1. MHLATHUZE WATER Presentation of the 2004/2005 ANNUAL REPORT To Portfolio Committee! Presented by Lawrence Sithole 24 March 2006.

2. OBJECTIVES OF THIS PRESENTATION. 2004/05 Operational Performance! Mhlathuze Operational Area! Mhlathuze Business Philosophy! Challenges & Strategic Focus! To Solicit Political Guidance, Support & National Perspective!

3. OPERATIONAL AREA Mhlathuze Water operational area covers 4 1 / 2 WSA’s in the Zululand area. Mkhanyakude District Municipality. Zululand District Municipality. Uthungulu District Municipality. Mhlathuze Local Municipality. North of Ilembe District Municipality.

4. Mhlathuze Water activities has largely been concentrated around one WSA; namely Mhlathuze Local Municipality. Mhlathuze Water has not manage to service the other WSA’s. MHLATHUZE COVERAGE EFFECTIVENESS OF OPERATIONAL AREA.

5. MHLATHUZE WATER STRATEGIC ALIGNMENT! During the 2004/05 year MW concluded: 1.The alignment and recalibration of its strategic compass…..[Direction/Focus] 2.The establishment of strategic objective [One of which is to serve all WSA’s In its area.] 3.Realigning its strategic apex and board committees.

6. STRATEGIC IMPERATIVES FOR MW! 1.Transformation – Mhlathuze co-existing with its environment [External Focus]. 2.Diversification – Opening up Mhlathuze boundaries. 3.Stakeholder Relations – Creation & maintaining mutually benefiting partnerships with its communities. 4.Value Added Services – Contributing in WSA’s delivering on their mandates.

7. MHLATHUZE STRATEGIC APPROACH Change of philosophy – LG Capacity & Assets Ownership. Partnership and Mutually Benefiting Networks! Provide Solutions rather than Services. Focus on Planning rather than Backlog.

8. OPERATIONAL ACHIEVEMENTS The Laboratory maintaining its South African National Accreditation System [SANAS]. Signing short term contractual agreements and projects implementation agreements with Mkhanyakude DM. Investigation into the long-term solution for the Foskor gypsum disposal. Signing a collective agreement with labour partners.

9. IMMEDIATE CHALLENGES The celebration of 25 th anniversary. Meeting requirements for the ISO 14001 environmental accreditation. The appointment of new Board. Participation in the Provincial bulk water systems. Entering into a long-term service provision agreement with Mkhanyakude DM.

10. WATER VOLUMES INDICATORS! Demand volumes remained constant from 2004. The biggest drop in actual was in transfer volumes. [Mainly due to favourable water level in the lake] There was also a slight decrease in water sales with a slight increases in waste water volumes.

11. FINANCIAL PERFORMANCE There was a slight increase in Revenue [from R133.7 mil to R143.7 mil] mainly due to annual tariff increase. Operating expenditure increased by +R15 [from R84.5 mil to R99.5 mil] mainly due to extra-ordinary maintenance cost on the dense sea outfall system. Profitability remain steady. [MW has to establish a Reserve Policy.]

12. FINANCIAL POSITION Efficiency factors were negatively influenced by the: a)A one-off item of R11.7 mil recoverable from Ticor. b)Increase in trade creditor caused by the delays in billing by DWAF. Other financial positions such as Liquidity and Solvency remain steady.

13. ANNUAL FINANCIAL STATEMENT 2005. The Statements were prepared in accordance with provisions of the PFM Act and the Water Services Act. The Statements were approved by the Board and accepted by the independent auditors as fairly presenting financial performance of MW for the year ended 30 June 2005. The Annual Report has been appraised by DWAF - the following KEY SPECIFIC ELEMENTS WERE RAISED :

14. KEY SPECIFIC ELEMENTS 1.Volumes of water sales dropped by 2.1% between 2004 and 2005. The main contributing factor being the drop in transfer volumes due to favourable water levels at Nsezi Lake. 2.Total revenue grew at an annual average rate of 6.1% over the five year period and by 5.6% between 2004 and 2005. This increase was mainly due to CPIX tariff adjustments. One of MW key strategic objectives is to increase Revenue in real terms on annual basis.

15. KEY SPECIFIC ELEMENTS [Cont:-] 3.All unit costs elements of water sold increased over the five year period. This is due to a combination of decreased in water sales and the fact that MW is starting to spend more on maintenance as we start refurbishing some of our systems. One of MW key strategic objectives is to reduce unit costs by 5%.

16. KEY SPECIFIC ELEMENTS [Cont:-] 4.The average age of receivables has deteriorated from 43.2 days to 49.9 days. The objective is to maintain this factor within 45 days. It is the area MW will need to work on. 5.Operating surplus has deteriorated at a rate of 1% in absolute terms over the five year period. Accepted. This one area of serious concern.

17. KEY SPECIFIC ELEMENTS [Cont:-] 6.Average cash balance has shrunk at an annual average rate of 21% and by substantial 62% in the last year. MW needs to adequately manage working capital and to do proper financial planning. The Board has, however, taken a position to use available cash in the Loan Pool to reduce finance costs and possibly the repayment periods.

18. THE END IN CONCUSION MW, although, financially sound, the short term position (liquidity) will need attention. The following financial indicators will need special attention: The current ratios Working capital ratios Operating ratios