1. 1 MAGALIES WATER 2005/6 FINANCIAL PERFORMANCE Presentation to The Water Affairs and Forestry Portfolio Committee 20 March 2007

2. 2 1.Introduction 2.Area of Supply and Operations 3.Financial Performance 4.Operational Performance Linked To Financial Performance 5.Key Finance-linked Successes In 2005/6 6.BEE Procurement 7.Financial Challenges faced by the Board and plans to overcome them TABLE OF CONTENTS

3. 3 North West Province Limpopo Province Gauteng Province 34 000 km² in three provinces AREA OF SUPPLY AND OPERATIONS

4. 4 Magalies Water has been a provider of high quality water for over 38 years and continues to maintain this standard. This was achieved as a result of well established relationships with our Stakeholders as well as Benchmarking our services with international standards and players.

5. 5 AREA OF SUPPLY MAGALIES WATER AREA OF SUPPLY Limpopo Gauteng NorthWest

6. 6 STANDSPOPULATIONTOTAL 2005/6 URBANPERI-URBANRURALURBANPERI-URBANRURAL(Population) Moretele LM040 00011 6000200 00069 600269 600 Madibeng LM06 5007 900032 50047 40079 900 Moses Kotane LM2 52018 45010 91712 60092 25065 502170 352 Rustenburg LM2 5007 700800225 000138 50014 800378 300 Rustenburg LM (Bulk) 225 000 Thabazimbi LM27 798 Tshwane Metro33 00017 5001 300600 000187 50017 800805 300 Nokeng-Tsa- Taemane LM 32 634 BelaBela LM145 450 Modimolle LM81 584 Bulk Consumers1 602 Total:2 217 898 MUNICIPAL DEMOGRAPHICS TABLE 1:

7. 7 TOTAL NUMBER OF CONSUMERS FOR THE 5 LARGEST MUNICIPALITIES TABLE 2:

8. 8 MAGALIES WATER BULK SUPPLY TABLE 3

9. 9 FINANCIAL PERFORMANCE

10. 10 5 YEAR PERFORMANCE R140,2m R149,5m R164,3m R175,5m R140,1m R116,7m R117,0m R74,6 R56,9mR44.4m

11. 11 5 YEARS PERFORMANCE

12. 12 ANALYSIS OF INCOME

13. 13 ANALYSIS OF EXPENDITURE

14. 14 Description2006 (Rm) 2005 (Rm) Variance (%) Non-Current Assets587,241553,3436.12% Current Assets324,962330,841-0.02% Total Assets912,203884,1843.17% Capital & Reserves825,408787,3184.84% Non-Current Liabilities46,81932,70343.16% Current Liabilities39,97664,16337.70% Total Reserves & Liabilities912,203884,1843.17% Consolidated Balance Sheet - Magalies Water FINANCIAL OVERVIEW

15. 15 FINANCIAL OVERVIEW Description2006 (R’m) 2005 (R’m) Variance (%) Revenue140,108175,589(20.21%) Cost of Sales76,05591,836(17.18%) Gross Surplus64,05383,753(23.52) Other Income84,79752,21262.41% Operating Expenses123,867140,933(12.10%) Net Interest Received14,1076,914104.03% Surplus for the year38,0901,946 1857.35% Consolidated Income Statement - Magalies Water

16. 16 FINANCIAL OVERVIEW Description20062005Variance (%) (R’m) Revenue109,631116,617(5.99%) Cost of Sales36,16447,348(23.62%) Gross Surplus73,46769,2696.06% Operating Expenses62,93070,93911.29% Surplus for the year12,89914,469(10.85%) Magalies Water Bulk – Income Statement (Vaalkop, Wallmannsthal, Klipdrift & Cullinan)

17. 17 FINANCIAL OVERVIEW Magalies Water - Retail (CTMM) – Income Statement Description20062005Variance (%) (R’m) Revenue29,42721,37137.70% Cost of Sales5,0656,687(24.25%) Gross Surplus24,36214,68465.90% Operating Expenses36,47520,81175.26% Surplus for the year1,2171,08612.06%

18. 18 FINANCIAL OVERVIEW Magalies Water - Retail (Bojanala) – Income Statement Description20062005Variance (%) (R’m) Revenue35,37837,601(5.91%) Cost of Sales27,33734,462(20.67%) Gross Surplus8,0413,139156.16% Operating Expenses26,82324,6838.67% Surplus / (Deficit) for the year 1,970(1,675)

19. 19 FINANCIAL OVERVIEW Magalies Water – Roodeplaat Temba Water Services Trust – Income Statement Description20062005Variance (%) (R’m) Revenue25,69310,064155.29% Cost of Sales7,1883,339115.27% Gross Surplus18,5056,725 175.16% Operating Expenses6,3013,98258.24% Surplus for the year12,1692,946 310.56%

20. 20 FINANCIAL OVERVIEW Magalies Water – Rustenburg Water Services Trust – Income Statement Description20062005Variance (%) (R’m) Revenue14,9393,833 289.75% Cost of Sales0,3010,00301% Gross Surplus14,6383,833 281.89% Operating Expenses4,465960365.10% Surplus for the year9,8352,878 241.73%

21. 21 CONSOLIDATED MAGALIES WATER Description20062005 R’m INVESTMENT INCOME19,100 26,893 FINANCE COSTS 4,993 19,979 ZERO COUPONS14,00812,134 TERM DEPOSITS257,215243,639 INVESTMENTS

22. 22 Description20062005 R’m Loan 2014 - 10% DBSA 2,425 Loan 2011 - 17,99% INCA 7,722 8,617 Loan 2009 - 16,75% INCA 6,965 8,738 Loan 2009 - 16,50% INCA 2,927 3,707 Less: Current portion (4,060) (3,447) 13,554 20,040 LOAN STRUCTURE Magalies Water – Loan Stock Outstanding

23. 23 LOAN STRUCTURE Description20062005 R’m DWAF – WALLMANNSTHAL WTW (2027) 13,699 12,913 DBSA - 2014 2,262 0,00 DBSA - 2021 19,000 0,00 Less: Current portion (1,696) (0,250) 33,265 12,663 Magalies Water – Long Term Commitments Outstanding

24. 24 CONSOLIDATED MAGALIES WATER Description20062005 Working Ratio 0.900.82 Operating Ratio0.920.93 Gross Margin46% 48% Current Ratio (Inc. term deposit)8.135.16 Current Ratio 1.67 1.54 Quick Ratio1.521.47 RATIO’S

25. 25 CONSOLIDATED MAGALIES WATER Description20062005 Asset Turnover0.27 0.28 Rate of Return on Assets (ROA)0.027- 0.006 Average Age of Receivable51.9 days 46.8 days Long-term Debt Ratio0.050.04 Debt – Equity Ratio0.050.06 RATIO’S cont,

26. 26 OPERATIONAL PERFORMANCE LINKED TO FINANCIAL PERFORMANCE

27. 27  Magalies Water has assisted Municipalities with the implementation of its refurbishment projects – transfer of assets. Project at Danhouse, Sespond and One-and-Ten villages in Moretele was successfully implemented during 2005/6.  Other projects include the following: A number of projects were implemented during 2005/6 in co-operation with both Local & District Municipalities. Subject to funding, these projects will be carried forward to subsequent years:  Basic sanitation: Ratjiepane, MoreteleR2.0 mil  Basic sanitation: Mabeskraal Moses KotaneR3.5 mil  Basic sanitation: Boitekong RustenburgR1.5 mil  Basic Water: Disteneng MoreteleR1.26 mil  Basic Water: Cyferskuil MoreteleR0.3 mil  Basic Water: Tweelaagte Moses KotaneR1.4 mil  Basic water: Bapong Moses KotaneR1.2 mil  Source Augmentation: Derby Kgetleng RiverR2.02 mil  Installation of connections: Jericho MadibengR1.6 mil OPERATIONAL PERFORMANCE TOTAL = R14.78 Mill

28. 28  Excess of 1 500 km pipelines (including reticulation)  40 reservoirs with a total storage capacity in excess of 400Ml  Capital Infrastructure investment of +/- R800 million over the past 5 years  Capital Infrastructure expenditure incurred in 2005/6 = R70 million (approx.)  R149, 5 Mill to be spent over the next 5 years on pipeline and Infrastructure maintenance OPERATIONAL PERFORMANCE

29. 29 KEY FINANCE-LINKED SUCCESSES IN 2005/6

30. 30 KEY FINANCE-LINKED SUCCESSES IN 2005/6 INDICATORSMEASURES DBSA loan facility R150 m at floating jibar plus 1.46 Good investments Zero coupon loans at interest rates ranging from 14% to 50%. – R19 m generated from investments Debt equity ratio Low debt compared to asset base of more than half a billion Low bulk tariffs Average tariff of R2.10 for the 2005/06 financial year Concluded tenders Tenders – Security – Vehicles – External Auditors BEE Spend Spend was at 47.2% of all procurement cost in the year under review

31. 31  Successful implementation of the R550 million RTWST project  Successful implementation of the R250 million RWST project  Implementation of balanced tariff increases ranging appr. between 0% - 6.0%  As implementing agent, successfully implemented DWAF projects to the value of R35 mill KEY FINANCE-LINKED SUCCESSES IN 2005/6

32. 32 BEE PROCUREMENT

33. 33  The BEE spend between 2003/4 – 2005/6 is as follows: BEE PROCUREMENT 200420052006 (Rm) BEE SpendR47,661 (48.4%) R50,778 (44.1%) R54,833 (47.2%) Non BEE SpendR50,765 (51.6%) R64,354 (55.9%) R61,136 ( 52.8%)

34. 34 FINANCIAL CHALLENGES AND PLANS TO STRENGTHEN BALANCE SHEET

35. 35 FINANCIAL CHALLENGES & PLANS CHALLENGESACTION PLANS Assets Revaluation TOR developed & Procurement Commenced with Retail Debtors Invoice changed to the relevant WSA – Reviewing the current contract with WSA (CTMM) – Handing over Retail Debtors to the relevant WSA (Rustenburg LM & CTMM) High Interest rate on INCA loans (16.5 – 17.99) The Board is reviewing early redemption of loans before maturity Income tax exemption Application made – delay from SARS in issuing exemption status Retail cost recovery Need to increase to > 75% – Positive intervention being solicited from councilors, council and community representatives Accounting system Accounting software application being implemented

36. 36  Obtaining Support from DWAF regarding the above average / Inflation raw water tariff increases whilst the Water Board is expected to increase tariffs in line with Inflation targets  Finalisation of the WSA/WSP Service Level Agreements – contracts at various stages of conclusion  Reduction of UFW in areas of operation  Reduction of Operational Expenses - consolidation of business processes has been undertaken through the restructuring of the Organisational Structure in order to further reduce OPEX. FINANCIAL CHALLENGES AND PLANS TO STRENGTHEN BALANCE SHEET

37. 37  Debt Management – Settle all long-term commitments with current short term investments (Long Term Debts are currently not at favourable rates)  Increase Revenue & Expand business – Conclude contracts with new consumers i.e. new mines in the Merensky Reef. Operate and Manage Municipal Water & Sanitation Infrastructure  Tariff Policy – Charge a higher tariff to commercial consumers/clients  Factoring Debtors – Consider selling the debt book to reduce risk of non-payment of accounts  Investment Portfolio - Review current investment policy to consider other safe investment classes FINANCIAL CHALLENGES AND PLANS TO STRENGTHEN BALANCE SHEET

38. 38 Qualified Audit Opinion by the External Auditors (Gobodo Inc.) On the following: Retail debtors amounting to R30 million Revaluation of Fixed Assets not undertaken AUDIT OPINION

39. 39