1. PRESENTATION TITLE Presented by: Name Surname Directorate Date MHLATHUZE WATER Annual report for the 2014/15 financial year Presented by: Mr. Brian Ndaba Chief Financial Officer 24 February 2016

2. GRAPHICAL AREA OF SUPPLY 2

3. 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 3

4. ANNUAL REPORT 2014/2015 Audit 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. 4

5. Corporate Performance Scorecard 2014/15 5 Performance Objective Outcomes /Impact IndicatorsMeasureTarget 2014/15 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% 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.

6. Corporate Performance Scorecard 2014/15 cont.. 6 Performance Objective Outcomes /Impact IndicatorsMeasureTarget 2014/15 Actual 14/15 Comments/Corrective Action 7.Effective Internal Controls And Risk Management No repeat or unresolved findings Internal audit reports Number repeatsNo repeats findings Target met Number unresolved No unresolved findings Target met 8. Bulk Supply Agreements Concluded With Municipalitie s/ Other Customers Statutory and service level agreements in place Municipalitie s/other customers with bulk supply agreements %100% Target met. 9. Improve Financial Ratios Improved viability and sustainabilit y Financial ratios Liquidity1.601.88Target exceeded Gross profit margin % (Primary Activities) 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 ratio0.470.45Target met Return on assets %8.2%9.00%Target exceeded Debtors days #45 days34.98Target exceeded

7. Corporate Performance Scorecard 2014/15 cont.. 7 Performance Objective Outcomes /Impact IndicatorsMeasureTarget 2014/15 Actual 14/15 Comments/Corrective Action 10. Increase BBBEE Spend Spend increased and increased new entrants % of spend increased and # of increased new entrants % increaseMaintain above 51% of discretionary spend 60%Target exceeded # new entrants 20 new entrants 98Target exceeded 11. Manage Costs Within The Approved Budget No over expenditure/losse s Financial reports% variance5% (over/under budget) 2% over budget Within target 12. Capital Expenditure Infrastructure available to meet demands Overall project expenditure within R target % variance75% spent 84.79%Target met. Overall project completion dates within targets % variance80%90%Target exceeded. 13. Increased access to Services Contribution to national objectives No. of new projects DOE & DBE DWS DEA 144 (based on the number of schools) 15 3 76 DOE 15 3 Target not met. 39 DOE projects were cancelled due to the fact that the budget was retracted by DOE. Target met.

8. Corporate Performance Scorecard 2014/15 cont.. 8 Performance Objective Outcomes /Impact IndicatorsMeasureTarget 2014/15 Actual 14/15 Comments/Corrective Action 14. Engagement in Secondary Activities Extent of involvement % 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 3 rd 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 CreatedPermanent and contract (direct) Total Number of jobs created Number 5 118Target exceeded. (Due to the transfer of CoU Staff) Temporary (indirect) Total NumberNumber500 768Target 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 108118Target exceeded.

9. Bulk water volumes Bulk 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. 9

10. Bulk water volumes by customer 10

11. Tariff increase Raw water and Purified water The graphs on tariffs for the 2 major Water schemes shows a downward trend for the past five years. 11

12. Tariff increase Buoyant and Dense waste water The graphs on tariffs for the two Waste water schemes shows a downward trend for the past five years. 12

13. Revenue per Business segment Although 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. 13

14. ENERGY COST Energy 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 drought situation in the KwaZulu-Natal area. 14

15. Maintenance materials Maintenance 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%) 15

16. Chemicals/Purification Chemical costs increased by 65% mainly due to the increase in water demand resulting in more chemicals being used. 16

17. Depreciation/amortisation Depreciation 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. 17

18. Staff cost Staff 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. 18

19. Other operating expenses Other 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. 19

20. Net Finance cost Net finance costs decreased by 86% due to increased investments and interest income thereon. 20

21. Financial Performance 2014/2015 Mhlathuze 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. 21

22. Cash flows from operating activities Net 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. 22

23. Cash flows utilised in investing activities Net 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 23

24. Cash flow from financing activities Net cash utilised in financing activities increased by 3% mainly due to loan repayments. 24

25. Cash balances Sufficient short term investments are held to fund Capital commitments. 25

26. Borrowing limits The 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. 26

27. 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. 27

28. Supply Chain Management Total 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. 28

29. Employment Equity profile 30 June 2015 This 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. 29

30. 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

31. 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

32. MID-YEAR PERFORMANCE 2015/2016 Capital Expenditure  Capital 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  2 nd 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. 32

33. THANK YOU 33 Presentation to PCWS