At 30 June 2009, 69% of total debt was covered by fixed rate debt with a maturity exceeding one year. In addition, five per cent was inflation-indexed debt. The remaining 26% was fixed-rate debt due for refinancing in 2009–10.

Property sales

During 2008–09, there were no net incomes from the sale of excess properties. Where property sales are undertaken, all are conducted via public auction or tender.

Performance against 2008–09 budget


2008–09 budget

2008–09 result

Earnings before interest, tax depreciation and amortisation



Net profit before tax



Net profit after tax



Return on assets



Net new borrowings



Gearing ratio



Dividend declared



Funds flow from operations

The term ‘funds flow from operations interest cover‘ refers to the adjusted cash flow from operations that is available to meet interest costs. It is calculated as the net cash from operating activities, plus cash interest and guarantee fee payments and other capital contributions.

This ratio reflects Sydney Water‘s ability to service debt costs and manage additional debt.
The funds flow from operations was $680 million in 2008–09 and $479 million the previous year. The increase was a result of continued cost control and higher prices set by the latest IPART determination.

The funds flow from operations interest cover ratio was 2.4.