PRESENTATION TITLE Presented by: Name Surname Directorate Date Sedibeng Water Annual report for the 2014/15 financial year Presented by: RT Takalani – Sedibeng Water Chief Executive

Contents Page 1.Introduction……………………………………………………….3 2.Area of Operation………………………………………………..6 3.Ministerial Directives………………………………………… Achievements………………………………………………...…12 5.PART 1: OVERVIEW OF FINANCIAL PERFORMANCE……………………… Overview of Audit Report………………………………………24 7. PART 2: OVERVIEW OF NON-FINANCIAL PERFORMANCE…………………. 29

Sedibeng Water Annual report for the 2014/15 financial year 1. INTRODUCTION CONTENTS 3

1. Introduction  Sedibeng Water (SW) is a Water Board established as an organ of state in terms of the Water Services Act No. 108 of The Minister of Water and Sanitation is the executive authority, and as an organ of state the organisation is categorised as a public entity, subject to regulations by the Minister of Finance in terms of the Public Finance Management (PFMA) (Act No. 129 of 1999).  Sedibeng Water is a Schedule 3B public entity and its core function is to provide water services to its clients, mainly in the form of bulk water, waste water treatment, retail water services, operate and maintenance of water infrastructure; and as an implementing agent in respect of capital infrastructure projects. 4

1. Introduction (cont…) Sedibeng Water was established as a Water Board in terms of the Water Services Act (Act 108 of 1997).  Section 29 of Water Services Act: – The primary activity of a water board is to provide water services to other water services institutions within its area of operation.  Section 30 (2) of the Water Services Act: - Other activities of a water board may include, but are not limited to- (a) providing management services, training and other support services to water services institutions, in order to promote cooperation in the provision of water services;  Section 32 of the Water Services Act: Duties of water boards o Every water board – must enter into written contracts when performing its primary and other activities.

Sedibeng Water Annual report for the 2014/15 financial year 2. AREA OF OPERATION CONTENTS 6

2. Area of Supply and Operation Sedibeng Water is a Schedule 3B public entity and its core function is to provide water services to its clients, mainly in the form of bulk water, waste water treatment, retail water services, operate and maintenance of water infrastructure; and as an implementing agent in respect of capital infrastructure projects. The service area was extended from km 2 to km 2 (square kilometers) across three provinces i.e –Free State; –North West; and –Northern Cape. 7

2. Area of Supply and Operation (cont…) Total Population 2 970,71 M

2. Area of Supply and Operation (cont…) 9

Sedibeng Water Annual report for the 2014/15 financial year 3. MINISTERIAL DIRECTIVES CONTENTS 10

The Minister of Water and Sanitation issued the following directives to Sedibeng Water to support the local government sphere. 3. DIRECTIVES & GAZETTE ISSUED TO SUPPORT THE WATER SERVICES IN THE WATER SERVICES AUTHORITIES.

Sedibeng Water Annual report for the 2014/15 financial year 4. ACHIEVEMENTS CONTENTS 12

4. Achievements 2014/2015 financial year 13 FINANCIAL VIABILITY AND SUSTAINABILITY Costs were prudently managed Organisation is financially sound and viable at consolidated level Revenue and surplus targets were exceeded The organisation received an unqualified audit opinion OPERATIONAL PROCESS EFFICIENCY Total production and distribution water losses of 2.58% in the Free State and 7.81% in the Northern Cape Regions Water quality met Class 1 and or 2 requirements Average expenditure on BBBEE of over 94% HIV/AIDS PROGRAMME Awareness campaigns were undertook throughout the whole organisation. Voluntary counseling and testing was made available to employees

4. Achievements 2014/2015 financial year (cont…) 14 RECRUITMENT AND DEVELOPMENT OF EMPLOYEES  Financial assistance to employees, 44 bursary holders (15 Male and 29 Female).  Water and Wastewater Process Operation Learnership NQF 2 and 4 with the ESETA, 53 beneficiaries (31 Male and 22 Female).  Apprenticeship, 20 Beneficiaries (16 Male and 4 Female)  Experiential training,10 students (7 Male and 3 Female).  Training was conducted according to the Works Skills Development Plan.  Retention of technical staff was kept at 2.58%.  WSP/ATR approved by EWSETA.  The organisation created 70 new permanent and contract jobs and 395 temporary jobs during the 2014/2015 financial year.

4. Achievements 2014/2015 financial year (cont…) 15 QUALITY CONTROL LABORATORY  The laboratory maintained its accredited status after being audited by SANAS (South African National Accreditation Standards) and an international auditor from ILAC (International Laboratory Accreditation Co- operation)  The lab conducted over 170,000 chemistry and 60,000 microbiology analyses in the financial year. HEALTH AND SAFETY  The regions Disabling Injury Frequency Rates were all below the 2.0 target. CORPORATE SOCIAL INVESTMENT PROGRAM Various water conservation awareness campaigns were embarked on in partnership with municipalities and the Department of Water and Sanitation. 10 Schools, special needs and child support centers benefited from the organization’s CSI program.

5. PART 1: OVERVIEW OF FINANCIAL PERFORMANCE 16 FINANCIAL STATEMENTS ANALYSIS OF EXPENDITURE OVERVIEW OF THE AUDIT REPORT

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19 Financial Ratios performance against targetsActual 2015Target 2015Comment Gross Profit %67.52%64.20 Target achieved, due to improved purification processes. Net Profit %19.9%9.41% Target achieved due to other income from secondary activities and savings on raw water purchases. Current Ratio Target not achieved. The organisation is working with National Treasury and DWS to recover outstanding debts from municipalities. Return on Assets9.08%0.3%Target achieved. Surplus increased due to profit on disposal of pipeline. Debtors days Target is not achieved. The organisation is working with the DWS in an effort to engage the National Treasury and WSA’s to improve the payment rates of WSA’s. Debt Equity Ratio Target achieved. Increase in reserves through comprehensive income.

Expenditure outcome: 30 June

Analysis of current payments 21 Compensation of employees Goods & services

Accruals 22

2014/152013/14Variance% Variance R'000 Contingent liabilities Total6, , % Contingent assets Total0000% Notes Contingent liabilities are mostly due to legal action instituted against Sedibeng Water by Suppliers and Employees. R1.5Million is due to termination of a supplier's procurement contract due to poor performance and the rest relates to legal cases by employees. The increase from 2014 to 2015 is due to the above mentioned R1.5Million procurement suit as well as cases taken over from the former Botshelo Water Board. Botshelo Water was disestablished in 2014/2015 financial year and its assets and liabilities transferred to Sedibeng Water. Contingent liabilities and assets 23

6. OVERVIEW OF AUDIT REPORT 24

6.1 OVERVIEW OF AUDIT REPORT 25 NODETAILSOPINION 2010/112011/122012/132013/142014/15 1. Annual Financial Statements Unqualified 2. Predetermine d objectives No material findings on the predetermined objectives 3. Compliance with laws and regulations No non-compliance was identified 4. Internal controls No deficiencies identified in the internal control environment

6.2 Irregular expenditure Analysis: 26 Irregular Expenditure in the current financial year amounted to R7.9 Million. The irregular expenditure occurred from - a.Procurement of goods to an amount of R4.5M whereby a specific brand of vehicles was requested due to the terrain i.e. roads where the operations of Sedibeng Water are. b.Procurement of outsourced internal audit services for a period of two (2) years for an amount of R3.4M whilst in a process of building capacity for an in-house internal audit function. Both classes of irregular expenditure were investigated and condoned by the Accounting Authority.

6.3 Fruitless and Wasteful Expenditure 27 The expenditure had its origin due to the late payment of ESKOM accounts. The matter was investigated and presented to the Accounting Authority for Noting. The 2013/14 fruitless and wasteful expenditure was investigated and will be Noted by the Accounting Authority and condoned at the next Board Meeting.

6.4 Commitment analysis 28 The commitments relate to capital infrastructure project expenditure contracted but not yet spent at the end of the financial year

7. PART 2: OVERVIEW OF NON- FINANCIAL PERFORMANCE 29

Alignment of Strategic Objectives 30 Sedibeng Water’s strategic plan is informed by the twelve (12) outcomes that are set out in the National Government MTSF (Medium Term Strategic Framework ( ). The six (6) MTSF outcomes that are specifically relevant to the Minister of Water and Sanitation. The five (5) Strategic Performance Outcomes that constitute the Performance Agreement between the Minister and the President of South Africa. The five (5) specific Ministerial Outcomes are set out below:  Enhanced Quality and Quantity of water resources;  Improve access to basic services;  Maintenance and supply of bulk water infrastructure (to ensure water security);  Effective institutions to address government outcomes; and  Co-operative governance mechanisms designed to achieve government outcomes.

Alignment of Strategic Objectives 31 Sedibeng Water Strategic Objectives and priorities are as follows:  Appropriate treatment of waste water and supply of potable water;  Ensure viability and sustainability;  Create an environment that is conducive to the growth and retention of skills;  Effective and efficient communications; and  Ensure compliance to all legislations, policies, standards and norms.

Alignment of Strategic Objectives 32

Analysis: achievement of performance objectives 33 Achieved Partially Achieved Not Achieved 2013/ / Achieved (100%) Partially achieved (50 – 99%) Not achieved (<50%)

Analysis of annual performance 34 Achieved (100%) Partially achieved (50 – 99%) Not achieved (<50%)

Explanatory notes – Partial Achievement API no Milestones that were not achieved (Partially Achieved) Comments on deviations 7Effective Internal Controls and Risk Management (No repeat or Unresolved Findings) There were no repeat findings but two new findings were not resolved at year end. Both findings relate to collection of debts from consumers. The organisation solicited assistance from National Treasury and the DWS. Sedibeng Water continues to engage WSA’s in an effort to improve debt recovery and has signed payment agreements with all defaulting municipalities. 8Bulk Supply Agreements Concluded with Municipalities/ Other Customers 3 of 11 agreements with municipal consumers have expired and are in the process of being renewed. The contracts have already been handed over to the respective municipalities for their input and signature. 9Improve Financial Ratios3 of the 8 ratios were not achieved. Liquidity Ratio, Debtors Days and Net profit from primary activities targets were not achieved largely due to non payment of accounts from consumers and the higher provision for doubtful debts. 35

STRATEGIC OBJECTIVES AND OUTCOMES AGAINST ACTUAL PERFORMANCE RESULTS FOR JULY 2014 – JUNE Performance Objective Outcomes/ ImpactIndicatorsMeasure Performance Results Comments Target (%) Actual (%) Annual 1. Water Quality Compliance Water quality standards met Test results, SANS 241% compliance96% Free State: - Bacteriological : 99.9 % - Chemical : 99.9% Vaal Gamagara: - Bacteriological : 99.9% - Chemical : 99.9% Namakwa: - Bacteriological :99.9 % - Chemical : 99.9% North West: - Bacteriological : 99.9% - Chemical : 97.7 % Target achieved, SANS 241 prescribes a minimum target of 96%. The water quality tests conducted reflect an achievement of 97% to 99.9%. 2. Non-Revenue Water Reduced levels of unaccounted for water (UAW) Water lost as a % of total water produced %8% Free State : 2.82% Northern Cape :7.81% Target achieved for both regions, The non-revenue water target was achieved following efficiencies achieved in the water purification processes. 3. Reliability of supplyNo unplanned interruptions to supply exceeding 24 hours % number of days’ supply disrupted divided by total number of possible supply days %0Free State : None North West : None Vaal Gamagara : None Namakwa : None Target achieved. No water disruptions were recorded in the various areas of operation from the bulk water reservoirs.

STRATEGIC OBJECTIVES AND OUTCOMES AGAINST ACTUAL PERFORMANCE RESULTS FOR JULY 2014 – JUNE Performance ObjectiveOutcomes /ImpactIndicatorsMeasure Performance Results Comments Target (%) Actual (%) Annual 4. Financial Reporting Compliance Unqualified audit report Annual external audit Qualified / Unqualified Unqualified Audit Opinion Annual only Target achieved. The organisation has obtained an unqualified audit opinion. 5. Staff Turnover Optimal staff retention % of technical staff leaving %4% 2.58% Left Target achieved. The organisation employs effective recruitment and retention strategy policies. 6. Board Member Attendance Improved performance of fiduciary duties/governance Annual attendance%80% 95% of Board members attended the meeting Target achieved. Board members are committed to organisation. 7.Effective Internal Controls And Risk Management No repeat or unresolved findings Internal audit reports Number repeats Number unresolved Target not achieved. 1. The debtors’ collection days remain a challenge due to non-payment by the customers. However, the National Treasury and the Department of Water and Sanitation are intervening. 2. The Debt Management Policy is under review, however, the organisation utilised the Water Services Act and the Public Finance and Management Act.. 8. Bulk Supply Agreements Concluded With Municipalities/ Other Customers Statutory and service level agreements in place Municipalities/other customers with bulk supply agreements %100% 73.3% of service level agreements are active Target not achieved. Four (4) out of eleven (11) contracts with municipalities are not in place. Negotiations with these municipalities are at advanced stages. 9. Improve Financial Ratios Improved viability and sustainability Financial ratiosLiquidity Gross profit margin % (primary activity) times 64.2% 1.46 times 67.52% Target not achieved, due to the higher provision for doubtful debts at year end. Target achieved, due to improved purification processes.

STRATEGIC OBJECTIVES AND OUTCOMES AGAINST ACTUAL PERFORMANCE RESULTS FOR JULY 2014 – JUNE Performance ObjectiveOutcomes /ImpactIndicatorsMeasure Performance Results Comments Target (%) Actual (%) Annual 9. Improve Financial Ratios (continued) Improved viability and sustainability Financial ratios Gross profit margin % (secondary activity) Net profit margin % (primary activity) Net profit margin % (secondary activity) Debt/ Equity ratio Return on assets % Debtors days # 62.70% 9.89% 5.31% times 0.3% 413 days 95.25% 9.41% 12.82% % 471 days Target achieved. Additional implementation fee was received. Target not achieved, due to the provision for doubtful debts made at year end. Target exceeded, due to project management fees and DWS Grant. Target achieved. Increase in reserves through comprehensive income. Target achieved. Surplus increased due to profit on disposal of pipeline. Target not achieved. The debtors’ days are improving after the intervention by the National Treasury and the Department 10. Increase BBBEE Spend Spend increased and increased new entrants % of spend increased and # of increased new entrants % increase # new entrants 85% 12 94% 51 new entrants Target achieved. The organisation called for a supplier database registration in August 2014, resulting in increased new BBBEE suppliers being utilised for procurement purposes

STRATEGIC OBJECTIVES AND OUTCOMES AGAINST ACTUAL PERFORMANCE RESULTS FOR JULY 2014 – JUNE Performance ObjectiveOutcomes /ImpactIndicatorsMeasure Performance Results Comments Target (%) Actual (%) Annual 11. Manage Costs Within The Approved Budget No over expenditure/losses Financial reports% variance5%9.26% Target achieved. Cost savings were achieved through the implementation of the cost containment measures. 12. Capital Expenditure Infrastructure available to meet demands Overall project expenditure within R target % variance95% 164% of the Capital budget is spent at the end of the year. Target achieved. VGG SWEP bypass pipeline was augmented to ensure efficient supply to consumers. 13. Increased Access to Services Contribution to national objectives CAPEX spend /projects CAPEX spend or number of expansion projects R159,7Mil R262 Million of the Capital budget is spent at the end of the year. Target achieved. This includes the RBIG project for the Namakwa pipeline. 14.Engagement in Secondary Activities Extent of involvement Financial reports % of total turnover 15% 12% Involvement in secondary activities Target achieved. The organisation must achieve less than 15% involvement in secondary activities to ensure that the focus is on the core business i.e. Section 29 activities as defined by the Water Services Act. 15. Achieve Statutory Reporting Compliance Reporting compliance achieved Statutory submissions made on time Submission dates met/missed 100% All the submissions to DWA and NT were done on time Target achieved. All the submissions to DWA and NT were done on time 16. Jobs Created Permanent and contract (direct) Total NumberNumber2570 Target achieved. The extension of the area of operation of Sedibeng Water resulted in new recruitment. Temporary (indirect)Total NumberNumber40395Target achieved, The DWS appointed Sedibeng Water as implementing agents for capital projects on its behalf. The appointment resulted in SW appointing 395 indirect workers through the contractors appointed.

STRATEGIC OBJECTIVES AND OUTCOMES AGAINST ACTUAL PERFORMANCE RESULTS FOR JULY 2014 – JUNE Performance ObjectiveOutcomes /ImpactIndicatorsMeasure Performance Results Comments Target (%) Actual (%) Annual 17. Corporate Social Responsibility Initiatives Good corporate citizenship Number of initiativesNumber10 11 Organisations are funded through social responsibility program Target achieved. The organisation has a defined Corporate Social Investment Programme which is aimed at improving the lives of the people in its areas of operation. 18. Training And Skills Development Skills and capacity building Training courses, learner-ships, bursaries Total Number Employees attended training, Target achieved. Training was provided to employees from the newly acquired areas of operations (Mahikeng and Pelladrift). 19. Good Governance Improved controls and risk mitigation Breaches of materiality and significance framework Number0 0 No breaches to materiality and significant framework has been identified Target achieved. No breaches to materiality and significant framework has been identified 20. Involvement in DWS IWSS projects Assist and support water sector initiatives Number of initiativesNumber1627 Projects are conducted by Sedibeng Water on behalf of DWS Target achieved. The Department of Water and Sanitation appointed Sedibeng Water as an Implementing Agent for additional projects during the year.

Corporate Social Investment The following schools and organisations were beneficiaries from Sedibeng Water’s Corporate Social Investment Programme: J.L.V. Echoes Providers  The institution was approved as part of Sedibeng Water’s Corporate Social Investment/ Responsibility programme. The centre is located in Longlands in the Dikgatlong Local Municipal area. The centre caters for senior citizens, people living with HIV/AIDS as well as disabled people. Leboneng Special School  The school is located in the Matjhabeng Local Municipality area under Lejweleputswa District Municipality. The school caters for learners with special educational needs and the main focus of the school’s curriculum is to empower learners with knowledge and life skills that will improve their social functioning. Learners attend school from the age of 7 years till the age of 21 years. The school is based in Welkom. Lesedi Day Care Centre  Sedibeng Water has sponsored a feeding scheme that caters for unemployed families and orphans from Saaiplaas in Virginia.

Corporate Social Investment (cont…) Letlotlo Naledi Public School Sedibeng Water established a feeding scheme and a trust fund to benefit previously disadvantaged learners from Kgotsong in Bothaville. Lokgabeng Centre for the Disabled Sedibeng Water has provided sponsorship towards a feeding scheme and other projects at this centre. The organisation’s involvement is aimed at improving the social, emotional, physical and psychological well-being of disabled and vulnerable people housed at the centre. Learamele School for the Mentally Disabled This school caters for mentally disabled learners from Mothibistad in Kuruman. Sedibeng Water is sponsoring a project aimed at developing the technical skills and arts talent of these learners. Emang Disability Care Centre Sedibeng Water made a sponsorship available to this centre that caters for disabled people in the Wolmaransstad area. Tlhomamo Child Care Centre Sedibeng Water has likewise provided a sponsorship to this centre that provides for orphans and vulnerable children in the Greater Taung area. M.M. Sebitloane Special School for the Disabled A sponsorship was granted to this school that caters for learners with special needs in the Greater Taung area.

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