MHLATHUZE WATER

Presentation of the 2005/2006

ANNUAL REPORT

to the Portfolio Committee

Presented by Vic Botes and Elzette Grierson

20 March 2007

Water must never be a constraint to development, but

a catalyst!

OPERATIONAL AREA

Mhlathuze Water operational area covers 4½ WSA’s in the Zululand area:

• Umkhanyakude District Municipality.

• Zululand District Municipality.

• uThungulu District Municipality.

• Umhlathuze Local Municipality.

North of Ilembe District Municipality.

STRATEGIC DIRECTION

• To form strategic partnerships with WSA’s

• To establish strategic networks with all role players

• To support and assist WSA’s to meet their mandates

STRATEGIC DIRECTION

• Advocacy & Relationship building at provincial level

:DWAF to lead a process of strengthening Tripartite relationship between DWAF region, Water Utilities and Municipalities.

STRATEGIC DIRECTION

- Internal Alignment: Need to formalise the alignment in order to use Water Utilities as an extension of DWAF to deal with critical challenges such as:

- Regulation – Water Quality

- Service Delivery : MIG

STRATEGIC DIRECTION

- Catchment Management Agencies

• Knowledge Sharing : Twinning arrangements already happening within NEPAD and Water Utilities : Should be strengthened.

• Empowering Regions : Strengthening of Regional Offices to deal with Water Utilities issues and challenges.

STRATEGIC DIRECTION

• Intergovernmental Relations and relations with Premier : DWAF to facilitate these relations at provincial level.

• Meeting the targets : DWAF to facilitate brining on board all key stakeholders, develop provincial plans for meeting the targets and assess existing skills in the province.

BUSINESS PHILOSOPHYA paradigm shift from:

“cherry picking services”

to

“WSA’s will determine services they need from MW”

Moving from:

“providing commodities”

to

“providing complete solutions”

BUSINESS OBJECTIVES

• MW respects position of WSA’s as responsible for water service delivery in area of jurisdiction

• MW recognises that WSA’s cannot achieve this on their own

• MW to step into this gap to support and co-operate with the WSA’s

• Mhlathuze Water activities have largely been concentrated around two WSA’s, namely Umhlathuze Local Municipality and Umkhanyakude DM

• Signed key strategic network and partnership agreements and project implementation agreements with:

Umkhanyakude DM uMhlathuze LM University of Zululand uThukela Water Umgeni Water

COVERAGE EFFECTIVENESS OF OPERATIONAL AREA

OPERATIONAL ACHIEVEMENTS

• MW has never received any subsidies or assets from government

• The Laboratory maintained its International Accreditation ISO 17025

• Investigation into the long-term solution for the Foskor gypsum disposal.

• EMS - ISO 14001:2004 certification achieved

OPERATIONAL ACHIEVEMENTS [Continued]

• Imported new & innovative project development, institutional and project financing modules (now rolled out to the whole of KZN)

• Played a leading role to promote KwaZulu-Natal Bulk Regional Water Supply projects

• No quantifiable benefits as yet, but laid a firm foundation for building future sustainable partnerships

IMMEDIATE CHALLENGES AND OPPORTUNITIES

• New coastal developments between Ilembe DM & uThungulu DM

• Water starved rural areas of uThungulu DM, Zululand DM and Umkhanyakude DM.

• Economic development potential around Pongolapoort Dam and Makhathini Flats.

• Value adding opportunities in water resources, water quality, stream flow reduction and wastewater sectors in MW areas.

WATER VOLUMES INDICATORS

• Demand volumes remained constant from 2005

• The biggest drop in actual supply was in transfer volumes mainly due to favourable water level in Lake Nsezi and Goedertrouw dam (Eshowe)

• A further decrease in water sales due to environmental measurements implemented by customers, such water demand management

ANNUAL FINANCIAL STATEMENTS 2006

• The Financial Statements were prepared in accordance with provisions of the PFM Act and the Water Services Act.

• The Financial Statements were approved by the Board and accepted by the independent auditors as fairly presenting financial performance of MW for the year ended 30 June 2006.

FINANCIAL PERFORMANCE• First year adoption of IFRS

(International Financial Reporting Standards)

• There was an increase in Revenue from R143.7 million to R166.4 million mainly due to annual tariff increase and recovery of major maintenance on the B-line

• Operating expenditure increased by R7 million [6.8%] mainly due to:• New pipeline lease [recovered] – R1.4 million • Subsidy Umkhanyakude Management Services - R3.5

million

• Profitability increased to R19 million due to IFRS adjustment. The IFRS adjustment was ±R3.4 million. [MW has to establish a Reserve Policy.]

PROFITABILITY RATIOS

• Profitability factors were negatively influenced by the long outstanding debtor for Umkhanyakude DM of R10.9 million.

[the balance outstanding as at March 2007 is down to R4.1 million]

CAPITAL FACILITIES

• An IFRS adjustment has been made due to the extension of the lives of some of our major assets

• These assets were already fully depreciated prior to 2003/4

COMPARATIVE INDICATORSFinancial indicator 2006 Standard

Current ratio 1.64 >1.75

Working ratio 0.66 <0.75

Operating ratio 0.82 <0.75

OTHER INDICATORS

All other financial positions such as Profitability and Solvency remain

steady.

IN CONCLUSIONMW, although financially sound, the short term position (liquidity) will need attention, with the following financial indicators needing specific attention:

• the current ratios• working capital ratios• operating ratios