1 magalies water 2005/6 financial performance presentation to the water affairs and forestry...

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MAGALIES WATER 2005/6 FINANCIAL PERFORMANCE

Presentation to The Water Affairs and Forestry Portfolio Committee 20 March 2007

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1. Introduction

2. Area of Supply and Operations

3. Financial Performance

4.4. Operational Performance Linked To Operational Performance Linked To Financial PerformanceFinancial Performance

5.5. Key Finance-linked Successes In 2005/6Key Finance-linked Successes In 2005/6

6.6. BEE ProcurementBEE Procurement

7. Financial Challenges faced by the Board and plans to overcome them

TABLE OF CONTENTSTABLE OF CONTENTS

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• North West Province

• Limpopo Province

• Gauteng Province

• 34 000 km² in three provinces

AREA OF SUPPLY AND OPERATIONSAREA OF SUPPLY AND OPERATIONS

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AREA OF SUPPLY AND AREA OF SUPPLY AND OPERATIONSOPERATIONS

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.

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AREA OF SUPPLYAREA OF SUPPLY

MAGALIES WATER AREA OF SUPPLY

Limpopo

Gauteng

NorthWest

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STANDS POPULATION TOTAL

2005/6 URBAN PERI-URBAN

RURAL URBAN PERI-URBAN

RURAL (Population)

Moretele LM 0 40 000 11 600 0 200 000 69 600 269 600Madibeng LM 0 6 500 7 900 0 32 500 47 400 79 900Moses Kotane

LM2 520 18 450 10 917 12

600

92 250 65 502 170 352

Rustenburg LM

2 500 7 700 800 225 000

138 500 14 800 378 300

Rustenburg LM (Bulk)

225 000

225 000

Thabazimbi LM

27 798

Tshwane Metro

33 000 17 500 1 300 600 000

187 500 17 800 805 300

Nokeng-Tsa- Taemane LM

32 634

BelaBela LM 145 450Modimolle LM 81 584Bulk

Consumers

1 602

Total: 2 217 898

MUNICIPAL DEMOGRAPHICSMUNICIPAL DEMOGRAPHICSTABLE 1:

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Moses Kotane LM Urban 2477 Higher level of servicePeri-Urban 13203 Higher level of service(Legal & Illegal)Peri-Urban 6250 Basic Level of ServiceRural 1941 Higher Level of serviceRural 12773 Basic Level of Service

Moretele LM Peri-Urban 2553 Higher level of ServicePri-Urban 39447 Basic Level of ServiceRural 15000 Basic Level of Srvice & Below

Madibeng LM Peri-Urban 6500 Basic Level of SupplyRural 8000 Basic Level of Supply & Below

Rustenburg LM Urban 2103 Higher Level of ServicePeri-Urban 2500 Basic Level Of SupplyRural 600 Basic Level Of Supply

CTMM Urban 25800 Higher Level of ServicePeri-Urban 12000 Basic Level of Service

TOTAL NUMBER OF CONSUMERS FOR THE 5 LARGEST MUNICIPALITIES TABLE

2:

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FINANCIAL PERFORMANCEFINANCIAL PERFORMANCE

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5 YEAR PERFORMANCE5 YEAR PERFORMANCE

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

R'000

2002 2003 2004 2005 2006YEARS

FINANCIAL PERFORMANCE

Revenue Cost of Sales Operating expenses Surplus for the year Other Income

R140,2mR149,5m

R164,3m

R175,5m

R140,1m

R116,7m

R117,0m

R74,6

R56,9mR44.4m

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5 YEARS PERFORMANCE5 YEARS PERFORMANCE

MAGALIES WATER FINANCIAL PERFORMANCE

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

200000

R'0

00

Revenue 140283 149555 164348 175589 140108

Cost of Sales 51318 67869 77673 91836 76055

Operating expenses 44473 56898 74661 148175 116773

Surplus for the year 56309 53071 49269 1946 38090

Other Income 31676 15526 34111 52212 84797

2002 2003 2004 2005 2006

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ANALYSIS OF INCOMEANALYSIS OF INCOMEAnalysis of Income

54%

15%

8%

7%

7%6% 3%

Water Sales Management Fees Subsidy Interest received RDP Projects CTMM Claims Other Income

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ANALYSIS OF EXPENDITUREANALYSIS OF EXPENDITURE

Analysis of Expenditure

34%

25%

12%

10%

4%2%

4%9%

Water Purchases Salaries and Wages Maintenance & Transport RDP project

Depreciation Interest Paid Prov. Bad Debts Other operating costs

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Description 2006(Rm)

2005(Rm)

Variance (%)

Non-Current Assets 587,241 553,343 6.12%

Current Assets 324,962 330,841 -0.02%

Total Assets 912,203 884,184 3.17%

Capital & Reserves 825,408 787,318 4.84%

Non-Current Liabilities 46,819 32,703 43.16%

Current Liabilities 39,976 64,163 37.70%

Total Reserves & Liabilities 912,203 884,184 3.17%

Consolidated Balance Sheet - Magalies Water

FINANCIAL OVERVIEWFINANCIAL OVERVIEW

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Description 2006(R’m)

2005(R’m)

Variance (%)

Revenue 140,108 175,589 (20.21%)

Cost of Sales 76,055 91,836 (17.18%)

Gross Surplus 64,053 83,753 (23.52)

Other Income 84,797 52,212 62.41%

Operating Expenses 123,867 140,933 (12.10%)

Net Interest Received 14,107 6,914 104.03%

Surplus for the year 38,090 1,946 1857.35%

Consolidated Income Statement - Magalies Water

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Description 2006 2005 Variance (%)

(R’m) (R’m)

Revenue 109,631 116,617 (5.99%)

Cost of Sales 36,164 47,348 (23.62%)

Gross Surplus 73,467 69,269 6.06%

Operating Expenses 62,930 70,939 11.29%

Surplus for the year 12,899 14,469 (10.85%)

Magalies Water Bulk – Income Statement (Vaalkop, Wallmannsthal, Klipdrift & Cullinan)

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Magalies Water - Retail (CTMM) – Income StatementDescription 2006 2005 Variance

(%) (R’m) (R’m)

Revenue 29,427 21,371 37.70%

Cost of Sales 5,065 6,687 (24.25%)

Gross Surplus 24,362 14,684 65.90%



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Magalies Water - Retail (Bojanala) – Income Statement


(R’m) (R’m)

Revenue 35,378 37,601 (5.91%)

Cost of Sales 27,337 34,462 (20.67%)

Gross Surplus 8,041 3,139 156.16%


Surplus / (Deficit) for the year

1,970 (1,675)

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FINANCIAL OVERVIEWFINANCIAL OVERVIEWMagalies Water – Roodeplaat Temba Water Services Trust – Income Statement


(R’m) (R’m)

Revenue 25,693 10,064 155.29%

Cost of Sales 7,188 3,339 115.27%

Gross Surplus 18,505 6,725 175.16%



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FINANCIAL OVERVIEWFINANCIAL OVERVIEWMagalies Water – Rustenburg Water Services Trust – Income Statement


(R’m) (R’m)

Revenue 14,939 3,833 289.75%

Cost of Sales 0,301 0,00 301%

Gross Surplus 14,638 3,833 281.89%

Operating Expenses 4,465 960 365.10%


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CONSOLIDATED MAGALIES WATER

Description 2006 2005

R’m R’m

INVESTMENT INCOME 19,100 26,893

FINANCE COSTS 4,993 19,979

ZERO COUPONS 14,008 12,134

TERM DEPOSITS 257,215 243,639

INVESTMENTSINVESTMENTS

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R’m R’mLoan 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 STRUCTURELOAN STRUCTURE

Magalies Water – Loan Stock Outstanding

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LOAN STRUCTURELOAN STRUCTURE


R’m 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

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Working Ratio 0.90 0.82

Operating Ratio 0.92 0.93

Gross Margin 46%

48%

Current Ratio (Inc. term deposit) 8.13 5.16

Current Ratio 1.67 1.54

Quick Ratio 1.52 1.47

RATIO’SRATIO’S

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Asset Turnover 0.27 0.28

Rate of Return on Assets (ROA) 0.027 - 0.006

Average Age of Receivable 51.9 days 46.8 days

Long-term Debt Ratio 0.05 0.04

Debt – Equity Ratio 0.05 0.06

RATIO’S cont,RATIO’S cont,

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OPERATIONAL PERFORMANCE OPERATIONAL PERFORMANCE LINKED TO FINANCIAL LINKED TO FINANCIAL

PERFORMANCE PERFORMANCE

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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, Moretele R2.0 mil Basic sanitation: Mabeskraal Moses Kotane R3.5 mil Basic sanitation: Boitekong Rustenburg R1.5 mil Basic Water: Disteneng Moretele R1.26 mil Basic Water: Cyferskuil Moretele R0.3 mil Basic Water: Tweelaagte Moses Kotane R1.4 mil Basic water: Bapong Moses Kotane R1.2 mil Source Augmentation: Derby Kgetleng River R2.02 mil Installation of connections: Jericho Madibeng R1.6 mil

OPERATIONAL PERFORMANCEOPERATIONAL PERFORMANCE

TOTAL = R14.78 Mill

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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 PERFORMANCEOPERATIONAL PERFORMANCE

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

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KEY FINANCE-LINKED SUCCESSES IN KEY FINANCE-LINKED SUCCESSES IN 2005/62005/6

INDICATORS MEASURESDBSA 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

investmentsDebt equity ratio Low debt compared to asset base of more

than half a billionLow bulk tariffs Average tariff of R2.10 for the 2005/06

financial yearConcluded tenders Tenders

– Security– Vehicles– External Auditors

BEE Spend Spend was at 47.2% of all procurement cost in the year under review

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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 KEY FINANCE-LINKED SUCCESSES IN 2005/62005/6

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BEE PROCUREMENTBEE PROCUREMENT

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The BEE spend between 2003/4 – 2005/6 is as follows:

BEE PROCUREMENTBEE PROCUREMENT

2004 2005 2006(Rm) (Rm) (Rm)

BEE Spend R47,661 (48.4%)

R50,778(44.1%)

R54,833(47.2%)

Non BEE Spend R50,765 (51.6%)

R64,354(55.9%)

R61,136( 52.8%)

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FINANCIAL CHALLENGES AND FINANCIAL CHALLENGES AND PLANS TO STRENGTHEN PLANS TO STRENGTHEN

BALANCE SHEETBALANCE SHEET

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FINANCIAL CHALLENGES & PLANSFINANCIAL CHALLENGES & PLANSCHALLENGES ACTION 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

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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 FINANCIAL CHALLENGES AND PLANS TO STRENGTHEN BALANCE SHEETTO STRENGTHEN BALANCE SHEET

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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 FINANCIAL CHALLENGES AND PLANS TO STRENGTHEN BALANCE SHEETTO STRENGTHEN BALANCE SHEET

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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 OPINIONAUDIT OPINION

1 magalies water 2005/6 financial performance presentation to the water affairs and forestry...

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