Presentation to Portfolio Committee Provide bulk water and sanitation services to improve quality of life and enhance sustainable economic development Presentation to Portfolio Committee March 2017

Stakeholder Perspective FINANCIAL PERSPECTIVE Umgeni Water Strategy VISION Leading water utility that enhances value in the provision of bulk water and sanitation services Deliver on our mandate MISSION Provide innovative, sustainable, effective and affordable bulk water and sanitation services Overarching mission and mandate is to provide innovative, sustainable, effective and affordable bulk water and sanitation services. Strategy, which is aligned to national government outcomes, comprises: Four (4) strategic goals, Nine (9) Strategic, Ten (10) Outcomes. Overall, Umgeni Water has achieved excellent performance. STRATEGIC INTENT Key Partner that enables government to deliver effective and efficient bulk water and sanitation services BENEVOLENT INTENT Provide bulk water and sanitation services to improve quality of life and enhance sustainable economic development 4 Balanced Perspectives 9 Strategic Objectives Customer and Stakeholder Perspective Co-create value with our customers and stakeholders SO1: Increase services and customers SO2: Increase customer and stakeholder value FINANCIAL PERSPECTIVE Maintain and leverage our solid financial assets SO3: Increase mobilisation of funds SO4: Increase financial sustainability SO5: Improve financial ratios PROCESS PERSPECTIVE Create effective and resilient enterprise architecture - our processes, systems and technologies SO6: Improve service delivery systems ORGANISATIONAL CAPACITY PERSPECTIVE We will enable our people, secure water resources and ensure infrastructure capacity SO7: Improve and increase infrastructure assets SO8: Increase water resources sustainability SO9: Increase skills and competency

Overall Organisational Performance 2015/2016 Performance Trend

Product Quality (Water and Wastewater) Excellent drinking water quality - the SANS 241 standard at all water treatment works Seventeen (17) water treatment works (WTW) Four (4) small WTW were acquired during the year Nine (9) wastewater treatment works (WWTW), Darvill WWTW is the most significant Five (5) small WWTW were acquired during the year Darvill WWTW capacity upgrade is a flagship project Completion scheduled for 2017 There is consistent investment in maintenance R169 million spent in past year and R780 million over past five years. On average: 7.3% of revenue or 3.5% of PPE.

Stakeholder Understanding and Support All stakeholder engagement plans were successfully met in the year Full spectrum of statutory, strategic, contractual and non-contractual stakeholders. Umgeni Water is closely aligned to agenda of government Collaboration enhanced through Joint Operating Committees JOCs in the North Coast, South Coast and Mgeni systems. Initiatives included: Management to extend the duration of available supplies Planning and implementation of Water Savings Plans Daily dissemination of data, information and targets Media and communication campaigns

Community and Environmental Sustainability Make our procurement accessible to Black Economic Enterprises Participation in Capital Infrastructure Investment Programme Participation in other supply and services opportunities CPG target set at ≥ 35% Includes construction contracts and professional services Total award ≥ R2 bn since the initiative started in 2013 The introduction of the programme has changed the procurement culture both within the entity and in the supplier domain. This will continue to enable meaningful economic participation.

Community and Environmental Sustainability Umgeni Water created a total of 1514 temporary jobs from its Capex Programme A total of R39.7 million was paid in wages to local labour The trend in job creation has been progressively increasing over the years

Infrastructure Stability Significant progress with capital infrastructure implementation - new bulk water supply scheme, refurbishments and upgrades. Spend performance was just over R2 billion (R1.69 billion in 2015). R967 million (48%) was spent on projects furthering rural development. A commendable 93% of target water infrastructure project milestones were met.

Water Resources Adequacy Imvutshane Dam (UW) has been commissioned, although impoundment not successful due to the drought, uMkhomazi Water Project (DWS and UW) feasibility study which commenced in the prior period is complete, Hazelmere Dam raising (DWS) construction phase commenced, Lower Thukela Project (UW) construction almost complete and commissioning will start in mid-2016/2017, Lower uMkhomazi Bulk Water Supply Scheme (UW) feasibility study complete and a detailed design will follow, East Coast Desalination Plants, detailed feasibility study is complete. Umgeni Water works collaboratively with the Department of Water and Sanitation to plan and implement water resources infrastructure. Progress was made with several water resource infrastructure developments:

Optimisation and Resiliency Operational Optimisation and Resiliency Strategic risks are well aligned to its strategy. Of a total of ten (10) strategic risks, nine (9) have been managed to reasonable / good control strength levels. One strategic risk is outside risk appetite and tolerance level - short-term water resources availability - mitigated through emergency water transfer schemes and implementation of water rationing Emergency schemes implemented: A transfer scheme from the Hlimbitwa River to supply the Maphumulo Bulk Water Supply Scheme, A transfer scheme from the uThongathi River to supplement Hazelmere Dam, A transfer scheme from the Mpambanyoni River to the South Coast EJ Smith Dam, A transfer scheme from St Isidore Dam to Ixopo Dam, and A transfer system from a borehole to the Hospital Water Treatment Works at Applesbosch.

Leadership and Employee Development A total of 103 employees successfully completing these programmes Emerging Management Programme (EMP). Senior Management Development Programme (SMDP) Management Development Programme (MDP) Progress with skills development programmes during the reporting period included: employee training, development and assisted education Fifty-seven (57) learnerships and apprenticeships Thirty-nine (39) graduate trainee and Internships Thirteen (13) students in the bursary programme

Revenue increased by R155m, 7% yoy Bulk water revenue 5% : 7.8% bulk water tariff increase combined with a 2.5% reduction in sales volumes 7% Reduction in sales volumes driven by the drought. 2.5%

Cost of sales increased by R90m, 9% yoy 6% Average price increases of 8% offset by lower usage resulting from optimisation in chemical dosages as well as lower volumes of water treated. Please add text here … 17% Average tariff increase of 12.7% coupled with additional pumping to assist with alleviating the drought.

Cost of sales increased by R90m, 9% yoy cont.… The reduction is mostly due to renewals which were capital in nature which were capitalised to PPE, R32m. 10% 18% Increases in the staff complement - new contracts for the O&M with UMDM, average salary increases for the year were 8%.

Cost of sales increased by R90m, 9% yoy cont.… 2% Raw water costs reduced by 2% as a result of the lower volumes abstracted due to the drought. Average tariff increase for the year was 5%.

Other operating and administration expenses increased by R110m, 18% yoy Higher impairments on property, plant and equipment of R133m (2015: R90m), increased consulting fees and licence costs.

Consolidated statements of profit & loss

Property plant & equipment increased by R1 536m, 20% yoy Achieved an unprecedented R2 Billion Capex Spend Spend on development projects totalled R967m (2015: R799m), upgrades R788m (617m). 20% Debtors days are slightly lower than the prior year and within the target of 42 days set for 2016.

Statement of Financial Position - Assets R267m 25% improvement

Gross borrowings increased by R857m Underutilisation R369m The UG26 bond was issued in March for R935m, while R78m loans were repaid. The UG26 bond of R935m was issued in March 2016 which contributed to the deterioration in the debt to equity ratio. Loan covenants remained unbreached, interest cover ratio was 4.50 (2015: 5.93)

Statement of Financial Position – Equity & Liabilities 5yr capex programme R3.6bn

Cashflow from operations vs cash used in investing activities Shortfall of R610m The shortfall was funded by financing activities which totalled R616m (2015: R543m) through the issuance of the UG26 bond of R935m.

Statement of Cashflows

PROGRESS ON THE MERGER OF THE TWO WATER BOARDS The progress is as follows: The Minister of Water and Sanitation (DWS) appointed an Independent Transitional Committee to oversee the processes that will lead to the establishment of the single Water Board in Kwazulu-Natal. The Minister has approved that the following seven (7) members serve on the Independent Transitional Committee: The Committee reports to the Minister of Water and Sanitation (through the Department). The Chairperson will brief the Committee on progress made thus far. Panel Member Designation in the Transitional Committee Designation Ms D Myeni Chairperson Chairperson of Mhlathuze Water Mr A Mahlalutye Deputy Chairperson Chairperson of Umgeni Water - Ordinary member KZN Premier Representative Ms N Magewu KZN MEC of COGTA Representative Mr A Singh DWS Representative Ms T Sigwaza Ms V Pillay

LOOKING AHEAD The strategy going forward encompasses:- Remaining financially sustainable within the difficult operating environment as the drought continues Delivering on our capital expenditure programme to deliver crucial bulk water infrastructure in line with the shareholder compact and service delivery mandate. prioritisation of capex projects in this difficult time and increased efforts to secure grant funding, managing controllable costs and continuing to partner closely with its customers and shareholder to manage the risks and impact of the drought. uphold our strong Financial Controls and full compliance with laws and regulations in order to maintain our Clean Audit Report thereby maintaining Investor and Stakeholder confidence