Annual Report for the 2016/17 Financial Year Magalies Water Board PRESENTATION TITLE Presented by: Name Surname Directorate Date

CONTENTS Part 1: Overview of Financial Performance 1.1. Overview of the Audit Report Part 2: Overview of Non-Financial Performance Part 3: Tariff Management

Part 1: overview of financial performance

Statement of financial performance – audited outcomes: 30 June 2017 2016 Variance R ’000 % REVENUE Revenue from exchange transactions 515 398 429 679 17% EXPENDITURE Employee Costs 135 485 119 663 13% Cost of Sales 322 571 293 670 -9% Operating Expenditure 151 313 127 163 -18%% Depreciation, Amortisation and Impairment 52 469 35 215 48% SURPLUS 95 270 50 977 86%

Statement of Financial Position – Audited outcomes: 30 June 2016 2017 2016 Variance R ’000 % ASSETS Cash and cash equivalents 30 174 36 412 -21% Trade and Other Receivables 279 281 231 088 17% Investments 115 191 110 220 4% Inventory 22 380 23 153 -3% Assets 2 665 540 1 934 455 27% Total Assets 3 149 106 2 376 205 25% LIABILITIES Non-current liabilities 1 508 880 867 517 43% EQUITY 1 338 989 1 243 719 7% Total equity and liabilities

Key Financial Ratios Achieved Not Achieved 2017 2016 Commentary Liquidity: Current Ratio 2 2.3 An amount equivalent to depreciation was transferred from Operations Bank Account to investments; a strategy used to optimally invest for future infrastructure CAPEX Replacement and/or Expansion Programmes. Cash Generated from Operations R585 mil R217mil Positive cash was generated from MWB operations Average Debtors days 55 days 50 Days The Average Debt Collections Days exceeded by 5 days; some Municipalities were sluggish in paying up. Ongoing Stakeholder engagements are intensified particularly because restrictions agreed upon are not yielding the desired outcome (payments). Secondary services to the relevant Municipalities shall continue. Creditors days 30 Days 22 Days MWB Controls have been effective Return on Equity 8% 4% MWB profitably traded from its own operations

Analysis of Expenditure

Analysis of Irregular Expenditure Opening balance - 01 July  145  38 671 Irregular expenditure related to capital expenditure 41 156 63 094 Irregular expenditure related to procurement policy 466 3 039 Irregular expenditure identified during audit 4 616 -   46 383 104 804 Expenditure condoned during the year (41 767) (104 659) 145 Irregular expenditure reported in the previous years but not condoned - R145 000 (a) Non-compliance with Preferential Procurement Regulations Section 4 - R41 million This R41 million was identified in the 2014/2015 financial year as an irregular expenditure on CAPEX; payments were made during the 2016/17 financial year. This the classification is in line with the definition of irregular expenditure in the National Treasury Guidelines. (b) Non-compliance with Procurement Policy - R466 000 This R466 000 relates to various procurement transactions on of goods and services without following proper procurement policy. The employees who transgressed the policies have been subjected to disciplinary process. (c) Irregular expenditure identified during the audit – R3.19million. No National Treasury approval was secured for the R3.19m worth of deviations as per the National Practice note 3 of 2016/2017. A R1.07 million is flagged as irregular; the award process to the preferred bidder was found to be unfair. An other R343 130 relates to the quotations where comparative schedules were done on amounts exclusive of VAT. Investigation will be done in accordance with the National Treasury guideline and action will be taken against the employees who transgressed the regulations.

Fruitless and Wasteful Expenditure Fruitless and wasteful expenditure incurred in the previous financial year was erroneously omitted for condonation. 2016/17 2015/17 R '000 Fruitless and wasteful expenditure Opening balance - 01 July 4 - Expenditure incurred during the year 2016/17

PART 1.1: OVERVIEW OF THE audit report

Analysis: Audit Opinion Annual Trend: Matters Raised Through the Auditor’s Letter to Management 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 Unqualified

Part 2: overview of non-financial performance (PERFORMANCE AGAINST THE SHAreholder compact)

Analysis: Achievement of the Strategic-oriented Goals

Analysis of Performance - Customer and Stakeholder Perspective Achieved Not Achieved Objective Indicators Target: 2016/17 Actual: 2016/17 Achievement indicator Water Quality Compliance Bulk Potable Water quality compliance to SANS 241:2015 Standards Acute 1 ≥ 97% Acute 2 ≥ 97% Chronic health ≥ 95% Aesthetic ≥ 93% Operational ≥ 93% Acute 1 = 99.2% Acute 2 = 99.2% Chronic health = 99.3% Aesthetic = 96.8% Operational = 95.4% Non-revenue Water Percentage Average Water Losses Plant <8% Distribution <5% Plant = 3.35% Distribution = 3.38% Reliability of Supply Loss of Service Exceeding 48 Hrs <15 days 0 days Sales Volumes Number of Kilolitres Sold 84 036 891 Kilolitres 83 145 199 Kilolitres 98,94% or 1,06% below Target

Analysis of Performance - Customer and Stakeholder Perspective Achieved Not Achieved Performance Objective Indicators Target: 2016/17 Actual: 2016/17 Achievement Indicator Increased Access to Services Actual spend on expansion related projects (initiatives by the Minister as a % of Budget) 100% of the DWS allocated funding 61% of the DWS allocated funding Due to 7 months’ work stoppage. Community Issues have since been resolved. Municipalities Bulk Supply Agreements concluded % municipalities with bulk supply agreements 100% Implementation of Ministerial Directives % Progress against implementation plan 0% Achieve Statutory Reporting Compliance % Submission dates met

Analysis of Performance - Finance Perspective Achieved Not Achieved Performance Objective Indicators Target: 2016/17 Actual : 2016/17 Achievement Indicator Achieve Sustainable Financial Returns Current Ratio 2 Gross Profit Margin 16% 24% Net Profit Margin 10% 19% Return on Assets 4% 5% Debtors Days 50 days 55 days Repairs & Maint. as % of PP& E 1.2% 3% Staff Costs as a % of OPEX <30% 29% Compliance to Financial Reporting / Audit Report Unqualified Increase Operational Expenditure i.r.t Operational Projects % of CAPEX Contracts awarded to BBBEE 40% 48% Engagement in Secondary Activities % of total turnover 0% # Rural Municipalities Identified for Support Signed MOUs 3 Capital expenditure programme %Overall Capital Projects completed in target milestones >90% 63%

Analysis of Performance - Processes Perspective Achieved Not Achieved Performance Objective Indicators Target: 2016/17 Actual: 2016/17 Achievement Indicator Board Effectiveness % Board Members Meetings: Attendance to all Board / Committees 85% 96% Decision making (Resolutions): % Required vs. Passed 100% Effective Internal Controls & Risk Management # Internal Audit Findings   0 Repeat 5 Unresolved Good Governance Breaches of Materiality & Significance Framework 0 Breaches Corporate Social Responsibility #Initiatives Undertaken 4 Programmes 8 Programmes

Analysis of Performance - Learning and Growth Perspective Achieved Not Achieved Performance Objective Indicators Target: 2016/17 Actual: 2016/17 Achievement Indicator Staff levels Staff turnover <3% 1.63% Jobs Created Total # Direct 20 41 Total # Indirect 50 90 Total # Graduate Programme 3 4 Training and Skills Development Training Courses Bursaries, Internships, Learner-ships, Internal & External Bursaries: 10 Internships:10 Learnerships NQF Level 2: 10 NQF Level 3: 20 Internships: 11 NQF Level 3: 15 Safety of Employees Disabling Injury Frequency Rate <1 0.85 Increase BBBEE Spend  % of CAPEX Contracts Awarded to BBBEE Companies 40% 48%

Part 3: TARIFF MANAGEMENT

Funding Philosophy Magalies Water Board is a Self-funding Entity No reliance on National Government Grants or Subsidies for operations The entity operates on a commercial business principles’ basis Has adequate reserves to continue as a going concern Entity

Considerations in Tariffs Determination Water Tariffs / Pricing: The increase in the price of raw water is determined in line with the DWS’s National Raw Water Pricing Strategy. National Treasury’s Inflation targeting parameters Affordability of the End Users MWB’s Financial sustainability i.e., costs of operations, maintenance of infrastructure, equipment and plants as well as the capital tariffs factors Capital tariffs to make provision for current and future capital expansion Cost drivers towards competitiveness, as informed by the market forces, i.e., consideration of the prevailing economic conditions.

Proposed tariffs – 2017/18 Proposed Tariffs adjustments for each of the four (4) MWB Schemes were as follows: Plant 2017/18 R/KL % Increase 2016/17 Vaalkop 5.79 9% 5.28 12% Wallmannsthal 9.19 8.38 Klipdrift 6.98 10 % 6.33 Cullinan 6.57 6.02 10%

Tariffs Determination Process – 2017/18 Tariffs Adjustments for raw water took into account the inputs from the following elements Consultation processes that were carried out with customers in compliance with Section 42 of the MFMA. Incorporation of the written comments received from the WSA’s and other stakeholders into the decision making process. End User affordability which is considered through the efficiencies extracted from our operations In summary, MWB Tariffs are independently determined per MWB’s Bulk Water Scheme; four of them as shown in the previous slides.

CONCLUSION MAGALIES WATER

SUMMARY – 2016/17 FIN. YR PERFORMANCE Strategically, 88% of its pre-determined strategic objectives set for the year were achieved; an improvement for the previous year that - hopefully – all our stakeholders, are proud of. Financially, we submitted to our Shareholder an unqualified audit and a ‘bankable’ R95mil this past financial year Socio-economically (Learning and Growth) , through job creation, bursaries and other CSI-typical interventions, we nudged the plight of the poor – be it in terms of eradicating poverty, unemployment and others ills – towards achieving a prosperous South Africa, as part of the collective. On our core process and people, safety in operations for all business partners and staff, property and planet earth have been prioritised. To our staff / critical assets, we kept to our mission to move our 0.85 DIFR recorded towards a zero in the near future; we rolled out some interventions to protect the environment further as well. Underachievement dampened our spirits; but we are back on course. Water is life and we delivered 1,06% less ‘life’ / water than we planned; we are definitely not happy that we could not achieve our target. Communities are back on-board and through engagements, the 12% of unachieved strategies will be dealt with.

Thank you