1. MHLATHUZE WATER/AMANZI
PRESENTATION ON THE 2016/17 ANNUAL REPORT
Presented by
Mr Mthokozisi P. Duze
(Interim Chief Executive)
13 MARCH 2018

2. Overview
Mhlathuze Water is one of South Africa’s leading water utilities providing services mainly to the Northern KZN
Area of operation extends to the entire KZN province
Supply raw, clarified and potable water to both municipal and industrial customers
Own and operate one of the biggest off-shore effluent disposal system in the country
Implement water and waste water infrastructure projects on behalf of various government departments.
Provide operation and maintenance services on water and waste water bulk infrastructure to municipal and industrial clients
Operate and maintain Tugela-Goedetrouw Inter-basin Transfer Scheme on behalf of DWS

3. VISION
To be the regional water and waste water service provider of choice for all stakeholders in the water value chain.
MISSION
To provide and expand affordable, sustainable, quality and reliable regional water and waste water services to stakeholders, improve quality of life and contribute to development.
STRATEGIC INTENT:
To support the Government in delivering critical services to the industries and rural communities

4. 4 Balanced Perspectives
6 Strategic Objectives
Outcomes:
All round Customer Satisfaction
Quality Product (Water and Wastewater)
Support and understanding of all stakeholders and customers in the value chain
Environmental and community sustainability
Financial Viability
Optimised operational structures
Adequate water resources
Efficient Leadership and employee base
SO 1:
Grow the provision of water services
SO 3:
Initiate and build relationships with Stakeholders to add value for the mutual benefit of all.
Customer and Stakeholder Perspective
SO 2:
Ensure the long term financial sustainability of the organisation.
Financial Perspective
SO 5:
Optimise business processes and systems.
SO 6:
Be proactive in issues related to environmental compliance and stewardship.
Process Perspective
Organisational Capacity Perspective
SO 4:
Resource the organisation with the required skills and competence to deliver the strategic intent.
Outcomes:
All round Customer Satisfaction
Quality Product (Water and Wastewater)
Support and understanding of all stakeholders and customers in the value chain
Environmental and community sustainability
Financial Viability
Optimised operational structures
Adequate water resources
Efficient Leadership and employee base

5. Core Business (Section 29)
Supply of raw, clarified, potable & waste water services to both municipal and industrial customers, which are:
City of uMhlathuze
Mondi
Foskor
Tronox
RBM
South 32
Mpact

6. Secondary Activities (Section 30)
Operations & Maintenance contracts:
City of uMhlathuze
Tugela Goedetrouw Emergency Transfer Scheme
Ministerial Directives:
Nongoma & Abaqulusi Water Supply Scheme
Royal Household Water Supply
Newcastle Emergency Intervention
Jozini Regional Water Scheme
uMkhanyakude Waste Water Treatment Works Refurbishment
War on Leaks

7. Drought interventions
Highlights
Drought interventions
CoGTA – installation of boreholes, package water treatment plants, provision of water tankers and static tanks, exploring potential for desalination and water recycling
Provision of static tanks and water in eDumbe Municipality
Nongoma and Abaqulisi projects – identification and protection of water sources, and borehole reticulation
Completion of Ingwavuma Waste Water Treatment Works Refurbishment in uMkhanyakude
Jozini Regional bulk water supply project
40 Ml/day WTP completed

8. Independent Audit and Risk Committee
Governance
Accounting Authority
Mhlathuze Water Board was dissolved on 26 April 2017 and the Minister appointed the Interim CEO as an Accounting Authority until the new Board is appointed
Independent Audit and Risk Committee
An Independent Audit and Risk Committee was appointed to oversee all strategic financial and risk matters
Disestablishment
Establishment of one KZN Board in progress

9. Performance Highlights

10. Performance Highlights cont’d
A majority of targets were achieved by the end of the 2016/17 financial year
Out of the 37 planned targets, 24 were achieved, which accounts for 65% of the planned targets
Mhlathuze Water exceeded expected performance; and out of the 24 achieved targets, 12 were exceeded
Only 13 (35%) targets were not achieved

11. Overview of organisational performance
Performance objective
Outcome/
Impact
Performance Indicator
Projected
Target 2016/2017
Actual
2016/2017
Comments
Performance Perspective
Organisational Efficiency and Effectiveness 1.
Bulk potable water quality compliance
Water quality standards met
Test results, SANS 241
≥97%
99.60%
Target exceeded 2.
Manage avoidable water losses
Reduced avoidable water losses in treatment and distribution systems
Avoidable water lost as a percentage of water produced
<5%
3,31%
Target achieved 3.
Reliability of supply
No unplanned interruptions to bulk supply exceeding 24 hours
Number of day’s supply interrupted as a % of possible supply days
<1% 0% 4.
Increased access to services
Contribution to national objectives of extending services
Actual CAPEX spend on expansion related projects (initiatives by the Minister) as % of budget
80%
52,07%
(57%)
Target not achieved, actual project expenditure is 52,07%
57% is the actual expenditure including the savings
Expenditure was
delayed due to the
following reasons:

12. Overview of organisational performance cont’d
Performance objective
Outcome/
Impact
Performance Indicator
Projected
Target 2016/2017
Actual
2016/2017
Comments
The changes in pipework connections to the 20Ml reservoirs and delay in securing a shutdown with Mondi to undertake the tie ins
The award of Mondi Pump station contract was undertaken in June 2017 due to the need to redesign pump station new 20Ml reservoir system
The bottling plant project was reviewed and is currently on hold

13. Overview of organisational performance cont’d
Performance objective
Outcome/
Impact
Performance Indicator
Projected
Target 2016/2017
Actual
2016/2017
Comments
Performance perspective
Financial Performance 5
Financial Reporting compliance
Unqualified audit report
Annual external Audit
Unqualified report with no matters of emphasis (Clean audit)
Qualified
Target not achieved 6
Improve Key Financial Ratios
Improved viability and sustainability
Current ratio
2,33%
2,32%
Target not achieved due to the increase in the retention liability
Gross profit margin % (primary activity)
83%
88%
Target exceeded as a result of a decrease in raw water purchases, due to lower volume consumption attributable to drought restrictions
Gross profit margin % (secondary activity)
17%
31%
Target exceeded due to the O & M contract work done for the City of uMhlathuze that was not budgeted for
% Net profit margin (primary activity) 8% 7%
Target not met due to the drought restriction, which resulted in lower volume consumption and negatively impacted sales.

14. Overview of organisational performance cont’d
Performance objective
Outcome/
Impact
Performance Indicator
Projected
Target 2016/2017
Actual
2016/2017
Comments
Performance perspective
Financial Performance 6
Improve Key Financial Ratios (continued)
% Net profit margin (secondary activity)  1% 2%
Target exceeded due to savings on the overall expenditure of activities as per the Water Services Act, 1997; Section 30 compliance requirements
Debt Equity
0.47
0.25
Target exceeded due to a new loan of R150 million that was not secured as planned
Return on Assets 4%
4% 
Target met
Debtors days
45 days
60 days
Target not met mainly due to debt outstanding from Foskor, RBM, City of uMhlathuze and TG Scheme. Payments were received in July 2017

15. Overview of organisational performance cont’d
Performance objective
Outcome/
Impact
Performance Indicator
Projected
Target 2016/2017
Actual
2016/2017
Comments
Performance perspective
Financial Performance 6
Improve Key Financial Ratios (continued)
Repairs and maintenance as % of PPE and Investment Property (Carrying Value) 2% 3%
Target exceeded due to maintenance that was done at the Pumpstation, A-Line the Weir and the Nsezi WTP.
Staff remuneration as % of total operating expenditure
12%
Target achieved 7
Increase BBBEE expenditure relative to operational projects
Spend increased and increased new entrants awarded contracts in the financial year
% Spend
New entrants
50,10%   
70,02%
Target exceeded, more black companies were awarded tenders as per PPPFA compliance

16. Overview of organisational performance cont’d
Performance objective
Outcome/
Impact
Performance Indicator
Projected
Target 2016/2017
Actual
2016/2017
Comments
Performance perspective
Financial Performance 8
Manage costs within the approved budget
Actual expenditure compared with budgeted expenditure for the year
Financial reports 5% 7%
Target not achieved, due to over expenditure on legal costs, staff costs and audit fees 9
Capital Expenditure
Infrastructure available to meet demands
Overall project expenditure within Rand target
80%  
43%
Target not achieved mainly due to delays in the completion of:
The changes in pipework connections to the 20Ml reservoirs and delay in securing a shutdown with Mondi to undertake the tie ins
The award of Mondi Pump station contract was undertaken in June 2017 due to the need to redesign pump station new 20Ml reservoir system, the bottling plant project was reviewed and is currently on hold.

17. Overview of organisational performance cont’d
Performance objective
Outcome/
Impact
Performance Indicator
Projected
Target 2016/2017
Actual
2016/2017
Comments
Performance perspective
Financial Performance 9
Capital Expenditure
Infrastructure available to meet demands
Overall project completion dates within targets 
85%  
100%
Target exceeded, all projects were completed on time 10
Engagement in secondary activities
Growth in turnover from secondary activities
% of total turnover
55%
56,50%
Target exceeded due to the O & M contract work done for the City of uMhlathuze that was not budgeted for.
Customer/Stakeholder Interaction 11
Bulk supply agreements concluded with municipalities/other customers
Statutory and service level agreements in place
Municipalities/other customers with bulk supply agreements
Target achieved

18. Overview of organisational performance cont’d
Performance objective
Outcome/
Impact
Performance Indicator
Projected
Target 2016/2017
Actual
2016/2017
Comments
Performance perspective
Customer/Stakeholder Interaction 12
Implementation of ministerial directives
New ministerial directives issued are implemented on time
Progress against implementation plan
80%
66,70%
Target not achieved
The ministerial directives are based on a multiyear funding
Nongoma ward 5, 10,11 project:- contractor (MIS Pipeline) abandoning site. Matter under adjudication
Jozini Regional Water Supply Project – Delays experienced on command Reservoir Project
Manguzi WWTW not implemented due to funding constraints after DWS’ departmental budget was cut by National Treasury
Hluhluwe WWTW not implemented due to funding constraints after DWS’ departmental budget was cut by National Treasury

19. Overview of organisational performance cont’d
Performance objective
Outcome/
Impact
Performance Indicator
Projected
Target 2016/2017
Actual
2016/2017
Comments
Performance perspective
Customer/Stakeholder Interaction 13
Support rural development
Total number of identified Municipalities supported
Signed contracts, MOU’s etc 2
Target not achieved, Mhlathuze Water did not sign any contracts 14
Achieve statutory reporting compliance
All statutory reports submitted on time
Submission dates met
100%
Target achieved
Organisational Capacity 15
Staff levels
Optimal staff retention
Staff turnover 8%
4.76%

20. Overview of organisational performance cont’d
Performance objective
Outcome/
Impact
Performance Indicator
Projected
Target 2016/2017
Actual
2016/2017
Comments
Performance perspective
Organisational Capacity 16
Training and skills development
Skills and capacity building
Learnerships 10 8
Target not achieved, the target was 10 and MW appointed nine learners to participate in the programme due to financial constraints. One employee withdrew from the programme
Bursaries employees
Graduate Programmes 25 4 32 3
Target exceeded, seven more employees were awarded bursaries and registered during April – June 2017
Target was not achieved, one graduate resigned during the 4th quarter. 17
Jobs created
Permanent and contract (direct)
Temporary (indirect)
Total number 1
200
1167
Target achieved
Target exceeded due to the high number of projects implemented as per the Water Services Act, 1997; Section 30 compliance requirements

21. Overview of organisational performance cont’d
Performance objective
Outcome/
Impact
Performance Indicator
Projected
Target 2016/2017
Actual
2016/2017
Comments
Performance perspective
General Performance 18
Board effectiveness
Improved performance of fiduciary duties/governance
Board Member attendance of all Board/committee meetings
80%
Target achieved
Decision making: % number resolutions taken by the board vs number of resolutions required
88%
Target exceeded due to special meetings conducted 19
Effective internal controls and risk management
Internal audit findings dealt with
Internal audit reports
Number of repeat findings
Number of unresolved findings 3 1
Target not achieved.
Target not achieved 20
Good governance
Improved controls and risk mitigation
Breaches of materiality and significance framework
<5 6
Target not achieved, materiality breached due to irregular fruitless and wasteful expenditure

22. Overview of organisational performance cont’d
Performance objective
Outcome/
Impact
Performance Indicator
Projected
Target 2016/2017
Actual
2016/2017
Comments
Performance perspective
General Performance 21
Corporate social responsibility initiatives
Good corporate citizenship
Number of initiatives undertaken 4 3
Target not achieved, the requests for the social responsibility initiatives were submitted but not approved
Optional WB Specific Performance Objectives 22
Health and Safety within working environment
Reduced number of disabling injuries
Number of disabling injuries
0,75
0.00
Target achieved

23. Statement of Financial Performance

24. Statement of Financial Position

25. Financial Overview

26. BBBEE/BBE Spend
The target for 2016/2017 was 50.1% of discretionary spend on black owned companies
The actual achieved was 70.02%

27. Tariff Proposal for FY2018/19
Mhlathuze Water met with the Water Service Authority (City of uMhlathuze) as per Circular 23 of the MFMA, and tabled the proposed Tariff increases.
Mhlathuze Water also extended the consultation process to other (industrial) customers.
Mhlathuze Water proposed two sets of Tariffs for Raw Water and Potable Water, one for the Water Service Authority and another one for industrial customers.
The tariff proposed for the Water Service Authority has been discounted as an initiative give back to the community.

28. Proposed Tariff Breakdown for Raw Water

29. Proposed Tariff Breakdown for Potable Water

30. Proposal Tariff Breakdown for Effluent Water

31. 2016/17 Audit Outcome
The Auditor General (SA) has mandated to audit Water Boards commencing from the 2016/17 financial year
A qualified audit opinion was expressed by the AG
Qualification emanated from:
A misstatement of Property, Plant and Equipment
Assets acquired at R1 instead of cost or fair value
Inadequate review of useful lives of assets & determination of fair value
Misallocation between project costs
Irregular Expenditure
R20.1m of irregular expenditure in the current year emanated from a contravention of SCM legislation in the prior periods
R98.1m of irregular expenditure from the previous periods due to not following SCM policies

32. Irregular Expenditure
Irregular Expenditure resulting mostly from:
Tenders advertised for less than 21 days
Contracts awarded without following a competitive bidding process
Irregular appointment of an independent contractor
Contracts register not complete
Bidder’s tax affairs not declared
Not advertising on CIDB for construction projects
Winning bidder’s CIDB not appropriate for the project
Winning bidder not declared local content
Payments made greater than contract value
Deviations not in accordance with NT’s condition of approval
Less than 3 quotations received
Invoice amounts not according to approved BOQ

33. Fruitless & Wasteful Expenditure
FY2016/17 - R237k relates to:
costs incurred on travel & conferencing facilities for a delegate who didn’t attend the conference
FY2015/16 & prior periods – R23.5m relates to:
payments made to various suppliers without approved VOs;
costs were inflated on the BOQ;
payments to suppliers not supported by approved engineer’s certificates

34. Reflections
The Financial Overview has highlighted operational challenges mainly due to the current drought which has exerted a lot of pressure on the financial sustainability of the organisation.
The organisation has however shown great resilience through these turbulent times and remains sustainable in the medium to long term.
Although the impact of the drought is short term, the organisational culture needs to be improved to focus more on better management of operational expenditure and cash flows, prioritisation of capital projects and the driving of the growth strategy.

35. THANK YOU