1. Annual report for the 2017/18 financial year
Magalies Water
13 March 2019

3. CONTENTS
Part 1: Overview of Mandate and Strategy
Part 2: Overview of Financial Performance
Part 3: Overview of Performance (SHC)
Part 4: Performance Trend Analysis
Part 5: Tariff management
Part 6: Debt Challenges and Measures Instituted
Part 7: Infrastructure Expansions
Part 8: Growth Trajectory & Partnerships

4. Part 1: overview of MANDATE AND STRATEGY

5. The Mandate of Magalies Water

6. Magalies Water Footprint
Operates in an area of km2 across three provinces
North West, Limpopo and Gauteng
Raw water supplied from two major catchments
Crocodile and the Pienaars River
Total raw water abstraction license is Ml/a
306 employees
Technical expertise and skills include:
Engineering & Technical experts
Planning Engineering, Project Management & Design Engineering
Water & Scientific Services

7. Bulk Water Services Infrastructure
Name
Design Capacity (ML/day)
Pipeline length (km)
Reservoir storage capacity (ML)
Vaalkop WTP
270
544
271
Klipdrift WTP 42
150 11
Cullinan WTP 16 10
Wallmannsthal WTP 12 36 32
Total
340
740
314

8. Key Customers: Water Services Authorities
Municipality
Vaalkop
Klipdrift
Wallmanns -thal
Cullinan
Moses Kotane Local Municipality X
Rustenburg Local Municipality
Thabazimbi Local Municipality
City of Tshwane Metropolitan Municipality
Modimolle-Mookgopong Local Municipality
Bela Bela Local Municipality

9. Five Year Corporate Plan (2013/14 – 2018/19)

10. Key Successes
Implementation of a capital expansion programme to meet the prevailing water demand and address the current water shortages
Collaboration with Stakeholders from both the Private and the Inter-Governmental sectors to deliver on infrastructure expansions
Total asset value increased to an amount of R3.36 Billion to enhance the water services delivery capacity of Magalies Water
Growth in water sales volumes to above 90,6 Billion Litres/annum, and the subsequent growth in revenue generated to R586 Million
Ability of Magalies Water to generate positive cash flows from operations

11. Strategy Implementation Challenges
There are still Communities within Magalies Water’s area of supply who do not have access to water services (No bulk footprint in Kgetlengrivier LM; Madibeng LM; and Lephalale LM)
Infrastructure capacity constraint to supply the growing population and meeting the prevailing demand
Funding constraint to execute infrastructure expansion to address capacity constraints:
Pilanesberg Phase 2- Rustenburg & RBA and MKLM;
Phase 3-Kgetlengrivier LM;
Moretele South Bulk Project- Moretele LM;
Klipvoor Bulk Scheme-Moretele north, Bela-Bela; Modimolle-Mookgopong LM)

12. Part 2: overview of financial performance

13. Statement of Financial Performance (Audited outcomes: 30 June 2018)
2017
Variance
REVENUE
Revenue from exchange transactions
14%
Other operating income
43 675
36 266
20%
Investment income
21 817
18 363
19%
EXPENDITURE
Employee benefits costs 5%
Operating expenditure
13%
Depreciation, amortisation and impairment
77 469
60 884
27%
Finance costs
157
-100%
SURPLUS
92 174
25%

14. Statement of Financial Position – Audited outcomes: 30 June 2018
2017
Variance
ASSETS
Current Assets
Cash and cash equivalents
7 649
30 174
.75%
Receivables from exchange transactions
46%
Financial Assets
-5%
Inventory
26 096
22 380
17%
Non-current Assets
Property Plant and Equipment 4%
Intangible Assets
33 465
36 540
-8%
Total Assets 7%
LIABILITIES 5%
Current Liabilities
28%
Payables from exchange transactions
Non-current liabilities 1%
Financial Liabilities: Deferred Income
EQUITY 9%
Accumulated Surplus
Total equity and liabilities

15. Key Financial Ratios Liquidity: Current Ratio 1.6 2.0
2018
2017
Commentary
Liquidity: Current Ratio
1.6
2.0
Liquidity decreased due to collections from debtors and funds utilised for Capex programme.
Cash generated from operations
R107million
R586million
Positive cash was generated by Magalies Water from its own operations
Debtors days
100 days
55 days
Increase in debtors days are mainly due to some major customers’ delays in payment
Creditors days
28.5 days
22 days
Processes for timely payments of creditors were instituted.
Return on assets 4% 5%
Magalies Water profitably traded from its own operations

16. Analysis of expenditure
Compensation of employees
31.1%
Goods & services
68.9%

17. Analysis of Irregular expenditure
(a) Non compliance with Supply Chain Policy: R All incidences relate to expenditure which arose as a result of non-compliance with Magalies Water supply chain management policy. Payments were made to a service provider without purchase order or contract and in some instances after expiry of a contract (b) Non compliance with Preferential Procurement Regulations: The non-compliance relates to procurement done on behalf of the Department of Water and Sanitation, where Magalies Water is the implementing agent. All cost incurred are recovered from the Department and the irregular expenditure will be reported in DWS financial statements. The total payments made in the current financial year relating to contracts concluded on behalf of the Department amount to R10.9 million. Investigations will be done in accordance with National Treasury guidelines and action will be taken against the employees who transgressed the regulations

18. Fruitless and Wasteful Expenditure
2017/18
2016/17
R'000
Opening balance 4
Fruitless and wasteful expenditure – relating to current year
Fruitless and wasteful expenditure condoned during the financial year
(4)

19. OVERVIEW OF audit report

20. Analysis: Audit Opinion
2013/14
2014/15
2015/16
2016/17
2017/18
Unqualified
Number of audit findings

21. Part 3: overview of performance (Shareholder compact)

22. Summary of Performance Achievements
The predetermined Strategic Key Performance Areas (KPAs) and Key Performance Indicators (KPIs) as articulated in the Corporate Plan and its related Shareholders Compact (SHC) form the basis for measuring the level of success in the execution of Magalies Water’s Strategy Implementation Plans.
Both the Corporate Plan (2017/2018 – 2020/2021) and the adapted Shareholder Compact (2017/2018) share the definition of the following strategic perspectives: -
Organisational Efficiency and Effectiveness
Financial and Governance
Customer and Stakeholder Interaction
Organisational Capacity

23. Summary Table of Performance
Summary Table: 2017/18 Financial Year as at the end of June 2018
Performance perspective
Performance meeting expectations
Performance not meeting expectations
Total
Organisational Effectiveness and Efficiency 6 1 7
Finance and governance 11 12
Customer and Stakeholder Interaction
Organisational Capacity 2 25 27

25. Bulk Water Sales Performance

26. Performance Analysis: Organisational Effectiveness and Efficiency

27. Performance Analysis: Finance and Governance

28. Performance Analysis: Customer and Stakeholder Interaction

29. Performance Analysis: Organisational Capacity

30. PART 4: PERFORMANCE TREND ANALYSIS

31. Overall Performance Trends
2018
2017
2016
2015
2014
Water Sold (KL’000)
(+20 %)
90,596
83,146
81,959
82,357
75,503
Revenue (Core Business)
(+91%)
586,409
515,398
429,679
383,868
307,695
Gross Profit
(+288%)
216,177
189,430
136,009
122,546
75,023
Net Surplus
(+336%)
114,794
92,174
50,977
61,294
34,142
Investments
(-412%)
109,943
115,191
110,220
193,650
453,442
Assets
(+281%)
2,807,445
2,698,268
1,934,455
1,579,514
969,796
Total Assets
(+189%)
3,357,718
3,145,294
2,376,205
2,168,033
1,780,499

32. AGSA and Annual Performance Trends
Financial Year
2013/14
2014/15
2015/16
2016/17
2017/18
AGSA Opinion
Unqualified
# Findings
Annual Performance
83%
80%
62%
88%
93%

33. Revenue Growth Trends

34. Cost of Sales Trends
The cost of producing water has increased by 14% - attributable to increased supply; as well as the increase in prices of input production commodities such as electricity, chemicals and raw water.

35. Net Surplus Trends

36. Growth of Water Producing Assets

37. Part 5: TARIFF MANAGEMENT

38. Funding Philosophy Magalies Water is a self-funding entity
No reliance on National Government Grants or Subsidies for operations
The entity operates on a commercial basis
Has adequate reserves to continue as a going concern

39. Considerations in determination of tariffs
National Water Pricing Strategy - The increases in the price of raw water are determined by the DWS in terms of the Raw Water Pricing Strategy.
Affordability to end users
Financial sustainability to ensure recovery of operations and maintenance costs
Capital tariffs to make provision for current and future capital expansion
Cost drivers informing the tariffs are competitive, and are determined by the market forces - prevailing economic conditions have been considered in determining the tariffs
Inflation targeting – The inflation rate has been taken into account

40. Considerations in determination of tariffs
Moving away from a scheme based tariff to a uniform tariff that is charged for all the schemes from 2018/19
Affordability to end users
A 15% increase has been requested by Eskom for the next 3 years. NERSA has approved an additional 4.41% tariff increase to Eskom which will be added to the tariff. If NERSA approves the 15% tariffs can increase with 15% %.
If NERSA approves an increase before final submission to National Assembly, Magalies Water will factor the approved increase into the final tariff
The under- and over recoveries from the 2017/2018 tariffs were also taken into consideration

41. Tariff determination process
Tariffs are indicative of operational and prevailing economic conditions
The tariff structure consists of operations and maintenance component and capital tariff
Affordability to end consumer is considered through harvesting of efficiencies in our operations
Consultation processes is carried out with customers in compliance with Section 42 of the MFMA
Written comments received from the WSA’s and other stakeholders are taken into account

42. Proposed tariffs – 2019/2020

43. Part 6: DEBT CHALLENGES AND MEASURES

44. Debtors Balance as at 30 June 2018

45. Challenges in Collection of Debtors
Financial position of certain local municipalities supplied by Magalies Water has contributed to the increase in debtors balance
Implementation of water restrictions on defaulting local municipalities are difficult to implement; e.g. having to obtain concurrence from the Minister before any action can be taken against a delinquent municipality
The significant balance outstanding could be deployed to fund some of the organisation’s capex projects

46. Measures taken to collection long outstanding Debt
Development and Implementation of the Debt Collection Policy
Continuous engagement with local municipalities and finalising of payment plans / payment commitments
Implementation of restrictions on defaulting customers
Institute legal action (Madibeng LM and Rustenburg Water Services Trust)
Terminate Service offerings (e.g. Madieng LM)

47. PART 7: INFRASTRUCTURE EXPANSION

48. Capital Expansions & Outlook
Continue with implementation of the Pilanesberg Bulk Water Scheme: Phase 2-Mafenya to Tlhabane Resevoir; Moses Kotane Area; Phase 3- Mafenya Resevoir to Kgetlengrivier LM
Implementation of the Klipvoor Bulk Water Supply Scheme to address the needs of Madibeng; Modimolle-Mookgopong; Bela Bela; DR JS Moroka and Moretele Local Municipalities
Improvement of efficiencies for sales volumes growth
Mobilisation of resources to implement the capital expansion programme
Institutional Reforms and Realignment – Expand to Lepalale LM; Madibeng; City of Tshwane Metro and Kgetlengrivier LM

49. Capital Expenditure Trends
Capital expenditure of R167 million was made during the 2017/18 financial year within the confines of scarce resources in terms of priority. 

50. Zeekoegat Pipeline Upgrade (Department of Public Works )

51. Pilanesberg Phase 2 – Tuschenkomst to Ruighoek Pipeline and Pump-Station

52. Klipdrift Water Treatment Works 24ML/d Expansion

53. Wallmannsthal – Baviaanspoort Rising Main

54. Wallmannsthal – Baviaanspoort Pump-station

55. PART 8: GROWTH TRAJECTORY & PARTNERSHIPS

56. Growth Trajectory & Partnerships
Three broad categories to implement intensive strategies
Acquisitions: Water & Waster Water Treatment Plants
Infrastructure upgrades and expansions
Tariff adjustments: Uniform Tariff
Intended outputs
Increase in footprint/area of supply
Expansion of service offering
Reduction of financial inputs for service delivery
Revenue and profitability increase: target of R2 billion in 2020

57. Thank you