1. PRESENTATION OF 2011/2012 ANNUAL REPORT TO PCWEA
MHLATHUZE WATER
Environmental sustainability – we are committed to making a difference
PRESENTATION OF 2011/2012 ANNUAL REPORT TO PCWEA
Presented by
Mr A.S. Makhanya (Acting Chief Executive)
17/18 April 2013

2. Content Graphical area of supply Overview of MW MW Performance 2011/12
KPI’s
Audit Report
Financial Performance
Capital Expenditure
Strategic Objectives 2012/13
Tariff Increase 2013/14
Mid-year Performance 2012/13
Strategic Objectives 2013/14
Strategic Outcomes 2013/14
Top 10 Risks
PAIA & PAJA Implementation
17/18 April 2013

3. GRAPHICAL AREA OF SUPPLY
ILEMBE
uMkhanyakude
ZULULAND
uTHUNGULU
17/18 April 2013

4. 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
North of ILembe District Municipality
Supply Bulk Water and Sanitation services to Industries & Water Services Authorities in its area of operation
17/18 April 2013

5. Performance Objective
ANNUAL REPORT 2011/2012
Performance on Key Strategic Objectives:
Item
Performance Objective
Target 2011/12
Achievement
Comments 1.
Water quality compliance
99% - microbiological parameters
95% - chemical parameters
100%
99.9%
Target met 2.
Reliability of supply
1% interruptions
0% interruptions
(>8 hours) 3.
Water losses 5% 2% 4.
Financial reporting compliance
Unqualified audit report
17/18 April 2013

6. Performance Objective
ANNUAL REPORT 2011/2012
Performance on Key Strategic Objectives:
Item
Performance Objective
Target 2011/12
Achievement
Comments 5.
Staff turnover 5% 8%
Target not met 6.
Bulk supply agreements with customers
100%
Target met 7.
Financial ratio’s
Current ratio – 2.5
Debtors days – 30 days
Asset turnover – 6%
2.62
42 days
(Against 45 days)
6.75%
Acceptable 8.
Increase BBBEE spend
Maintain above 51%
Achieved 83%
Target exceeded by 32%
17/18 April 2013

7. ANNUAL REPORT 2011/2012 (Cont.) Audit Report:
Deloitte and Touché in partnership with Nkonki Incorporated were appointed for the 2011/2012 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 Unqualified Audit Opinion for the 2011/2012 year.
There were no significant deficiencies in internal controls.
17/18 April 2013

8. ANNUAL REPORT 2011/2012 (Cont.) Annual Financial Statements:
Revenue increased by 12% for 2011/2012YE (mainly due to tariff increases).
Staff cost increased by 6% from the previous year mainly due to annual salary increase of 8%.
Energy cost increased by 20% due to electricity price increase (Eskom & City of Mhlathuze).
Maintenance costs increased by 166% mainly due to maintenance done to the A Line for loss arising out of storm damage and to correct and maintain the offshore pipeline system in an acceptable and reliable operating condition.
Depreciation charges increased by 48% due to the commissioning of Nsezi upgrade and the Empangeni Phase 2 project.
Net finance cost increased due to projects which were commissioned during the year.
Saving on chemicals of 24% was due to better quality of raw water abstracted from the river, lesser chemicals used in the purification process.
17/18 April 2013

9. ANNUAL REPORT 2011/2012 (Cont.) Key Financial Ratios: Ratio Standard
Actual 2010/11
Actual 2011/12
Notes
Working Ratio
<1
0.58
0.68
Adequate
Operating Ratio
>0.75
0.69
0.80
Average Debt Collection Period
40.46
41.95
Return on Asset
8.9%
6.75%
Current Ratio
>1.1
2.60
2.86
Quick Ratio
2.55
2.82
EBITDA
>1.5
16.30
4.11
Debt Coverage Ratio
>1.35
11.11
Debt Equity Ratio
1.51
1.20
Personnel Ratio
<0.60
0.31
0.27
17/18 April 2013

10. CAPITAL EXPENDITURE 2011/2012 Cost centre Project Name Budget
Spent /Committed YTD
Variance/
Savings
% Project Completion
Comments
R'000
001
Weir Pumps Upgrade
(Total Budget R27 million)
5,570
2,577
2,993
100%
Complete
002
Nsezi WTP Expansion
(Total Budget R177 million)
21,050
17,030
4,020
Nsezi Refurbishment
20,891
14,066
6,825
67%
Completed 12/13
011
Empangeni Connection
(Total Budget R43 million)
4,193
1,427
2,766
Other small Capital Items
9,558
11,505
(1,947)
Total revised budget
61,262
46,605
14,657
76%
17/18 April 2013

11. STRATEGIC OBJECTIVES 2012/2013
Perspective
Objective
Outcome
Customer
Meet customer requirements i.t.o. quantity, quality, reliability, timeframe and affordability
Quantity supply meets quantity demand
Quality-Meeting SANS241 level and waste water permit requirement
Reliability and timeframes –meet contractual obligation
Affordability – Shareholder approves tariff
Implement a plan to solve dense effluent pipelines operation
Plan submitted
Finance
Optimize financial resources, financial structure, financial risk and financial cost
Benchmark Financial Status
Develop Financial Plan
Implement Financial Plan
Sustainable Financial Entity
Financial risk within parameters
Unqualified Audit Opinion
Process
Optimize processes and systems to deliver outputs with minimal possible resources
Overall efficiency study
Effective Asset Management
Develop optimization plan
17/18 April 2013

12. STRATEGIC OBJECTIVES 2012/2013
Perspective
Objective
Outcome
People
Optimize contribution of Human Resources to deliver Corporate Objectives
Design optimal Structure
HR Plan
Benchmark Productivity
Fully Implementation
Develop Culture Diversity program
Stakeholder
Provide affordable water services delivery and address water services backlog, within constraint of sustainability
Shareholder acceptance as reflected in signed Shareholder compact
Supporting expansion, meeting future demand and meeting water services backlog
Obtain buy-in from WSA’s to bulk infrastructure plan
Delivery of required Other Activities
Quality, continuous, affordable water supply
CSI plan with appropriate impact
Job creation
Job Creation plan
Economic growth/poverty alleviation
Leverage resources into infrastructure
Manage water resources effectively
Water conservation/water demand management plan
17/18 April 2013

13. STRATEGIC OBJECTIVES 2012/2013
Perspective
Objective
Outcome
Manage water resources effectively
Water conservation/water demand management plan
BBBEE Contribution
BBBEE Certification level
Set target for BBBEE
51% of Procurement from qualifying BBBEE suppliers
Environment
Conserve environment
Overall Environmental Plan
Minimize the impact of pollution
Minimize carbon footprint
Monitoring current and future pollution
17/18 April 2013

14. MID-YEAR PERFORMANCE 2012/2013
All quarterly reports submitted to all stakeholders.
Surplus of R37,1 million comparing to budgeted surplus of R20,7 million, positive variance of R16,4 million.
Complied with water quality standards.
100% reliability of supply, no unplanned interruptions.
Staff turnover 2%, target of 5%, positive variance of 3%
Return on assets 9.1% against 5.7%.
BEE of 69% against 51% target.
Outstanding debtors days 44 days against budget of 30 days (contributors are the City of uMhlathuze and DWA on the Tugela/Goedetrouw TG scheme).
17/18 April 2013

15. MID-YEAR PERFORMANCE 2012/2013
Capital expenditure at 45% of budget (incl. Committed)
No fruitless and wasteful expenditures or unauthorised expenditure incurred during the period.
Internal audit conducted as per annual plan.
Enterprise Risk management activities are in progress.
Budget R’000
Actuals & Committed R’000
Variance R’000 %
Internal Projects
62 398
77 113
45%
External projects
56 051
86%
17/18 April 2013

16. BULK WATER TARIFF INCREASE 2013/2014
Raw Water
Purified/ Potable Water
A-Line
(Buoyant Effluent)
B-Line
Approved Tariffs
8.4%
8.6%
Energy increase
(Still waiting final increase from Local Municipality) 8%
(Eskom)
12%
(City of uMhlathuze)
Estimate %
R/m³ (2012/13)
1.31
3.07
1.01
3.35
R/m³ (2013/14)
1.42
3.33
1.10
3.64
R/m³ (2014/15)
1.55
3.63
1.20
3.97
17/18 April 2013

17. BULK WATER TARIFF INCREASE 2013/2014 (Cont.)
A General tariff consultation meeting was held on the
30 November 2012 with City of uMhlathuze.
Thereafter consultation with individual consumers was undertaken.
The tariff increase proposal was submitted on 03 December 2012 to National Treasury and SALGA and recommendation was received during January 2013.
The consumers noted the proposed increase as indicated above.
Tariffs will be tabled in Parliament by Minister.
17/18 April 2013

18. KEY STRATEGIC FOCUS AREA FOR 2013/2014
Perspective
Objective
Outcome
Customer
Meet customer requirements i.t.o. quantity, quality, reliability, timeframe and affordability
Quantity supply meets quantity demand
Quality-Meeting SANS241 level and waste water permit requirement
Reliability and timeframes –meet contractual obligation
Affordability – Shareholder approves tariff
Implement a plan to solve dense effluent pipelines operation
Viable plan Implemented
Finance
Optimize financial resources, financial structure, financial risk and financial cost
Benchmark Financial Status
Develop Financial Plan
Implement Financial Plan
Sustainable Financial Entity
Financial risk within parameters
Unqualified Audit Opinion
17/18 April 2013

19. KEY STRATEGIC FOCUS AREA FOR 2013/2014
Perspective
Objective
Outcome
Process
Effective Asset Management
Develop Asset Management Plan
People
Optimize contribution of Human Resources to deliver Corporate Objectives
Design optimal Structure
Implement HR Plan
Implement Productivity Study recommendations
PMS - Identify gaps and address accordingly
Implement Culture Diversity program
Environment
Develop and Implement Climate Change Adaptability Plan
Reliable water supply in the face of climate change
Implement Environmental Plan
Stakeholder
Provide affordable water services delivery and address water services backlog, within constraint of sustainability
Supporting expansion, meeting future demand and meeting water services backlog
Quality, continuous, affordable water supply
Economic growth/poverty alleviation
Job Creation
Manage water resources effectively
Shareholder acceptance as reflected in signed Shareholder compact
Obtain buy-in from WSA’s to bulk infrastructure plan
Delivery of required Other Activities
CSI plan with appropriate impact
Leverage resources into infrastructure
Job Creation plan
Water conservation/water demand management plan
17/18 April 2013

20. ALIGNMENT TO DWA OUTCOMES
DWA Strategic Outcome(2013/2014)
MW Strategic Outcome (2013/2014) 1
Contribute to economic growth, rural development, food security and land reform.
Contribute to economic growth and poverty alleviation. B-BBEE contribution and job creation. Corporate social responsibility. 2
To promote sustainable and equitable water resources management.
Provide and extend bulk water and related services and manage water resources effectively. 3
Strengthening the regulation of the water sector.
Conserve the environment. Minimise impact of pollution. Minimise carbon footprint. Monitor pollution. 4
Support local government to deliver water services.
Provide affordable water services delivery and address backlog within constraint of sustainability. Support expansion and meet future demands. 5
Contribute to improved International Relations.
Develop and implement climate change adaptability plan. 6
Build capacity to deliver quality services.
Optimise contribution of human resources to deliver corporate objectives.
17/18 April 2013

21. Top 10 Risks 17/18 April 2013 Risk no. Risk name 1
Infrastructure failure 6
Damage Increasing input cost (electricity, raw water, fuel, staff, chemicals) 2
Current BBBEE rating (Level 6) 7
Skills Shortage in the water environment 3
Increased Competition 8
Fraud and corruption 4
Effective and Efficient Procurement 9
Funding constraint 5
Environmental Damage 10
Availability of water in terms of quality and quantity
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22. PAIA & PAJA PAIA – Fully Implemented PAJA – Still in progress
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23. THANK YOU
17/18 April 2013