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Key Findings Presentation to Stakeholders Meeting

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Presentation on theme: "Key Findings Presentation to Stakeholders Meeting"— Presentation transcript:

0 Audit Highlights Memorandum for the Year Ended 31 December 2012
Volta River Authority August 2013 AUDIT

1 Key Findings Presentation to Stakeholders Meeting
Area Summary observations Analysis Quality of earnings Financial statement analysis Compared to the previous year, the company’s financial results and performance showed a significant downturn. This finding was reached based on our analysis of the following: Statement of financial position Statement of comprehensive income Ratio Analysis Page 4 Page 7 Page 9 Page Other information Disclosures Subsidiaries Page Governance Audit Issues and Control observations Controls tested were generally found to be operating satisfactorily and we noted a positive approach to addressing issues previously reported Page 23 Other risk assessment Page

2 Quality of Earnings Our perspective on the underlying performance of the Authority and the key accounting judgments made

3 Quality of Earnings Underlying Performance
Key developments during the year Average inflation rates increased from 8.7% in January 2012 to 9.3% by the end of December 2012. The cedi also depreciated by 18% against the US Dollar during the year. Bank of Ghana increased the monetary policy rate from 12.5% in January 2012 to 15% by the end of December 2012. Crude oil prices decreased from USD 122 per barrel in January 2012 to USD 111 per barrel by the end of December 2012.

4 Quality of Earnings Underlying Performance
STATEMENTS OF COMPREHENSIVE INCOME (GROUP) FOR THE YEAR ENDED 31 DECEMBER 2012 GH¢'000 % Change 2012 2011 Revenue 1,749,385 1,110,560 58% Cost of Sales (1,656,583) (806,679) 105% 92,802 303,881 Other Operating Income 63,777 48,537 31% Administrative Expenses (238,796) (211,970) 13% (82,217) 140,448 Financial Income 35,617 2,371 1402% Financial Expenses (50,389) (37,745) 33% Exchange Gain/(Loss) 21,231 (7,747) -374% Exchange Fluctuation Gain/(Loss) on Foreign Debts (14,388) (14,677) -2% Profit/(loss) for the year after taxation (90,146) 82,650 -209% Taxation - (8) 82,642 Other comprehensive Income: Capital surplus 389,500 714,590 -45% Revaluation of Investment 49,342 42,938 15% 258,550 757,528

5 Quality of Earnings Underlying Performance
Revenue Growth GH¢ thousand Revenue Gross revenue for the group increased by 58% (i.e. 2012: GHC1,749m vs. 2011: GHC1,110m).The increase was mainly the result of increase in volume of electricity sold of 12% and an upward adjustment in tariff of the deregulated mining companies from US cents 13/kWh in 2011 to US cents15.8/kWh in Also, there was government subsidy of GHC 360m in the current year.

6 Quality of Earnings Underlying Performance
Power Sales GH¢ thousand Revenue Breakdown Power sales to Electricity Company of Ghana increased by 19% over the period from GHC 493m in 2011 to GHC 591m in 2012 as a result of the 12% increase in the volume of electricity sold. Also power sales to the mining companies increased by 49% from GHC 265.2m in 2011 to GHC 397.7m in 2012 as a result of the upward tariff adjustment in 2012 and a 19% depreciation of the Ghana cedi against the US dollars in 2012.

7 Quality of Earnings Underlying Performance
Statement of comprehensive income analysis 140,448 GH¢ thousand 90,146

8 Quality of Earnings Underlying Performance
Statement of comprehensive income analysis Operating Profit / (Loss) Operating loss compared to prior year profit was mainly caused by a significant increase of 105% recorded in cost of sales from GHC 806.6m in 2011 to GHC 1,656m in 2012. Analysing by budget centre, the increase of 130% and 132% in cost of thermal power and purchase of electricity respectively accounted for the significant increase in cost of sales. The cost of generating power from thermal increased due to increase in the use of crude which is relatively expensive to gas. Following the challenges with the West African Gas Pipeline in July 2012, the crude used by VRA to power its thermal plants shot up from 1.6 m barrels in 2011 to 5.2m barrels in resulting in the significant overall increase in thermal power generating cost despite the marginal decrease in crude prices in 2012. There was a similar increase in the purchase of electricity from GHC 273m in 2011 to GHC 634m in representing an increase of 132%. The increase in the power purchase is as a result of increase in crude component of power purchase bills from Takoradi International Company.

9 Quality of Earnings Underlying Performance
Ratio Analysis Ratios 2012 2011 Commentary Solvency Current ratio (Current assets/ Current liabilities) 1.92 2.52 Current ratio deteriorated over the prior year’ s due to the significant increase in short term borrowings and trade payable and decrease in inventory in 2012. Profitability Gross Profit Margin (Gross profit/ Revenue) 5% 27% The gross profit margin decreased as a result of a significant increase in cost of sales in 2012. Net Profit Margin (Net profit/ Revenue) -5% 7% The increase in cost of sales and administrative expenses resulted in a net loss for the period. Return on Assets (Profit before Tax / Total assets) -6% 8% Operational losses and increasing assets caused the deterioration in this ratio

10 Quality of Earnings Underlying Performance
STATEMENTS OF FINANCIAL POSITION (GROUP) AT 31 DECEMBER 2012

11 Quality of Earnings Underlying Performance
Statement of financial position analysis 15% 33% -43% 82% 4% 31% GH¢ Thousand

12 Quality of Earnings Underlying Performance
Statement of financial position analysis Total Assets: Total assets increased by 24% in 2012 compared to 2011 and comprised : Asset Category % of total asset s 2012 % of total assets 2011 Property, plant and equipment 63 68 Long term investments 6 Inventory 3 Trade and other receivables 23 15 Short term investments 1 Cash and bank balances 4

13 Quality of Earnings Underlying Performance
Statement of financial position analysis Total Assets Total assets increased by 22% from GHC4,155.7 million in 2011 to GHC5,089 million in 2012 Property, plant and equipment(PPE) which makes up 63% of total assets increased by GHC 429.2m in The increase was mainly due to the revaluation surplus amounting to GHC 389.5m of the Authority’s assets and additions of GHC178.1m to PPE during the year under review. Major additions in 2012 included GHC 4.6m for motor vehicles, generation assets of GHC 43.5m and power distribution assets of GHC 114m. The long term investments increased by 33% over the period as a result of the increase in the debt contingency fund investment in 2012 by GHC 5.6m, interest on investment from West African Gas Pipeline through TAPCO of GHC 35m and a revaluation surplus of GHC 49m.

14 Quality of Earnings Underlying Performance
Statement of financial position analysis Trade and other receivables increased significantly by 82% in 2012 compared to This increase was due to a significant increase in power sales receivables from GHC 471.4m in 2011 to GHC 918m in 2012 representing a percentage increase of 94%. Significant balances owed were that of the Electricity Company of Ghana and Ministries, Departments and Agencies of the Government of Ghana amounting to GHC 277.6m and GHC 163.5m respectively. Also, other receivables from Tema Oil Refinery(TOR) increased from GHC 27m in 2011 to GHC 123m in 2012 as a result of TOR’s usage of VRA’s crude. Inventory reduced by 43% in 2012 compared to 2011 due to reduction in crude stock held at the year end from GHC 216.8m in 2011 to GHC 125.3m in Also, spares and consumable inventory reduced from GHC 21.7m in 2011 to GHC 10.5m in 2012 due mainly to a write off of unsupported inventory in 2012. Cash and bank balances increased by 31%in 2012 compared to 2011.

15 Quality of Earnings Underlying Performance
Statement of financial position analysis 23% 368% 86% GH¢ thousand

16 Quality of Earnings Underlying Performance
Statement of financial position analysis Total Liabilities: Total liabilities increased by 94% in 2012 compared to 2011 and comprised: Asset Category % of total liabilities 2012 % of total liabilities 2011 Trade and other payables 32 50 Short term borrowings 33 14 Long term borrowings 35 36

17 Quality of Earnings Underlying Performance
Total Liabilities Total liabilities increased by 94% The 94% increase in liabilities was mainly driven by an increase in short term borrowings of 363% from GHC 98m in 2011 to GHC 454m in The high operating cost coupled with increasing receivables meant that the Authority had to rely on short term loans from its bankers and suppliers (Standard Chartered Bank, Ecobank, Unibank, Merchant Bank and Sahara Energy) for funds to finance its crude imports. Long term loans also increased by 86% due to a GHC 188.5m three year loan obtained from Ecobank Ghana Limited in 2012 and drawdown on other long term facilities used to finance capital projects during the period amounting to GHC 38.6m. Trade and other payables increased by 25% over the period due to outstanding invoices on crude imports at the end of the year.

18 Northern Electricity Distribution Company Limited
Northern Electricity Distribution Company Limited is incorporated as a subsidiary of VRA. Currently, it has been treated as a department whose results are combined with the mainstream. However, NEDCo though a limited liability company has not prepared separate financial statements from its inception as a company(1997) to date. NED serves as a distribution unit of the authority serving the Northern part of the country. During the year NED made a total revenue of GHC151.8m (2011: GHC124.8m) as against operational and general expenses of GHC214.3m (2011:GHC170m) resulting in operating loss of GHC62.5m (2011: GHC45.2m). As at 31 December 2012, the total assets of the company amounted to GHC705.4m (2011: GHC585.5m) with total liabilities of GHC248.4m (2011: GHC182m).

19 Subsidiaries VRA has four subsidiaries, i.e. TAPCo, VLTC, Akosombo Hotels Limited and Kpong farms. These companies are wholly owned by the Authority. These Subsidiaries have been consolidated except Kpong farms which is a dormant company. Two of these subsidiaries were audited by other auditors. TAPCo was, however, audited by KPMG. Below are highlights of the financials of the subsidiaries: Income statement caption VLTC AHL TAPCO 2012 GHS’000 2011 Revenue 9,861 9,122 3,729 3,418 - Operating cost (14,201) (6,279) (3,429) (3,306) (12) (10) Operating (loss)/profit (4,340) 2,843 300 112 Other Income/expense (31) (51) 86,604 43,676 Tax expenses/income (8)

20 Subsidiaries – cont’d Financial Position Caption VLTC AHL TAPCO 2012
GHS’000 2011 Property, plant and equipment 77,477 81,236 6,286 3,488 - Investments (short/long term) 955 239 337,116 250,113 Inventory 842 564 189 194 Accounts receivable 3,080 2,003 291 244 12,198 12,402 Cash and Cash equivalent 904 196 831 758 10,766 9,049 Taxation 402 235 104 93 (345) Accounts payable (7,476) (4,335) (3,557) (2,694) 6,136 4,222 Borrowings (1,241) (1,200) (80) Stated capital (1,123) (542) (1) Retained earnings 1,618 1,598 1,265 1,594 (184,453) (97,861) Capital surplus (74,317) 78,765) (5,821) (3,295)

21 Subsidiaries – cont’d TAPCO
The following outstanding issues raised during the prior year audit of TAPCO had still not been resolved. Shares : We require the number of issued shares for incorporation into the financial statements. This is a requirement of the Companies Act, 1963 (Act 179) Explanation for tax provision of GHC 0.4m on dividend income Taxation on revenue and other income : No tax provision has been made on revenue and other income Supporting documentation for the increase in investment in the West African Gas Pipeline Company Limited were not obtained.

22 Governance Audit Issues and Controls findings including a summary of our management letter points

23 Governance Systems and Controls Analysis of Current and Prior Year Control Deficiencies Definitions of control deficiencies A control deficiency exists when the design or operation of a control does not prevent or detect misstatements on a timely basis. A material weakness is a control deficiency that results in more than a remote likelihood that a material misstatement would not be prevented or detected in the financial statements. A significant deficiency is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a misstatement that is more than inconsequential would not be prevented or detected. Key No. of Issues Type of deficiency

24 Other Information from the Audit
Areas relating to the general conduct of the audit

25 Summary of Audit Status of the Audit
Other Information Summary of Audit Status of the Audit Significant risks: Fraudulent revenue recognition Unrecorded liabilities Incorrect capitalisation of capital work in progress Audit work at a glance Main Risk areas Our deliverables Fraudulent revenue recognition Unrecorded liabilities Incorrect capitalisation of capital work in progress Audit opinion on statutory financial statements Management report Report to audit committee Adding value Status of the audit Highlighting areas for improvement in the management letter Audit complete. Clean audit opinion issued.

26 Other risk assessment Disclosures
Other information Other risk assessment Disclosures The company generally complied with relevant laws and regulations relating to financial reporting. Going concern No events or conditions were highlighted that cast doubt on the company’s ability to continue operations as a going concern . However, the current year’s financial performance is an issue of concern. Fraud findings As part of our responsibilities as auditors, we are required to make inquiries of those charged with governance, as to their knowledge of known or suspected incidence of fraud. We held various discussions with management with respect to fraud. No fraud related issues were identified. Laws and regulations The Authority generally complied with relevant laws and regulations relating to financial reporting.

27 Reliance on the Work of Others
Other Information Reliance on the Work of Others Internal Audit We considered work done by the Authority’s internal audit unit to determine the extent to which we could place reliance on their work in the conduct of our audit. Our interaction included reviewing results of their work and interpreting the extent to which that mitigated our overall audit risk. Due to differences in objectives and the scope of work of the unit, which focused mainly on compliance with operating procedures and policies, limited reliance was placed on their work in our audit of the financial statements. Information technology (IT) We used ITA specialists to ascertain the operating effectiveness of IT controls. Broad areas covered under these tests included the following: - Access to programmes and data - Programme changes - Programme development - Computer operations (including data back ups and business continuity planning).

28 Appreciation We wish to place on record our appreciation of the courtesies and co-operation extended to our representatives by Management, Staff and the Board of the Authority during the course of the audit. Thank you.

29 © 2013 KPMG a partnership registered under Ghanaian law and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International Cooperative.


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