PRESENTATION TITLEPresented by:Name SurnameDirectorateDate

MHLATHUZE WATER

Annual report for the 2014/15 financial year

Presented by: Mr. Brian NdabaChief Financial Officer

24 February 2016

GRAPHICAL AREA OF SUPPLY

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OVERVIEW OF THE WATER BOARD Mhlathuze Water (MW) area of supply covers

some 37,000km² stretching from uThukela River in the south and up to East Coast to Mozambique and Swaziland borders, around Vryheid and back to the uThukela River.

MW operational area covers 4 WSA’s in KZN: uMkhanyakude District Municipality Zululand District Municipality uThungulu District Municipality uMhlathuze Local Municipality

Supply Bulk Water and Sanitation services to Industries & Water Services Authorities in its area of operation

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ANNUAL REPORT 2014/2015Audit Report

KPMG Inc. were appointed for the 2014/2015 financial year audit.

Annual financial statements were prepared in accordance with SA GAAP, the relevant provisions of Water Services Act in a manner required by PFMA.

MW received a Unqualified (Clean) Audit Opinion for the 2014/2015 year.

All internal controls were considered as relevant.

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Corporate Performance Scorecard 2014/15

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Performance Objective

Outcomes/Impact

Indicators Measure Target2014/15

Actual 14/15

Comments/Corrective Action

1. Water Quality

Compliance

Water quality standards met

Test results, SANS 241

% compliance

Risk-defined health - ≥95% Risk-defined operational - ≥93% Accute Health - 1 Micro - ≥97% Accute Health - 1 Chem - ≥97% Chronic Health - ≥95% Aesthetic - ≥93%

100% 99.7%100%100% 100% 100%

Target exceeded.Target exceeded.Target exceeded.Target exceeded.Target exceeded.Target exceeded.

2. Non-Revenue

Water

Reduced levels of unaccounted for water (UAW)

Water lost as a % of total water produced

% <5% 1.82% Target met.

3. Reliability of supply

No unplanned interruptions to supply exceeding 24 hours

% number of days supply disrupted divided by total number of possible supply days

% <1% 0% Target met.

4. Financial Reporting Compliance

unqualified audit report

Annual external audit

Qualified/Unqualified

Unqualified Audit Opinion Unqualified (Clean Audit)

Target met

5. Staff Turnover

Optimal staff retention

% staff leaving % 8% 5.26% Target exceeded.

6. Board Member Attendance

Improved performance of fiduciary duties/governance

Annual attendance

% 80% 81.8% Target met.

Corporate Performance Scorecard 2014/15 cont..

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Performance Objective

Outcomes/Impact

Indicators Measure Target2014/15

Actual 14/15

Comments/Corrective Action

7.Effective Internal Controls And Risk Management

No repeat or unresolved findings

Internal audit reports

Number repeats No repeats findings

No repeats findings

Target met

Number unresolved

No unresolved findings

No unresolved findings

Target met

8. Bulk Supply Agreements Concluded With Municipalities/ Other Customers

Statutory and service level agreements in place

Municipalities/other customers with bulk supply agreements

% 100% 100% Target met.

9. Improve Financial Ratios

Improved viability and sustainability

Financial ratios

Liquidity 1.60 1.88 Target exceededGross profit margin % (Primary Activities)

84% 84% Target met.

Gross profit margin % (Secondary activity)

11.8% 20.60% Target exceeded

Net profit margin % (primary activity) 14% 21.6% Target exceeded

Debt/ Equity ratio 0.47 0.45 Target metReturn on assets % 8.2% 9.00% Target exceededDebtors days # 45 days 34.98 Target exceeded

Corporate Performance Scorecard 2014/15 cont..

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Performance Objective

Outcomes/Impact

Indicators Measure Target2014/15

Actual 14/15

Comments/Corrective Action

10. Increase BBBEE Spend

Spend increased and increased new entrants

% of spend increased and # of increased new entrants

% increase Maintain above 51% of discretionary spend

60% Target exceeded

# new entrants

20 new entrants 98 Target exceeded

11. Manage Costs Within The Approved Budget

No over expenditure/losses

Financial reports % variance 5% (over/under budget)

2% over budget

Within target

12. Capital Expenditure

Infrastructure available to meet demands

Overall project expenditure within R target

% variance 75% spent

84.79% Target met.

Overall project completion dates within targets

% variance 80% 90% Target exceeded.

13. Increased access to Services

Contribution to national objectives

No. of new projects

No. of new projectsDOE & DBE

DWS

DEA

144 (based on the number of schools)

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3

76 DOE

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Target not met.39 DOE projects were cancelled due to the fact that the budget was retracted by DOE. Target met.

Target met.

Corporate Performance Scorecard 2014/15 cont..

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Performance Objective

Outcomes/Impact

Indicators Measure Target2014/15

Actual 14/15

Comments/Corrective Action

14. Engagement in Secondary Activities

Extent of involvement

% of total turnover

% of total turnover

63% 61% Target not met due to the external work that was suspended by DOE.

15. Achieve Statutory Reporting Compliance

Reporting compliance achieved

Statutory submissions made on time

Submission dates met/missed

Submission dates met

3rd Quarterly Report submitted on 14 May 2015 (deadline 15 May 2015).Business Plan and Shareholder Compact submitted on 28 May 2015 (deadline 31 May 2015).

Target met.

16. Jobs Created Permanent and contract (direct)

Total Number of jobs created

Number

5

118 Target exceeded.(Due to the transfer of CoU Staff)

Temporary (indirect)

Total Number Number 500 768 Target exceeded.

17. Corporate Social Responsibility Initiatives

Good corporate citizenship

Number of initiatives

Number and and value

At least 9 initiatives for

R1.2 m 14 initiatives to the value of R1 145 564

Target exceeded.

18. Training And Skills Development

Skills and capacity building

Training courses, learner-ships, bursaries

Total Number of training, learner ship and bursaries

108 118 Target exceeded.

Bulk water volumesBulk water volumes increased by 50% mainly due to the increase in raw water volumes (RBM and City of uMhlathuze (Esikhaleni)) and the increase in potable water supply to the City of uMhlathuze for Richards Bay.

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Bulk water volumes by customer

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Tariff increase Raw water and Purified waterThe graphs on tariffs for the 2 major Water schemes

shows a downward trend for the past five years.

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Tariff increase Buoyant and Dense waste waterThe graphs on tariffs for the two Waste water

schemes shows a downward trend for the past five years.

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Revenue per Business segmentAlthough the tariffs for all the schemes shows a downward trend for the past five years, revenue increased overall by 44% generated from better than expected bulk water volume sales. This is as a result of the drought situation in KwaZulu-Natal, whereby Mhlathuze Water was in a position to supply the City of uMhlathuze with water from the Mhlathuze River and Nsezi Water Treatment Plant.

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ENERGY COSTEnergy costs increased by 90% from prior year due to more energy usage for additional volume sold. The increase from Eskom that was imposed by NERSA, as well as the increase from the City of uMhlathuze were also implemented. The Thukela Goedertrouw Scheme is running at full capacity to transfer water to the Goedertrouw Dam due to the droughtsituation in the KwaZulu-Natal area.

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Maintenance materialsMaintenance costs increased by 189% from the previous year. Maintenance work was done at all Mhlathuze Water installations as well as all the City of uMhlathuze plants. Work on the C-Line effluent line overlapped from previous year to this financial year and also include the current year scope.• Mhlathuze Water maintenance expenditure - R31,2 million – 73% (2014:R14,7 million 99%) • City maintenance expenditure - R11,7 million – 27% (2014: R0,1 million –1%)

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Chemicals/PurificationChemical costs increased by 65% mainly due to the increase in water demand resulting in more chemicals being used.

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Depreciation/amortisationDepreciation increased by 15% against the previous year. Projects that were commissioned during the current financial year were:-• Rerouting of the B-Line (for effluent disposal);• Upgrading of the Intake Pump Station and band screens;• Refurbishment of Head Office buildings; and• Telemetry system, etc.

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Staff costStaff costs increased by 35% from the previous year mainly due to the approved increase of 8% and the staff complement that increased from 182 to 195. The 111 employees from the City of uMhlathuze are also included in the costs, but these (costs) are fully recovered from the City.

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Other operating expensesOther operating expenses increased by 52% against the previous year. R4,5 million included in this category is for diesel required to pump additional water to the City of uMhlathuze. These cost were recovered.

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Net Finance costNet finance costs decreased by 86% due to increased investments and interest income thereon.

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Financial Performance 2014/2015Mhlathuze Water has maintained strong operating surpluses. Overall, the surplus for the year of R89,9 million (2014: R79,1m) reflects an increase of 14% from the previous year.

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2011 2012 2013 2014 2015

67,061

51,930

68,070

79,198

89,998

Surplus R'000

Cash flows from operating activitiesNet cash generated from operating activities increased by 18% compared to the prior year. Mhlathuze Water continues to maintain strong operating cash flows which has allowed for the repayment of debt and funding of capital expenditure. The graph below illustrates the net cash flows from operating activities for the past five years.

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Cash flows utilised in investing activitiesNet cash utilised in investing activities increased by 3% from

the previous year due to the acquisition of assets. The three major projects that contributed to the increase are:• Nsezi Balancing Reservoir (20ML) - R17 million• City of uMhlathuze pump station upgrade - R56 million• Re-routing of the B-line - R12 million

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Cash flow from financing activitiesNet cash utilised in financing activities increased by 3% mainly due to loan repayments.

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Cash balancesSufficient short term investments are held to fund Capital commitments.

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Borrowing limitsThe borrowing limits for the period 2013 to 2015 have been approved by National Treasury in concurrence with the Minister of Water and Sanitation. R70,7million was unutilised at end 2015.Mhlathuze Water has forwarded a new proposal to the Minister of Water and Sanitation to submit to National Treasury for the new periods 2016, 2017 and 2018.

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External Projects Apart from its primary activities Mhlathuze Water implements external projects (Section 30 activities) for different government institutions to the value of R473 million (2014: R458 million), an overall increase of 3%.The Department of Water and Sanitation increased by 31% whereas the Department of Education decreased by 43% due to work that was suspended.These project costs are fully recovered from these departments.The graphs below gives an overview of Mhlathuze Water’s involvement in these projects.

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Supply Chain ManagementTotal spend on goods and services for the 2014/2015 financial year was R682 million, of which R408 million (60%)was spent on companies that are more than 51% black-owned, and 20% (equivalent to R135 million) was spent on empowered companies.

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Employment Equity profile 30 June 2015This year, our recruitment and retention strategies have continued to focus on employment equity. The number of female employees has shown an increase on the previous year’s 43% to 46% in 2014/2015. There are 2.81% of employees who have a disability; compared to 0.01% in the previous year. The complexion of our race profile has improved significantly with the increase of coloured employees to 2% as shown in the pie-chart below.

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MID-YEAR PERFORMANCE 2015/2016

Surplus of R49,4 million comparing to budgeted surplus of R31 million, positive variance of R18,4 million.

Complied with water quality standards. 100% reliability of supply, no unplanned

interruptions. Current ratio (liquidity) 1.99 against 1.60

target. Return on assets 10% against 7% target. B-BBEE of 78% against 51% target. Outstanding debtors days 36 days against

budget of 45 days. 30

MID-YEAR PERFORMANCE 2015/2016 HR TARGETS

Staff turnover - 1.15%, target of 8%, positive variance of 6.85%.

Persons with disabilities – 1.7% (4), target of 2%, below target.

Employment Equity • Females 48% - Males 52% (Staff

complement)• Management level: Females 48% - Males

52%Disabling Injury Frequency Rate (DIFR)

0.32, target 1.75.31

Presentation to PCWS

MID-YEAR PERFORMANCE 2015/2016 Capital ExpenditureCapital expenditure at 43% of budget.

(Total Budget R157million) Three projects in progress

Nsezi balancing reservoir (20ML) – R21 million actual, committed R17 million – Total budget R38 million

2nd Balancing 20ML reservoir – R16 million actual, committed R 19 million – Total budget R35 million

Nsezi WTP Empangeni Pump station R3 million actual, R1 million committed – Total budget R17 million.

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THANK YOU

33Presentation to PCWS